Cliq Claims Victory in FTC Fraud Prevention Case Despite Fine

A federal judge ordered payment processing company Cliq to pay $6.5 million in a long-running case related to its fraud prevention measures.

The court found that the company violated a court order related to a 2015 case brought by the Federal Trade Commission, according to a Wednesday (May 20) press release.

“As the court concluded, Cliq and its executives assisted and facilitated scammers in avoiding fraud and risk monitoring programs and failed to conduct the 2015 order’s required underwriting,” Christopher Mufarrige, director of the FTC’s Bureau of Consumer Protection, said in the release. “The court’s order should send a strong signal that the commission will enforce its orders and continue to prioritize rooting out fraud from the American payment system.”

PYMNTS reported Monday (May 18) that U.S. District Judge Miranda Du’s ruling last week rejected remedies sought by the FTC, leading Cliq to say the outcome of the case represents a vindication.

“We are gratified that the court rejected what we always perceived as a massive overreach by the FTC—efforts to effectively shut down the company by imposing a receiver, banning top executives from any further industry participation and imposing severe eight- or nine-figure financial sanctions,” Cliq President Joanna Oliva said in a Friday (May 15) news release.

The case began in 2014, when the FTC sued Cliq, then known as CardFlex, and two other companies for allegedly processing more than $26 million in unauthorized consumer charges for a suspected scammer. CardFlex agreed to settle the charges the following year.

At the start of this year, the FTC filed a motion alleging that Cliq, CEO Andrew Phillips and Chief Technology and Security Officer John Blaugrund violated a 2015 order requiring “reasonable steps to prevent and detect fraud.”

The commission said Cliq had violated several provisions of the order by processing “hundreds of millions of dollars in payments” for clients that had been terminated by Mastercard for violating card brand rules, helping clients to avoid bank and credit card network fraud and risk monitoring programs, and by processing transactions for high-risk customers without sufficiently screening their business practices.

The FTC had asked the court to hold Cliq, Phillips and Blaugrund in contempt, award at least $52.9 million in compensatory relief for injured consumers, and force Cliq into compliance, in part by permanently banning Phillips and Blaugrund from the payment processing industry.

Cliq said in its Friday news release that it had repeatedly offered to have the FTC carry out independent, on-site monitoring of its compliance systems, at Cliq’s own expense, to give the regulator greater visibility into its business.

“The court’s decision validates our robust compliance program and business practices, as well as our strong commitment to preventing fraudulent and illegitimate merchant activity,” Phillips said in the release.

“We were confident that once the facts were heard in an unbiased environment that did not distort the truth, the FTC’s errant allegations would be dismissed, and Cliq would be vindicated,” he added.

However, the judge was not entirely on Cliq’s side. Du said in her ruling that she found that the defendants “have demonstrated neither substantial compliance nor good faith and reasonable interpretation” of her order, and she cited “clear and convincing evidence” that Cliq processed payments that violated the order.