Company Sued for Dumping Files

The civil complaint, filed in Hawaii’s First Circuit Court by the state’s Office of Consumer Protection, names as defendants Stephen Marn and Fidelity Escrow Services Corp., a dissolved Hawaii corporation, charging them with “unfair or deceptive trade practices” by their failure to “employ reasonable and appropriate security measures to protect the personal information contained in the documents which were dumped into a public recycling bin.”

Marn did not return a call from MortgageDaily.com.

Thirty-nine boxes of confidential financial documents from the company, including social security numbers, bank statements, tax records, loan applications, credit reports and other information, had been dumped in a recycling bin, explained Stephen Levins, executive director of Hawaii’s Department of Commerce and Consumer Affairs’ Office of Consumer Protection, which filed the suit.

He said fines could reach $250,000 or more.

The documents, which dated from 1996 to 2000, had belonged to the Honolulu-based company, which was incorporated in 1988 and voluntarily dissolved on July 24, 2001, six months after its president, Stephen Marn, pleaded guilty to two counts of conspiracy and money laundering in connection with his company’s involvement in a Ponzi investment scheme. Marn and six others were indicted in March 2000 for the scheme. The escrow company officially ceased activity in April 2004.

Marn was fined $10,000 and assessed $200, and also sentenced to six months of home detention and placed on probation for five years for his role in the scheme in which some $67 million in funds from nearly 5,000 investors was funneled through Fidelity Escrow Services in 1997 and 1998.

Now Marn faces fines of up to $2,500 per violation of a Hawaii consumer protection law, commonly known as the “Dumpster-Diving Law,” that took affect on January 1 and $500 to $10,000 for each violation of another law governing unfair or deceptive business practices, OCP staff attorney Jeffrey E. Brunton told MortgageDaily.com. While what constitutes a separate violation under the new law is not clear, “each and every file folder” that was retrieved from the recycling bin constitutes a separate violation of the latter law, he said.

“The fines will add up quickly,” he commented.

Marn will have 20 days after being served with the complaint in which to file an answer with the court or face a default judgment and a trial date will then be set, Brunton explained, adding that Marn’s next step should be to get an attorney.

He said it was hoped that, rather than go trial, a settlement would be reached under which Marn would pay fines that would be set at a level high enough to demonstrate to others “the need to dispose of personal records properly.”

“The case should be settleable,” Brunton said, and then all the documents could be shredded. “We’d all like to see these documents shredded. One company has volunteered to shred them for free.”

In addition to the escrow account file folders found in the boxes, there also were personal records of persons who had once worked for Fidelity Escrow Services, Brunton pointed out. “It’s all a hodge-podge of records that were not secure and could have been taken by anybody.” And the records could have been taken and exploited by others as the boxes of files and the other materials in the dumpster “traversed through several hands” on their way to being recycled.

The boxes of records had been placed in the dumpster by a worker who Marn had hired to haul them away from the basement of his home. They were spotted by Jim Kelly, a reporter for the Pacific Business News, when he took family trash to the dumpster on a Sunday. He told MortgageDaily.com that he fished out 39 bankers-type boxes after noticing the boxes contained detailed files on individuals and their loans.

“There might have been one or two more boxes buried under debris that I couldn’t get too,” he said, noting that the boxes had apparently been dropped into the dumpster the preceding day.

He said he took to his home the 39 boxes he was able to retrieve and they were picked up by workers for the Office of Consumer Protection.