FTC Imposes Restrictions on Electronic Payment Systems for Opening Merchant Accounts for Fictitious Companies, Assisting a Business Opportunity Scam

The Federal Trade Commission has filed an administrative complaint against Electronic Payment Systems and its owners, John Dorsey and Thomas McCann, for allegedly opening credit card processing merchant accounts for fictitious companies on behalf of Money Now Funding, a business opportunity scam previously prosecuted by the FTC. By ignoring warning signs that merchants were fake, electronic payment systems helped Money Now Funding launder millions of dollars in credit card payments from consumers to scammers in 2012-2013.

in one consent form To resolve the matter, which the FTC accepted for public comment, Electronic Payment Systems and its owners have agreed to restrictions on the merchants to which they can provide credit card payment processing services and additional requirements for merchant screening and monitoring. The FTC is unable to obtain a monetary judgment in this case due to the Supreme Court decision AMG Capital Management vs. FTC.

“Companies involved in payment processing cannot ignore warning signs that scammers are using the system to steal people’s money,” said Samuel Levine, director of the FTC’s Consumer Protection Bureau. “There is an urgent need for our authority to wire money to consumers to be restored, but in the meantime we will do everything we can to stop scammers and those helping them.”

According to the FTC’s administrative complaint, the Money Now Funding scammers falsely promised consumers they would make thousands of dollars in income. They have allegedly taken numerous steps to hide their identities behind fake companies to avoid detection by credit card companies and banks. The complaint alleges that electronic payment systems facilitated this circumvention by creating 43 different merchant accounts for fictional businesses on behalf of Money Now Funding, allowing the scammers to process more than $4.6 million in consumer credit card charges through those accounts . Processing credit card transactions through another company’s merchant accounts is known as credit card laundering.

The administrative complaint also outlines how Electronic Payment Systems employees turned a blind eye to credit card laundering and even gave Money Now Funding advice on how to spread charges across different accounts to avoid detection. For example, the complaint alleges that electronic payment systems:

  • Opened merchant accounts for fake companies based on extremely vague descriptions of their business, such as: B. Simply “Marketing and Advertising” with no additional details;
  • Overlooked that applicants had poor credit ratings and significant debt, raising obvious questions about traders’ financial health;
  • Evidence that the merchants engaged in telemarketing was not followed up, which would have created additional barriers to opening the accounts;
  • Ignored feedback from his sponsor bank that merchant accounts were problematic; and
  • Acknowledging evidence of credit card laundering in communications, with one staffer even telling a sales rep to “keep distributing this… so if you need to build a few more accounts to reach your volume, please do so…”.

Under the terms of the proposed settlement order, Electronic Payment Systems, Dorsey and McCann would be prohibited from credit card laundering and all other fraud evasion and risk monitoring programs. Respondents would also be prohibited from providing payment processing services to merchants engaged or likely to be engaged in fraudulent or deceptive behavior and to merchants that credit card industry surveillance programs have identified as high-risk for specific reasons. The proposed order would also require respondents to conduct a detailed review of potential merchants engaged in outbound telemarketing or engaged in certain activities that could harm consumers.

The commission’s vote to file the administrative complaint, accept the consent agreement, and move to dismiss a prior federal court case against the defendants was 4-0. In the federal court proceeding, the court entered summary judgment for the FTC against Electronic Payment Systems, Dorsey and McCann as to liability under the FTC Act and the Telemarketing Sales Rule, but denied summary judgment as to the availability of injunctive relief.

The FTC will soon publish a description of the Consent Agreement Package in the Federal Register. There will be public comment on the agreement, after which the Commission will decide whether the proposed consent order will become final. Instructions for submitting comments will appear in the posted notice. Comments must be received in the Federal Register within 30 days of posting. After processing, the comments will be posted on Regulations.gov.

NOTICE: The Commission issues an administrative complaint when it “reasonably believes” that the law has been or is being broken and the Commission feels that a proceeding is in the public interest. When the Commission issues a final consent order, it becomes final with a view to future action. Any violation of such an order may result in a civil penalty of up to $46,517.

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