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27-0V-17-12579 Fed in Founn Judicial Distt Cout 8/16/2017 10.42.AM Hennepin County, MN STATE OF MINNES¢ A DISTRICT COURT COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT Case Type: Other Civil (Consumer Protection) State of Minnesota, by its Attomey General, Court FileNo, Lori Swanson, Plaintiff, vs. COMPLAINT Future Income Payments, LLC, fk/a Pensions, Annuities and Settlements, LLC, a Delaware limited liability company; and FIP, LLC, a Nevada limited liability company, Defendants. The State of Minnesota, by its Attorney General, Lori Swanson (“State”), for its Complaint against Defendants Future Income Payments, LLC, a Delaware limited liability company (“FIP Delaware”) f”k/a Pensions, Annuities and Settlements, LLC (“PAS”), and FIP, LLC, a Nevada limited liability company (“FIP LLC”) (collectively, “FIP"), alleges as follows: INTRODUCTION 1. FIP unlawfully makes loans to Minnesota residents, many of whom are veterans ‘oF spouses of veterans, secured by their future pension or military benefit payments (“Pension Payments” without being licensed as required by Minnesota law. FIP also charges rates of interest on these Joans that exceed the maximum rates permitted under Minnesota law. FIP solicits Minnesota residents seeking to take out small loans, sometimes to cover emergency expenses. FIP then offers the residents an up-front, lump-sum payment in exchange for receiving a portion of the residents’ monthly Pension Payments over an extended period of 27.evar12579 Filed in Fours dust Distt Court BI020%7 10:42 A Hennepin Couny, MN time—ofien three to five years. FIP seeks to evade state lending laws by falsely characterizing its transactions with Minnesota residents as “sales” of residents’ future Pension Payments. In reality, FIP's transactions with Minnesota residents are illegal loans with interest rates that far exceed those permitted under Minnesota law. 2. Inthe past two years, at least nine other state or local government regulators have taken action against FIP for unlawfully making loans without proper state licensure, violating state usury laws, and/or misrepresenting the nature of their transactions with consumers. The State of Minnesota, by its Attorney General, Lori Swanson, brings this action seeking to enforce Minnesota’ laws. PARTIES 3, Lori Swanson, Attorney General of the State of Minnesota, is authorized under Minnesota Statutes chapter 8; sections 56.01 ef seg. and 334.01; and has common law authority, including parens patriae authority to bring this aetion to enforce Minnesota's laws, vindicate the State's sovereign and quasi-sovereign interests, and to remediate all harm arising out of—and provide full relief for—violations of Minnesota's laws. 4. PAS is a Delaware limited liability company formed in 2011 and located at 2505 “Anthem Village Drive, #E-578, Henderson, Nevada 89052, Scott Kohn (“Kohn”), a resident of Nevada, isthe sole and founding member of PAS, and is its president, secretary, and treasurer. PAS is not registered with the Minnesota Secretary of State fo conduct business in Minnesota, nor is it licensed by the Minnesota Department of Commerce asa lender of any type 5, In 2014, PAS amended its certificate of formation to change its name to Future Income Payments, LLC (“FIP Delaware”). FIP Delaware is not registered with the Minnesota 27-6V-17-12879 Fle in Fourth Judicial Dist Court ‘8116/2017 10-42.AMt Hennepin County, MN Secretary of State to conduct business in Minnesota, nor is it licensed by the Minnesota Department of Commerce as a lender of any type. 6. FIP LLC is a Nevada limited liability company formed in 2016 and located at 2505 Anthem Village Drive, #E-578, Henderson, Nevada. Cash Flow Outsourcing Services, Incorporated, a corporation based in the Philippines and solely owned by Kohn, is the sole and managing member of FIP LLC. FIP LLC is not registered with the Minnesota Secretary of State to conduct business in Minnesota, nor is it licensed by the Minnesota Department of Commerce as a lender of any type. 7. Kohn, who is the sole member of FIP Delaware and who solely owns the company which is the sole member of FIP LLC, pleaded guilty in 2006 to three federal felony offenses related to trafficking in counterfeit goods, and was sentenced to 15 months in federal prison. Specifically, Kohn pleaded guilty to directing employees of another company he owned to replace branded computer memory modules with counterfeit memory chips and then falsely sell them as if they were genuinely branded computer memory modules. He also hired other companies to encode generic computer hard drives with software to make them falsely appear to be branded hard drives, and then directed employees of his company to falsely package and sell them as if they were genuinely branded hard drives. JURISDICTION 8. This Court has jurisdiction over the subject matter of this action pursuant to Minnesota Statutes sections 8.01, 8.31, and 8.32, subdivision 2(1), 9. This Court has personal jurisdiction over FIP pursuant to Minnesota Statutes section 543.19 because FIP transacted business Minnesota and committed acts in Minnesota causing injury to Minnesota residents by, infer alia, contacting them by phone and email while 27-GVA7-12579 Filed in Fourth Judicial Ostet Court 8/16/2017 10-42 AMA Hennepin County, MN the residents were present in Minnesota, transmitting documents to and soliciting them from Minnesota, requiring documents to be notarized in Minnesota by Minnesota notaries, depositing Joan money into banks for Minnesota residents, including into Minnesota banks, and receiving monthly loan payments from Minnesota residents, VENUE 10. Venue in Hennepin County is proper under Minnesota Statutes section 542.09 because the cause of action arose, in part, in Hennepin County FACTUAL BACKGROUND 1. _ FIP SOLICITS MINNESOTA RESIDENTS IN NEED OF CASH AND CONVINCES THEM TO EXECUTE FIP’S UNLAWFUL LOAN AGREEMENTS. FIP's Agreements with Minnesota Residents Are Loans. 11. A loan consists of the delivery of a principal sum of money by a lender to a borrower, with the borrower promising to repay the principal, usually with interest, in the future and often over time. Furthermore, for purposes of regulation under chapter 56, ie payment of money ...as consideration for any sale or assignment of ... wages, salary, commissions, or other compensation for services, whether earned or to be eamed,” is “deemed a loan secured by the assignment.” Minn. Stat. § 56.16, 12. Under FIP’s agreements, FIP delivers to Minnesota residents a one-time, lump- sum payment—the principal amount of the loan. While the exact amount varies, Minnesota residents receive a lump-sum payment, generally of $5,000 or less. Through the agreements, Minnesota residents promise to repay the principal amount of the loan (plus interest). The agreements obligate Minnesota residents to authorize FIP to make an electronic funds transfer EFT’) of a portion of their Pension Payments from the bank account where their Pension Payments are received. Under the terms of the agreements, Minnesota residents must make these 2T-CVAT-A2579 Filed in Fourth Judicial District Court 811612017 10:42AM Hennepin County, MN monthly payments to FIP for a period of years—most often for five years. These automatic withdrawals constitute repayment of the loan, Whatever amounts the Minnesota resident pays beyond the principal constitutes interest. The annual percentage rates of interest (“APR”) on FIP’s transactions far exceed the rates permitted by Minnesota law. The most common interest rate charged to Minnesota residents is 200%. 13. In these transactions, Minnesota residents’ Pension Payments secure all payments due and owing to FIP under its agreements. Accordingly, although FIP attempts to falsely label its transactions with Minnesota residents otherwise, the true nature and substance of FIP’s transactions with Minnesota residents is that of a loan. into Its B, FIP Targets Minnesota Residents in Need of Money to Enter Agreements. 14, _ FIP holds itself out as “America’s largest pension cash-flow originator, with over 100 million dollars in completed transactions.” In reality, it is engaged in the practice of making unlawful loan agreements 15. FIP's scheme depends on identifying Minnesota veterans, spouses of veterans, and other residents who receive Pension Payments and are in immediate need of an influx of cash, often for an emergency. 16. FIP has used websites, such as www.lumpsum-pensionloans.com and www.usaretirementioans.com, to solicit Minnesota residents to enter into its agreements. Through these websites, residents submitted their contact information and the amount of money they sought to borrow. FIP then contacted them by calling them at their homes in Minnesota, sending them emails, or otherwise transmitting documents to them and soliciting documents from them in Minnesota to obtain additional information and to convince them to agree to an unlawful loan transaction. 2T-CV-ATA2STO Filed in Fourth Judicial District Cour 862017 10:42 An Hennepin County, Mt 17. Other FIP-operated websites, such as www.buysellannuity.com, have encouraged Minnesota residents to “[slimplify the end-to-end process by working with a knowledgeable team of retirement loan professionals” to obtain lump-sum payments “for all company, military, state and federal government, teacher, fire and law enforcement pensions.” Through www buysellannuity.com, FIP urged Minnesota residents “to make your money work for you and told Minnesota residents they could use FIP’s lump-sum payment to “[play-off (sic) high- interest credit cards and debts, help children buy their first home or help grandchildren finance college.” FIP failed, however, to disclose to the residents that its agreements charged interest at much higher rates than high-interest credit cards. 18. Another website run by FIP to solicit Minnesota residents, www.lumpsum- settloment.com, told visitors that all they needed to do to obtain a loan was fill out a form to provide their name, contact information, and how much money they would like to borrow. “We evaluate the form and provide you with a free, no-obligation quote. You accept the quote at your nd we prepare all the required documents. All you have to do is be ready to get the convenie Jdded.) Minnesota residents were told that, once they completed the form, cash!{!" (Emphasis their “phone should ring right away” with a call from a FIP representative soliciting them to enter into one of its unlawful loan agreements. 19, In addition to maintaining its own websites to drive Minnesota residents in need of funds to it, FIP also contracted with lead generators to obtain leads. While FIP claims itis not theless hired lead generators whose business was to funnel persons seeking fa lender, it never roans to the entities that provide them, One of these lead generators, Gazelle Loans, operated gazelleloans.com, «platform that urged visitors to “[{Jind a loan that can fit your needs.” Visitors filled out an application, which Gazelle Loans forwarded to its “extensive network of 2-OVATA2579 Filed in Fourth Judicial ( 8/16/20 Hennepin lenders which includes FIP. Another FIP lead generator, First Loan Choice, operated www.firstloanchoice.com, a website marketing “Personal Loans, Business Loans, and Debt Consolidation Loans that fit any credit situation and work within your budget!” First Loan Choice also marketed “pension loan[s}.” The website touted its “friendly and transparent online application process.” which Minnesota residents could use to “borrow money against your monthly pension payment, without giving any of you (sic) pension away.” C. FIP Trains Representatives to Use Urgency and Fear to Convince Minnesota Residents to Enter into an Agreement. 20. FIP representatives are instructed to refer to FIP’s agreements as “cash advances,” not loans, under which a Minnesota resident “commits to a certain amount of time and monthly payback. 21. FIP advises it representatives to “get [Minnesota residents] ‘excited”” about entering into one of FIP’s unlawful agreements. When representatives encounter reluctance from Minnesota residents, they are taught to “(t]ake control of the conversation” and “[d]ecrease questioning/objections.” ‘The techniques FIP representatives are trained to employ when dealing with Minnesota residents include instilling a “[fJear of [IJoss” if a Minnesota resident does not immediately agree to a transaction with FIP and promoting a “[s}ense of [u}rgency” to get the deal closed, no matter the cost or the resident's reservations. 22, FIP’s training materials characterize objections from Minnesota residents as “obstacle[s] to [a] smooth closing” of the transaction. If a Minnesota resident objects to the amount of money she would be required to pay back under an agreement, a FIP representative should respond like this: | understand the payment is not as good as maybe a personal loan from your bank or eredit union, one of the reasons I love my job is am able to help people just like YOU when your bank will not. In 2reveaT-2579 Fed in Fourth Judicial Oise! Court ‘11672017 10.42 Ad Hennepin County, MN addition to getting this advance and paying off your credit cards will help your debt to income ratio and make it so you only have one bill. itis very easy to get caught in the Gust making minimum payments to high interest creditors making it so you never can get ‘out) I want to help you tur the band aid into a solution! So when you buy things like a home or car you will get a better rate. Sounds good? (Emphasis and errors in original.) 23. FIP's training materials urge representatives to tout the supposed benefits of the agreements by painting them as a way to pay off other debt, such as high-interest credit card debt or medical bills. For example, FIP’s sales training manual encourages representatives to tell residents that making monthly payments on credit cards is “more expensive and less effective” than taking out a loan from FIP. 24. Even if a FIP representative is unsuccessful in persuading some Minnesota residents to enter into an unlawful loan agreement, FIP instructs the representative to keep trying: “It is a numbers game; believe in Law Of Averages (LOA).” 25, In their communications with Minnesota residents, FIP representatives are forbidden from telling the truth—that FIP’s agreements are illegal loans. According to FIP's training materials, calling the transaction a loan is an “autofail.” D. _ FIP’s Agreements with Minnesota Residents Conceal the True Nature of the ‘Transaction—that the Contracts Are Unlawful Loans. 26. The written agreements FIP requires Minnesota residents to execute attempt to conceal the true nature of FIP’s transactions. 27. As an example, instead of labeling its agreements as “loans,” FIP titles its contracts with Minnesota residents “Purchase Agreement{s]” or “Purchase and Sale ‘Agreement{s].” Throughout its contracts, FIP then refers to the Minnesota resident as the “seller” of future Pension Payments, while FIP, the entity promising to fund a lump-sum 27.ev47-92579 Filed in Fourth Judicial Distt Cour "96/2017 10.42 AM Hennepin County, MN payment to the resident, is the “buyer.” In reality, the Minnesota resident is the borrower, and FIP is the lender. 28. _FIP’s contracts further attempt to disclaim their true substance by including false statements such as “this Agreement constitutes a valid sale, transfer and conveyance” of the Minnesota resident's Pension Payments and “is not a loan or other financing transaction.” Despite FIP’s efforts to label its agreements otherwise, FIP’s transactions with Minnesota residents are unlawful loans. 29. Although the principal amount of the loans FIP makes to Minnesota residents ranges from $1,500 to $63,000, the vast majority of FIP’s transactions with Minnesota residents have principal amounts of $5,000 or less. Because FIP charges usurious interest rates on the principal amounts borrowed, Minnesota residents end up repaying FIP, over the life of the loan, many times more than what they initially borrowed. 30. For example, under the agreement one Minnesota veteran signed with FIP Delaware in January 2016, in exchange for a one-time payment of $1,500 to the veteran, FIP Delaware was to receive $18,000 from his Department of Veterans Affairs (“VA”) benefit payments over the next five years. This amounts to an APR of 240%. Another Minnesota veteran entered into an agreement with FIP LLC in February 2017. Under the agreement, in exchange for a one-time payment of $3,000, FIP LLC was to receive $30,000 from his VA benefit payments over the next five years—an APR of 200%, As another example, a Minnesota veteran entered into an agreement with PAS in June 2013. Under the agreement, in exchange for providing the veteran with $3,700, PAS was to receive $18,600 from his VA benefit payments over the next five years. This amounts to paying PAS an APR of 99.7%. 2r-v17-128579 Filed in Fourth Jusicil District Court 18/16/2017 10:42AM Hennepin County, MN 31. In addition, FIP frequently charges fees of up to $300 in connection with the transfer of funds to Minnesota residents. These so-called “set-up” fees have been added to transactions 10 inerease their cost to Minnesota residents, resulting in Minnesota residents receiving a smaller lump-sum payment. 32. _FIP's agreements require Minnesota residents to authorize a monthly EFT from the account into which their Pension Payments are deposited to an account controlled by FIP in order to make their monthly loan payments. The requirement that an EFT is used to transfer monthly payments from Minnesota residents to FIP appears to be designed to circumvent federal laws, such as 38 U.S.C. § 5301, which prohibit the assignment of military pensions and benefits. Tellingly, federal law permits a veteran’s use of military pension or benefits to repay a loan, as long as a preauthorized EFT is used, 38 U.S.C. § 5301 (a)(3)(B), but prohibits as an assignment a transaction by which another person acquires, for consideration, the right to receive a veteran's military benefits or pension, 38 U.S.C. § 5301(a)(3)(A). HL. FIP’S ILLEGAL LOANS HAVE HARMED—AND CONTINUE TO HARM—MINNESOTA RESIDENTS. over 120 Minnesota 33. Since 2011, FIP has entered into loan agreements residents. Because Minnesota residents are required to provide their addresses when applying for a Joan with FIP, FIP was aware that it was contacting individuals who resided in Minnesota when it solicited and then completed its Ioan agreements with them. FIP contacted Minnesota residents via phone or email while they were located in Minnesota. FIP transmitted documents to and received documents from sola residents located in Minnesota, FIP deposited the lump-sum payment into Minnesota residents’ bank accounts, made automatic withdrawals from Minnesota residents’ bank accounts, and accepted credit and debit card payments from Minnesota residents while they were located in Minnesota. 2rova7-s2579 Fed in Fourth Judicial Dietrick Court 11672017 10:42AM Hennepin County, MN, 34. Many of these Minnesota residents are veterans or the spouses of veterans who receive Pension Payments as compensation for their service. Although the principal amount of these loans ranges from $1,500 to $63,000, the vast majority of the transactions have principal amounts of $5,000 or less. ‘The average APR on FIP’s loans to Minnesota residents is 139%. FIP’s interest rates with Minnesota residents can go as high as 240%, and the most common interest rate among the loans FIP has made to Minnesota residents is 200% 35. Asa result of FIP’s actions, Minnesota residents have been and continue to be harmed 36. SS. is a disabled U.S. Army veteran who served in the Gulf War as an aerial observer and eamed the Air Medal of Valor for leading his troops 50 kilometers beyond the front line without any of them sustaining an injury. As a result of his service, he receives VA benefits In July 2016, $.S. was desperate for money to catch up on bills he incurred in part from multiple spinal surgeries needed to treat injuries stemming from his military service. S.S. ended up borrowing $2,700 from FIP LLC. His agreement with FIP LLC obligated him to send $450 each month from his VA benefits to FIP LLC for five years, which amounts to a total payback amount of $27,000, or ten times what he initially borrowed. The APR of the loan is 200%. Only after FIP LLC agreed to terminate the agreement for a payment of $2,500 in addition to the monthly payments S.S, had already made were S.S. and his wife relieved of the tremendous amount of stress that making the monthly payments created. 37. A.H.W, served in the U.S. Army, including in Operation Desert Storm, as a military police officer and corrections officer. Because she suffered injuries aggravated by her military service, she is 90% disabled and receives VA benefits. In November 2016, A.H.W.'s mother, who lives on a fixed income, needed help to pay her medical and other bills. Because u zr-cv.ar-s2s79 Filed in Fourth ical District Court 871672017 10:42 ANd Hennepin County, MN AH.W. was unable to help her mother and meet her own monthly expenses, including her student loan payments, she borrowed $3,481 from FIP LLC, A.H.W.’s agreement requires her to make monthly payments of $450 from her VA benefits for five years to FIP LLC, which amounts to a total repayment amount of $27,000 at an APR of 155%, 38. DL, is a 63-year-old substitute teacher in Brooklyn Park, D.P. worked for 13 Years as a newspaper reporter, but she was laid off when the economy suffered and her employer cout staff, severe psoriatic arthit has limited her ability to work full-time to support herself and her daughter. In 2014, D.F. was trying to stay afloat financially and get caught up on her Obligations. She eventually borrowed $4,000 from FIP Delaware. In exchange for her loan, D.F. is obligated to make 60 monthly payments of $410 from the pension she earned as a newspaper reporter, which amounts to a repayment of $24,600—more than six times what she borrowed. ‘The APR of the loan is 122.6%. 39. JAF. served in the U.S. Army as a medic and medical supply specialist from 1969 to 1970. During his service, he suffered a traumatic brain injury. He is a disabled veteran and receives VA benefits. J.P. currently lives in Waite Park, where he is very involved volunteering with a non-profit organization that assists Minnesota veterans. When J.P. needed money to make a down payment on a reliable car he could use for his volunteer work, he was put in touch with FIP LLC. In September 2016, J.F. entered into an agreement with FIP LLC to borrow $2,177 The agreement requires him to make payments to FIP LLC of $300 from his VA benefits each month for four years. ‘That amounts to a total repayment of $14,400—nearly seven times what he borrowed—and an APR of 165%, Because J.F’s income is ited, having to pay FIP LLC $300 every month makes it more challenging for him to meet his other financial obligations. 2r.ovet7-12879 Fed in Fours Juicial District Court ‘8/96/2017 10:42AM Hennepin County, MN 40. U.S, Army veteran R.S. was severely wounded in a firefight while serving in Vietnam and consequently receives VA benefits. R.S. is currently retired and lives in Brainerd with his wife, but he worked for 30 years for the City of Minneapolis in the forestry department afier serving in the Army. In September 2016, R.S. needed money to pay bills and make ends meet, He was put in touch with FIP LLC and eventually borrowed $2,177 from it. Under R.S.'s agreement with FIP LLC, RS. is obligated to send $300 from his VA benefits every month for four years to FIP LLC, which amounts to a repayment of $14,400 and an APR of 165%. Making $300 payment to FIP LLC every month has become very difficult for R.S. and his wife. 41. G.B. is 52 years old and lives in St. Paul with his wife, From 1985 to 1989, G.B. served in the U.S. Amy as a truck driver. While he was serving, he fell eight feet from his truck and suffered a severe concussion. As a result of this injury. G.B. is 100% disabled and receives VA benefits. In September 2013, G.B.’s adult son and his pregnant wife needed money to pay their rent, Although G.B.’s son worked, his income was not sufficient to meet all of their expenses. If G.B. could not quickly come up with the money to help them, his son's family ‘could be evicted. After being put in touch with PAS, G.B. signed an agreement in which he received $5,000 in exchange for sending $415 per month from his VA benefits to PAS for five years. That amounts to a repayment of $24,900 and an APR of 98.7%. It was difficult for G.B. to stay afloat financially when PAS began taking so much money from him every month. 42, N.C. a 68-year-old Fridley resident, entered into an agreement with PAS. N.C. worked for almost 30 years as a die-cast inspector at three local die-casting companies. She is the beneficiary of a pension her former husband earned as compensation for his work as a bridge inspector for the Minnesota Department of Transportation (“DOT”), and she relies on the pension payments and her Social Security benefits. In February 2013, when N.C. was having 1B 27-0V-17-42879 Filed in Fourth Jusicial Distt Court 1571672017 10:42 AM Hennepin County, MN difficulty making ends meet and wanted to consolidate her bills to get them all paid off, she entered into an agreement with PAS. Although her agreement states that PAS lent her $5,000, in reality she received $4,700 because PAS first took a $300 fee from the loan amount. Under the agreement, N.C. is required to send $221 from her former husband’s DOT pension to PAS every ‘month for five years. That amounts to a total payback amount of $13,260, or nearly three times what N.C. borrowed, and an APR of 52%. Making the payments to PAS has been difficult for 1N.C., so much so that she had to visita food shelf for a period of time in order to eat 43. BAS. is a 72-year-old grandmother of 17 and great-grandmother of five who lives in Mounds View. B.J\S.’s late husband served in the U.S. Army until 1976, including service in Vietnam. B.J.S. is currently retired, but she previously worked for a non-profit organization that assisted the elderly with their needs so they could remain in their homes. In 2007, B.J.S. was forced to leave her job to care for her husband when he became extremely ill, and she served as his primary caretaker until his death in 2013. She is the beneficiary of the VA benefits her late husband received for his military service. In February 2017, B.J.S. leamed that had cancer on the back of her neck and needed surgery. Because B.J.S. did her springer spai not have the money to pay for the surgery. she subsequently borrowed $2,100 from FIP LLC. Under B.J.S.’s agreement with FIP LLC, she is required to pay $350 from her late husband’s VA benefits to FIP LLC every month for five years. In total, she will be required to repay $21,000, ‘That amounts to an APR of 200%. 44, C.G., a 68-year-old retiree with ten grandchildren who lives in West St. Paul, is the beneficiary of the military pension her former husband earned as compensation for his service in the U.S. Army, the Air Force National Guard, and the Army National Guard. She borrowed $2,249 from FIP LLC in December 2016 to pay off debt but later learned that her Zr CVATAISTO Filed in Fourth JudicatDistnct Court ‘/16/2017 10.42 AM Hennepin County, MN agreement with FIP LLC required her to make $300 payments from her former husban military pension every month for five years, for a total of $18,000, or more than eight times what she borrowed, That amounts to an APR of 160%. As a result of her limited income and her familial obligations, C.G. finds that she often does not have enough money to meet her own. basic needs, and the $300 her agreement requires her to send to FIP LLC every month is money that could be used to support herself and her family. 45. E.G. is a 73-year-old U.S. Amy veteran who served in uniform for six years, including in Vietnam, where he was wounded. As a result of injuries sustained during his service, E.G. is 100% disabled and receives VA benefits. He helps care for his wife of 20 years, who has stage four lung cancer. In March 2017, medical and other bills had begun piling up, and E.G. needed money to pay them. E.G. entered into an agreement with FIP LLC to borrow $1,800. His agreement requires him to make monthly payments of $300 from his VA benefits to FIP LLC for four years. In total, the agreement requires him to pay back $14,400, or eight times what he borrowed. That amounts to an APR of 199.9%. ‘The money E.G. is required to send to FIP LLC every month is money that could be going to support his wife. II, MANY OTHER REGULATORS HAVE TAKEN ACTION AGAINST FIP’s UNLAWFUL SCHEME. 46. FIP is on notice and well aware that numerous other regulators consider FIP's transactions to be loans subject to lending and usury laws. Specifically, as set forth below, FIP has been the subject of enforcement actions by at least eight other states and one city attomey. 47. The State of Colorado determined that FIP Delaware and other Kohn entiti were making loans without proper licensure, In a January 2015 assurance of discontinuance, FIP Delaware and other Kohn entities agreed not to enter into any transactions in Colorado without faeduana File in Fourth Jusicial Ostet Cour ‘19672017 1042 Aad Hennepin County, MN first obtaining a supervised lender's license and not to charge interest on their existing Colorado agreements 48. In March 2015, the State of California issued a desist and refrain order against FIP Delaware and other entities owned or controlled by Kohn, alleging that they were engaged in the business of a finance lender or broker without a license. In September 2015. FIP Delaware and other Kohn entities agreed not to engage in transactions in California without obtaining a license. 49, In March 2016, FIP Delaware entered into an assurance of discontinuance with the Commonwealth of Massachusetts not to enter into any future agreements with Massachusetts residents and not to charge interest on its existing contracts with Massachusetts residents. 50. In June 2016, FIP Delaware entered into a settlement with the State of North Carolina to reform its existing North Carolina transactions and to ensure that any future transactions with North Carolina residents would comply with the state’s usury laws. 51. _ FIP Delaware entered into a consent order with the State of New York in October 2016 in which it agreed not to enter into future transactions with New York residents and not to charge interest on its existing contracts with residents of New York. 52. Under a December 2016 consent order with the State of Washington, PAS agreed not to enter into any transactions with Washington residents without obtaining a license and not, to charge interest on its existing contracts with Washington residents. 53. Under an assurance of compliance with the State of lowa reached in December 2016, FIP Delaware agreed not to enter into future transactions with lowa consumers and not to charge interest on its existing lowa contracts. 2rev.i732579 Fle in Fourtn Jus! Dietiet Court 8/16/2017 10-42 ANd Hennepin Covnly, MN 54. In February 2017, the Los Angeles City Attorney filed suit against Kohn, FIP Delaware, and other Kohn entities for, inter alia, failing to obtain a license to lend, making usurious loans, failing to disclose the terms of the loans, falsely threatening defaulting borrowers with criminal liability if they failed to make their monthly payments. and making illegal and harassing phone calls to collect on defaulted Joan payments. The lawsuit is ongoing. 58. In May 2017, the Commonwealth of Pennsylvania issued a cease and desist order against FIP Delaware, Kohn, and all other persons and companies under their control for engaging in the business of making loans without a license and charging usurious rates of interest. Proceedings in the matter are ongoing. COUNT I UNLICENSED LENDING MINN. STAT. § 56.01 56. The State re-alleges all prior paragraphs of this Complaint. 57. Minnesota Statutes section 56.01(a) provides that “no person shall engage in the business of making loans of money, credit, goods, or things in action” except as authorized in chapter 56 “and without first obtaining a license from the commissioner.” 58. FIP engages in the business of making loans of money because it routinely solicits, makes, and collects on loan agreements with Minnesota residents. None of FIP*s loans to Minnesota residents has a principal that exceeds $100,000, the vast majority have principal amounts of $5,000 or less, and all have principal amounts greater than $1,000. 59. FIP’s agreements with Minnesota residents are loans because FIP delivers a principal sum of money to Minnesota residents, and the Minnesota residents promise to repay the principal (plus interest) over a period of time. 7 2rev-17-12579 Fes in Fouth Juda Daivet Cour ‘8/16/2077 10:42 AMA Hennepin County, WN 60, In addition, FIP's agreements purport to constitute the “sale .. . of wages, salary, * which is ions, or other compensation for services, whether earned of to be carne: “deemed a loan secured by the assignment” for the purposes of regulation under chapter 56. See Minn, $ lal. § 56.16. “... [T]he amount by which the assigned compensation exceeds the amount of the consideration actually paid shall .. . be deemed interest or charges upon the loan from the date of the payment to the date the compensation is payable.” /d. Accordingly, all money paid by Minnesota residents to FIP beyond the principal sum of money advanced constitutes interest on the loan. 61. ‘To provide loans up to and including $100,000, lenders engaged in the business of making loans that are not banks, savings associations, trust companies, licensed pawnbrokers, or credit unions must obtain a license. Minn, Stat. §§ 56.002, .01, .131, 18 62. FIP is not licensed as a lender engaged in the business of making loans under chapter 56 or as an industrial loan and thrift company under chapter 53, nor is it a bank, savings association, trust company, licensed pawnbroker, or credit union. In addition, FIP has not submitted the reports required by chapter 56 or otherwise complied with regulations that govern lending under chapter 56, 63, Lenders licensed under chapter 56 who make loans with a principal of $100,000 or less may charge annual interest up to either 21.75%, or the total of 33% on the unpaid balan of $1,125 or less and 19% on the unpaid balance greater than $1,125. Minn. Stat. §§ 56.131, 47.59. 64, The interest rates on FIP"s loans to Minnesota residents exceed the rates permitted under chapter 56, ‘The average APR of FIP's loans to Minnesota residents is 139%. The most common interest rate among the loans FIP has made with Minnesota residents is 200%. zrevarsasra Filed in Fourth Jud! Dist Count ‘19672017 10.«2.504 Hennepin County, MH 65. FIP violated Minnesota Statutes section 56.01 by engaging in the business of making loans to Minnesota residents for amounts less than $100,000, without a license. 66. As a result of the violation of Minnesota Statutes section 56.01, loans issued by FIP are void, and Minnesota residents are under no obligation to pay any amount owing. In addition, Minnesota residents are entitled to full recovery of all amounts paid. 67. FIP's conduct described in this Complaint constitutes multiple, separate violations of Minnesota Statutes chapter 56. COUNT II USURY MINN. STAT. § 334.01 68, ‘The State re-alleges all prior paragraphs of this Complaint. 69. ‘The general usury rate caps under Minnesota law are set forth in Minnesota Statutes sections 334.01 ef seg. ‘These interest rate caps apply unless the lending is governed by another Minnesota statute, or unless the lending is governed by federal law. FIP is not licensed to operate as any type of lender under Minnesota law, and its loans to Minnesota residents are not made pursuant to federal law. FIP's loans are therefore subject to the interest rate caps set forth in Minnesota Statutes sections 334.01 et seq 70. Minnesota Statutes sec ion 334.01, subdivision 1, caps the annual interest rate for written loan contracts at 8%. In violation of Minnesota Statutes section 334.01, subdivision 1, FIP originated and collected on loans with an average APR of 139%, and has charged interest rates as high as 240%, Alll loans made by FIP exceeded the rate permitted by Minnesota law. ‘These rates of interest are usurious under Minnesota law and violate Minnesota Statutes section 334.01, sub 2rev7-12s79 Filed in Fourth Judicial Dstt Court ‘87672017 10:42 AM Hennepin County, HN 71. Under applicable Minnesota law. FIP’s usurious loans provided to Minnesota residents are void, and Minnesota residents are under no obligation to pay any amount owing and are entitled to recover all amounts paid, with costs. 72. IP's conduct described in this Complaint constitutes multiple, separate violations of Minnesota Statutes section 334.01, subdivision 1 RELIEF WHEREFORE, the State of Minnesota, by its Attorney General, Lori Swanson, respectfully asks this Court to award judgment against FIP as follows: 1, Declaring that FIP’s actions, as set forth above, constitute multiple violations of Minnesota Statutes sections 56.01 et seg. and 334.01 er seq.; 2. Enjoining FIP and its employees, officers, directors, agents, successors, assignees, affiliates, merged or acquired predecessors, parent or controlling entities, subsidiaries, and all other persons acting in concert or participation with it, from engaging in conduct in violation of Minnesota Statutes sections 56.01 ef seq. and 334.01 ef seq.; 3. Requiring FIP and its employees, officers, directors, agents, successors, assignees, affiliates, merged or acquired predecessors, parents or controlling entities, subsidiaries, and all other persons acting in concert or participation with it to undertake remedial actions to address the unlawful acts described in this Complaint; 4. Declaring that loans issued by FIP to Minnesota residents are void and that Minnesota residents are under no obligation to pay any amount owing and are entitled to recovery of all amounts paid; 5. Granting the relief authorized in Minnesota Statutes chapters 56 and 334, and applicable Minnesota common law; 20 2r-cvar-12579 Filed in Fourth Judicial Dstt Court ‘811672017 1042 AM, Hennepin County, MN 6. Awarding judgment against FIP for restitution under the parens patriae doctrine. the general equitable powers of this Court, Minnesota Statutes section 8.31, and any other authority, for all persons injured by FIP’s acts described in this Complaint; 7. Awarding judgment against FIP for civil penalties pursuant to Minnesota Statutes section 8.31, subdivision 3, for each separate violation of Minnesota law; 8. Awarding the State its costs, including costs of investigation and attomey’s fees, as authorized by Minnesota Statutes section 8.31, subdivision 3a: and 9. Granting such further relief as provided by law or as the Court deems appropriate and just Dated: August 16,2017 LORI SWANSON Attomey General State of Minnesota JAMES W. CANADAY Deputy Attomey General JASON PLEGGENKUHLE Assistant Attorney General Js! Frances L. Kem FRANCES L. KERN Assistant Attomey General Atty, Reg. No, 0395233 445 Minnesota Street, Suite 1200 St. Paul, MN 55101-2130 Telephone 151) 757-1373, Fax: (651) 296-7438 frances.kerm@ag.state.mn.us ATTORNEYS FOR PLAINTIFF STATE OF MINNESOTA.