RENO, Nev. (CN) - Three defendants the FTC accused in a credit-card processing scam settled without admitting guilt but were fined $1 million and no longer can provide credit card processing services.
The Federal Trade Commission in July sued Cardflex, of California; Blaze Processing, and Mach 1 Merchanting, both of Idaho.
Also sued were Cardflex president Andrew M. Phillips, Cardflex director John Blaugrund, and Shane Fisher and Jeremy Livingston, managers and principals of Blaze Processing and Mach 1 Merchanting.
Blaze Processing, Mach 1 Merchanting and Fisher on Monday settled with the FTC, in a stipulated permanent injunction.
The defendants are "permanently restrained and enjoined from payment processing or acting as an ISO [independent sales organization] or sales agent for any client," according to the order from U.S. District Judge Miranda Du. "Provided, however, that this section shall not prevent defendant Shane Fisher from obtaining payment processing services for the purpose of accepting payments from consumers for goods and services sold by or on behalf of any business in which Shane Fisher owns at least a 25 percent share."
Du ordered Fisher to pay $328,467.23, Blaze Processing $386,131.62 and Mach 1 $270,802.8 as "equitable monetary relief."
The defendants did not have to admit or deny any of the allegations, except as specifically stated in the order. "Settling defendants waive all rights to seek appellate review or otherwise challenge or contest the validity of this order," Du wrote.
They also must cooperate in the FTC's case against the remaining defendants.
In its July lawsuit, the FTC accused multiple defendants of "causing more than $26 million in unauthorized charges to consumers' credit and debit card accounts. Defendants caused these unauthorized charges by arranging for a group of interrelated merchants, known as iWorks, to obtain and maintain merchant accounts that enabled iWorks to process unlawful credit and debit card payments through the Visa and MasterCard payment networks."
The FTC accused the defendants of "numerous tactics that were designed to evade fraud monitoring programs implemented by Visa and MasterCard. Defendants' tactics included: (1) opening any merchant account with minimal underwriting as long as the account was personally guaranteed by iWorks' president; (2) opening at least 293 merchant accounts in 30 separate corporate names for processing iWorks transactions; (3) implementing a system by which iWorks was able to distribute sales transactions and chargebacks among their numerous merchant accounts in order to avoid detection by the credit card networks (a tactic known as 'load balancing'); and (4) ignoring excessive rates of transactions returned by consumers ('chargebacks') on iWorks' merchant accounts."
CardFlex is an independent sales organization that charges a fee to help merchants process credit card transactions.
Blaze Processing and Mach 1 Merchanting are sales agents that arrange connections between merchants such as iWorks and processing companies such as CardFlex.
"iWorks operated several related scams in which it lured consumers through websites that purported to offer free or risk-free information about products or services such as government grants to pay personal expenses and Internet-based money-making opportunities," the FTC said in its complaint. "iWorks' websites were replete with misrepresentations about the availability of grants for personal expenses and the likely profitability of the money-making opportunities.
"The iWorks websites lured consumers into an expensive bait-and-switch. After viewing misrepresentations on iWorks' websites, consumers were led to believe they would be charged only a small fee for shipping and handling, such as $1.99 or $2.99, to receive information about obtaining government grants or making substantial amounts of money. Instead of providing a free product or service for the nominal shipping and handling fee, iWorks enrolled consumers in multiple expensive online plans and charged recurring fees or other additional fees until consumers affirmatively cancelled enrollment in the plan."
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