March 30, 2012 -- A Texas jury has found that the well-known and controversial tax advisory firm TaxMasters Inc., along with its bearded founder Patrick Cox, used deceptive practices in its bid to lure customers and has hit the company with a staggering $195 million in civil penalties.
In a unanimous decision, jurors found that TaxMasters, its holding company TMIRS and Cox had violated the state's deceptive trade practices act more than 100,000 times by misleading customers in television ads and sales calls about upfront costs and confusing them about the services offered, according to Texas Attorney General Greg Abbott.
The Houston-based firm was the subject of an ABC News investigation in April 2011 after Texas and Minnesota accused it of using misleading and deceptive business practices. In one example of a sales call provided to ABC News by Minnesota Attorney General Lori Swanson, a TaxMasters salesperson tells a potential customer who owes $19,000 they can get the payment down to "next to nothing" and says the company is 97 percent successful.
"Not true," Swanson said then. "This is a company, which is taking advantage of people, and unfortunately when people see it on TV, they do believe in it."
"Today's decision marks a significant victory for the Texans and TaxMasters customers nationwide who sought help from TaxMasters with their income tax debts and were taken advantage of in the midst of a national economic downturn," Texas Attorney General Greg Abbott said after the judgment came down. "While the TaxMasters CEO made hollow promises about fighting for taxpayers and their pocketbooks in television ads, the evidence proved that the firm didn't even bother to show up when it came time to fulfill those promises, but instead misled and defrauded their customers."
Just a day before testimony began in the case against them, TaxMasters filed for bankruptcy protection.
As part of the $195 million judgment, Cox, the portly, red-bearded company CEO whose constant presence in TaxMasters' TV ads was parodied by "Saturday Night Live," is personally on the hook for nearly $46 million.
TaxMasters signed a settlement with the Minnesota attorney general's office last August in which it did not admit wrongdoing, but agreed to abide by a long list of business practices in order to continue doing business in Minnesota. In addition to paying $500,000 into a fund to be divvied up among former TaxMasters customers, the company agreed to record all its sales calls with Minnesota residents and hand them over to the attorney general's office, stop using the phrase "flat fee," stop referring to former IRS agents working for the firm except when warranted, and add no additional fees to customers' accounts except when authorized via writing or recorded phone call. The agreement also applies to any other tax resolution firm "controlled" by Cox. Failure to abide by the settlement would make TaxMasters and Cox ineligible to do business in Minnesota and trigger a $400,000 penalty.
An attorney for TaxMasters declined to comment for this report.