Seven defendants were charged Friday with illegally processing credit card payments on behalf of a massive Internet scam that allegedly bilked millions of dollars from consumers by repeatedly charging them for "trial" memberships they never ordered. Three of the defendants agreed to settle the Federal Trade Commission's charges.
The defendants arranged for a deceptive operation known as I Works to receive and maintain merchant accounts that allowed it to process more than $26 million in illegal credit and debit card payments through the Visa and MasterCard payment networks, according to the complaint.
The FTC in December 2010 charged I Works with scamming consumers out of more than $275 million via deceptive trial memberships for bogus government-grant and money-making schemes. A federal court subsequently froze I Works assets and placed them under the control of a court-supervised receiver. The I Works litigation is ongoing.
Friday's case alleges that the defendants CardFlex Inc. (formerly operated as CardFlex Financial Services LLC), Blaze Processing LLC, Mach 1 Merchanting LLC, Andrew M. Phillips, John S. Blaugrund, Shane Fisher and Jeremy Livingston illegally provided the access to payment networks that I Works needed to carry out its scheme.
The FTC alleged that the defendants knew I Works had been placed on industry lists of high-risk merchants numerous times due to high chargeback rates. Still, the defendants provided I Works with unfettered access to payment networks and failed to engage in their contractually required underwriting process when they opened accounts for I Works, according to the FTCs complaint.
Blaze Processing, Mach 1 Merchanting, and Shane Fisher agreed to settle the FTCs charges. The suit against CardFlex, Andrew Phillips, John Blaugrund, and Jeremy Livingston is ongoing.
The FTC charged that the defendants helped I Works evade the credit card networks fraud monitoring programs to help keep I Works merchant accounts open. The defendants opened at least 293 accounts in the names of 30 separate shell corporations on I Works behalf, and implemented a system that enabled I Works to divide its sales transactions between these accounts in order to avoid reaching the thresholds necessary for its accounts to be monitored by the credit card networks.
CardFlex, as an Independent Sales Organization, was paid for referring merchants to banks and their payment processors and it received payments based on the volume of transactions processed as well as for processing reversals of charges to credit cards or debits to bank accounts, known as chargebacks. Blaze Processing and Mach 1 Merchanting were sales agents that managed the relationship between CardFlex and I Works.
The stipulated final order against Shane Fisher, Blaze Processing, and Mach 1 prohibits them from acting as a payment processor, ISO, or sales agent for any third parties. The order also contains a nearly $1 million monetary judgment against the defendants. The FTC will collect $328,607.78, and the remainder of the judgment will be suspended because of an inability to pay.
