The Minnesota Department of Commerce recently moved to shut down and place into receivership two collection agencies that allegedly operated without a license and that owner Robert Dunham tapped to help finance his personal extravagances, the state agency reported Wednesday.
Robert Dunham of Lakeville, Minn., owner of Receivables Management Solutions Inc. (RMS) and Wentworth Assets LLC, could not be immediately reached for comment.
The Commerce Department earlier this summer launched an investigation into the business practices of Dunhams two collection agencies and uncovered 40 separate dates from June 2012 to January 2013 where RMS trust account had either a zero or negative balance.
Under Minnesota law, collection agencies are required to establish a separate trust account to hold the money they collect on behalf of their clients to ensure that the money collected is not co-mingled with money for operating or other expenses.
"We're taking this action to shut down abusive debt collectors to stop them from illegally lining their own pockets and harming consumers and businesses," said Commerce Commissioner Mike Rothman. "Minnesota's laws protect us from bad actors like these who prey on hardworking business owners and struggling consumers."
The Commerce Department alleges that Dunham not only violated Minnesota law by comingling money for operating expenses and money collected for its clients in one account, but that the funds in the account were used for personal luxuries.
The statement of charges alleges that client money was used to pay for season tickets for both the Minnesota Twins and the Minnesota Wild; utility bills, parts for his classic Corvette, meals and home and cabin costs; and a vacation in Costa Rica including a chartered fishing trip, zip line tour over eleven waterfalls, golf, a Segway tour, horseback riding and white water rafting while staying at two different upscale spa and golf resorts.
All of this money was spent allegedly while RMS under Dunhams ownership and management owed nearly a million dollars, including $91,286 to Minnesota Unemployment Insurance, $15,452 to the Minnesota Department of Revenue and $149,500 to the IRS for taxes, employee payroll tax withholdings, assessments, and penalties.
The violations listed in the order, also detail that Dunham and RMS refused or intentionally failed to account to their 4,966 clients (as of May 9) for all of the money collected on the clients behalf within 30 days from the last day of the month in which the money was collected.
The statement of charges further alleges that Dunham ordered RMS staff on at least two occasions to fabricate checks from consumer bank accounts to help cover RMS payroll. Additionally, it is alleged that upon Dunhams order RMS employees deposited post-dated checks from consumers prior to the check date, which resulted in financial problems for the affected consumers.
During the investigation, Dunham acknowledged that he let RMS license lapse because the company had a net worth of over a negative million dollars and could not afford the required surety bond to obtain a license. Yet, they continued to operate without a license and entered into at least 1,212 new debt collection contracts with clients between August 8, 2012 and May 2013. The Commerce Departments statement of charges alleges that Dunhams businesses had almost 5,000 active contracts with Minnesota companies and other businesses to collect unpaid debts from consumers. RMS and Wentworth have been placed into receivership.
This is the second debt collection agency the Department has obtained a court order to place in receivership in the last six months, action that was necessary to protect the public interest. Earlier this spring, Commerce obtained a court order placing United Portfolio Management, Inc., into receivership due to allegations that the company was insolvent and its owner Kenneth Schivone, a licensed Minnesota attorney, was not paying creditors the funds it collected on the creditors behalf.
The Commerce Departments investigation into the financial records of Schivone and United Portfolio revealed issues that made it necessary to place the company in receivership. Schivone admitted to using the funds collected by United Portfolio to pay business and personal expenses, rather than settling the debts from consumers with the businesses they owed money to. The records showed the company made multiple transfers between two separate trust accounts and its operating accounts; Schivone made several checks from the trust accounts to cash; and the trust and operating accounts were completely or nearly depleted among other improprieties.
By court order, debt collection companies are placed into receivership in order for the court-appointed receiver to manage the business, obtain a full accounting of the total amount of money the businesses collected for clients, the amount of money owed to clients, and the amount of money actually collected from consumers to pay off their debt.