Cliq Claims Victory in FTC Fraud Prevention Case Despite Fine

However, the payment processing company said it views the outcome of the case as a vindication, as U.S. District Judge Miranda Du’s ruling Friday (May 15) rejected the remedies sought by the Federal Trade Commission (FTC).

“We are gratified that the Court rejected what we always perceived as a massive overreach by the FTC — efforts to effectively shut down the company by imposing a receiver, banning top executives from any further industry participation and imposing severe eight- or nine-figure financial sanctions,” Joanna Oliva, Cliq’s president, said in a news release.

The case began in 2014, when the FTC sued Cliq—then known as CardFlex—and two other companies for allegedly processing more than $26 million in unauthorized consumer charges for a suspected scammer. CardFlex agreed to settle the charges the following year.

At the start of this year, the FTC filed a motion alleging that Cliq, its CEO Andrew Phillips and Chief Technology and Security Officer John Blaugrund violated a 2015 order requiring “reasonable steps to prevent and detect fraud.”

The commission said Cliq had violated several provisions of the order by processing “hundreds of millions of dollars in payments” for clients that had been terminated by Mastercard for violating card brand rules, helping clients to avoid bank and credit card network fraud and risk monitoring programs, and by processing transactions for high-risk customers without sufficiently screening their’ business practices.

The FTC had asked the court to hold Cliq, Phillips and Blaugrund in contempt, award at least $52.9 million in compensatory relief for injured consumers, and force Cliq into compliance, in part by permanently banning Phillips and Blaugrund from the payment processing industry.

“We are extremely pleased with the court’s conclusion that Cliq violated multiple provisions of its 2015 order, as the FTC alleged, and that those violations facilitated millions of dollars of fraud,” Christopher Mufarrige, Director of the FTC’s Bureau of Consumer Protection, said in a statement provided to PYMNTS.

Cliq said in its news release that it had repeatedly offered to have the FTC carry out independent, on-site monitoring of its compliance systems, at Cliq’s own expense, to give the regulator greater visibility into its business.

“The court’s decision validates our robust compliance program and business practices, as well as our strong commitment to preventing fraudulent and illegitimate merchant activity,” Phillips said. “We were confident that once the facts were heard in an unbiased environment that did not distort the truth, the FTC’s errant allegations would be dismissed, and Cliq would be vindicated.”

However, the judge was not entirely on Cliq’s side. Per a report by Payments Dive, Du said in her ruling that she had found that the defendants “have demonstrated neither substantial compliance nor good faith and reasonable interpretation” of her order, and cited “clear and convincing evidence” that Cliq processed payments that violated the order.