DOWNTOWN LA — After nearly three years of investigating an alleged consumer fraud scam at Honda of Santa Monica, prosecutors are expected to file charges as early as next week.
Dozens of investigators with the Los Angeles County District Attorney’s Consumer Protection Division seized boxes of files at Honda of Santa Monica’s finance and sales departments in a surprise raid on Sept. 25, 2002.
Investigators and prosecutors have since been sifting through files, computer records and other evidence to build their case.
“In light of the course we’re going, it looks like some significant developments will be happening with this case,” said Deputy District Attorney Dana Aratani. “There is going to be significant developments next week.”
Aratani declined to give specifics, but did say charges would most likely be filed against individuals involved in the alleged scam at the Honda of Santa Monica dealership, as well as a similar scam at another dealership in Norwalk.
On the same day of the raid, a class-action lawsuit was filed against the dealership in downtown Los Angeles Superior Court. The suit alleges several customers were ripped off by the dealership, located at 1720 Santa Monica Blvd. That suit has been put on hold until the criminal investigation is complete, Aratani said.
Since the raid, many of those involved have been fired. The dealership’s general manager, its finance department manager and sales manager were subsequently replaced. Some of them are named in the lawsuit. Honda of Santa Monica is owned by North Carolina-based Sonic Automotive, which owns car dealerships across the country. Sonic reportedly bought Honda of Santa Monica in 1999 from Kramer Motors Incorporated, which is also named in the class-action lawsuit.
Honda of Santa Monica officials have said in the past that they have replaced nearly the entire finance and sales departments and have instituted safeguards to ensure that no more scams will occur.
The lawsuit alleges the dealership defrauded its customers by adding false state taxes and fees, lying to customers about interest rates and tricking customers into making extra payments on vehicles they wanted to buy or lease.
One scam allegedly used at Honda of Santa Monica added to purchases a fictitious state tax called “VT Registration.” Customers were told the fee was for Department of Motor Vehicles registration, the suit alleges. However, the state has no such fee.
Customers who have signed onto the lawsuit allege they had been given favorable deals in the showroom only to have the dealership’s finance department renegotiate the deals afterwards. Such a practice is forbidden by state law, according to the lawsuit.
Overcharging for a car allows the dealership to pocket a higher profit. In itself, it isn’t illegal to strike a deal where the buyer and seller agree. In this case, however, the fraud allegation stems from deceptive practices surrounding the sales. Extended service contracts and additional accessories directly benefit Honda of Santa Monica and its employees through commissions and revenue for the company.
The suit says that since 1998, the dealership would require customers to first lease cars for four months before buying them. The dealership would then collect two sets of payments — one for four months of leases, and the other for the subsequent purchase.
Some customers also allege that they were tricked into extended service contracts, which would add thousands of dollars onto the purchase price.
Aratani, who works in the DA’s consumer protection division, said his office for the past three years has been gathering evidence from thousands of pages of documents, both on paper and in the computers, seized from the dealership. Aratani said last fall that investigators had found more evidence inside additional computers.
Originally published in the Santa Monica Daily Press print edition on September 22, 2005. Read the original PDF.