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* Settlement pending in Ohio federal court
* Encore Capital says has modified affidavit practices
* Shares fall as much as 10.3 pct before partial recovery (Adds Encore statement, adds comments by Minnesota attorney general's spokesman, updates stock movement)
By Jonathan Stempel
NEW YORK, March 28 (Reuters) - Minnesota accused Encore Capital Group Inc (ECPG.O) of cutting corners by filing fraudulent, "robo-signed" affidavits in debt collection lawsuits, the same practice for which banks have come under fire in home foreclosures.
Encore shares fell as much as 10.3 percent before recovering some of their losses.
Attorney General Lori Swanson said Encore, one of the largest U.S. debt collectors, and its Midland Funding LLC and Midland Credit Management Inc units repeatedly filed false affidavits to collect consumer debt that was not owed or was already paid off.
She pointed to sworn testimony that "numerous" employees had signed up to 400 affidavits a day without reading or verifying the accuracy of their contents.
"People are getting hounded by debt buyers for money they don't owe," Ben Wogsland, a spokesman for Swanson, said in a telephone interview. "Midland is treating people as though they are guilty until proven innocent."
Encore often buys debt from credit card companies, typically for pennies on the dollar. Swanson is also investigating collection practices at about a half-dozen other companies that buy debt, Wogsland said.
The allegations follow an Ohio federal judge's preliminary approval on March 11 of a $5.2 million class-action settlement of similar claims against Midland.
Swanson asked the Ohio judge to clarify that the accord does not bar enforcement activity by government agencies. She wants to file her lawsuit in a Minnesota state court.
"The company put its thumb on the scale of justice to unfairly tilt the collection process in its favor," Swanson said in a statement.
Mike Huckman, an Encore spokesman, said the company looks forward to working with Swanson to resolve the matter. He also said Encore has modified its affidavit process and believes its current practices are legally sound.
All 50 state attorneys general are investigating robo-signing and other alleged improper practices by banks in the mortgage industry.
Robo-signing is a term coined to describe employees signing litigation documents without reviewing their contents.
Encore had through year-end invested $1.8 billion to buy 33 million accounts with a face value of $54.7 billion, or about 3 cents on the dollar, according to its annual report.
In late afternoon trading, Encore shares were down 2.9 percent at $24.88 on the Nasdaq, after falling to $22.99.
Shares of two competitors, Asset Acceptance Capital Corp AACC.O and Asta Funding Inc (ASFI.O), were little changed.
The Ohio case is Brent v. Midland Funding LLC, U.S. District Court, Northern District of Ohio, No. 08-01434. (Reporting by Jonathan Stempel in New York, editing by Matthew Lewis and Gerald E. McCormick)