By Karen Freifeld and Jonathan Stempel
NEW YORK (Reuters) - A company that advances money to people awaiting settlement payouts was accused by New York and federal regulators of scamming sick responders to the Sept. 11, 2001 attacks, as well as National Football League retirees with brain injuries.
RD Legal Funding LLC and founder Roni Dersovitz allegedly cheated victims out of millions of dollars by deceiving them about the terms of the advances, according to a lawsuit filed on Tuesday by the U.S. Consumer Financial Protection Bureau and the office of New York Attorney General Eric Schneiderman.
Victims of the Cresskill, New Jersey-based company allegedly included firefighters, police officers and other 9/11 first responders suffering from cancer, other respiratory illnesses, stress and depression.
They also allegedly included former NFL players suffering from Alzheimer's disease, dementia and other illnesses tied to head trauma, entitling them to money from the league's estimated $1 billion class-action concussion settlement in 2015.
According to the lawsuit filed in Manhattan federal court, victims often ended up repaying more than double what they received upfront, at interest rates that could top 250 percent.
"RD Legal scammed 9/11 heroes and NFL concussion victims out of millions of dollars," CFPB Director Richard Cordray said in a statement. "Our lawsuit seeks to end this illegal scheme and get money back to those entitled to receive it."
David Willingham, a lawyer for RD, in an email called the allegations "outrageous and without merit."
RD "did nothing more than provide immediate liquidity -- in the form of an arm's length transaction -- to people who voluntarily sought the benefits of early funding," he said.
Dersovitz was not immediately available for comment.
Regulators said RD would contact 9/11 first responders after learning they were eligible for the Zadroga Fund, set up by Congress to assist with medical costs and lost income, and promise to "cut through red tape" to get them paid faster.
But the cost was high, regulators said. In one case, they said a female first responder who received an $18,590 advance ended up repaying $33,800 a mere six months later.
Tuesday's lawsuit alleged violations of federal laws against consumer finance abuses, as well as New York fraud and usury laws. It seeks restitution, civil fines and other remedies.
The U.S. Securities and Exchange Commission is pursuing a separate case against Dersovitz and his firm RD Legal Capital LLC.
It said the defendants misled investors about the risks of their investments, including a big bet that litigation tied to the 1983 bombing of the U.S. Marine barracks in Beirut would pay off. Dersovitz has been defending against the SEC claims.
Registration for the NFL settlement began this week. The deadline is Aug. 7.
The CFPB was created through the 2010 Dodd-Frank Wall Street reforms. Its lawsuit on behalf of first responders and NFL veterans comes as many Republicans in Washington question whether the consumer watchdog should exist at all.
A federal appeals court is deciding whether to revisit its decision, now on hold, that the bureau's single-director structure is unconstitutional and that the president deserves power to fire Cordray at will, not just for cause.
Some Republican lawmakers have urged President Donald Trump to close the CFPB, replace Cordray with someone who will curb enforcement activity, or create a governing commission.
They have also sought to include the CFPB in the formal Congressional budgeting process, enabling them to reduce or eliminate funding.
(Reporting by Karen Freifeld and Jonathan Stempel; Additional reporting by Lisa Lambert in Washington; Editing by Bernard Orr and Tom Brown)