FTC alleges payment processor violations of 2015 I Works settlement

The Federal Trade Commission asked a federal court to hold a payment processing operation and its executives in contempt, alleging they systematically violated a 2015 court order that barred them from facilitating fraudulent payment activity.

In a motion filed Jan. 13 in the U.S. District Court for the District of Nevada, the FTC said Cliq Inc., formerly CardFlex Inc., along with CEO Andrew Phillips and Chief Technology and Security Officer John Blaugrund, repeatedly ignored requirements imposed under a 2015 stipulated order with the agency. The FTC is seeking at least $52.9 million in compensatory relief for consumers, a permanent ban barring Phillips and Blaugrund from the payment processing business, and the appointment of a receiver to ensure compliance.

"Cliq and its operators flagrantly violated an FTC order requiring reasonable steps to prevent and detect fraud," Christopher Mufarrige, director of the FTC's Bureau of Consumer Protection, said in a statement. "We will not hesitate to hold accountable companies that ignore red flags and distort the honest functioning of the U.S. payment system."

According to the FTC, Cliq violated multiple provisions of the 2015 order by processing payments for merchants that were explicitly prohibited. The agency alleges the company processed hundreds of millions of dollars in transactions for at least three merchants listed on Mastercard's Member Alert To Control High (MATCH) list, which flags merchants terminated for excessive chargebacks or other rule violations.

The FTC further alleged that Cliq assisted clients in evading bank and card network risk-monitoring programs, failed to adequately screen high-risk merchants, and did not properly monitor transactional activity for signs of deception. In some cases, the agency said, Cliq ceased processing for merchants with high chargebacks without determining whether deceptive conduct was occurring, while continuing to process for other high-risk clients without reasonable oversight.

The contempt motion stems from a long-running enforcement action tied to a massive online fraud scheme operated by a company known as I Works.

Roots in the I Works enforcement action

The FTC first filed charges in August 2014 against seven defendants, including CardFlex, Blaze Processing, Mach 1 Merchanting, Phillips, Blaugrund, Shane Fisher, and Jeremy Livingston, alleging they illegally processed more than $26 million in unauthorized consumer charges for I Works.

The FTC previously charged I Works itself in 2010, alleging it scammed consumers out of more than $275 million through deceptive "trial" memberships for bogus government-grant and money-making programs.

In its 2014 complaint, the FTC alleged that the payment processors knowingly provided I Works with access to Visa and Mastercard networks despite repeated placement on industry high-risk lists due to excessive chargebacks. The agency said the defendants opened hundreds of merchant accounts in the names of shell corporations and split transactions across dozens of accounts to evade network fraud monitoring thresholds.

At the time, several defendants, including Blaze Processing, Mach 1 Merchanting and Shane Fisher, agreed to settle the FTC's charges. Those settlements barred the defendants from acting as payment processors or ISOs and imposed monetary judgments, much of which was suspended due to claimed inability to pay.

The 2015 settlement and order

CardFlex, Phillips and Blaugrund settled the FTC's charges in March 2015, entering into a stipulated final order with the agency. The order prohibited them from processing payments for merchants engaged in deceptive conduct, assisting clients in evading risk-monitoring programs, and required enhanced underwriting, screening and monitoring of merchant activity.

The settlement also imposed a $3.3 million judgment against CardFlex and Phillips, partially suspended based on financial condition. Phillips agreed to pay $150,000 and turn over personal assets, including nearly $1.2 million in jewelry. The order carried the force of law once approved by the federal court.

Alleged violations and broader implications

In its latest filing, the FTC argues that Cliq and its executives ignored those obligations and continued to engage in the same types of conduct the 2015 order was designed to prevent. Some of the merchants processed under Cliq's watch have since been indicted in separate criminal cases, according to the agency.

The FTC is asking the court not only to impose financial relief, but also to permanently remove Phillips and Blaugrund from the payment processing industry and install a receiver to oversee compliance.

The case underscores the agency's continued focus on holding payment processors accountable for their role in enabling fraud, particularly where processors are alleged to have ignored chargeback data, network warnings and other risk signals. The enforcement action serves as a reminder that compliance obligations imposed through FTC orders are ongoing and enforceable years later, and consequences for violating them can be severe.

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