Qchex.com Owes $535K for Delivering Bad Checks

(CN) - The 9th Circuit upheld an order requiring Qchex.com to hand over profits of more than $535,000 after fraudsters and con artists used the Web site to issue hundreds of thousands of unauthorized checks.

The company challenged a district court's ruling for the Federal Trade Commission, which had forced Qchex.com to comply with specific verification procedures when issuing checks to customers.

The Web site was shut down in 2006, and parent company Neovi Data Corp. filed for Chapter 11 bankruptcy a year later.

Ruling for the FTC, the lower court found that "Qchex's profound lack of diligence, coupled with the affirmative acts of creating and delivering hundreds of thousands of unverified checks -- over 150,000 of which were from accounts later frozen for fraud -- warranted liability," the 9th Circuit explained.

Qchex customers included the University of Chicago, Goldman Sachs, the Federal Communications Commission and the FTC itself.

On appeal, Qchex argued that it was not responsible for creating the checks it delivered from 2000 to 2006, because checks could only be created through a user account. But the accounts had such poor security, the FTC argued, that the Web site became an easy target for criminals.

A three-judge panel of the 9th Circuit affirmed the order banning Qchex from creating or delivering any checks unless it follows the court-ordered verification process.

"Qchex's approach would immunize a Web site operator that turned a blind eye to fraudulent business made possible only through the operator's software," Judge Margaret McKeown wrote for the San Diego-based panel.

The panel also upheld the order forcing Neovi to disgorge all of the site's "ill-gotten gains," totaling more than $535,000.

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