Wednesday, February 11, 2009

FTC Kills Fraudulent Online Check-Processing Operation

Via NetworkWorld -

The Federal Trade Commission today got a US District Court to permanently stop what it called illegal operations of an Internet-based check creation and delivery service and require the group to give up some $535,000 in ill-gotten gains.

According to the FTC, created and sent checks drawn on any bank account that a Qchex user identified but did not verify whether the user had authority to draw checks on that account. As a result, fraudsters worldwide used the Qchex service to draw thousands of checks on bank accounts that belonged to unwitting third parties. Defendants' practices harmed account holders whose bank accounts were debited without their knowledge or consent, as well as individuals and businesses who received fraudulent Qchex checks as payment for goods and services, the FTC stated.

"The evidence shows that the launch of was a ‘dinner bell' for fraudsters and resulted in a high number of accounts frozen for fraud . . .," said District Court Judge Janis Sammartino. "Defendants' own records show that their failure to employ and maintain adequate verification procedures, over approximately six years, led to substantial losses for consumers that had unauthorized checks drawn on their bank accounts."

The FTC complaint said in many cases scammers used a Qchex check to pay individuals or businesses for goods or services. The unwitting individual or business receiving such a check deposited it, and, because the check initially cleared, provided the goods or services to the scammers. But when the unauthorized check ultimately bounced, the amount of the check was debited from the recipient's account.

Scammers also used Qchex checks in overpayment schemes, in which the scammer overpaid an unsuspecting third party for items or services and asked that third party to wire back the difference between the price of the item or service and the amount of the bogus Qchex check. The checks initially cleared, so these recipients of Qchex checks wired the excess funds as requested. But again, when an unauthorized check ultimately bounced, the amount of the previously deposited Qchex check was debited from the victim's account, the FTC said.

The Judge's order permanently bars the operators, Neovi, from doing business as Neovi Data Corporation and, G7 Productivity Systems from operating a similar site without verifying that customers are authorized to draw checks from the bank accounts they have specified. Further, the court ordered the defendants to give up $535,358 in profits.

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