Scott Tucker, a Leawood businessman accused of running a $2 billion payday loan operation that preyed on 4.5 million consumers, now can’t pay for attorneys in a federal criminal case against him.
A federal regulator last year asked a judge to freeze Tucker’s assets. In the weeks and months that followed, recently unsealed documents show, Tucker wired millions of dollars to attorneys, bought a new Ferrari and spent thousands on private jets.
A judge earlier this year then agreed to freeze Tucker’s bank accounts and other assets, leaving him unable to pay for a criminal defense team.
Tucker no longer has the services of three high-profile criminal defense attorneys in Paul Shechtman, Paula Junghans and Paul Hynes. Each withdrew from Tucker’s case within the last week. He will now work with court-appointed attorneys.
Tucker’s current attorneys notified U.S. District Court Judge Kevin Castel of their withdrawal just months before a complex criminal trial is scheduled to start in New York in October.
Tucker maintains that the asset freeze, requested by the Federal Trade Commission and granted by a federal judge in Nevada on March 31, prevents Tucker’s attorneys from using advance deposits made to their law firms.
“Were he to pay for private counsel, he would be violating a court order,” Shechtman wrote in a June 7 letter to Castel in New York, three days before Shechtman opted out of the case.
Jeff Morris, a Kansas City attorney who has represented Tucker since 2012, said motions had been filed to get a judge to release some of Tucker’s funds to pay for litigation.
Tucker is among the leading figures in a payday lending industry that’s drawn increased scrutiny from regulators and law enforcement agencies. The Kansas City area, in particular, has several individuals and companies that have been involved in online payday lending. On June 2, the Consumer Protection Finance Bureau held hearings in Kansas City to explore new rules on the payday lending industry.
On Feb. 10 after a grand jury investigation, the U.S. attorney for the Southern District of New York, Preet Bharara, announced an indictment of Tucker. Tucker, who also raced cars professionally in the U.S. and in Europe, is accused of violating the Racketeer Influenced and Corrupt Organizations Act and the Truth in Lending Act.
Federal prosecutors believe Tucker established a lending enterprise meant to evade state regulations on usury. His businesses extended short-term loans that charged interest as high as 700 percent, according to the indictment.
Tucker’s business attorney, Timothy Muir of Overland Park, was indicted as a co-defendant on the same day. Both men have pleaded not guilty and deny any wrongdoing.
Long before the February indictments, the FTC started investigating Tucker, Muir and others on suspicion of predatory lending.
The FTC filed a civil lawsuit in the U.S. District Court of Nevada in 2012, generally accusing Tucker of establishing nominal payday loan corporations on tribal reservations to sidestep state laws capping the interest rates that lenders can charge. The FTC also charges that loan disclosures deceived consumers on the terms of their credit.
State laws don’t affect tribal reservations and no federal statute on payday loan interest rates exists. The FTC is seeking a monetary award between $340 million and $1.3 billion.
On May 8, 2015, the FTC asked a judge for a preliminary injunction on Tucker’s businesses. It also sought a freeze on Tucker’s assets and bank accounts. In doing so, the FTC claims that Tucker should not be able to spend away money that he made through the allegedly illegal businesses.
Court documents unsealed last month show Tucker began moving assets before the judge in Nevada ruled on the asset freeze request.
The FTC said Tucker wired $15.5 million to several law firms to hold as advance deposits to be drawn down to pay for legal costs. The FTC believes that $15.5 million represents money that came from payday loan consumers.
For example, copies of Tucker’s emails show that on May 20 and 21, 2015, he sent $7 million to Washington, D.C., law firm Zuckerman Spaeder from a business Tucker owns called BA Services.
Based in Overland Park, BA Services is an entity that FTC investigators say received $165 million from Tucker’s lending businesses. Junghans, Hynes and Shechtman all worked at Zuckerman at the time.
Junghans was first retained by Tucker in 2011 in a criminal tax investigation by the Internal Revenue Service. No charges have been filed in that case.
Tucker’s correspondence shows he wired $5 million to Kansas City law firm Berkowitz Oliver, where Morris works.
The FTC recently argued that Tucker took other steps to spend down his fortune before a judge acted on the asset freeze.
Documents produced by the FTC indicate that on Oct. 8, 2015, Tucker bought a new black 2015 Ferrari 458 Speciale from a car dealership in Plano, Texas. A sales receipt shows the car was worth $383,349, and Tucker paid $155,349 for it after getting a $228,000 trade-in credit for a 2004 Ferrari 360 CS he owned. That car had 2,212 miles on it.
The FTC also claims Tucker spent $540,000 on private jets from March to December 2015. The FTC estimates Tucker had $106 million in liquid assets by the time the Nevada judge ordered his assets frozen. That figure is down from $212 million in 2013.
After Tucker’s criminal indictment earlier this year in New York, Shechtman wrote a letter on April 18 to the judge handling the case, saying that the FTC’s asset freeze brought Tucker’s legal defense to a standstill. Shechtman wrote that the government had produced more than 5 million documents of evidence and that Tucker’s legal team couldn’t pay a vendor to process it.
Shechtman wrote a follow-up letter on May 31 to report that Tucker’s attorneys were working without getting paid.
“If the court is determined to keep the October 2016 trial date, we have no alternative but to seek withdrawal from the case, as we have explained to Mr. Tucker,” Shechtman wrote.
“… We will do our best to assist appointed lawyer to get up to speed, but the task will be daunting. This case will almost certainly go to trial, and Mr. Tucker needs counsel who will present a vigorous defense for him.”
Morris said he will continue to represent Tucker in the FTC case. Morris, who worked alongside Junghans to defend former Westar Energy executives David Wittig and Douglas Lake against criminal charges of looting the Kansas utility, has not filed to be admitted to represent Tucker in his criminal trial.
“Pending in the FTC action are motions that relate to whether the previously funded legal escrow accounts should remain frozen, or can be used for litigation fees and the criminal case,” Morris wrote in an email to The Kansas City Star.
In those motions, Tucker seeks $85,000 a month for legal expenses. On June 7, the Nevada judge allowed Tucker and his wife to receive $8,000 a month for living expenses.
Tucker remains free on a $2 million bond secured by his house in Leawood.
The government’s ability to suspend Tucker’s assets presents a conundrum: What’s the public’s interest in ensuring that a defendant doesn’t dissipate money made from illegal activity, and how does that balance with a defendant’s ability to pay for adequate representation at trial?
“There’s been substantial litigation over this,” said Jim Wyrsch, a defense attorney with Kansas City law firm Wyrsch, Hobbs and Mirakian.