Fifteen years ago in North Carolina, Roger Wayne Morgan broke into a movie theater and stole $400 in rolled quarters. Then he moved to Florida, where he stole from a cash register, had the devil tattooed on his shoulder, was charged with armed kidnapping in connection with a botched ecstasy deal, and found work as a bouncer at a club called the Midnight Rodeo.
Up in Michigan, a man he had never met was trying to become a lawyer. By 1999 that man, Joseph A. Pursley, had $2.8-million in unpaid bills and convictions for resisting arrest and public drunkenness. The state denied his application to practice law after a bar association committee cited his foul temper and a "frivolous, cavalier approach to other people's money."
One might think these men's histories would limit their business options. But in 2006 the bouncer and the lawyer were commanding their own Tampa Bay companies, selling more than $300-million in federal student loans.
Turns out there are no laws to prevent a convicted felon like Morgan or a serial debtor like Pursley from dealing in loans backed by the full faith and credit of the U.S. Treasury.
Both men's companies have toppled, leaving a chorus of aggrieved borrowers, ex-employees and creditors. Former associates say Morgan used his company, Academic Financial Services in Tampa, as a personal cash machine. Pursley's firm, Student Funding Services in Largo, was raided last spring by federal agents amid reports of forged loan signatures.
No one — not the U.S. or Florida departments of education, not their backers at the Bank of New York — raised concerns about the men's criminal backgrounds. And without tighter regulation, experts say, there's nothing to prevent it from happening again.
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As the new century began, both men were starting over.
Pursley, 44, had just lost his bid to practice law in Michigan, after the state bar's committee on character and fitness described him as someone who "acts so recklessly with his money, his investors' money and with his debtors."
The committee was troubled by Pursley's 99 unpaid debts from a doomed real estate venture. Even more troubling to the committee was the fact that he waited to file for bankruptcy until the panel suggested it, after the statute of limitations had expired on most of the debts, according to documents obtained by the St. Petersburg Times.
The panel cited his bad check and domestic assault arrests. And it quoted his statement to a police officer from a 1989 incident that led to a resisting-arrest conviction: "I will get even with you, sir. There are ways."
Morgan was a 29-year-old felon. His movie theater arrest and another North Carolina caper brought convictions for safe-cracking, breaking and entering and larceny. (He told the Times he didn't take part in the movie theater theft, pleading guilty only because he had no money for a lawyer.)
In 1994, he was arrested in Tampa on a charge of armed kidnapping. The police report said he was part of a gun-wielding crew that arranged to meet a teenage male exotic dancer and other characters to buy $11,000 worth of ecstasy. Prosecutors, citing trouble with witnesses, eventually dropped the charge.
He later pleaded guilty to stealing from a cash register and no contest to writing an $18,000 bad check. In 2003 he applied to change his name to Zachery, neglecting to disclose his North Carolina convictions.
Was there an industry that could offer them some help, a subsidy and a guarantee against failure? Someone who wouldn't be too picky about past convictions?
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The business model sounded nearly foolproof.
For 12 cents a name, you could buy a list of students with multiple federal loans. You would set up a call center full of low-wage employees on commission. They would ask students, Would you like to consolidate those loans into a single, easy-to-manage loan with a lower monthly payment?
Every time a student said yes, your company turned that 12-cent lead into a new loan that could be resold for a commission of $1,000 or more. The federal government kicked in a subsidy, and if the student ever defaulted and couldn't be made to pay, the feds would pay back the creditor for virtually all of the loss.
Congress once tried to kill that sweet deal and substitute the cheaper Direct Lending program without banks as middlemen. But the Republican majority fought back in support of the loan industry, barring the government from promoting the new program.
By late 2003, when Morgan got into the game, nearly 2,000 lenders were scrambling for a piece of the action.
Though still on probation and wholly without assets earlier that year, according to court documents, he soon persuaded three people with industry experience to help him start Academic Financial Services.
Those partners later said in a lawsuit that Morgan recruited them to work at low wages, hire employees and strike deals with financial institutions in exchange for a piece of the business.
By the end of 2005, the Bank of New York agreed to back AFS's participation in the federal loan program. Another firm agreed to purchase the loans and resell them to investors, and the Florida Department of Education agreed to serve as guarantor.
Pursley's entry into the business was nearly as charmed.
In September 2005, Florida and federal officials rejected the first request by his company, Student Funding Services, to make federal loans, saying it wasn't eligible under federal guidelines.
But his company also got backing from Bank of New York, and Florida DOE then agreed to guarantee its loans. Overlooked among Pursley's many unpaid New Jersey debts was an old credit card bill for $6,728.03 to Bank of New York.
Past lives no longer seemed to matter. By the end of 2006, Pursley's company ranked 82nd on the federal government's list of top 100 loan consolidators, handling $22.9-million in loans. Morgan's company ranked 36th with $291-million in loans, according to the Student Marketmeasure data service.
"It's a great business to be in," Pursley told the Times less than a year before his company folded. "There's essentially no risk for anybody buying these loans."
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It's never a good sign when federal agents arrive at your company with a U-Haul to cart away documents.
That was the beginning of the end for Pursley's company last May.
Both federal officials and Pursley have declined to comment on the raid. But an employee told state regulators the company had been forging electronic signatures on student loan applications, according to e-mails obtained by the Times under state open-records laws.
Within weeks, the Better Business Bureau took the unusual step of revoking the company's accreditation, citing its high-pressure sales tactics and a troubling pattern of customer complaints about misleading sales pitches.
Worker Judy Williams described an unsavory atmosphere at the company, with rough language in the building and employee fisticuffs in the parking lot. She was afraid of Pursley.
"Joe had a violent temper," she said. "He used to take his fist and punch the desk, punch the wall."
Long hours were common, and a federal Department of Labor investigation would later find employees didn't always get overtime pay they had earned.
To be sure, it was a rough time in the student loan business. Credit markets were poised to tumble. But Pursley blamed his firm's failure on Congress, which last fall cut the subsidy paid to lenders in the federal program.
"Small lenders like us couldn't afford to be in the business," he said, hanging up when questions turned to his arrest record.
Morgan's company was also in trouble. By late 2005, Academic Financial Services had grown to nearly 330 employees and won $750,000 in state tax incentives to stay in Tampa and expand. But according to the shareholder lawsuit, the company bounced more than 500 paychecks that year.
True, Morgan was generous: He allowed babies and dogs in the executive hallway, invited workers to his home for barbecues, and bought toys for the children when an employee's house burned down.
But the lawsuit, eventually settled out of court, said he spent far more on himself. Using a Visa check card tied to the company's bank account, he made more than 1,000 personal transactions worth nearly $1.5-million, including a swimming pool, a home gym and a racetrack for all-terrain vehicles.
Former employees said his penchant for costly sponsorship deals — $1.7-million to name a club at the St. Pete Times Forum, T-shirts with the company logo shot from guns at Devil Rays games, and so on — drained the company's accounts.
Bank of New York ended its agreement with Morgan in early 2007 after discovering "more information" about him, and was moving to terminate its agreement with Pursley when he stopped making loans, said spokesman Kevin Heine. But Morgan quickly signed up a new backer, Fifth Third Bank, and stayed in business. Bank officials declined to say whether they checked his background.
By 2008, creditors and the government were pursuing claims against Morgan for more than $10-million in unpaid debts and taxes. He was arrested in March on 24 charges of writing bad checks.
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And yet few offenses would have barred Morgan or Pursley from the federal loan business.
A recent felony conviction involving government money might have done it. But ask whose job it is to check for such violations, and watch the fingers point.
The federal DOE said loan guarantors or lenders are responsible for following the law, according to spokeswoman Samara Yudof.
Florida DOE, which guaranteed some of the companies' loans, held the feds or Bank of New York responsible for checking the background of lending applicants, said spokesman Tom Butler.
Bank of New York wouldn't admit fault. Spokesman Heine said the bank began checking applicants' criminal histories even before learning of Morgan and Pursley's troubles.
Experts say it's everyone's problem, and Congress should raise the bar.
"For many young people, it's the first loan they ever take out in their own name," said Robert Shireman, director of the California-based Project on Student Debt. "That is a reason to be careful about what kind of characters we let into this business."
He described federally backed loans as a special trust, like handling government assets. But without adequate regulation, he said, "we've had a lot of student loans that are operated out of a back room."
And federal laws are too lax if they exclude only some felons from the federal loan business, said Barmak Nassirian, deputy director of the American Association of Collegiate Registrars and Admissions Officers.
"Does it really make a difference if someone defrauded the federal government or defrauded private interests?" he said. "To me, fraud is fraud."
Worried by credit market turmoil or recent government investigations of the student loan industry, about a quarter of colleges may switch from the private sector to Direct Lending this summer, according to a survey by Student Lending Analytics.
In the meantime, some borrowers and ex-employees are still recovering from their brushes with Morgan and Pursley.
Illinois college professor Kenneth Millar said the interest rate on his $40,000 in loans actually increased after consolidation with Pursley's company, despite promises to the contrary.
"Fraud," he said. "That's what I thought it was."
Employees from both companies say they are owed thousands in unpaid wages.
"My children did not have a Christmas due to this man's scheming ways," said Jason Druding, a sales manager at Morgan's company. "Some of the employees got evicted from their homes. Other people couldn't put food on the table."
Morgan was released on $48,000 bail following his March 4 arrest. He is now a part-time consultant for a Tampa company called Second Chance Financial. He works for Christina Barry, a former vice president at Academic Financial Services, who was convicted of misdemeanor check fraud in South Carolina in 2003.
"Just because I have hired anyone who has made bad business mistakes in the past as a consultant doesn't have anything to do with me," Barry told the Times. "It's not even the same … industry."
No. This company wants to repair your credit.
Times researchers John Martin, Carolyn Edds and Will Short Gorham and staff writer Jeff Testerman contributed to this report. Thomas Lake can be reached at email@example.com or (813) 226-3416. Tom Marshall can be reached at firstname.lastname@example.org or (352) 848-1431.