From the outside, the shared headquarters of Terenine, Area 203 and ACH Federal looks like a typical Chattanooga office building.
But those businesses are actually a front for an unlicensed Internet payday loan empire that consumer advocates say may not comply with a newly passed Tennessee law.
The Chattanooga entrepreneur who controls the businesses, Carey V. Brown, calls his payday business a "shell corporation" set up overseas for "lawsuit protection and tax reduction."
Tennessee regulators say that the payday entities operated out of Chattanooga - PayDayMax.com, MyCashNow.com and DiscountAdvances.com - are not licensed to do business in the state, though a new Tennessee law says payday lenders aren't supposed to operate in the state without a license.
The unlicensed payday companies claim on their websites to charge fees of $18.62 for a $100, two-week loan, though the state only allows lenders to charge a maximum of $15 on a $100 loan, according to the Tennessee Department of Financial Institutions.
Former employees say the payday loans are made through an entity called Credit Payment Services, which operates as the mothership for more than 20 companies. Each company bills the others as customers for services that typically would be conducted in-house, former employees said.
"The only way we can look at that is to say they're operating illegally if they don't have their licensing and accreditation, and within time, somebody's gonna knock on their door and shut the place down," said Jim Winsett, president of the Chattanooga Better Business Bureau.
Regulators already are knocking.
The Federal Trade Commission this year launched an investigation into the group of companies to determine if there has been a violation of the Fair Debt Collection Practices Act and the Federal Trade Commission Act. California, Oregon and New Hampshire issued cease-and-desist orders to the Internet companies during the year to stop what they say were illegal loans made in their states. The privately held payday lenders don't reveal financial figures, but ex-employees say they generate hundreds of millions of dollars of loans per year.
The payday conglomerate essentially operates as one company, employing as many as 400 local employees and generating between $1 million and $2 million in daily loan revenue from payday loans, former employees say.
"Five hundred million dollars a year is probably a conservative estimate," said Chris Christiansen, former director of infrastructure architecture and design for Terenine. "They're hitting that easy, especially around this time of year."
Terenine, Area 203 and ACH Federal publicly do business as server hosters, online marketers and direct-deposit processors, with a client list that includes the Chattanooga Area Chamber of Commerce, Precept Ministries and others.
Their ads use words like "virtualization" and "cloud computing," and the companies sponsor technology-focused events and organizations.
But much of the work they do in Chattanooga supports payday lending.
From 2008 through 2010, the businesses made nearly 1.5 million loans to approximately 1.1 million unique clients, according to former operations manager Casey Lomber's written testimony to the FTC.
The number of "general notes" was 6.6 million, Lomber said, and ACH Federal told the newspaper in 2010 that it processed 300,000 transactions per month, with plans to expand to over a million by 2011.
Brown, the man behind the payday lenders and related businesses, is a former Rossville used-car dealer who began making online payday loans in 2001 through MyCashNow and Credit Payment Services.
Brown declined repeated requests for an interview with the Chattanooga Times Free Press.
But he did testify about his companies in a 2005 civil deposition, and the Times Free Press interviewed more than a dozen associates and former and current employees to corroborate his account.
Brown said in the deposition that his PayDayMax.com, MyCashNow.com and DiscountAdvances.com were set up in Canada and Grenada to avoid lawsuits and pay less in taxes.
"I think it's basically just a shell corporation," Brown said in the deposition about MyCashNow.com. "It had a legal office there in Grenada."
PayDayMax.com is based in "some other offshore tax-free country," and Discount Advances.com is "another shell corporation," Brown said in response to questions in the deposition.
The company behind the offshore shell companies is Credit Payment Services, which Brown controls through a series of contracts set up a decade ago, he said.
Though it seems complicated, it's not unusual for companies to go offshore to avoid regulations, said Allan Jones, owner of one of the nation's biggest payday lenders, Cleveland, Tenn.-based Check Into Cash.
"If an online operator is unlicensed, then he or she may not be following applicable regulatory laws," explained Jones, whose company is licensed to operate both Internet and retail store locations making payday loans. "Those who operate offshore are able to avoid regulations."
Though MyCashNow.com and related companies owned by Brown appear to be based offshore, Chattanooga is the actual physical location that houses most of the payday businesses' workers, split among two buildings on Amnicola Highway and one on Brainerd Road, former employees said.
"We did a lot of stuff with payday loans," said former Area 203 intern Brittany Jackson. "That's the main thing I worked with, and the largest business unit while I was there."
Aaron Shelley, former director of engagement services for Terenine, said employees were encouraged to use the term "affiliate companies" to describe the various entities owned or controlled by Brown.
The businesses invoice each other for services, just like any company does with its customers, even though they're owned or controlled by the same man, Shelley said.
"All of the customers were referred to as affiliate companies because it was common ownership," Shelley said.
Brown said in his 2005 deposition that he owned more than 20 such businesses, which he personally operates through contracts rather than a traditional ownership structure.
For instance, DiscountAdvances.com owns "absolutely nothing," Brown said, nor is it really owned by anyone.
"It's a shell," Brown said in the deposition. "They're in some third-world tax-free country, I don't know which one."
In fact, the site itself says it's located in Canada, though its only physical presence in Canada is a drawer filled with legal documents, according to Brown's deposition.
Even the payday mothership, Credit Payment Services, is yet another "shell" corporation based in Nevada, created in 2001 along with MyCashNow.com, Brown said.
Most of the work happens inside Brown's buildings on Amnicola Highway and Brainerd Road, where employees ostensibly hired to do marketing, Web hosting and advertising for Area 203, Terenine and ACH Federal find themselves working for Brown's CPS, former employees said.
The strategy is a means to an end: Payday revenues are used to support missionaries in their efforts to "save souls" overseas, said Christiansen, the former Terenine engineer who helped set up many of the company's operations.
Christiansen was lured to Terenine from a medical career at CeloNova Biosciences in 2008, at a time when he found himself wondering whether it was better to "save lives or save souls," he said.
"[Brown] personally has debated the pros and cons of what he does, versus of what he's able to do with the money," Christiansen said.
Bulletin boards at the Amnicola Highway building that houses Terenine, ACH Federal and Area 203 are covered with pictures of smiling children whom Brown has helped, and overflowing with postcards from overseas missionaries whom he supports with revenues from his payday sites, former employees said.
In fact, the overall company's mission statement is "to maximize the growth of the Kingdom by helping the least of these, through strategic giving from profitable business," according to an email received from Brown during a prior investigation.
The goal is a reference to strengthening the biblical kingdom of God, said Terenine chief technology officer David Glenn in a mid-2011 interview.
At that time, the company counted Focus on the Family, Precept Ministries and the Dawson McAllister Association among its clients, a gold-plated evangelical client list that Glenn said helped attract like-minded employees to the company.
"We do give a good percentage of revenues from the company to charity," Glenn said.
Brown's overseas efforts aren't limited to supporting missionaries, however.
Engineers route the majority of his payday loan Web traffic through a company in Bermuda called Woody Holdings, masking the location of the payday operations on Amnicola Highway in Chattanooga, said Byron DeLoach, former director of engineering at Terenine.
"They do go through Bermuda, but the servers are physically located in Chattanooga," DeLoach said.
Sometimes, however, the company simply cuts out the middleman, Christiansen said.
"Whenever a big storm came through Bermuda, they'd show the weather map to the lawyers, and they'd give the OK to route the traffic directly to Chattanooga," Christiansen said. "When you're pushing $2 million a day, it's really just about not interrupting the volume."
Former employees say Brown creates individual companies where a typical business would simply employ a human resources or accounting department, for example.
According to the former employees:
- Terenine has a state-of-the-art data center on Riverside Drive that exists to keep the money flowing.
- Area 203 specializes in lead generation, search engine optimization and analytics for the payday sites.
- ACH Federal, which is located in the same building as Area 203 and Terenine, handles the debit transactions that both deposit and withdraw cash directly from consumers' bank accounts.
- Scenic City Legal, three miles away on Amnicola Highway, handles the company's legal work, including the lawsuits from governments and dissatisfied consumers.
- API Recruiting and Account Pros handle human resources and accounting tasks, respectively.
- Support Seven, located on Brainerd Road with another office in Costa Rica, is a call center for loan seekers as well as loan collection.
The arrangement arose in 2008 and 2009 when lawyers created Terenine, ACH Federal, Area 203 and the others from existing departments at CPS, creating "affiliate companies," Terenine President David Carney said in a 2011 interview with the Times Free Press.
"We really started as a department within a family of businesses a couple of years ago," Carney said. "Prior to 2010, [Terenine] was more of an IT department that was focused on providing services to affiliated businesses."
BEYOND PAYDAY LENDING
The push for business beyond Brown's Internet payday loans hasn't fared well, according to employees who quit or were fired.
His companies started quickly out of the gate in 2010 with a marketing and PR blitz, even allowing photographers into the server room.
The two most visible of Brown's companies, Terenine and Area 203, joined local business groups such as the Chattanooga Technology Council and participated in events like the Devlink technology conference. Area 203 sponsored the 48-hour launch, an event to spur startup businesses in Chattanooga, and did marketing work for clients like the Crash Pad, the Chattanooga Area Chamber of Commerce and LifeKraze.
But even with the Chamber and other clients, Brown's companies weren't pulling in enough outside business. Area 203 made up the difference on its online client list by posting the names of other Brown affiliate companies such as Terenine, ACH Federal and API Recruiting.
API Recruiting, in turn, lists ACH Federal, Area 203, Firma 8, Kingdom Site, Support Seven and Terenine as its clients.
Though Brown spent millions of dollars and hired hundreds of workers, former employees say that about 90 percent of his revenue still comes from payday loans, and that a high rate of turnover has led to a loss of clients.
"They only had two or three outside clients when I left," said Christiansen, who resigned from Terenine in May.
DeLoach said that during his tenure, the company tried to "do the payday stuff and they were doing external clients as well," but Brown was dropping nonpayday clients "pretty fast."
"I think they had one when I left," said DeLoach, who left in September.
The problem was that feeding the beast - the payday loan business - remained the active priority, even trumping outside clients, they said.
"The original goal wasn't to sell to external companies, it was to work for CPS - even though nobody wanted to talk about what that was," said Shelley, the former director of engagement services for Terenine.
Despite the limited number of nonpayday clients that Brown's companies service, a few of his businesses are ringing up staggering revenue growth.
Area 203 had sales of "nearly $46 million in 2010," the company reported in a news release issued in January, after it ran a social media campaign to encourage tourism in Guatemala and opened a since-closed office there.
J.Ed. Marston, director of marketing and communications for the Chattanooga Area Chamber of Commerce, said at the time the Chamber hired Area 203 he had no indication that a payday business was behind the marketing group.
"I don't have any direct knowledge of any of those things," he said.
During the 2005 civil suit, Brown argued that by installing a computer overseas, he wasn't technically operating in the United States and subject to lending rules, since the payday lending decisions were being made by a computer on a Caribbean island tax haven instead of by a human being.
"And frankly, the servers make a lot of the decisions," he said.
Brown said because the company wasn't seeking out customers, but instead allowing customers to come to his payday websites, he is further insulated from the legal hurdles that licensed operators like Check Into Cash face.
"If the customers are seeking us out trying to do business with us, that's our right," Brown said. "But if we're - we can't specifically target a specific state that has lower allowable fees than what we charge."
Some of his websites claim not to lend to consumers in Tennessee, Georgia and a handful of other states, though customer complaints received by the Tennessee Division of Consumer Affairs show that some of Brown's loans still get through.
Tennessee state Rep. Charles Sargent, R-Franklin, who is chairman of the House Finance, Ways and Means Committee and sponsored a law in 2011 to tighten rules on payday lenders, said that Brown's methods could be illegal.
"If they're not registered, it would be illegal, so you could shut them down," Sargent said. "They'd be doing it illegally."
He acknowledged that setting up shell companies overseas can make investigations more difficult, even if the companies are physically located in the state.
"The problem with a company that looks like it's overseas is we would have to have some way of tracking them down so we can tell who's good and who's bad," Sargent said.
Though Brown's payday sites are legally located in foreign countries, not much happens overseas, he said in his 2005 deposition.
"Literally all that happens in Bermuda is that data is transferred through IP traffic," said Shelley. "There must be a lot of companies that do it, because there is nothing else attractive about Bermuda to make it a data center. It's an island that gets destroyed by storms over and over again."
The overseas entities, insofar as they exist, are contractually run through CPS, which handles tasks that include "marketing, handling phone calls, taking applications, approving and denying loans, fraud verification, accounts receivable," Brown said in 2005.
CPS is registered in Nevada, according to the Nevada secretary of state.
Brown incorporated CPS through a company called Silver Shield Services, which claims on its website to offer "protection from lawsuits, government creditors and state taxes through Nevada's incorporation-friendly laws."
Also registered through Silver Shield are: Area 203, Credit Protection Depot, ACH Federal, Collateralized Investment Services Limited Partnership, 3806 Amnicola LLC, Terenine and Support Seven.
For $600, Silver Shield Services sets up "everything that you need to prove that you are in fact operating in the state of Nevada," according to its website.
Former federal prosecutor Gary Humble said that "there are unresolved questions" about why a company would go through the effort to set up such an elaborate series of international entities.
"If I were doing the investigation, I'd want to know why, what legitimate reasons are there for conducting those transactions overseas," said Humble, who was not speaking specifically about Brown's companies.
However, stashing a router on an island doesn't necessarily get around U.S. laws, according to Uriah King, vice president of state policy for the Center for Responsible Lending, a consumer advocacy group.
"Many lenders argue that because it's over the Internet, the law doesn't apply, but the Internet doesn't bequeath magical status on the loan," King said.
Ira Rheingold, executive director for the National Association of Consumer Advocates, said most Bermuda Internet businesses are set up to dodge taxes or U.S. laws.
"It's all about avoiding liability and avoiding U.S. law or state law, as the case may be," Rheingold said.
And Brown is "very good at finding tax holes," Shelley said.
The Federal Trade Commission this year initiated an investigation into Brown's companies "to determine whether certain unnamed creditors may be engaged in violation of the Truth in Lending Act ... and whether they may be engaged in unfair or deceptive acts and practices."
But an FTC spokesman said no public charges have been filed against Brown or any of his companies, and regulators wouldn't comment on the status of any investigation.
The state of Tennessee won't say whether it is investigating Brown.
"At this time, we can say that we are investigating some possible unlicensed activity in this state," said Neil MacDonald, spokesman for the Tennessee Department of Financial Institutions.
That department regulates 10,262 financial entities. Only in May was the agency handed the responsibility of regulating and licensing Internet payday lenders, MacDonald said.
"Since that time, we have started a process of determining what entities might be engaging in Internet payday lending without being licensed," he said. "We cannot comment on specific investigations."
WHO IS CAREY BROWN?
Brown is no stranger to investigations.
His move to portray his business as an overseas interest was itself a response to an ongoing class-action lawsuit against five cash advance stores that he owned in 2001, he said in the deposition.
"I already have a class-action suit going against my brick-and-mortar stores," Brown said at the time. "It was just a matter of time before they come after the Internet business, too."
Former employees describe Brown, who shuns publicity, as a kindhearted and generous man, who was a leading citizen in Rossville.
There he ran Happy Motors, a buy-here, pay-here dealership famous for a 15-foot-high, bright yellow chicken that he then called "the second most famous chicken in Georgia" after the Big Chicken in Marietta, Ga.
As a sign of his status in the community, he was selected for a development study in 2005 to revitalize the downtown area, including the old Peerless Woolen Mill.
Brown's chicken was used for directions to get people around Rossville, he said, "and it took 20 people to get it on top of the building and get it in place."
Though that was years ago, his employees still call his payday business "the chicken" in honor of the long-gone mascot, Shelley said, if only because they don't know what else to call CPS.
Brown's goal, however, isn't earthly riches and glory.
"He'd walk away from the business tomorrow if he could find a better way of saving souls," Christiansen said.
The hardship of running such a complicated business and the expense of dodging regulators is worth it if it supports Brown's work building the kingdom, Christiansen said.
"What's a soul worth?" Christiansen asked. "Do the ends justify the means?"