By Theodore F. Monroe and Bradley O. Cebeci, TFMLaw

Late last month, the criminal case against Jeremy Johnson that started back in June 2011 finally came to a close. After more than four years of litigation and six weeks of trial, the jury found Johnson guilty of eight counts of making false statements to a bank, but acquitted him on 78 other charges, including bank fraud, wire fraud, conspiracy and money laundering. By far the biggest legal spectacle involving card-not-present high-risk processing in more than a decade, the Johnson case poses a cautionary tale to banks and ISOs inclined to bend the rules in search of profits; and to merchants willing to “bend the truth” to get access to the payments system.

This is the first of four articles that will use the case to examine card-not-present fraud from a legal perspective. Part 1 describes the case and some of the issues the decision turned on. Subsequent articles will take a closer look at those issues and how they might apply to all sides of the card-not-present ecosystem.

CNP Series: Lessons from a CNP Fraud Scheme – Part 1

The IWorks Scheme

Johnson masterminded an extremely profitable online marketing scheme known as IWorks.  IWorks depended on a huge network of affiliate marketers to target vulnerable consumers with risk-free and free trial offers to receive instructional CDs showing how to win government grant programs to stop foreclosures, pay down debt, purchase real estate, launch businesses, cover medical expenses, and even pay grocery bills and Christmas presents, all in exchange for the consumer’s payment of a nominal shipping and handling fee.  Instead, consumers found unauthorized charges by unknown merchants on their monthly card statements, including large onetime charges for “forced upsells,” and recurring monthly charges flowing from their involuntary enrollment in negative option continuity billing programs.  These practices enabled IWorks to generate more than