Companies with CSG contracts are in danger of being hit with a massive bailout that could lead to the loss of hundreds of millions of dollars in revenue.
That’s because CSG companies have been hit with hefty fines and fines have soared in recent years as they struggle to repay their debts.
But while that’s a problem for all businesses, it’s especially pronounced for CSG service companies, which have been the target of tough penalties and government regulations in recent decades.
While a recent report by the US Government Accountability Office (GAO) warned that CSG corporates could be in serious trouble, the GAO found that CSGs were in the top 10 most-fraudulent companies in the United States.
They’ve also had a major effect on the health of the industry.
While there have been significant efforts to reform CSG practices in recent months, many CSG operators have opted to continue operating under the assumption that the fines are “reasonable.”
“It’s the mentality of many CSGs that the penalties are not going to be severe,” says Mark Sperling, an attorney with the Washington, DC-based law firm Greenberg Traurig.
“There is a fear of being sued for anything, or having their finances wiped out.”
Sperlings group of clients represents companies that have been slapped with billions of dollars of fines or other legal penalties by the federal government for violations of federal consumer protection laws.
The fines were imposed in response to CSG industry practices such as offering misleading marketing messages to consumers, and failing to report fraudulent activity to the government.
But even though many CSGCs were fined by the government in recent weeks, the penalties have gone into effect on April 30.
“I’ve been in this business since 1993 and have never seen a situation like this,” Sperlich says.
“This is just a big blow to the CSG economy.”
Saginaw, Michigan-based Marsh Corp. faces the largest CSG fines of any CSG company in the country, at $2.9 billion.
The company was fined for $5.2 million for the first time this year and $2 billion for the second.
The $2 million penalty is a significant chunk of the $1.7 billion Marsh was ordered to pay in fines in 2017.
But Marsh’s problems with the fines have not gone unnoticed by the company’s owners.
Marsh has had a rough go of it in the past, and Sperlings claims that the company has not been forthcoming with the information about how much of its $4.5 billion revenue it’s owed.
The SEC fined Marsh in 2014 for failing to disclose how much it owed in fines for the improper marketing of health and beauty products.
And in 2015, Marsh paid $2,000 to settle allegations that it violated the Federal Trade Commission Act by selling overpriced health and cosmetic products without disclosing the price.
But those fines were relatively small compared to the $10 billion Marsh owed to the US government in the wake of the Fukushima nuclear disaster.
And while the SEC has a process for collecting those fines, Sperings clients have yet to be served.
“Marsh is trying to get a sense of where the system is in terms of the fines,” Spermings says.
Sperring has represented Marsh for nearly 20 years, and he says that Marsh has a long history of being a big player in the industry and a big winner in the current market.
“If they were honest with the companies, Marsh would be in the same boat,” Saperlings says.
However, Spermers claims that Marsh’s current situation has been more challenging than many of his clients have expected.
The problem is, Marsh has been sued several times by the Government for alleged financial fraud.
The companies have also been hit by various state and federal regulators for alleged unfair business practices, including the use of misleading advertising to mislead consumers about products.
Spermingly says that while the government has generally been willing to take action against companies that violate consumer protection rules, it has been hesitant to take any action against Marsh and other CSGs for their marketing practices.
“They have an enormous amount of assets that are invested in marketing, and it is not their responsibility to take the marketing away,” Sabor says.
But Sperson believes Marsh’s actions are in violation of the federal rules for corporations that are not federally chartered, and that Marsh could be forced to pay a significant amount of money in fines.
The Federal Trade Commissions website lists Marsh as a non-federal entity that is a “publicly traded company” that has a registered address in New York, New Jersey and Connecticut.
Sabor claims that this makes Marsh’s case particularly challenging.
“A non-corporate entity, it would be very difficult for them to take away any of their assets and take them out of existence,” Sporings says, adding that Marsh is