David Derby was driving home when he heard a radio ad from BlueHippo Funding, offering to sell a computer on an installment plan while helping people with no or poor credit history build a good track record.
Nineteen at the time without a credit card to his name, Derby took the bait. Now a year later, the Nevada resident says he has shelled out $2,100 for a computer he never received. His credit report shows no record of his faithful payments. And, to make matters worse, the Maryland-based company is seeking to liquidate under bankruptcy court supervision.
"I'm just really frustrated," he says. "I don't know if there is anything I can do."
Derby's tale isn't highly unusual. Thousands of consumers have complained that the company never lived up to its promises. Multiple states and the Federal Trade Commission have sued the Woodlawn company. The FTC filed another complaint last month, saying BlueHippo and its founder, Joseph K. Rensin, violated a 2008 settlement by continuing to deceive customers.
BlueHippo claims the FTC action caused a bank to freeze the company's funds and forced it into bankruptcy. The company's request to switch from reorganization to liquidation will be taken up by the bankruptcy court Wednesday.
The question is what happens to customers like Derby? Do they have any recourse, or are they more likely to see a real blue hippo than the return of their money?
Legal experts say if you were wronged by BlueHippo, you have a few options. None guarantees you will get all or even some of your money back. And you won't be able to collect more than you paid to BlueHippo if you try more than one option, says Steve Sakamoto-Wengel, deputy chief of Maryland's consumer protection division.
"To be honest, I'd rather have something than nothing," Derby says. "That's a lot of money to just disappear."
Stake a claim
If you paid money to BlueHippo and didn't get the merchandise or a refund, file a claim as a creditor in the bankruptcy case in Delaware. Creditors likely will receive a claim form in the mail in about a month, says James Greenan, president of Bankruptcy Bar Association for the District of Maryland.
If you don't get one, print out a claim form online at www.deb.uscourts.gov/ and mail it to the Delaware court promptly.
If BlueHippo gets approval to liquidate, a trustee will be appointed to collect whatever assets can be found and distribute them in the order spelled out by the bankruptcy code. Secured creditors, such as banks, are on the top of the heap and would be paid in full before others, Greenan says.
Sakamoto-Wengel says money paid by BlueHippo customers would likely be considered a deposit for merchandise not received, and their claims would take priority - although not top priority.
Of course, there might not be enough money to pay all the creditors, and those farther down on the list could be out of luck. BlueHippo's bankruptcy petition says the company has assets and liabilities each in the range of $10 million to $50 million.
Join the FTC's fight
BlueHippo paid $3.5 million in restitution for consumers when it settled with the FTC last year.
Now the regulator is back in court accusing the company of violating that settlement. James A. Kohm, associate director of the FTC's enforcement division, estimates that the agency will seek nearly $20 million from the company and its founder. This money would go toward consumers wronged after the 2008 settlement, he says.
But before the FTC sees any of that money, a New York judge must side with federal regulators. And even if that happens, the FTC must stand in line as a creditor to collect from the company. Understand, even when the FTC wins restitution for consumers "often it is not enough to cover the entire loss," Kohm says. Still, he adds, "We will do our best to get every penny we can."
Get help from your state
Complain to your state Attorney General's Office, which could file an enforcement action against the company or help you submit a claim in bankruptcy court, says Sakamoto-Wengel.
Maryland's attorney general settled with BlueHippo in 2007, receiving $3.5 million in restitution for Marylanders. BlueHippo since then gave up doing business with residents here.