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Thursday, July 15, 2021

FBI charges two in credit card laundering scheme

The FBI arrested a Florida businessman on allegations he and a California man hoodwinked an unnamed ISO and its upstream partners into processing credit and debit card transactions tied to a fraudulent telemarketing scheme that bilked thousands of unwitting consumers of millions of dollars for bogus debt-relief services.

This is not the first time the two—Steven Short, formerly owner of the Florida firm E.M. Systems, and Brandon Becker, former CEO of the Los Angeles-based sub-ISO CardReady LLC—have been in the legal crosshairs. In 2016, the Federal Trade Commission and the Florida Attorney General filed a civil action against the two men and their companies in federal court over credit card laundering related to the same deceptive telemarketing scheme. Short was arrested on July 8. Becker had already been arrested, according to a U.S. Department of Justice statement.

U.S. Attorney for the Southern District of New York Audrey Strauss and William F. Sweeney Jr., assistant director-in-charge of the FBI’s New York office, said the two men carried out a credit card laundering scheme between 2012 and 2015 that generated over $19 million in card transactions from “thousands of consumers” who received cold calls from Short’s company promising to reduce their debts for upfront fees ranging from $695 to S1,495.

The telemarketing operation resulted in “hundreds of complaints of fraud and deceptive tactics, and requests for millions of dollars in refunds and chargebacks,” the DOJ said in a statement. About $6 million of the $19 million was eventually returned to consumers through refunds and chargebacks following allegations of fraud and other deceptive acts, according to an indictment unsealed on July 8.

A one-third cut of receipts from sham merchant accounts

According to the indictment, which was filed in U.S. District Court for the Southern District of New York, Short negotiated a deal with Becker under which CardReady would submit applications to a New York-based ISO for accounts for sham merchants that were actually being used to launder payments collected by E.M. Systems. The “sham merchants” received “nominal fees” from CardReady for signing the fraudulent merchant applications, according to the indictment.

The New York City-based ISO, unaware that the applications were for the benefit of E.M Services, would evaluate and then send the applications to an Atlanta-based processor and an acquiring bank located in Sioux Falls, S.D., for final approval. Submitting applications for sham merchant accounts, as well as facilitating card acceptance by debt collection and credit repair companies, was in direct violation of underwriting guidelines established by the ISO, processor and acquiring bank, the indictment stated. CardReady, for its efforts, received up to one-third of monies collected through the scheme, the indictment alleges.

On numerous occasions, the processor ordered CardReady to close individual sham merchant accounts due to excessive chargebacks and reports of sales of prohibited services, but CardReady would simply replace those accounts with new sham accounts, the indictment maintains. Allegedly, E.M. Systems would at times spread transactions across multiple sham merchant accounts to evade chargeback monitoring programs instituted by the ISO, processor and acquiring bank.

The sham merchant accounts in the scheme averaged chargeback rates in excess of 10 percent a month, and in one month alone, August 2014, chargeback rates were running in excess of 60 percent, the indictment revealed.

“Collectively, these sham merchant accounts exceeded 100 chargebacks per month from at least about July 2013 through October 2014. However, because the transactions of E.M. Systems were split across the sham merchant accounts, none of the sham merchant accounts individually exceeded 100 chargebacks a month, making it less likely that each sham merchant account would be expeditiously flagged and terminated,” the indictment states.

Short is charged with two counts in the indictment: conspiracy to commit wire fraud and bank fraud, and bank fraud. If convicted, he faces up to 60 years in prison and at least $1 million in fines. Becker is charged with four counts: conspiracy to commit wire fraud and bank fraud, conspiracy to make false statement to a bank, wire fraud, and bank fraud. If convicted, he could be sentenced to 100 years in prison and pay at least $1.5 million in fines. end of article

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