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Note: When this article was
written, the
Boston
Herald Friday, October 18, 2002
by
Cosmo Macero Jr. They wear that ``Globe 100''
stamp like a badge of honor on their Web site. And why not? For two years running,
Waltham's Microfinancial Inc. has earned a ranking among The Boston Globe's top
100 Massachusetts companies. Because on one hand, you
could say there's plenty to like about the goings on at 950 Winter St.: Good
annual cash flow since 1999; $154 million in total revenue last year; $20
million in cash on hand with no current debt. The problem is,
Microfinancial - which operates in a little niche of the commercial leasing
market - has created enough ill will to start a small war. And investors may finally be
catching on. A flurry of class-action
lawsuits and regulatory probes is about to reach critical mass. The target:
Microfinancial, or MFI, and its chief subsidiary and cash generator - Leasecomm,
which lures would-be entrepreneurs into unforgiving rental contracts for credit
card machines and other business tools. MFI's stock is getting
creamed these days as lawyers in Massachusetts, California, New York, Florida
and elsewhere corral more defendants for their class actions. The Florida
attorney general is two years into a probe of the company's aggressive
collection and other practices. Bay State AG Tom Reilly got into the act in
January. The Better Business Bureau,
based on scads of complaints, gives Leasecomm its ``unsatisfactory rating.'' And just last week,
Microfinancial fired 90 employees, replaced chief executive Peter Bleyleben (who
remains chairman), and said it will cut back dramatically on new loans and
contracts. But to get the full flavor of
fury against Microfinancial, there's no better place than the investor message
boards on Yahoo.com. My favorite: ``glenn36108''
and his Johnny Cash-inspired rant of Oct. 16: Down, down, down in a burning
ring of fire. MFI goes down and the Dow
goes higher. And it burns, burns, burns
... the Leasecomm Liars. The Leasecomm Liars. How they work: The company
uses nonemployee vendors to mine for new . . . clients. One guy might offer
seminars on creating a Web-design business. Another might place newspaper ads
for turn-key business opportunities. The bottom line: Every scheme
is designed to get consumers into Leasecomm's wheelhouse - renting credit card
machines or ``virtual terminals'' for anywhere between $10 and $99 a month . . .
for four years! ``We seem to be seeing a
pattern of people purchasing business opportunties, and as a part of it, they
would receive credit card swipe machines,'' says Lisa Raleigh, senior assistant
attorney general in Florida. ``The payment for the business opportunity seemed
to be wrapped within the payments for the (machine).'' The end result:
Consumer/entrepreneurs pay thousands in lease payments for a piece of equipment
worth about $400. ``That's all it is. It's just
a collection machine,'' says Boston lawyer Thomas Doherty, who is representing
several clients against Leasecomm. ``They get people to sign these leases and
then aggressively collect from them. It has nothing to do with the underlying
value of what's being leased.'' The odd thing about Doherty's
clients is that they're not plaintiffs. They're defendants. That's because a vital part
of the MFI/Leasecomm business model is suing like mad to collect. Richard Latour, the newly
installed MFI chief executive, and other company officials didn't return phone
calls. But give Microfinancial
credit for one thing: Full disclosure to the Securities and Exchange Commission.
``The Company differentiates
itself . . . in the way in which it pursues delinquent accounts that it believes
its competitors would not pursue,'' MFI said in a recent SEC filing.
``Collection efforts commence immediately with repeated reminder letters and
telephone calls upon payments becoming 10 days past due, and generally with a
lawsuit filed if an account is more than 85 days past due.'' Why all the deadbeat
customers? Because a funny thing happens
when people realize they've been suckered: They stop paying. So things may be changing at
Microfinancial, one way or another. The company says it plans to
refocus on ``clients with better credit histories.'' But the legal liabilities may
get them first, even if they are carrying $115 million in net assets. That's what investors seem to
be thinking. Shares of Microfinancial have sunk as low as $1.65 from a 52-week
high of $12.90. It took a huge rally on the
market yesterday just to get the stock over $2. Maybe the business model
wasn't so good after all. Or maybe Microfinancial will
bounce back somehow to stay in the Globe 100. It would almost be a shame if
they didn't. They're so proud of it. Send e-mail to |
