Final defendant in a $275M scam settles
CardFlex and its principals settled charges on Friday brought by the Federal Trade Commission accusing them of illegally processing more than $26 million in unauthorized charges. The agency said CardFlex was part of a $275 million scam.
The scam involved a company called I Works, which enlisted several payment processing companies to run charges through the Visa (V) and MasterCard (MA) networks for a variety of schemes including bogus trial memberships and phony government grants. CardFlex is the final company to reach a settlement in the case.
"CardFlex helped scammers drain people's credit and debit accounts without their permission," Jessica Rich, director of the FTC's Bureau of Consumer Protection said in statement. "This case shows that facilitating fraud is a bad strategy for payment processors."
Under the settlement, CardFlex and principals Andrew Phillips and John Blaugrund are prohibited from processing certain types of merchant transactions and must work to detect when clients are deceiving consumers and terminate those contracts. In addition, a judgment of $3.3 million was issued, but it's partially suspended if Phillips pays $150,000 and surrenders an estimated $1.2 million in jewelry to be sold at auction by the FTC.
When the FTC announced charges in July against defendants in the I Works case, the agency alleged that despite knowledge of I Works being on a high-risk list due to a high rate of reversed charges, the card processors ran charges for I Works without any further scrutiny.
In addition, CardFlex and other defendants were accused of helping the scheme avoid the credit card companies' fraud monitoring by dividing transactions among many different accounts to stay under levels that would trigger suspicion.
