Credit Processing Executives Charged In $30 Million Overbilling Scheme

Credit Processing Executives Charged In $30 Million Overbilling Scheme

Conducting business in professional, transparent and honest manner is not only great business philosophy, which truly creates customer partnerships, it also keeps “you” out of prison. Increased scrutiny of merchant services providers using misleading verbal statements, misleading proposals and worst of all, misleading analysis’ to dupe unsuspecting customers into to becoming buyers, is now forcing law enforcement and prosecutors to ramp up enforcement. As an industry professional I welcome this increased enforcement. Days of using boastful and misleading tactics are coming to an end. Greater scrutiny and prosecution will ensure this. Conducting yourself as a true professional is paramount.

We all too often see unprofessional, disgusting activity taking place where unsuspecting merchants are duped into doing business by “pie in the sky” promises of “lowest rates” and “smoke and mirrors” proposals. These tactics are often unveiled when the credit card processing statements show up full of little surprises. Sometimes it takes 2-3 or 4 months before all the surprises are aired, but they do eventually make their presence. Add this together with the words spoken by the associate plus other unannounced surprises you have the perfect storm and grounds for prosecution due to fraud. As industry professionals we are held to our words and presentations. We must be totally transparent and honest to a fault or face the consequences. Ignorance of the facts or lack of industry knowledge is not an excuse. As a professional you must take your responsibility seriously. Each and every one of us in an industry ambassador. We must learn the business through being highly trained and educated in our industry. We must also be well aware of associated laws before we venture out and face impending disaster. Read article below and see why this is ultimately so much more important today.

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

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

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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.

Acting Manhattan U.S. Attorney Joon H. Kim said: “Michael Mendlowitz and Richard Hart, executives of a credit card processing company, allegedly preyed on small business owners, defrauding over ten thousand businesses of over $30 million. Small businesses – like all businesses – are entitled to be treated fairly and to have their bills honestly reflect the services they received. That is not what the businesses that Mendlowitz and Hart dealt with got. Instead, they allegedly got a series of lies and misrepresentations to support tens of millions of dollars in overbilling.”

U.S. Postal Inspector in Charge Philip R. Bartlett said: “In an economy where small businesses are already struggling, it’s disappointing these individuals allegedly devised a scheme to prey upon these business owners by lying and manipulating the fees they are required to pay for debit and credit transactions. Postal Inspectors reminds fraudsters that defrauding members of the business community will never be tolerated. We will find you and bring you to justice for misuse of the US Mail.”

Secret Service Special Agent in Charge David E. Beach said: “Technological advancements have led to the sophistication of fraudulent schemes. While these schemes have a profound impact on our financial crimes investigations, this case demonstrates the combined power of law enforcement and our federal partners to share information and resources, and ultimately bring the alleged perpetrators to justice.”

According to the Indictment unsealed today in Manhattan federal court[1]:

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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Don Bregin

Don is an industry professional with 30+ years of experience in finance and accounting, risk management, general business management, credit card processing and electronic payments.

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