On The Money: EdFund Lawsuit

$40 Million Claim

By Mike Luery

SACRAMENTO (CBS13) — California is already deep in debt, so the last thing the Golden State needs is a claim to pay out millions of dollars. Yet that is exactly what taxpayers are now facing in the form of a $40 million claim against the state. California may be on the hook for allegedly failing to pay rent on two buildings in Rancho Cordova owned by Mather Development Partners.

The dispute goes back to a story On the Money first reported last year. Last July, a CBS 13 news crew was stopped by a security guard while getting video of EdFund’s empty office building.

“I’m going to have to ask you to stop filming,” the security guard told CBS 13 news photographer Peter Roney.

“Don’t touch the camera,” Roney responded.

“Ok then,” said the security guard. “Stop filming.”

“It’s assault,” Roney said.

“Stop filming,” the security guard insisted.

But photographer Peter Roney was equally adamant.

I do not have to stop filming at all,” Roney said.

That security guard didn’t want anyone to see Edfund’s empty office building. Taxpayers were shelling out $1.3 million a year in rent for the empty building leased to EdFund – an offshoot of the California Student Aid Commission.

And now EdFund – and the Student Aid Commission are the targets of a claim for $40 million in unpaid rent. The claim was filed by the building owners, Mather Development Partners IV, L.P. Their lawyer, George O’Connell told me today, “California stiffed my clients for $40 million in unpaid rent.”

The claim accuses EdFund of making false and misleading statements about its financial condition. The complaint states, “Had MATHER been informed of EDFUND’S true financial condition and status, MATHER would not have bid on the project or entered into the lease.” The claim also says, “EDFUND did not, and does not, have requisite control or authority over its revenues and assets.” Instead, that control rests with the California Student Aid Commission, the Department of Finance and/or the California State Controller’s Office, according to the claim.

The federal government has since terminated the Student Aid Commission as the guarantor of student loans – and EdFund is no longer in existence, having been replaced by Educational Credit Management Corporation (ECMC) of Oakdale, Minnesota to take over the student loan portfolio.

So for now, the claim against EdFund goes before the California Victim Compensation and Government Claims Board.

The Board has not yet set a hearing date – but it’s expected to result in a $40 million lawsuit against California – at a time when the state is drowning in red ink. The Department of Finance was studying the claim and had no immediate comment.

Send your On The Money story ideas to onthemoney@kovr.com. You can also follow On The Money stories in progress via Twitter at http://twitter.com/#!/mikeluery.

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  • chuck

    Looks like the Terminator missed this one while he was in office. I hope TV 13 follows this story. If the rent is $1.3 million, how does the claim get to $40 million?

    • lotsoflaughs

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    • Freddy

      Funny that the article omits the fact that the state did not pay any of the lease that EdFund had on the two buildings. It also neglects to mention that CSAC is under negotiations to move into one of the buildings. It also doesn’t state that 1/4 of one building is being leased to Sutter Health. Foolish by a news organization that is in it for the “wow” and not the truth…

  • Retired old Guy

    Inflation, perhaps?

  • Kyle

    Not inflation, they ruined that definition so we have to come up with a new term for money losing its buying stuff-ness

  • Dedicated Worker

    Congratulations to the people of EdFund for finding a lifeline under the federal government at taxpayer’s expense. Your days at ECMC are numbered. A company that counsels students on paying debt can’t even figure out how to pay their own?? Shame on EdFund executives for sticking hard working Californians with a 40 million dollar lawsuit to solve. Your inability to run a company while you collect your bonuses under ECMC is shameful. Simply shameful.

  • whocares

    I am not sure how it is EdFund’s fault when it was CSAC that asked for the buildings to house EdFund and CSAC. CSAC has been out of control, like many state run agencies, with spending. Ask yourself why that never took place.

    Equally, don’t you find it strange that this report is focusing on the security guard issue and not the real issue? Is this all they had to focus on?

  • ProudEdFunder

    DedicatedWorker: “uniformed” doesn’t scratch the surface in your case. Everyone wants to ignore the fact that CSAC had to approve EVERY budgetary item EdFund ever submitted. CSAC pulled the strings – they failed at the job EdFund did then created EdFund to get around the red tape. When EdFund was successful and providing millions to the state budget (and CSAC’s) every year, no-one seemed to complain. Once EdFund became big enough to actually question the bad decisions CSAC was making, CSAC started slamming them in the press. As for the building debacle, you aren’t even smart enough to realize it was the Department of Finance that started the whole quest for a co-location site for CSAC and EdFund (yes, CO-LOCATION – CSAC was supposed to take Building B, NOT EdFund). If you want to yell at someone, go yell at the Department of Finance for pushing the sale when the feds told them not to. EdFund had NO say on who got the CA guarantees – that was the Fed. Oh, and as for staff being hired by ECMC – that was because we were the #2 guarantor IN THE COUNTRY. You don’t get that successful by running the company poorly. I’m sorry you couldn’t stay with EdFund (it’s obvious you are a CSAC employee), but that’s the way it is…suck it up and move on. If you want to be angry at someone, go yell at the Department of Finance – THEY are the one behind all of this – EdFund never wanted to be sold in the first place.

  • ProudEdFunder

    @DedicatedWorker…want proof CSAC had control of EdFund’s money? The suite filed against the state reads “EDFUND did not, and does not, have requisite control or authority over its revenues and assets.” Instead, that control rests with the California Student Aid Commission, the Department of Finance and/or the California State Controller’s Office”. Hmmm…wonder why no-one is questioning the DoF or CSAC? Wonder why the CSAC counsel is unavailable for comment? Sounds like after all the mud-slinging, the truth is starting to reveal itself

  • Chris

    How about how EDFUND when they took my Federal Tax return and have NEVER applied it to my Loan. Everytime I call EFUND or ECMC I get the big run around. I want to know where my money is and why hasnt it been applied to my student loan that is in good standing. My Tax return was over $3,000 and I am kinda lost in what to do about this bogus place. If anyone know of any other avenues I cant take I would appricate it. I think the Feds should look more into this issue becuase I know that I aint the only one!

  • mer

    you are not alone, I was defrauded by citi bank and edfund and now by ECMC.
    Ed fund and citi bank defaulted my federal student loans even though I was supposed to be in deferment. These crooks are protected by our own government.

    Students with defaulted student loans and those like Chris should unite and suit the Department of Education for allowing these crooks to defraud students and taxpayers with all their lies.

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