Court orders Cliq to pay $6.5 million for violating FTC order

A federal judge has ordered payment processor Cliq Inc. and two executives to pay $6.5 million in sanctions after finding the company violated a 2015 court order intended to prevent payment processors from facilitating consumer fraud.

The May 13 order from the U.S. District Court for the District of Nevada found Cliq, formerly known as Cardflex Inc., along with executives Andrew Phillips and John Blaugrund, in civil contempt for multiple violations tied to payment processing activities involving high-risk merchants.

According to the Federal Trade Commission, which requested the contempt ruling, the defendants violated core provisions of the 2015 order by processing transactions for merchants tied to fraudulent activity and failing to conduct required underwriting and risk monitoring.

Court cites underwriting, monitoring failures

The court found the defendants processed hundreds of millions of dollars in transactions for merchants listed on Mastercard’s MATCH system, formally known as Member Alert To Control High-Risk Merchants.

The order also concluded the company and its executives helped certain merchants evade fraud and chargeback monitoring programs. According to the court, those efforts included processing so-called “friendly” transactions intended to mask true chargeback rates and helping merchants process payments under alternate business names or shift transactions between accounts.

In addition, the court found the defendants failed to conduct required underwriting reviews, including collecting and verifying business information and investigating signs of shell companies. The order cited instances in which “obviously false” websites listed on payment processing applications were not further investigated.

The court further determined the defendants processed transactions for merchants that repeatedly exceeded chargeback thresholds established under the 2015 order without conducting required investigations or preparing written reports documenting the decisions.

Court imposes $6.5 million sanction

To address harm resulting from the violations, the court imposed $6.5 million in civil contempt sanctions.

“It is a Commission priority to root out fraud in the payments system,” Christopher Mufarrige, director of the FTC’s Bureau of Consumer Protection, said in a statement. He said the ruling demonstrates the agency’s continued focus on enforcing prior court orders and combating fraud within the payments ecosystem.

The FTC said staff members involved in the matter included Benjamin Theisman, Benjamin Davidson, Iris Micklavzina and Lashanda Freeman.

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