(Bloomberg) -- A New York City official who earned millions of dollars collecting debts for predatory lenders has agreed to resign.
The city’s Department of Investigation said Thursday that Marshal Vadim Barbarovich would step down after the agency concluded he had violated debt-collection rules and was “untruthful” with investigators. Rather than defend himself in a removal proceeding, Barbarovich agreed to begin winding down his operation and to resign completely by March.
Barbarovich made $1.7 million in 2017 and $1.9 million in 2018, making him the top earner not just among New York’s 35 marshals but across all of city government. He’s known as the go-to marshal for collecting debts in the merchant cash-advance industry, an unregulated form of small-business lending that is rife with abuse.
Barbarovich was the subject of a Bloomberg News report in November 2018 that revealed his earnings, his close association with cash-advance lenders and allegations from debtors that he stretched or ignored legal limits on his powers. “He has a reputation of being a bully,” one lawyer for debtors was quoted as saying.
Marshals are appointed by the mayor but don’t draw a salary. They work for landlords and creditors and compete with each other for business, collecting fees for towing cars, evicting tenants and enforcing civil judgments. It’s a system that dates to Dutch colonial days. Barbarovich operates from a third-floor office in Brooklyn’s Sheepshead Bay neighborhood, overseeing a roomful of clerks.
Although the marshals’ jurisdiction ends at the city’s limits, a loophole has allowed Barbarovich and a few of his peers to collect cash-advance debts nationwide. To grab money from a small business in Florida or Texas, they simply demand the funds from the business’s bank account by serving one of the bank’s New York locations. It’s unclear if such requests for out-of-state cash have any legal authority, but banks typically comply without question.
The Department of Investigation oversees the marshals and opened the probe in December 2017. The DOI didn’t delve into whether Barbarovich’s use of the branch-office loophole was proper. Rather, it focused on whether he was even bothering to serve papers in person at local branches, as the law requires.
Acting on a complaint from a lawyer, the DOI asked Barbarovich for information pertaining to 107 legal demands, or levies, according to a memo summarizing its investigation. It found that for 92 of the levies, he couldn’t provide proof that he had delivered them in person. He claimed that he’d served them all properly, but evidence gathered from other sources contradicted him.
For instance, Barbarovich claimed he delivered 50 of the levies to the local offices of Corporation Services Co., which serves as a registered agent for many firms, according to the DOI memo. But CSC had no record of receiving 48 of the 50, and the other two had been mailed to CSC offices outside of New York City -- outside of the marshal’s jurisdiction.
The DOI concluded that Barbarovich made “untruthful statements” during the investigation and had failed to cooperate. It also said he didn’t keep proper records of his activities. He agreed to forfeit the $8,930 of earnings connected to the 92 levies. City records show that in 2018, Barbarovich issued more than 7,000 levies.
“After going through his books and records, the marshal and DOI decided he would step out,” said Ronald Russo, a lawyer for the marshal. He declined to comment further.
“It’s very important to us as the regulator that we have marshals that are carrying out the duties with integrity,” DOI Commissioner Margaret Garnett said in an interview. “The total picture here, for us, was one of someone who was not a responsible holder of the powers of the marshal.”
Confessions of Judgment
Cash-advance lenders offer small businesses, such as plumbers and hair salons, quick cash at interest rates that can top 400% annualized. Until a few months ago, New York was the nexus of the industry’s collection machine because of marshals like Barbarovich and a quirk of state law. No matter where the lender or borrower was located, borrowers could be required to sign a legal instrument known as a confession of judgment that could be filed in a New York State court. At any point, a lender could unilaterally declare a default and enter the judgment in court, then pay Barbarovich to raid the business’s bank account.
In August, Governor Andrew Cuomo signed a measure prohibiting the use of confessions against people or businesses outside of New York. That mostly ended the industry’s use of New York as a collections hub.
Barbarovich, a former property-control employee and volunteer Russian translator at Brooklyn’s SUNY Downstate Medical Center, was appointed by former Mayor Michael Bloomberg in 2013. (Bloomberg is majority owner of Bloomberg News parent Bloomberg LP.) After the cash-advance industry began heavily using confessions of judgment around 2015, Barbarovich and another marshal, Stephen Biegel, picked up most of that lucrative work. Biegel reported earning $1.4 million last year, second only to Barbarovich.
Barbarovich agreed to pay $300,000 to the city if he fails to complete certain steps to wind down his operation. To make sure he pays, the city required him to sign a legal instrument with which he is intimately familiar: a confession of judgment.
(Adds details from investigation in the 8th paragraph, comment from commissioner in the 12th paragraph.)
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