By Theodore F. Monroe and Bradley O. Cebeci, TFMLaw
Recently, the criminal case against online merchant Jeremy Johnson in Utah 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 third of four articles that will use the case to examine card-not-present fraud from a legal perspective. Part 1 described the case and some of the issues the decision turned on. Part 2 examined the involvement of CardFlex , one of the ISOs charged by the FTC with aiding Johnson in his alleged fraud. Part 3 looks at credit card laundering, one of the crimes Johnson was charged with.
Credit Card Laundering: Feds Are Cleaning House
The U.S. federal government has declared open season on merchant processors for their involvement in what is called credit card laundering or “factoring,” with a number of high-profile lawsuits involving the practice.
Recently, Utah merchant Jeremy Johnson was prosecuted for such activity , which resulted in his conviction on eight felony counts of false statements to banks. Prior to the filing of the DOJ’s criminal complaint in January 2011, the FTC filed its own civil action against Johnson, IWorks and the dozens of shell companies they used to carry out the fraud. More than three and a half years later, in July 2014, the FTC sued the ISO CardFlex and the various sales agents allegedly responsible for facilitating more than $26 million in illegal transactions for the IWorks scheme.
The IWorks action provides a good illustration of how ISOs can quickly land themselves in hot water with the FTC right alongside their merchants for allegedly