Top Two Executives Of Credit Card Processing Company Charged In $30 Million Overbilling Scheme

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https://www.justice.gov/usao-sdny/pr/top-two-executives-credit-card-processing-company-charged-30-million-overbilling-scheme

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Tuesday, May 2, 2017

Top Two Executives Of Credit Card Processing Company Charged In $30 Million Overbilling Scheme

Defendants Are Charged with Victimizing More than 10,000 Small Businesses

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, Philip R. Bartlett, the Inspector in Charge of the U.S. Postal Inspection Service, and David E. Beach, Special Agent in Charge of the New York Field Office of the U.S. Secret Service, announced the indictment and arrest today of MICHAEL MENDLOWITZ, a/k/a “Moshe Mendlowitz,” and RICHARD D. HART, a/k/a “Rick Hart,” on charges of fraudulently operating a payment card processing company that operated under various names including Commerce Payment Systems (“CPS”). MENDLOWITZ, the chief executive officer and part owner of CPS, and HART, a CPS vice president and director of sales and the president of a number of CPS affiliated companies, are charged with masterminding a years-long scam that took more than $30 million from more than 10,000 small businesses, who relied upon CPS to help them process debit card and credit card sales. MENDLOWITZ and HART were arrested this morning and will be presented and arraigned later today before U.S. District Judge Vernon S. Broderick.
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MENDLOWITZ and HART operated a fraud scheme founded on false claims of very low fees, along with false promises that there were “no hidden fees,” and that rates were “guaranteed for life.” In truth, however, CPS customers were charged all manner of hidden fees, and MENDLOWITZ subsequently altered customer accounts to add even higher fees. Among other deceptive tactics, MENDLOWITZ and HART used a “cost comparison calculator” that ostensibly showed potential customers a direct comparison between what they were currently paying versus what they would pay if they became customers of CPS. However, these cost comparison calculators were intentionally designed to conceal many of the fees that the customers would be charged.

In furtherance of their fraud, MENDLOWITZ and HART also concealed from customers pages of contract terms that directly contradicted representations made to customers during the sales process. When internet ratings of CPS became particularly negative, MENDLOWITZ and HART surreptitiously created a series of other corporate names, each with its own email domain, internet web page, and phone number, to operate their scheme free of the negative reviews. These brand-new affiliates were marketed under false brochures and websites that falsely claimed that the affiliate had been in business for many years, had “300,000 satisfied customers,” and that those customers included major national hotel chains, restaurant chains, and a university.
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[nitpicker]

1. More from Newsday

http://www.newsday.com/long-island/crime/two-men-from-li-charged-in-credit-card-processing-scheme-feds-say-1.13554836

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Their companies — known as Commerce Payment Systems, Evolution Bankcard and other names, and located in Hewlett according to online listings — serviced up to 12,000 merchant customers and took in $30 million from 2013 to 2015, the government said.
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The scheme, the government said, included false marketing, misrepresentations by CPS sales staff to potential merchant customers and misrepresentations to customers when they called to complain about overcharges. Processors act as middlemen between a merchant, the merchant’s bank, a cardholder, the cardholder’s bank and the credit card company — such as Visa or MasterCard. The majority owner of CPS, the charges said, was a larger processing company.

Mendlowitz and Hart, the government said, charged merchants fees that were “several times higher” than what they were promised during sales pitches, charged duplicate fees multiple times and added in bogus charges such as “IRS reporting fees” and “inactivity fees.” They also manipulated computer images of sales agreements, according to the indictment, so that it appeared to their parent company that customers had initialed and okayed fees that they had in fact been assured would not be charged.