The Court of Appeals for the Ninth Circuit Court has affirmed a lower court’s ruling against a student loan debt relief company and its owner for operating a fraudulent student loan debt relief scheme. The lawsuit, originally filed in 2019 by the Consumer Financial Protection Bureau, the Attorney General of Minnesota, and the states of North Carolina and California, alleged that Wen and his companies illegally charged borrowers up to $1,899 in advance fees for services tied to federal loan repayment and consolidation programs.
These programs, available for free through the Department of Education, were misrepresented to borrowers as part of a student loan forgiveness plan. Investigators found that the defendant pocketed the fees instead of applying them toward loan balances, and in many cases falsified borrower information, such as family size, marital status, and income, to qualify them for artificially low monthly payments.
The district court determined in July 2023 that the companies collected more than $95 million in illegal fees from more than 80,000 struggling borrowers. In addition to restitution, the court imposed $148 million in civil penalties and permanently banned the owner of the company from offering or marketing consumer financial products or services.
The Appeals Court found no genuine disputes of material fact regarding the owner’s liability under the Telemarketing Sales Rule and the Consumer Financial Protection Act. The owner, Kaine Wen, who served as owner, CFO, general counsel, and 50% shareholder, had both control over the enterprise and knowledge of its unlawful practices. Evidence showed Wen signed agreements acknowledging compliance obligations but ignored them, was aware of inflated borrower data, and understood the company’s fee structure.
The court upheld the $95 million restitution order, citing Wen’s joint and several liability with co-defendants, and found the $148 million in second-tier penalties appropriate for reckless violations. The panel rejected arguments that the penalties were excessive, noting the egregious harm to tens of thousands of borrowers and Wen’s prior related violations. The court also affirmed the denial of Wen’s motion to reopen discovery, finding he failed to act diligently.
The ruling leaves intact one of the largest student loan debt relief scam judgments to date, reinforcing federal and state regulators’ authority to seek substantial restitution and penalties against deceptive operators.
