Gregoire alleges scam, files suit

OLYMPIA – At 69, Marilyn Devine tries hard to stretch her $750-a-month Social Security check. Last year, after paying for water, fuel, insurance and lawn care, the Spokane woman was running out of money around the 25th of each month.

So when a postcard arrived offering a way to make her money go further, she was intrigued.

“I thought ‘That sounds kind of interesting: a reverse mortgage,’ ” she said. All she needed was a couple hundred extra dollars per month. Maybe this would help.

Devine called the phone number on the card and was soon visited by an “educational consultant” working for a Spokane company called National Marketing Solutions (NMS). She said the man pressured her to get a $53,000 reverse mortgage loan and invest the money in truck-mounted billboards. She got the loan, but balked at spending it on traveling signs.

“I finally just told him to go to hell,” she said. “Too pushy.”

She put the money into an annuity, where it earns much less than the interest she’s paying on the reverse mortgage.

“I’m still losing money,” she said. “But I feel sorry for those people that didn’t get smart and lost thousands.”

On Wednesday, Washington Attorney General Christine Gregoire filed a lawsuit against National Marketing Solutions, two related companies, their owners and several agents. The owners and agents “allegedly scammed senior citizens out of their life’s savings by encouraging them to buy high-risk or bogus investments,” according to a statement from Gregoire’s office. Her office lists 26 alleged victims from Eastern Washington and one from Hayden Lake, Idaho.

“We’re going to be as tough as we can be on people who are doing these things to our citizens,” said Jack Zurlini, an assistant attorney general in Spokane. The lawsuit seeks up to $2,000 in fines per violation, plus restitution.

Fat chance, said Jeffrey Mitchell, one of the founders of NMS and a successor company also being sued, Senior Asset Preservation Services Inc. (SAPS). In a phone interview that he insisted on tape-recording, Mitchell said he’s a legitimate businessman being driven deep into debt by a government witch hunt.

“We’re being unfairly smeared. It is government abuse,” the 47-year-old New Jersey native said.

He said the companies hand out consumer handbooks approved by national insurance groups, and that reverse mortgages are federally regulated.

“The consumers that we were educating, they made the decision themselves,” he said. “Nobody was scammed.”

The suit names Mitchell and his business partner, Michael D. Smith, as well as their Spokane-based companies: NMS and SAPS. Also charged are Heritage America (a Washington, D.C., corporation) and five of Mitchell and Smith’s agents: James Meyer, Scott D. Peckham, Justin E. Rhodes, John Schlabach and Jennifer L. Wise.

Among the state’s allegations:

• That the agents prodded senior citizens such as Devine to get reverse mortgages and invest thousands of dollars in truck-mounted billboards. It’s “an extremely high-risk investment,” Zurlini said, although fliers the agents handed out called it “monthly income you can count on!”

“And we have instances where they’re selling seniors $100,000 and, in one instance, $200,000 worth of mobile billboards,” he said.

• That people were charged $2,000 to $5,000 to set up living trusts and other estate planning arrangements. But the lawyers used by the companies weren’t licensed to practice law in Washington, Zurlini said. Moreover, he said, the company’s pitch that people could avoid taxes and Medicaid income requirements while still controlling their money isn’t correct.

Still, some of the “victims” listed by the attorney general’s office say they don’t feel they were victimized at all.

“We’re perfectly happy,” said Spokane’s William Mackey, 79, who got a reverse mortgage and apparently invested $20,000 in mobile billboards. He said his billboard revenue – $224 a month – started rolling in in January.

“This is a bunch of crap,” he said of the state charges. “They’re just a bunch of bleeding-heart liberals. I know it’s not a scam.”

Eighty-two-year-old William Hollingsworth felt similarly.

“I’m happy as hell,” he said.

Hollingsworth and his wife had a living trust drawn up though Mitchell and his agents. He said he discussed the deal with an attorney friend, who said it sounded OK.

“I did some checking around and everything checked out,” he said. “They (the attorney general’s office) are digging awful deep and awful hard. Maybe they don’t have anything else to do.”

Wednesday’s suit isn’t the first problem for Mitchell or NMS. Two years ago, California’s Department of Corporations ordered Mitchell and NMS to stop selling unapproved investment securities. The investments promised a return of more than 14 percent. California agents were selling the investments, with the paperwork to be faxed to Spokane.

Last year, the U.S. Securities and Exchange Commission charged NMS, Mitchell, Smith and Schlabach with securities fraud in a Denver-based bank “scheme” that raised more than $40 million from more than 600 investors in at least 31 states. Investors were promised no risk and interest of 2 percent to 15 percent per month. The commission called it an illegal Ponzi scheme.

In February, National Market Solutions’ membership in the Spokane-region Better Business Bureau was revoked.

Mitchell said that none of his customers has lost a dime, and that he’s unaware of any complaints. Nonetheless, he said, the charges have crippled his business. He can’t even afford a lawyer anymore.

“We’ve lost all our agents,” he said. “We’re middle-aged men, very heavily in debt over this.”

Zurlini said that even if the state prevails in court, people may not be able to get their money back.

“We can never promise that that will happen,” he said. “It may not be there anymore.”