MAFS
– CLASS ACTION COMPLAINT – Fraud By Omissions/Concealment (2:09-cv-04534)

MAFS willfully
failed to disclose, omitted, and concealed past and/or present facts from
Plaintiffs and the other class members, while knowing the true facts, and with
the intent to deceive Plaintiffs and the other class members. MAFS did so at
the time of contracting with Plaintiffs and the other class members.

The facts which MAFS
willfully and knowingly failed to disclose, omitted and concealed, include
those set forth below, without limitation. MAFS failed to disclose them at the
time that MAFS initially contracted with Plaintiffs and the class members.

The undisclosed
facts were material and are referred to as the “Concealed Facts”:

a. At the time of
contracting, MAFS had a past and then-existing practice of charging and
collecting interest in excess of that provided for in the contracts. MAFS did
not disclose this material fact.

b. At the time of
contracting, MAFS had a past and then-existing practice of failing to honor its
contractual obligations as to borrowers. MAFS did not disclose this material
fact.

c. At the time of
contracting, MAFS had a past and then-existing practice of applying the
borrowers’ payments in a manner that resulted in MAFS charging and collecting
more interest than if MAFS applied the borrowers’ payments in the manner
provided for in the contracts. MAFS did not disclose this material fact.

d. At the time of
contracting, MAFS had a past and then-existing practice of charging and
collecting interest not permitted by law. MAFS did not disclose this material
fact.

e. At the time of
contracting, MAFS had a past and then-existing practice of charging and
collecting charges/fees which MAFS were not permitted to collect under the
contracts and under the California Finance Lenders Law. MAFS did not disclose
this material fact.

MAFS were under a
duty to disclose the Concealed Facts to Plaintiffs and the other class members
because MAFS represented and stated other material facts to Plaintiffs and the
other class members at the time of formation of the contracts and in other
documents such as the “Outstanding Floor Plan Units. “MAFS’ failure
to disclose the Concealed Facts rendered the matters that MAFS did represent
and state misleading, false and/or inaccurate. For example:

a. MAFS
represented that MAFS would charge and collect interest only as provided for in
the contracts; MAFS’ failure to disclose that their actual practice was to
charge interest for periods of time when interests should not have been
accruing (e.g.. before the loans were in fact made and/or after the loans were
repaid in full) rendered those partial representations misleading, false and/or
inaccurate.

b. MAFS
represented that they would not require illegal payments or the doing of acts
prohibited by law; MAFS’ failure to disclose that they had a practice of
charging excessive interest, unauthorized charges, and payments violated the
UCL and/or the California Finance. Lenders Law, Cal. Financial Code § 22000 er
seq. ["CFLL"]) rendered those partial representations false,
misleading and/or inaccurate.

 MAFS also were under a duty to disclose the
Concealed Facts to Plaintiffs and the other class members because MAFS had
exclusive knowledge of the Concealed Facts which were not known to Plaintiffs
and other class members and were not reasonably accessible to them. For
example, MAFS knew that they had a practice of overcharging interest, and
billing for and collecting other fees and charges (such as “buy” and
“sell” fees) that were not permitted and/or not justified by the contracts
or by law; Plaintiffs and other class members did not know this when they
entered the contracts and when they made the payments thereafter, and the true facts
were not publicly known or otherwise reasonably available to them at the time of
the nondisclosures.

Defendant Manheim
Financial, as a licensed California finance lender (license number 6031803),
also was subject to duties of disclosure established by California statutes or
regulations, including, but not limited to the California Finance Lenders Law,
Cal. Financial Code §§ 22000 et seq., and 10 Cal. Code of Regs. §§ 1454
and 1455. For example, 10 Cal. Code of Regs. § 1454(a) requires Manheim Financial
to provide, inter alia, a statement of any fees, charges, costs or other
sums which are to be paid by the borrower at the time loans in amounts less
than $5,000 were made, and some of the loans at issue were in amounts less than
$5,000.

Similarly, 10 Cal. Code of Regs. § 1455
requires Manheim Financial to provide borrowers under loans of less than $5,000
with a detailed statement showing how any charges originated and the basis upon
which the charges were calculated. MAFS thus had statutory disclosure duties.

The facts that
were not disclosed were material to Plaintiffs and the other class members and
would have been material to any reasonable borrower considering whether to
contract with MAFS. Had Plaintiffs and the other class members been advised,
before entering into the contracts of MAFS’ true practices of overcharging
borrowers for interest, fees and other charges, and of otherwise acting in
violation of the contracts and the law, Plaintiffs and the other class members
would not have entered into the contracts, or, at a minimum, would not have
agreed to the contractual terms they agreed to while ignorant of the true,
undisclosed facts.

In failing to
disclose the Concealed Facts, MAFS acted with the intent and purpose to defraud
Plaintiffs and the other class members and to profit thereby, by inducing
Plaintiffs and the other class members to make overpayments of interest and
other charges that would not have been charged and collected but for MAFS’
fraudulent scheme.

With respect to
Plaintiff Henry/TJ Auto Sales, MAFS’ fraudulent concealment and omissions
occurred in Riverside, California commenced on or about August 3, 2005 and
continued thereafter as loans were extended to Plaintiff Henry/TJ Auto Sales at
auctions in or around Riverside, California, and in documents relating to those
vehicle purchases, on a regular basis, during the applicable statute of limitations
period. With respect to Plaintiff Morniian/RJM Motors, MAFS’ fraudulent
concealment and omissions commenced at or near Lake Havasu City,

Arizona on or about March 30, 2007, and
continuing thereafter when loans were extended to Plaintiff Momjian/RJM Motors
at vehicle auctions and in documents relating to those vehicle purchases on a
regular basis, during the applicable statute of limitations period. With
respect to other class members, MAFS’ fraudulent concealment and omissions
occurred when each class member contracted with MAFS and continued thereafter
as loans were extended for the purchase of vehicles.

On information
and belief, the overall fraudulent scheme, which is continuing, was devised in
Atlanta, Georgia at MAFS’ headquarters on a date(s) prior to June 24, 2003. On
information and belief, the misleading, false and fraudulent form documents
used to perpetrate the scheme were likewise created in Atlanta, Georgia.

Plaintiffs do not
presently know and thus cannot presently state the identities of the specific
officers and employees of MAFS who hatched the scheme, made the decisions to
omit and conceal the Concealed Facts, or designed the contracts containing the
written partial representations described above. On information and belief,
however, MAFS possess such knowledge.

Plaintiffs and
the other class members were either unaware of the facts concealed and
suppressed by MAFS or could not have discovered those facts through the
exercise of ordinary diligence, and would not have entered into the contracts
and obtained advances/loans from MAFS, or paid the unlawful amounts charged by MAFS,
if Plaintiffs and the other class members had known of those concealed or
suppressed facts. Plaintiffs and the other class members did not know, for
example, that MAFS had a practice of overcharging for interest, and of charging
and collecting unauthorized “buy” and “sell” fees, when
they entered the contracts and would not have done so on the terms agreed to
had they known the truth.

In concealing and
failing to disclose the non-disclosed material facts set forth above, Manheim
Financial acted willfully and/or knowingly as those terms are defined by
applicable law. The conduct of Manheim Financial and the other MAFS set forth
herein was fraudulent and deceitful as those terms are defined by applicable
law.

As a direct and
proximate result of the fraud, misrepresentation, and concealment by Manheim
Financial and the other MAFS, Plaintiffs and the other class members have
suffered in amounts to be proven at trial, in excess of $5.000.000, and
continue to be damaged. The fraud damages include but are not limited to the interest
paid by Plaintiffs and the other class members in excess of the interest provided
for under the contracts, interest for periods of time when the contracts did not
permit interest to be charged, and charges which MAFS were not permitted to
collect under the contracts and under the California Finance Lenders Law.

MAFS’ conduct
alleged in this claim for relief constitutes willful misconduct, malice, fraud,
wantonness, oppression, and that entire want of care which would raise the
presumption of conscious indifference to consequences, was outrageous and
despicable, was committed in conscious disregard of the rights of Plaintiffs
and the other class members, and was motivated by the desire to harm Plaintiffs
and the other class members. Plaintiffs and the other class members are entitled
to punitive and exemplary damages.

Kar
Auctions Services Inc., IPO: A Criminal History or a Money Tree for Three?

Top of Form

Kar Auctions Services Inc., IPO: A Criminal History or a Money Tree for Three? New
IPO should serve James Hallett, Michael Hockett and John Fuller well.

On November 30, 2009 KAR Auction Services Inc. (KAR) announced the commencement
of an Initial Public Offering of 23,000,000 shares of common stock estimated at
$15.00 to $17.00 per share. 

Just last month, KAR Auctions changed its name from KAR Holdings, Inc., (before
that it was ALLETE in 2007). KAR’s CEO James Hallett recently said, “This name
more accurately reflects the businesses…” 

Or, this may be just a better way to hide previous dealings of past companies
to confuse investors. Below is an outline of James Hallett and KAR to better
illustrate the business model.

Hallett became CEO of ADESA U.S. after leaving ADESA Canada in 1996 to replace
ousted David Michael Hockett (a.k.a Mike Hockett or D. Michael Hockett).

Luckily he and two other executives were paid $44 million for leaving, which
MP&L later sued to recover when Hockett failed to live up to any of his
promises not to compete. Hockett agreed that he would not engage or be
interested in (a) the vehicle redistribution business; (b) the vehicle auction
business; or (c) the dealer floorplan financing business.

Hockett had his hands in all three before he left ADESA and still does business
in each one these. Hockett got MP&L’s cake, ate it, and then used a portion
of it to start a separate business that cut into MP&L’s bakery. 

ADESA, AFC

D. Michael Hockett

In 1992 Mike Hockett and
Gary Pedigo formed ADESA (Auto Dealers Exchange Services of America) Corp.,
basing it in Indianapolis. Hockett was named president and CEO. In April 1992
two million shares of stock were sold at $11.50 each. Hockett retained a 56
percent interest. 

In 1993, Hockett founded a new auction division: ADESA Canada. He helped merge
the salvage industry with the whole car industry by acquiring the Impact
Salvage Auction chain.

In January 1994 ADESA acquired Automotive Finance Corporation (AFC).  Mike
Hockett was also part owner of CITA Inc. with John E. Fuller which was founded
in 1987. CITA provided floorplan financing to dealers and was renamed
Automotive Finance Corporation in December 1993, a month before being bought by
ADESA.

In January 1995 Minnesota Power & Light (MP&L), an electric utility
company, bought 80 percent of ADESA’s stock for $162 million. ADESA management,
who held most of the remainder, would remain in charge.  

In August 1996, Minnesota Power and Light Co. instigated a management shakedown
at ADESA resulting in the resignation of ADESA founder and CEO Michael Hockett.
ADESA executive James Hallett was selected to replace Hockett.

Michael Hockett took a stock buyout, along with two other officials of ADESA
$44 million. Under the 1996 Agreement, Hockett specifically agreed that for
three years he would not engage or be interested in (a) the vehicle
redistribution business; (b) the vehicle auction business; or (c) the dealer
floorplan financing business.

Litigation

On 10/15/1996 Minnesota Power & Light sued Michael Hockett, his wife Judy,
and his sons Brian Scott Hockett, Jason Hockett and Michael Hockett, Jr. in
Indiana Federal Court for breach of contract (IP96-C-1463-D/F).

Minnesota Power alleged that Hockett had engaged in the auto transport business
conducted by F & J Auto Transport, Inc., which was a subsidiary of
Alphamega, an Alabama corporation, with which Hockett was involved or had
financed. F & J allegedly competed with Great Rigs, Inc., an Alabama
corporation that was a wholly owned subsidiary of ADESA Corp. Second, Hockett
had assisted others in forming Alphamega.

In a separate case with the SEC, Judy Hockett, the wife of ADESA CEO Michael
Hockett in 1997 agreed to pay $60,600 to settle Securities and Exchange
Commission charges that she tipped off her brother before Minnesota Power &
Light bought 80 percent of Adesa for $162 million. By trading on the
information, the brother made $25,500 in illegal profits, the SEC said.
SECURITIES AND EXCHANGE COMMISSION V. JUDY HOCKETT, GAYLE RAISOR, AND KEVIN
RAISOR, Civil Action No. IP97-870-C-D/F (S.D.In. May 29, 1997).

In 2001, Michael D. Hockett, son of ADESA founder D. Michael Hockett, was
sentenced for bribery in a federal court in Virginia. He served five months in
jail, 150 days of home detention and was ordered to pay a $20,000 fine.
 The junior Michael Hockett was one of three men implicated in a bizarre
plot to blackmail a Suffolk City, Va., councilor into dropping his opposition
to a zoning issue. The scheme involved an attempt to get photos of the
councilor with an exotic dancer who showed up at his insurance office. The plot
unraveled when the councilor threw the woman out.

Earlier this year BRIAN SCOTT HOCKETT, of Indianapolis, was charged with bank
fraud, following an investigation by the FBI. The allegations were that from
January 2003 through May 2006, HOCKETT was the owner of Family Management
Corp., which did business in the Indianapolis area as Fleetmax, a wholesaler of
used motor vehicles. In early 2002, HOCKETT established a line of credit for
Fleetmax with National City Bank and Fifth Third Bank to provide working
capital for Fleetmax.

HOCKETT concealed his diversion of the line of credit from the banks by falsifying
reports he filed with the banks, called “borrowing base certificates,” to show
that Fleetmax had more assets securing the line of credit than was actually
available. Reports to the banks showed that Fleetmax had approximately $12
million in assets available as security, when in fact there was only $750,000.
After the banks discovered the fraud, and all of Fleetmax’s assets were sold,
the banks lost approximately $2.4 million as a result of HOCKETT’s fraud. 

The elder Mike Hockett is currently founder and CEO of Auction Broadcasting
Company, which over the last couple of years has been selling its used car
auctions to ADESA’s present CEO James Hallett.

JAMES HALLETT

In 1996, James Hallett, the head of Adesa Canada, was named president and CEO
of ADESA replacing ousted founder Mike Hockett 

In October 2003 the firm’s parent, now known as ALLETE, Inc., announced that it
would spin off ADESA as a separate entity. One share of ADESA stock would be
issued for each share owned in ALLETE. The move was taken to increase
shareholder value, as ADESA now accounted for almost two-thirds of ALLETE’s
revenues.

In December 2003, the SEC initiated an informal inquiry relating to ALLETE’s
internal audit function and the internal financial reporting of ALLETE (ADESA’s
former parent), ADESA, AFC, a wholly owned subsidiary of ADESA, and the loan
loss methodology at AFC. 

In June 2004 the spinoff from ALLETE got underway with the sale of 6.25 million
shares of stock on the New York Stock Exchange. The remaining 93 percent of the
firm’s shares were distributed to ALLETE shareholders in September. ADESA had
by now also issued $125 million in bonds, as well as securing $525 million in
loan commitments from a total of 29 banks.

Sean Hallett, the son of CEO James Hallett, had three separate lines of credit
with AFC and an outstanding loan through a related entity. As of December 31,
2004, the total amount owed to AFC was $1.7 million. As of December 31, 2004,
Sean Hallett and his related businesses were in default on those obligations.
All three credit lines were then closed. 

ADESA pursued legal action to collect these amounts. AFC and Automotive Finance
Canada, Inc. (the “AFC Entities”) filed their Statement of Claim in
the Ontario Superior Court of Justice on or about November 8, 2004 wherein it
was alleged that Sean Hallett and his related companies (the “Hallett
Entities”) had defaulted on their outstanding obligations to AFC (Ontario
Superior Court of Justice; Case File No. 04-CV-278564CM2). 

In December, 2004, Sean Hallett filed his Statement of Defense and Counterclaim
against AFC, AFCI, ADESA, Inc., ADESA Canada and ADESA Auctions Canada alleging
that there was no outstanding obligation and that the named counterclaim
defendants owed approximately $6 million to Hallett in compensatory and
punitive damages. On March 4, 2005 the parties met in Toronto, Canada and
participated in a mandatory mediation session in an effort to resolve the
litigation. 

In May 2005 James Hallett was fired by ADESA with new CEO Dave Gartzke taking
on Hallett’s former duties as president of ADESA.  Hallett became
president of Columbus Fair Auto Auction, in Columbus, Ohio the same year.

In the summer of 2005, ADESA and AFC sued Dealer Services Corporation
(“DSC”), founded by ADESA veterans Mike Hockett and John Fuller. DSC
filed a counterclaim against AFC Finance and ADESA Inc. (NYSE: KAR), claiming
that AFC engaged in anticompetitive behavior. The counterclaim alleged that AFC
engaged in unfair competition and interfered with DSC’s business relationships
by refusing to enter into a blanket intercompany creditor agreement with DSC,
and knowingly filing frivolous, baseless claims against DSC in bad faith. DSC
sought $25 million for punitive and other damages.  The lawsuits were filed
Hamilton Superior Court, Indiana. 

    
HALLET Returns to Adesa in 2007

James Hallett was announced February 1, 2007 as president and CEO of ADESA
after being terminated two years ago by new management at ADESA. The private
equity firm that is purchasing ADESA is taking the company private (KAR symbol
NYSE). Hallett apparently helped orchestrate a new ownership deal consisting of
KELSO & Company, GS Capitol Partner (affiliate of Goldman Sachs), ValuACt
Capitol and Parthenon Capitol.

James Hallett quickly began buying auctions from former ADESA CEO Mike Hockett.
Hallett said he always considered Mike Hockett, CEO of ABC Auctions, to be a
visionary, much like himself.

Now James Hallett is ready for KAR AUCTIONS to go public again. In an amended
S-1, KAR Holdings (the HoldCo for Adesa) disclosed the details of its upcoming
IPO. The company, with Goldman as lead underwriter (with upcoming Buy
recommendations to follow the IPO courtesy of 10 co-managers to secure an even
better price for Goldman to dump remaining shares), will sell 23 million shares
between $15 and $17/share. 

JOHN E. FULLER

Not a lot of intelligence on Mr. Fuller. Other than he was a Marine sergeant
and got hurt on the job as a fireman, his industry knowledge appears to be
riding the coattails of Mike Hockett.

 
He is the president of Dealer Services Corporation and claims he was the
founder. However, in October 2009 Mike Hockett claimed that HE is the founder.
Mike Hockett was originally listed in 2005 as a DSC Director on many state
filings, yet his name appears to have vanished in all current filings in 2009.