Ferrari-Racing Loan Mogul Said to Face Racketeering Case

Federal prosecutors are preparing to bring charges against payday loan mogul Scott Tucker, better-known as a racecar driver on U.S. and European circuits, for deceiving borrowers about the cost of loans, three people briefed on the matter said.

Manhattan U.S. Attorney Preet Bharara has been working with the Federal Bureau of Investigation in New York to build a case against Tucker that may include charges under a racketeering law designed to crack down on the Mafia, according to one of the people, who with the other two asked not to be identified because the investigation is confidential.

Charges against Tucker, 52, would significantly escalate legal challenges to his operations following a failed attempt by Colorado’s attorney general and a victory by a federal regulator in a civil case, which is continuing.

Tucker, a resident of Overland Park, Kansas, helped transform payday lending from local, storefront businesses that gave small-dollar, high-interest loans secured with postdated checks into operations with national reach. Tucker’s lenders worked over the Internet and made borrowers sign agreements to deduct loan payments directly from their bank accounts.

He pioneered the use of Native American sovereign tribal immunity to avoid state regulation with one of his affiliates, AMG Services Inc. Tucker worked with a number of tribes, especially the Miami Tribe of Oklahoma. In a protracted court battle with the state of Colorado, the Miami nation claimed that it owned AMG Services, that Tucker was its employee, and that under the principle of sovereign immunity, states can’t regulate the venture.

Stiffer Penalties

Online lenders have proved difficult for states to shut down because they often operate from jurisdictions with different or non-existent regulations. The Racketeer Influenced and Corrupt Organizations Act, or RICO, which was enacted in 1970 to target the Mafia and other organized crime groups, gives prosecutors more time to go after wrongdoing and sets stiffer penalties.

The government often uses RICO to pressure defendants into “pleading guilty because it’s so powerful and the penalties are so severe,” said Doug Burns, a former federal prosecutor in New York who’s now in private practice.

Seizing Assets

RICO, which allows for fines of up to $25,000 and prison terms of as long as 20 years, defines usury as lending at costs that are twice the prevailing interest rate. It also authorizes the government to seize a defendant’s assets.

Adrienne Senatore, a spokeswoman for the FBI’s New York office, and Jerika Richardson, a spokeswoman for Bharara’s office, declined to comment on whether there’s a federal probe of Tucker and his associates.

Paula Junghans, a lawyer for Tucker at Zuckerman Spaeder LLC in Washington, also declined to comment.

An attempt by the Colorado attorney general to investigate Tucker ultimately failed when Denver District Judge Morris Hoffman ruled that the lenders were beyond the reach of state regulatory authority.

The U.S. Federal Trade Commission sued him in 2012 for failing to tell borrowers the true cost of loans and for illegally collecting on loans by threatening borrowers with arrests and lawsuits. In one example, AMG told a consumer that a $500 loan would cost $650 to repay, and instead attempted to charge the borrower $1,925, according to the suit in federal court in Las Vegas.

AMG Services had at least 3.1 million borrowers with at least 5 million loans, according to documents filed in a lawsuit by the FTC. Tucker and his wife received at least $40 million from the enterprise, the FTC alleged.

Luxury Cars

The FTC alleged AMG and other companies affiliated with Tucker also paid his personal expenses, including luxury cars, private jets and mortgage and maintenance of a home in Aspen, Colorado. The agency claimed that Tucker and his co-defendants regularly transferred “tens of millions of dollars” to Tucker’s racing company, known as Level 5 Motorsports, for what they called sponsorship fees that benefited Tucker’s automobile racing.

Tucker, who started racing in 2006 and whose endeavors were chronicled in a 2010 documentary entitled “Daytona Dream,” has also served as a test driver for Ferrari’s 599XX super car, according to Level 5’s website.

FTC Lawsuit

The FTC is seeking unspecified damages and other penalties after a judge ruled in June that the company violated federal law by deceiving borrowers. The judge also said the lender was subject to the agency’s enforcement and that consumer protection laws apply to businesses affiliated with tribes. The order also bars Tucker and the other defendants from using threats as a tactic for collecting debts.

“This was the first time a court ruled on the FTC’s ability to pursue an action against corporations owned by Indian tribes,” Jason Schall, a lawyer for the FTC said in a phone interview. “This was an important victory. States have had difficulty bringing cases against these entities.”

The case is is Federal Trade Commission v. AMG Services Inc. (AMGC) 12-cv-00536, U.S. District Court, District of Nevada (Las Vegas).