Indictment says bribes were paid to improve credit rating

By E. Scott Reckard
Los Angeles Times

A Riverside, Calif., credit-repair firm bribed employees at the nation's three major credit bureaus in an unprecedented scheme to inflate the financial standing of hundreds of clients, causing lenders to lose at least $6 million, federal prosecutors said.

Insiders expunged damaging credit information from files at Trans Union, Equifax and Experian - companies whose credit scores are crucial to some 30,000 lenders and other businesses across the United States, prosecutors said.

A federal indictment returned by a Santa Ana, Calif., grand jury this month named three Southern Californians and two New Jersey residents in the alleged yearlong fraud that took place beginning in February 2001.

Experian said it triggered the investigation in early 2002 after it caught and fired a Dallas employee who was part of the scam.

The employee, Dolores Guerrero, was paid $300 to $500 a week to falsify files, said Assistant U.S. Attorney Douglas McCormick. She pleaded guilty to fraud in May and is serving a prison term of more than three years, McCormick said.

The Aug. 4 indictment, listing 16 counts of fraud and conspiracy, named Mickey Lynn Manning, 44, the alleged ringleader, and her husband, Ross Smith, 37. They allegedly operated the scam through their Riverside-based company, Second Chance Financial Services, which specializes in improving people's credit ratings.

The couple's attorney, Howard Beckler, said they planned to surrender, plead not guilty and be released on bond tomorrow. He declined to comment further.

Consumer-credit experts expressed concern over the alleged breach of security. "It compromises the single-most important source of information that lenders use to make credit decisions," said Scott Gable, senior vice president of the consumer-credit division of Wells Fargo.

In the past, credit-bureau information has been misused to commit identity theft, authorities said. But neither prosecutors nor consumer advocates could recall a case in which insiders at credit bureaus systematically falsified credit files.

"It raises a lot of issues about the security of the credit-reporting industry and whether or not its systems are adequate to ensure the maximum possible accuracy," said Edmund Mierzwinski, consumer-program director for the U.S. Public Interest Research Group.

Equifax spokesman David Rubinger in Atlanta declined to comment but noted the indictment didn't identify any Equifax employees by name. TransUnion said no one was available to discuss the case.

Experian spokesman Donald Girard said the unusual nature of the fraud and the fact his company's own monitoring systems first detected the "anomalies" in Guerrero's work showed the industry's security measures were sound.

Falsifying credit files is "kind of like counterfeiting the new bills," Girard said. "You can try it, but it's hard to get away with it with all the shape-shifting holograms and embedded threads."

He said Guerrero, who had worked at Experian for three years, passed rigorous screening before being hired and was one of relatively few employees authorized to change information in consumers' files.

The credit bureaus collect information about consumers' payment habits from financial institutions including banks and credit-card companies, then sell this information to lenders and other companies in the form of credit scores.

Credit-repair firms are typically hired by consumers whose checkered bill-paying history has left them unable to qualify for loans.

The indictment said more than 50 businesses lost a total of more than $6 million extending credit to people whose credit ratings were inflated and who defaulted on their debts.

Second Mortgage News