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Close Encounters of the Fraudulent Kind A Green Sheet Advisory Board Member Catches On, Passes It On

We got lucky-we caught it," said Doug Mack of Card Payment Systems (CPS) about a brush with merchant fraud his company experienced recently. Here's what happened:

Mack recalled he didn't think too much of the phone inquiry he answered about merchant accounts on Jan. 24, 2003, although it did strike him a little odd when the caller said CPS had come up in a Google search for merchant account providers.

Mack acknowledges his company doesn't have a big Web presence and that its Web site is mainly used by agents and merchants who log on to review account activity, not as a marketing tool.

The caller had a distinctive, but unplaceable, accent and sounded friendly. As CPS does with all potential merchant accounts, Mack checked out the merchant Web site, which looked professional, and verified the incorporation information. The application for ProMarts Development was approved and the merchant paid for his gateway.

Mack said the account was active by Jan. 31, 2003 and transaction volume for the account soon picked up. By all accounts, this was a good merchant account.

In April 2003, Mack said he happened to answer another inquiry from a caller who coincidentally also found CPS through a Web search. Something about the caller sounded familiar-it wasn't the same man, but the accent was exactly the same as the other caller's. But Mack said CPS' risk management department approved the account for Mareb, LLC on April 24, and like ProMarts Development, initially it looked to be a winner.

Then a third call came in from someone else with a familiar-sounding accent, saying he had found CPS on the Web. A CPS rep took this call and something about it piqued his curiosity. This time, CPS compared information for all three merchants including domain registration address, phone numbers-both were off by just one or two digits-and the wording of privacy and refund policies for all three merchants, which was identical.

CPS did not open that third account and put both the others on hold.

The company's risk management department began to review activity for both accounts and discovered the merchants were sending through high volumes of transactions and refunds. They noticed that many of the refunds were requested for cards other than the one used for the purchase.

"They were doing lots of volume, but with the refunds, the volume levels didn't exceed their limits," Mack said.

CPS continued to let ProMarts process transactions, but took $50,000 out of the reserve account to cover the chargebacks they expected to start coming through. Sure enough, Mack said, the chargebacks came-to date, thousands of dollars worth and counting. CPS closed the ProMarts merchant account on May 27, 2003; the Mareb LLC account has been "TMF'd," he said; meaning, it's now a terminated merchant file. It's still open, but CPS is holding all sales for the account.

Still, the phone calls kept coming in all last year-Mack said CPS received well over a dozen just like the first one, with the most recent on Feb. 5, 2004. This time, though, it was a female voice with the tell-tale accent calling about opening an account.

Like the other 'merchants,' the woman from Dvar Sales, Inc. gave a toll-free return number with what Mack said is a "weird voice-mail system," and has what appears to be a legitimate Web site. "They all had nice Web sites that looked good from the front," he said, "but they were never complete. Clicking farther into the sites just leads to dead links."

The sites for the first two accounts are no longer live, but a visit to will shed some light on this apparent case of merchant fraud.

The opening page features Flash animation, sound and tells shoppers, "This site sells high-quality clothing from various manufacturers." Item descriptions indicate that those manufacturers include several high-end outdoor and active wear labels. But with only four categories of men's clothing offering nine items each-the short sleeve shirt section has only long sleeve shirts in it-the pickings are slim.

Shoppers are not offered any choices for colors or sizes; there are no shipping options provided. Clicking on the item photos leads shoppers to the "Contact Informations" and "Payment Informations" pages.

The site is apparently not secure either-Mack said he received a warning about the validity of the security certificate.

It's hard to believe that any consumer would be gullible enough to enter credit card information on an unsecured, incomplete site like

So where did all the transaction volume come from on the other two sites for CPS to process?

"Their goal is not to capture sales," Mack said. "The purpose behind the sites seems to be to scam merchant services providers. This is strictly a guess, strictly theory-they seem to be running bogus cards as sales and then refunding partial amounts to valid cards."

Mack just wants merchant services providers-and the agents who sell for them-to pay attention to what's going on. "Being on The Green Sheet Advisory Board, I thought it was a good idea to advise people about it.

"I really hope other agents and ISOs will take a look at some of their accounts right away and see if they fit the description. Hopefully, if more of us are aware of the situation, and tell them to take a hike, they will move on and find another industry to pick on."

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