Voucher offers leave trail of complaints, headaches
By Heath E. Combs -- Furniture Today, November 16, 2009
LARGO, Fla. — Several furniture companies found themselves with headaches this year after gas and grocery voucher promotions issued through their stores left thousands of the promised refunds unfulfilled.
Companies that have been the target of consumer complaints and court action over the promotions include Aarons Inc., Bassett Furniture, La-Z-Boy Furniture Galleries and Ashley Furniture and its HomeStores, among others.
The companies entered into agreements with marketing firms that offered promotions such as free gas and grocery vouchers to entice customers to buy furniture. Consumers were supposed to be able to turn in receipts from gas and grocery purchases, and then receive debit cards for the value of the promotion.
But in many cases, the firms never came through.
One of the largest voucher promoters was Tidewater Marketing Global Consultants, which was placed into receivership by the Florida attorney general in February.
The company sold millions of free gas and grocery vouchers between 2007 and 2009, according to the receiver's reports. When Tidewater failed to pay, many furniture companies ended up taking responsibility for thousands of the vouchers.
In March, Aaron terminated its agreement with third-party voucher provider MDC Group, whose CEO is John P. Stockhausen and which is based in Clearwater, Fla., and has set aside a reserve fund to redeem vouchers, according to court and SEC documents. An Aaron official declined to comment while litigation is still pending.
In August 2008, the rent-to-own giant began an agreement with MDC Group and paid $885,600 for tens of thousands of vouchers for a promotion it ran that October. MDC Group subcontracted much of that work to Tidewater, according to court documents.
When Tidewater began having problems meeting its obligations, MDC Group then proposed Mesa, Ariz.-based BBZ Resource Management to replace Tidewater. (BBZ, run by Troy Warren, ultimately filed for Chapter 11 bankruptcy protection in June of this year.)
Aaron rejected BBZ as a replacement and sued MDC Group in April. It began internally managing the promotion, court documents said. Aaron will meet with MDC Group for mediation in November.
Stockhausen told Furniture/Today that his company had primarily been a travel incentives business that began looking for other high-value, low-cost products after suffering cutbacks in business from a major client.
A broker for his company who had worked with Tidewater recommended its voucher program. Stockhausen said he met with Crystal Marie Clark, a principal in Tidewater, and the company's attorney, who said the business had a legitimate structure.
MDC Group purchased vouchers from Tier 1 brokers of Tidewater but did not deal with the company directly, he said.
Stockhausen and his attorney said prior to Aaron's taking over the voucher program, very few vouchers went unredeemed that met all of the qualification requirements. He is no longer offering a voucher program through MDC Group.
Other cases stemming from voucher programs include a class action breach of contract lawsuit filed against Ashley Furniture in June and a $505 small claims court judgment against a Bassett Furniture Direct store in Marion County, Indiana.
Ashley in late September agreed to settle by offering an Ashley Preferred Customer Card or the cash equivalent of $150 to customers who purchased furniture attached to the program from Sept. 3 to Sept. 28, 2008.
Ashley didn't admit to any wrongdoing. Company officials were unavailable to comment for this story.
According to reports from the receiver appointed to Tidewater, the company had little or no capital assets at the time it began the coupon redemption program and was insolvent from the inception of the program.
About 240,000 consumers paid a $5 fee to Tidewater and registered 576,000 coupons between January 2007 and early 2009. Consumers were told the fees were refundable, but they have not been paid back.
Tidewater issued only about 28,000 prepaid debit cards, leaving $16.4 million in unsatisfied obligations.
In late 2006, Tidewater had just $461 in its bank accounts. From 2007 to early 2009, Tidewater received about $3 million and ended up disbursing about the same amount, much of it for personal uses by company principals. By the time the state appointed the receiver, the company had less than $300 in the bank.
“Tidewater sold certificates for real money even though they weren't worth anything,” said receiver Charles Stutts, an attorney with Holland & Knight. “They started out broke and they ended up broke.”
The receiver's report said Tidewater had poor internal controls. In 2008, it said, the company made 115 transfers to one of its bank accounts to cover $795,245 in overdrafts.
The report said Tidewater appeared to have sold 1.25 million vouchers in 2008. If there was a redemption value of $25 per coupon and an activation fee of $5, Tidewater's liabilities would have been $37 million that year, the receiver said.
Tidewater defaulted on the vast majority of those obligations and satisfied consumer complaints mostly on an ad hoc basis to keep the complainers quiet, the report said.
Stutts said it also was notable that Tidewater had no sinking fund or liability account to satisfy its debts and honor vouchers, and instead transferred revenues to insiders.
Among those insiders, a person identified as Mike Hunter transferred $817,456 to Bank of America accounts and used about $607,000 for what appeared to be personal uses, the report said. Among the principals' expenses: $19,210 in funeral home bills, $4,022 to Target, $1,368 to a video game store, $3,178 to a designer jeans retailer and $10,977 to a Jaguar car parts dealer.
Stutts said that to the extent appropriate, he will file claims against company officials who diverted Tidewater earnings.
He said he was surprised that businesses that bought into the voucher program did little checking into the background of Tidewater, considering the size of the transactions.
“You need to do some due diligence to who is claiming to honor the certificate that is presented to them,” Stutts said. “Did they ever check to see if this company had ever done anything like this before? Did they run checks on the corporate officers?”
There are still unanswered questions, he added, including to what extent other parties and brokers were involved and how much they knew about Tidewater's program.
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