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FTC Settles $26M Enforcement Action Against Credit Card Payment Processor

posted on 2015-05-15 by H. Scott Kelly and Michael E. Lacy

On May 5, the Federal Trade Commission obtained court approval of a settlement against CardFlex, Inc. and its CEO and President, Andrew Phillips, and Executive Vice President of Operations, John Blaugrund.  The lawsuit, captioned FTC v. CardFlex Inc. et al., No. 3:14-cv-00397 (D. Nev.), involved allegations that the defendants operated a $26 million credit card scheme by connecting consumers with another company known to be scamming customers.

According to the FTC, CardFlex partnered with iWorks, which allegedly tricked customers into paying monthly fees for non-existent services – including the use of fine print in its agreements to force customers to pay recurring monthly charges of up to $60 for online plans and services.  The FTC alleged that the defendants knew about iWorks’ deceptive practices and still helped it open nearly 300 merchant accounts under dozens of corporate names.

Under the settlement agreement, the defendants would pay $3.3 million (though that sum would be suspended pending a $150,000 deposit), the forfeiture of more than $1.2 million in jewelry, a Ford pickup truck, gold coins, and furniture, and a check on the truthfulness, accuracy, and completeness of financial statements and related documents.  The individual defendants are also permanently banned from acting as an independent sales organization or sales agent for a variety of services involving money-making opportunities, fraud prevention, and risk monitoring, and they must undergo a screening process before working with high-risk clients.