Guilty Pleas in $1.4 Million Nordstrom Fraud

(CN) - Two brothers have pleaded guilty to swindling Nordstrom for more than $1.4 million in online cash-back incentives.

U.S. District Judge Ricardo Martinez in Seattle accepted the pleas of Allen J. Chiu, 37, of Dallas, and Andrew S. Chiu, 29, of Anaheim, Calif., to wire fraud charges.

They face up to 20 years in federal prison and a $250,000 fine. Under the Chius' plea agreement, prosecutors say they will recommend no more than 30 months in prison, and the brothers can ask for no less than 24 months.

In 2008, Nordstrom banned the brothers from ordering its merchandise over the Internet after receiving excessive refund claims that said the orders had never been delivered.

In spite of the ban, the brothers kept trying to place orders online. Both men belonged at the time to FatWallet.com, a shopping website that uses cash-back incentives for members to promote online retailers.

Prosecutors say the brothers discovered in January 2010 that they could exploit a Nordstrom computer error in which the retailer would unwittingly pay FatWallet for blocked orders. FatWallet allegedly gave the brothers cash-back credit, though their credit cards were never charged for the blocked orders.

"Between January 2010 and continuing through October 2011, the Chiu brothers collectively placed more than $23 million in fraudulent orders through Nordstrom.com," prosecutors said. "The fraudulent ordering resulted in Nordstrom paying $1.4 million in rebates and commissions, with more than $650,000 in fraudulent cash back payments going directly to the brothers. The error that permitted the continued payment of rebates in the ordering system has since been fixed."

Prosecutors say that they have so far seized more than $970,000, which will go toward restitution.

The brothers are scheduled to be sentenced on July 13.

Follow @davejourno

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