Head of Telemarketing Operations Pleads Guilty to $19 Million Credit Card Laundering Scheme | USAO-SDNY
Damian Williams, United States Attorney for the Southern District of New York, announced that STEVEN SHORT, the former director of Florida-based EM Systems & Services, LLC and affiliates (collectively, “EM Systems ), pleaded guilty today to one count of conspiracy to commit wire fraud and bank fraud, in connection with his participation in a scheme to fraudulently obtain credit card processing services for his operation deceptive telemarketer based in Florida, through a California company called CardReady LLC (“CardReady”). IN BRIEF pleaded guilty today by video link, before U.S. District Judge Loretta A. Preska. His sentencing is scheduled for December 7, 2022.
According to the superseding indictment, documents filed in court and statements made in court:
SHORT and its co-conspirators fraudulently obtained access to credit card processing services for SHORT’s underlying telemarketing scheme. From around 2012 to 2015, SHORT and EM Systems generated over $19 million from thousands of customers who received cold calls promising to reduce their overall debt in exchange for a fee of up to $1,495. The telemarketing operation resulted in hundreds of customer complaints of fraud and deceptive tactics, as well as demands for millions of dollars in refunds and chargebacks. Credit card processing companies prohibit the processing of credit card charges for so-called “debt consolidation” and “interest rate reduction” services. SHORT and his co-conspirators fraudulently circumvented these prohibitions by using CardReady, which functioned as a commercial agent engaged in the business of securing credit card payment processing services. To execute this fraud, SHORT and others created dozens of fictitious merchant accounts and fake merchant apps, concealing the true nature of SHORT’s telemarketing operation and defrauding an associated credit card processing company and bank. provided by the federal government by processing more than $19 million in payments for the plan.
COURT controlled EM systems. Beginning in 2012, SHORT sought to use EM Systems to carry out a telemarketing program targeting people with unpaid debts and to offer them purported financial services. In order to charge for these purported services via credit cards, SHORT sought to enter the credit card processing market through CardReady, a Los Angeles-based company acting as a commercial agent in the credit card industry. credit card processing. As part of its sales agent business, CardReady found merchants who wanted credit card processing services, such as SHORT, and submitted merchant inquiries on behalf of those merchants to an independent sales organization based in Manhattan (the “New York ISO”). The New York ISO then evaluated merchant applications and referred acceptable merchant accounts up the chain to a payment processor (“Payment Processor-1”) and a bank (“Bank-1”). Bank-1 and Payment Processor-1, in turn, processed payments to merchants for purchases made by customers who had used credit cards. As part of EM Systems’ agreement with CardReady, CardReady retained approximately one-third of SHORT and EM Systems’ credit card sales transactions, in exchange for giving them access to the credit card processing network.
From around 2012 to 2015, SHORT and EM Systems ran a telemarketing program in which they used telemarketers to cold call consumers, targeting consumers with unpaid credit card debt. The cold callers were offering customers services, including debt consolidation and reduction of the interest rate on their debts, which were prohibited by applicable guidelines of Bank-1 and associated processing entities (the “Guidelines”) ), and which – as SHORT knew – would result in chargebacks from dissatisfied customers far beyond the number and rate of chargebacks allowed under the Guidelines.
By securing credit card processing for EM Systems to process fees paid by its customers, SHORT and CardReady concealed that EM Systems was the true underlying merchant. Instead, SHORT and his co-conspirators, over a period of more than twenty months, created approximately 26 fictitious merchant companies, each headed by a “signatory” (the “fictitious merchants” and the “fictitious merchant accounts”) . The 26 signatories of the 26 Sham Merchants generally had no business of their own and knew little or nothing of EM Systems’ activities. In exchange for signing the documents, the signers were paid a small fee by CardReady. These fake merchant apps also concealed the Sham Merchant’s true association with EM Systems.
By directing EM System’s processing of payments through these fictitious merchant accounts, SHORT and CardReady achieved a number of fraudulent objectives. First, the use of these fictitious merchant accounts allowed EM Systems to conceal its identity from Payment Processor-1 and Bank-1 and maintain payment card processing. This was particularly relevant as Payment Processor-1 repeatedly instructed CardReady to close individual fictitious merchant accounts due to excessive chargebacks and reports of sales of prohibited services. SHORT and CardReady then quickly replaced the closed fictitious merchant accounts with new fictitious merchant accounts, preventing Payment Processor-1 from stopping its processing of Telemarketer-1 and other high-risk merchants. Second, the fraudulent processing scheme allowed EM Systems to spread its fees, refunds, and chargebacks across multiple Sham merchant accounts. SHORT and CardReady enabled EM Systems to evade chargeback monitoring programs run by Bank-1, Payment Processor-1 and New York’s ISO.
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SHORT, 45, of Tampa, Fla., pleaded guilty to count 1 of the alternate indictment, which carries a maximum sentence of 30 years in prison and a maximum fine of $1 million. or twice the gross gain or loss of the offence.
Brandon Becker, 51, of Los Angeles, California, whose trial is scheduled to begin Nov. 14, 2022, before Judge Preska, is also charged in the indictment replacing him. Becker is presumed innocent until proven guilty.
The potential maximum sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Williams praised the extraordinary work of the FBI and thanked the Federal Trade Commission for its assistance.
This case is being handled by the Bureau’s Complex Fraud and Cybercrime Unit. Assistant U.S. Attorneys David Raymond Lewis and Vladislav Vainberg are charged with the prosecution.