Telemarketing Firms Accused of Massive Fraud : Lawsuit: Visa and Mastercard say the four companies have laundered $3 million in phony credit card charges.
Visa U.S.A. and Mastercard are suing four telemarketing companies, including two from Los Angeles, in what the credit card issuers are calling the largest international credit card fraud yet uncovered.
The lawsuit, unsealed on Tuesday in U.S. District Court in Los Angeles, accuses the telemarketers of laundering $3 million in phony credit card charges through foreign banks. The suit also says criminal investigations are underway in Austria and Singapore, where some of the alleged laundering occurred.
The suit accuses National Approval Center of Culver City, Blue Rose Merchandising of Los Angeles and two Florida-based firms of masterminding a laundering scheme involving 20 telemarketers of beauty aids, travel packages, luggage, vitamins and other products.
Representatives of the firms named in the suit could not be reached for comment.
Responding to the allegations, U.S. District Judge Edward Rafeedie ordered the defendants to halt the unauthorized charge processing and the use of the names Visa and Mastercard in promoting sales. He scheduled a hearing for Monday to consider making the order permanent.
According to the suit, the scheme worked this way:
The defendants persuaded reputable overseas merchants to act as conduits, funneling U.S. credit card charges through European banks on behalf of shady telemarketers in exchange for hefty fees.
The arrangement is a violation of the merchants’ agreement with banks and with Visa and Mastercard, the suit says.
Problems arose because the telemarketers sold merchandise that was defective, inferior or even nonexistent. When customers demanded refunds, Visa and Mastercard credited their accounts for the purchases, but the European merchants who had acted as conduits were left holding the bag, along with their bankers.
Among the bogus items sold by telemarketers were three-piece plastic luggage sets and an “in-home sauna” amounting to a pup tent and a humidifier, said Daniel H. Bookin, a San Francisco lawyer representing the credit card companies.
Visa and Mastercard said the telemarketers laundered $3 million through accounts at Lloyds Bank of London, Bank of Austria/Landerbank, Bank Card Co. of Brussels, Bank of Oman and Hongkong & Shanghai Bank.
The suit says two-thirds of that amount has been disputed as fraudulent. The credit card companies say that, normally, only 1% of charges are disputed.
The suit said the telemarketers got consumers to call by sending out postcards offering such prizes as a 1992 Ford Taurus, a $7,000 vacation or a $2,500 cashier’s check. The telemarketers then used high-pressure tactics to sell them beauty aids, travel packages or luggage, the suit said.
Specifically, the defendants are accused of racketeering, credit card draft laundering, unfair business practices and trademark infringement. The suit asks for a return of the victims’ money and $10 million in punitive damages.
Others named in the suit are Sheldon J. Katz of National Approval Center, Paul Dalton of Blue Rose Merchandising and the Florida-based firms Fidelity Business Services Inc. and Horizon Marketing Systems Inc.
