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Business Services Industry

State looks into collection agency suspected of bilking customers

Los Angeles Business Journal, Feb 12, 1990 by Benjamin Mark Cole

But Towers Financial terms it just `confusion'

Towers Financial Corp., a collections, factoring and insurance conglomerate with a checkered legal and financial history, is under state investigation for allegedly bilking Southland businesses that hired the company for collections work.

According to business credit managers and the California State Department of Consumer Affairs, the Santa Monica branch of Towers has collected on, but not delivered, overdue accounts to clients.

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The chairman of the $183 million (reported revenues) Towers, Steven Hoffenberg, 45, denied the charges, and said last week whatever problems have arisen here stem from "confusion." He also said complaints are spread by competitors who are upset at New York-based Towers' entry into the California collections market.

Towers earned fleeting nationwide headlines in late 1987, when it made a highly publicized bid for Pan Am Corp., the parent company of one of the nation's largest airlines.

Locally, Towers attracts clients by offering to collect past-due accounts for between 15 percent and 30 percent on the dollar, roughly half what established collection agencies charge, said Al Hall, chief of the Bureau of Collections and Investigative Services for the state Department of Consumer Affairs.

The state's investigation into Towers is a big one, said Hall. "We started our investigation based upon 30 to 39 sworn complaints -- that was before we even began to investigate," said Hall, who declined to estimate the full extent of alleged losses to local businesses.

But Hall said, "[The alleged losses are] a significant amount. We are surprised at the number of clients they had, over and above the complaints." Hall said the Towers' case was the largest alleged collections fraud case the state is working on.

When asked if Towers has collected but not delivered on receivable to clients, Hall responded, "I will say that is pretty much true."

Last week Towers' Hoffenberg said Hall was confused, and had not yet seen Towers' side of the story. Hoffenberg said his company operates differently than other collections agencies, and directs deadbeats to send money directly to clients, rather than to Towers. "The Bureau [the state Bureau of Collections] does not understand that we direct payments to the client, not to Towers," said Hoffenberg.

With so many delinquent accounts claiming to have paid both Towers and clients, confusion arises, said Hoffenberg. "Let's say an account is overdue to the phone company. They'll tell us, `We paid the phone company.' They'll tell the phone company. `We paid Towers.' This causes confusion."

Hoffenberg said that Towers charges between 10 percent and 25 percent of receivables collected.

The Towers case has been referred to the state Attorney General's office, said Hall, a gubernatorial appointee and a 22-year veteran of law enforcement agencies, including the California Highway Patrol.

Antonio Merino, deputy state attorney general, confirmed last week that the case had been referred to him, but he said he could not discuss the particulars of the case.

In addition to the collections problem, Towers had been operating without a license until it recently purchased a San Diego-based company that already had a collections license, said Hall of the Collections Bureau. "That was a major license problem," he said. Hall said he did not know how long Towers had operated in California prior to getting a license, but "some of the [Towers' office] leases extend back to the mid-1980s."

Several local business credit managers, reached last week for comment, complained about Towers' lack of performance. "I can't get a straight answer out of them," said Frances Carreon, office manager for Tub Harris, a Los Angeles-based distributor of plastic bags and coinboxes.

"We turned over $6,000 to $7,000 to them. They turned over two accounts real fast, but I can't get answers on the rest. I always get referred to somebody when I call, I have even been referred to New York."

Said Barbara Feeder, credit manager at Leo's Stereo: "We did have a bad experience with them, but I am not allowed [on advice of counsel] to discuss details." Feeder said the problem involved collections that were not delivered.

At Beverly Hills Office Supplies, Michelle Royah, office manager said, "We sent to them $10,000 in accounts receivable. Nobody there [at Towers] seemed to know where they were. You get the run-around when you try to find out about your accounts. When we cancelled, they said `There will be a flat fee, if we turn them back over to you,' although they eventually waived that fee."

Hoffenberg of Towers said that with thousands of accounts, there are bound to be a few confused Towers' customers. He said Towers has never improperly withheld collected receivables from clients.

Business Services Industry

State looks into collection agency suspected of bilking customers

Los Angeles Business Journal, Feb 12, 1990 by Benjamin Mark Cole

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