A card processor that was accused of illegally processing more than $26 million in unauthorized consumer charges for a suspected scammer has settled with the U.S. Federal Trade Commission, the FTC announced on Friday (March 27).
CardFlex and its principals, Andrew Phillips and John Blaugrund, were hit with a $3.3 million judgment for helping a Utah-based company called I Works charge consumers a total of $275 million through a variety of scams. CardFlex was one of three card processors who helped I Works by creating multiple accounts so that fraud reports for any specific account would remain too low to trigger Visa and MasterCard’s fraud detection, the FTC charged.
CardFlex, Phillips and Blaugrund are the last of the seven defendants charged in the scheme to settle the charges. The settlement requires CardFlex to screen questionable prospective clients, monitor sales activity of current clients to watch for fraud, and terminate contracts with customers engaging in deceptive conduct. It also prohibits the defendents from acting as a payment processor for several categories of high-risk merchants, or helping in attempts to evade Visa and MasterCard risk-monitoring programs.
“CardFlex helped scammers drain people’s credit and debit accounts without their permission,” FTC Bureau of Consumer Protection director Jessica Rich said in a prepared statement. “This case shows that facilitating fraud is a bad strategy for payment processors.”
In July 2014, the FTC sued the three card processors — CardFlex, Blaze Processing and Mach 1 Merchanting — and their principals, Phillips, Blaugrund, Shane Fisher and Jeremy Livingston, for helping I Works with its scams, which used deceptive trial memberships for bogus government-grant and money-making schemes. The FTC alleged that the defendants knew I Works was on industry lists of high-risk merchants because of high charge-back rates, but opened hundreds of accounts in the names of 51 shell companies to avoid fraud detection.
Blaze, Mach 1 and Shane Fisher settled almost immediately, with just under $1 million in monetary judgments. Jeremy Livingston settled with the FTC in January 2015 with a $328,000 monetary judgment.
I Works itself was sued by the FTC in December 2010. Three of the nine defendants in that case have settled, with judgments that total almost $300 million.