Department of Justice indicted and arrested on Tuesday May 2, 2017 two executives, MICHAEL MENDLOWITZ, a/k/a “Moshe Mendlowitz,” and RICHARD D. HART, a/k/a “Rick Hart,” for defrauding 10,000 merchants through various schemes for a staggering amount of $30 million dollars over a number of years. The exhaustive multi-agency investigation has finally put two of the most greedy fraudsters out of business. This is great news for the aggrieved as well as others who are constantly swindled by some others.
These poor practices are nothing new. In fact, it happens by many others. I also fault those processors and their sponsor banks responsible for allowing such atrocious and repugnant violations to take place. Here is how it happens: the company registers as an Independent Sales Organization (ISO) with a Sponsor Bank, which in turn has a direct relationship with one or more processors. The processor allows its ISOs to post only the ISO’s phone number as the contact information on the merchant’s monthly processing statement. In this fashion, all calls are answered by the very fraudsters who milk merchants. They tell merchants the ISO is the processor, which is a lie. It is also possible that the phone number listed is that of the processor. However, when merchants call for help, the processor routs the call to the registered ISO. First Data is one such processor. I know because of my first-hand experience. The end result is a perpetual system of fraud.
DOJ and FBI should also investigate the poor practices by the bigger fish, albeit unintentionally, that allows these frauds to take place.
Additionally, the sponsor banks should be held accountable for closing their eyes and ears. I once reported unscrupulous practices of a few ISOs to their processor and to one sponsor bank. My complaint fell on deaf ears. Of course, finding the right department and person to talk to is a herculean task, and nearly impossible. To make matters worse, some players place the blame on others in order to avoid thee discussion altogether. None of them wants to upset the balance because merchant portfolios are a steady source of income, and they are bought and sold.
Moreover, I fault state lawmakers and attorney generals for ignoring these frauds too. Many lawmakers have no clue about these frauds, and most attorney generals refer complainants to Financial Consumer Protection Bureau (www.consumerfinance.gov), a federal government agency who is responsible for consumer affairs not matters that affect businesses. These attitudes and practices have to change drastically.
Merchants should call their state lawmakers and complain. The more, the better. The lawmakers have to hear directly from merchants en mass. Otherwise, the nets of the fraudsters will continue to fish as many unsuspected merchants as they can catch.
I have described these practices and many more issues in my book “Credit Card Processing: Exposé.”
Read the full article by Department of Justice, click here.