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Attorneys general: Company defrauded service members

Jun. 1, 2010 - 10:36AM   |   Last Updated: Jun. 1, 2010 - 10:36AM  |  
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More than $1 million will be returned to 615 soldiers once stationed at Fort Campbell, Ky., who were victims of questionable sales and financing of electronics, according to the Tennessee attorney general.

On May 20, a circuit court judge granted the attorney general's request against North Carolina-based Britlee, Inc., Rome Finance Company Inc., Millenium Finance, Inc. and their owner Stuart L. Jordan, who is also an officer of the electronics company SmartBuy.

Two days earlier, the New York attorney general filed suit against SmartBuy and affiliated companies, and three national lenders — Integrity Financial of North Carolina, Inc., Rome Finance Company Inc. and Rome Finance Co.

"SmartBuy is part of a national network of companies and individuals that seek to profit by defrauding members of the military," New York Attorney General Andrew Cuomo said. "Our lawsuit not only seeks to bar them from ever doing business again in the state, but also to vindicate the countless soldiers who were preyed upon."

At the Watertown, N.Y., store alone, at least 1,700 service members are believed to be affected, officials said.

The lawsuit alleges the stores' collective revenues were $32 million to $36 million in 2008, with the Watertown location financing more than $4 million in unsecured debt to military customers. The company also has been sued in California.

Cuomo alleges the companies have sold troops "grossly overpriced" laptops, TVs, gaming systems and other electronics, with interest rates averaging 244 percent.

Gabriel Nugent, an attorney representing SmartBuy, said in a statement that "SmartBuy has never, ever charged 244 percent in interest on any purchase. We just don't understand how the attorney general's office arrived at this allegation."

Cuomo's office contends that although SmartBuy stated that its yearly interest rates were between 10 percent and 19.2 percent, the effective interest rate averaged 244 percent, after adding "enormous" markups and an additional upfront, compounded 35 percent kickback retained by associated financing companies.

Although SmartBuy stores are in kiosks or storefronts in malls near military bases, their employees are instructed to sell only to active-duty members, according to the suit, filed in New York Supreme Court.

The suit seeks restitution for the alleged victims and nullification of all sales contracts. SmartBuy closed its Watertown operation after being notified of the impending legal action, Cuomo's office said.

Soldiers previously assigned to Fort Campbell should receive refunds in a few months. Soldiers with contracts with Millenium Finance also will have all remaining debt forgiven. Soldiers may keep their electronics. Because Rome Finance Co. is in bankruptcy, it is not known when restitution will be made to soldiers with contracts with that company.

SmartBuy's (and Britlee's) headquarters is in Fayetteville, N.C., near Fort Bragg, and a store is in Cross Creek Mall. Other stores are near Fort Hood and Fort Bliss, Texas; Fort Carson, Colo.; Fort Sill, Okla.; and Fort Stewart and Hunter Army Airfield in Georgia.

The New York attorney general alleges that SmartBuy:

• Buys electronics not from wholesalers or distributors, but from retailers such as Costco, Sam's Club and Walmart, then resells them to service members with markups of 225 percent to 325 percent. The company tells customers they are eligible for special "federal employee" financing.

• Fails to inform customers of the accurate price of the products in financing agreements.

• Does not have cash registers or credit card scanners in its stores, despite claiming that it accepts credit and cash sales. Employees are instructed to refer customers who want to pay by cash or credit card to other retailers. All but a few sales are paid by service members through military allotments.

• Has its employees help service members set up "dummy" allotment savings accounts at a specific, required bank to receive the funds — which are then transferred to the lender. Service members are not told that the banks will charge them a fee to make the monthly payment to the lenders.

Nugent insists that SmartBuy has done nothing wrong. "SmartBuy does not deceive its customers, all of whom are made aware that the exact merchandise SmartBuy sells may be available by other sellers at a lower price," he said in a statement.

Were you affected?

If you've done business with SmartBuy or its affiliates anywhere in the U.S., call the New York attorney general's office at 800-771-7755 or e-mail smartbuy@ag.ny.gov">smartbuy@ag.ny.gov. Tennessee customers should visit http://tn.gov/consumer/index.shtml">http://tn.gov/consumer/index.shtml or call the Division of Consumer Affairs at 615-741-4737, or toll-free 800-342-8385.

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