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.

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.

MENDLOWITZ, 42, of Woodmere, Long Island, and HART, 36, of East Meadow, Long Island, are each charged in three counts, with wire fraud, mail fraud, and conspiracy to commit wire and mail fraud. Each charge carries a maximum sentence of 20 years in prison, and a maximum fine of $250,000 or twice the gross gain or loss from the offense. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Kim praised the work of the U.S. Postal Inspection Service and the United States Secret Service, as well as the Office of the Special Investigator General for the Troubled Asset Relief Program (“SIGTARP”).

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney David Raymond Lewis is in charge of the prosecution.

The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

 

[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.