Head Of Telemarketing Operation Charged In $19 Million Credit Card Laundering Scheme

 

Defendant Charged with Using Phony Merchant Accounts to Obtain Credit Card Processing for His Deceptive Business

 Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced the arrest today of STEVEN SHORT, the former head of E.M. Systems & Services, LLC, and affiliated companies (“E.M. Systems”), on charges of fraudulently obtaining credit card processing services for his deceptive Florida-based telemarketing operation.  As alleged in a superseding indictment unsealed today, which also contains charges previously announced against Brandon Becker, the former CEO of CardReady, LLC (“CardReady”), SHORT and Becker fraudulently carried out a credit card laundering scheme that provided access to the credit card system for SHORT’s underlying telemarketing scheme.  From about 2012 through 2015, according to the Indictment, SHORT and E.M. Systems generated over $19 million from thousands of customers who received cold calls promising to reduce their overall debt burdens in exchange for fees of up to $1,495.  The telemarketing operation resulted in hundreds of complaints of fraud and deceptive tactics, and requests for millions of dollars in refunds and chargebacks.  The charges include that, from approximately 2012 through 2015, SHORT, Becker and their co-conspirators carried out a fraudulent credit card processing scheme, processing credit card charges for SHORT’s telemarketing operation, even though applicable contracts prohibited the processing of credit card charges for purported “debt consolidation” and “interest rate reduction” services.  SHORT and Becker are charged with accomplishing this processing fraud by creating dozens of sham merchant accounts and false merchant applications, concealing the true nature of SHORT’s telemarketing operation, and defrauding an associated credit card processing company and a federally insured bank into processing more than $19 million in payments for the scheme.

SHORT was arrested this morning in Tampa, Florida, and is scheduled to be presented in Tampa before U.S. Magistrate Judge Sean Flynn.  Becker was originally arrested at Los Angeles International Airport on September 22, 2019.  The case is assigned to Judge Preska, and is scheduled to go to trial on January 31, 2022.

U.S. Attorney Strauss said:  “Steven Short and his codefendant allegedly preyed on people already in debt in order to enrich themselves, using a web of sham companies to perpetuate and conceal their conduct.  As credit cards and electronic payments become an ever more central part of our society and our economy, both consumers and corporations have every right to expect truthfulness and fair dealing in the marketplace – not fraud and deception.”

FBI Assistant Director William F. Sweeney Jr. said: "As alleged, Becker and Short created more than $19 million in illegitimate profits, derived from victims who were deliberately targeted due to their debt-laden status. They entered into this scheme together and will exit in much the same way—facing a federal indictment that carries significant charges of its own."

According to the Indictment unsealed today:[1]

SHORT controlled E.M. Systems and its affiliates, based in Florida.  Beginning in 2012, SHORT sought to use E.M. Systems to carry out a telemarketing scheme targeting people with outstanding debt, and to offer them purported financial services.  In order to charge for such purported services via credit cards, SHORT sought access to the credit card processing market, through Becker and CardReady.  

Becker was the CEO of CardReady, a Los-Angeles based company acting as a sales agent in the credit card processing industry.  As part of its business as a sales agent, CardReady found merchants who wanted credit card processing services, such as SHORT, and submitted merchant applications on behalf of those merchants to an Independent Sales Organization (“ISO”), referred to in the Indictment as the “New York ISO.”  The New York ISO then evaluated the merchant applications, and referred acceptable merchant accounts up the chain to Payment Processor-1 and to Bank-1.  Bank-1 and Payment Processor-1, in turn, processed payments to merchants for purchases by customers who had used credit cards.

In or about 2012, SHORT negotiated a deal with Becker, to obtain credit card processing for SHORT and E.M. Systems.  Under this deal, CardReady would keep approximately one-third of the credit card sale transactions of SHORT and E.M. Systems, in exchange for providing them access to the credit card processing network.  For roughly the next two years, SHORT and E.M. Systems carried out a telemarketing scheme in which they used telemarketers to cold-call consumers, targeting consumers with outstanding credit card debt.  The cold-callers offered the customers services, including debt consolidation and interest rate reduction on their debts, which were prohibited by the applicable guidelines from Bank-1 and associated processing entities (the “Guidelines”), and which – as SHORT and Becker knew – would produce chargebacks from dissatisfied customers far in excess of the number and rate of chargebacks permitted under the Guidelines.

In securing payment card processing for E.M. Systems, SHORT and Becker concealed that E.M. Systems was the true underlying merchant.  Instead, SHORT, Becker and their co-conspirators, over a period of more than 20 months, created approximately 26 sham merchant companies, each headed by a “signer” (the “Sham Merchants” and the “Sham Merchant Accounts”).  The 26 signers for the 26 Sham Merchants typically had no businesses of their own, and knew little or nothing about E.M. Systems’ business.  In return for signing paperwork, the signers were paid a nominal fee from CardReady.  SHORT, Becker, and their co-conspirators prepared and coordinated fraudulent merchant applications for each of the Sham Merchants, through merchant applications that falsely described the Sham Merchants to make them look like legitimate independent businesses and to make it more likely that the associated Sham Merchant Account would be approved for processing by the New York ISO, Payment Processor-1, and Bank-1.  These false merchant applications also concealed the Sham Merchants’ true association with E.M. Systems.

By steering E.M. Systems’ payment processing through these Sham Merchant Accounts, SHORT and Becker accomplished a number of fraudulent purposes.  First, the use of these Sham Merchant Accounts made it possible for E.M. Systems to conceal its identity from Payment Processor-1 and Bank-1 and to maintain payment card processing.  This was particularly relevant as Payment Processor-1 repeatedly required CardReady to close individual Sham Merchant Accounts because of excessive chargebacks and reports of sales of prohibited services.  SHORT and Becker then caused CardReady to quickly replace the closed Sham Merchant Accounts with new Sham Merchant Accounts, precluding Payment Processor-1 from shutting down its processing of Telemarketer-1 and other high-risk merchants.  Second, the fraudulent processing scheme enabled E.M. Systems to spread out its charges, refunds, and chargebacks across multiple Sham Merchant Accounts.  SHORT and Becker thus enabled E.M. Systems to evade chargeback monitoring programs operated by Bank-1, Payment Processor-1, and the New York ISO.

SHORT, 44, of Tampa, Florida, is charged in Counts One and Four of the Indictment, with conspiracy to commit wire fraud and bank fraud, and bank fraud.  Count One and Count Four each carries a maximum sentence of 30 years in prison, and a maximum fine of $1 million or twice the gross gain or loss from the offense.

Becker, 50, of Los Angeles, California, is charged in four counts, conspiracy to commit wire fraud and bank fraud, conspiracy to make false statements to a bank, wire fraud, and bank fraud.  Count One and Count Four each carries a maximum sentence of 30 years in prison, and a maximum fine of $1 million or twice the gross gain or loss from the offense.  Count Two and Count Three each 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 for each defendant are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Ms. Strauss praised the extraordinary work of the FBI and thanked the Federal Trade Commission for its assistance.

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.