BlueHippo files for bankruptcy 

Posted: 1:01 pm Tue, November 24, 2009
By Danielle Ulman
Daily Record Business Writer

Bad publicity from a broken agreement with federal regulators led BlueHippo Funding LLC to file for Chapter 11 bankruptcy, after a bank froze its assets.

The troubled Baltimore-based electronics financing firm said in a news release Monday night that First Regions Bank, now operating as 1st Regents Bank, unfairly froze its assets. BlueHippo said the bank told it in an e-mail that it was freezing the account because of a recent Federal Trade Commission press release that accused BlueHippo of violating an agreement with the agency.

The company called the FTC’s press release “replete with factual inaccuracies,” but did not identify specific errors. Messages left with 1st Regents Bank and BlueHippo’s general counsel, Andrew Campbell, were not returned Tuesday.

BlueHippo offers layaway services to consumers with poor credit histories to purchase computers and other electronics. But the FTC contends that the company has taken money from many customers without ever providing the promised computers.

An April 2008 settlement with the FTC required BlueHippo to repay $3.5 million to customers and forbid the company from further deceiving customers. According to the FTC’s Nov. 12 release, in which it detailed a contempt motion against the company in federal court, BlueHippo continued to mislead customers.

Layaway customers have to pay in full before they receive their computers, but those who make payments on time for nine to 13 weeks can finance the rest of their purchase. The company signed up 35,000 new customers between April 2008 and December 2008, but failed to provide financed computers to 2,477 customers who met the requirements of making 13 consecutive payments to get financing, the FTC said.

After the FTC notified BlueHippo in April 2009 that it was in violation of the settlement agreement, it said the company began ordering products for clients, eventually delivering computers to 1,462 of the 2,477 customers who had met payment requirements.

Nationwide, the Better Business Bureau has received 4,154 complaints against BlueHippo in the last three years. Attorneys General in Maryland, Florida, Washington and West Virginia have taken action against BlueHippo. Maryland’s suit resulted in a May 2007 settlement with BlueHippo that resolved allegations against the firm and required the company to disclose all terms to consumers before taking their money.

A recording on BlueHippo’s customer service line Tuesday said that the company does not sell to customers in Maryland.

Angie Barnett, president and CEO of the Better Business Bureau of Greater Maryland, said the organization has not received any complaints from Maryland consumers in about a year. She said she’s pleased that the efforts to derail BlueHippo have worked.

“There’s been a buildup of activity from various states to the FTC, and that it took a private bank to freeze those assets was sort of the final blow. We hope that all of these steps lead us to see BlueHippo stopping their actions,” she said.

When companies restructure under bankruptcy filings, their creditors usually get paid, but Barnett said, “We want to make sure the next-door-neighbor doesn’t get left out.”

BlueHippo said in its release that it “adamantly believes the bank’s actions are unwarranted and not permissible under law. The freezing of the [c]ompany’s accounts has effectively prevented it from being able [to] pay its creditors in the ordinary course and has forced BlueHippo to seek bankruptcy protection.”

The company said it has “demanded” immediate and complete restoration of its accounts and will submit plans to restructure the firm “as quickly and efficiently as possible.”

In a filing with the U.S. Bankruptcy Court for the District of Delaware on Monday, BlueHippo listed assets between $10 million and $50 million. It had between 50 and 99 creditors.