(NEW YORK) — A federal grand jury charged a California man with 21 counts of fraud Thursday in connection with a massive debt collection scam that was highlighted in an ABC News investigative report in June.
Kirit Patel, 68, of Tracy, faces up to 20 years in prison if convicted of the charges, which stem from an operation that authorities allege targeted hundreds of thousands of cash-strapped Americans with millions of coercive and threatening phone calls from boiler rooms in India.
Patel has proclaimed his innocence through an attorney, and refused to answer questions when ABC’s Nightline tracked him to his son’s home in Texas in June.
Law enforcement officials told ABC News the phone calls targeted struggling Americans — especially those who had gone online to apply for payday loans. Armed with personal information from those pilfered loan applications, the threatening callers, who claim to be debt collectors poised to initiate legal action, managed to pry loose millions of dollars from their victims — even when the victims never owed money in the first place.
“This is what we call a phantom debt collection scam,” said Jon Leibowitz, the chairman of the Federal Trade Commission. “It’s a very pernicious and innovative new fraud.”
The indictment alleges that Patel participated in the scheme by setting up a front company in Northern California named “Broadway Global Master” that was used to process the payments after victims relented and provided credit card numbers to avoid arrest over the nonexistent debts.
According to the indictment, the scheme involved more than two million phone calls, resulting in fraudulent transactions totaling more than $5 million.
Some victims told ABC News they had receiving dozens of calls per hour. One victim, Cindy Gervais, of New Orleans, said she believes the calls started after she went online for a quick loan when her husband’s car was hit by a driver who didn’t have insurance.
Even though she paid the loan off, the so-called “phantom” debt collectors began calling to say she still owed money.
“He more or less told me that if I didn’t pay, they were going to have someone on my doorstep to arrest me,” she told ABC News. “And that they were going to contact my place of business, and tell them what kind of person I am.”
At first, she said she resisted. Then the calls became more frequent, and started to ring on her cellphone, and at the grocery distribution company where she had worked for 27 years.
“I was more or less in panic mode because he told me there would be someone before noon at my place of business to arrest me and take me to jail,” she said tearfully. “So I agreed to pay him.”
After receiving scores of complaints, investigators with the FTC said they began tracking the calls, and following the payments. They alleged the payments led them to Patel. ABC News tracked Patel for weeks, from the suburbs of San Francisco to Austin, Texas.
Patel refused to talk. But his lawyer, Mark Ellis, said in June he believed it was far too early to pass judgment on his client. Ellis, a Sacramento-based attorney, told ABC News that Patel was hired for a nominal fee to set up an American shell company, and had no idea what the call centers in India were doing.
“I can tell you, he was as snookered by the people in India as anybody,” Ellis said. “He’s a man who is nearing his retirement who thought all he had to do was set up some corporations and everything was on the up and up. He’s completely dismayed that he has become the lightning rod of this entire problem.”
Leibowitz, the FTC chairman, said his agency did not believe Patel was snookered.
“I would say that all roads of this scam, or many of the roads of this scam, lead back to Mr. Patel,” he said.
The FTC has froze more than half a million dollars in accounts from Patel’s corporations. FTC officials said they will argue in court that the funds should be seized and returned to consumer victims.
Copyright 2012 ABC News Radio
Madison Park, CNN
Nate Eaton, EastIdahoNews.com
David Goldman, CNN