The Federal Trade Commission has filed an administrative complaint against Electronic Payment Systems and its owners, John Dorsey and Thomas McCann, for allegedly opening credit card processing merchant accounts for fictitious companies on behalf of Money Now Funding, a business opportunity scam that the FTC previously sued. By ignoring warning signs that the merchants were fake, Electronic Payment Systems assisted Money Now Funding in laundering millions of dollars of consumers’ credit card payments to the scammers from 2012 to 2013.
In a consent agreement settling the matter, which the FTC has accepted for public comment, Electronic Payment Systems and its owners have agreed to restrictions on the merchants for whom they can provide credit card payment processing services, as well as additional merchant screening and monitoring requirements. The FTC is not able to obtain a monetary judgment in this case because of the Supreme Court’s decision in AMG Capital Management v. FTC.
“Companies involved in payment processing can’t ignore red flags that fraudsters are using the system to steal people’s money,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “It’s urgent that our authority to get money to consumers be restored, but in the meantime, we’ll do everything we can to stop scammers and those who help them.”
According to the FTC’s administrative complaint, the Money Now Funding scammers falsely promised consumers that they would earn thousands of dollars in income. They allegedly took numerous steps to hide their identities behind fake businesses to evade detection by credit card companies and banks. The complaint alleges that Electronic Payment Systems facilitated that evasion by creating 43 different merchant accounts for fictitious companies on behalf of Money Now Funding, allowing the scammers to run more than $4.6 million in consumer credit card charges through those accounts. The practice of processing credit card transactions through another company’s merchant accounts is known as credit card laundering.
The administrative complaint also outlines ways in which Electronic Payment Systems employees turned a blind eye to the credit card laundering, and even gave advice to Money Now Funding on how to spread charges among different accounts to evade detection. For example, the complaint alleges that Electronic Payment Systems:
- Opened merchant accounts for fake companies based on extremely vague descriptions of their business, such as simply “marketing and advertising,” with no additional detail;
- Overlooked that applicants had poor credit ratings and substantial debt, raising obvious questions about the financial health of the merchants;
- Did not follow-up on indications that the merchants were engaged in telemarketing, which would have raised additional barriers to opening the accounts;
- Ignored feedback from its sponsoring bank that the merchant accounts were problematic; and
- Acknowledged evidence of credit card laundering in communications, with one employee even telling a sales agent to “spread this out more … so if you need to build a couple more accounts to reach your volume, please do so ….”
Under the terms of the proposed settlement order, Electronic Payment Systems, Dorsey, and McCann would be prohibited from credit card laundering and any other actions to evade fraud and risk monitoring programs. The respondents would also be prohibited from providing payment processing services to any merchant that is, or is likely to be, engaged in deceptive or misleading conduct, and any merchant that credit-card industry monitoring programs have flagged as high-risk for certain reasons. The proposed order would also require the respondents to conduct detailed screening of potential merchants who conduct outgoing telemarketing or are engaged in certain activities that could harm consumers.
The Commission vote to issue the administrative complaint, accept the consent agreement, and move to dismiss a prior federal court case against the respondents was 4-0. In the federal court case, the court granted summary judgment for the FTC against Electronic Payment Systems, Dorsey, and McCann as to liability under the FTC Act and the Telemarketing Sales Rule but denied summary judgment as to the availability of injunctive relief.
The FTC will publish a description of the consent agreement package in the Federal Register soon. The agreement will be subject to public comment, after which the Commission will decide whether to make the proposed consent order final. Instructions for filing comments appear in the published notice. Comments must be received 30 days after publication in the Federal Register. Once processed, comments will be posted on Regulations.gov.
NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $46,517.