Major Crackdown Targets Credit Card Fraud; 14 Held

In one of the nation’s largest crackdowns on credit card fraud, federal authorities raided homes and businesses throughout Southern California early Thursday, arresting 14 people on charges that they helped bilk financial institutions of as much as $100 million.

A task force of 135 Secret Service and FBI agents along with local police in Orange, Los Angeles and Riverside counties carted away hundreds of thousands of dollars worth of gold bullion, jewelry, Las Vegas gambling chips and cash. A moving van stopped at the sites to collect big-screen TVs, electronic equipment and other expensive goods.

In addition, federal authorities expect to arrest 28 more Southern Californians in the coming weeks on federal indictments and criminal complaints that have been issued but remain sealed.

Among those alleged to have taken part in the scheme is an employee for Orange County who ran up a credit card bill of $615,000 while only taking home $1,000 a month from her job, according to bankruptcy records and Secret Service affidavits.

“This bust is unprecedented anywhere in the world,” said Stan Belitz, director of security for MasterCard’s Southern California region. “This is the first time we’ve been able to convince prosecutors that this is a major problem.”

James E. Bauer, special agent in charge of the Secret Service’s Los Angeles district, said that two separate rings operating out of Orange County’s Little Saigon were shut down Thursday and that they accounted for $40 million of the money that banks nationwide have lost.

“When all is said and done, probably 90% of the people involved in the total loss nationwide will be related to this core group,” Bauer said.

The scheme, operated largely out of a storefront in Westminster, took advantage of a federal law that gives cardholders credit before their payment checks clear the banks, authorities said.

Cardholders would overpay their accounts with bad checks to boost their credit by thousands of dollars. After the check is credited to their accounts but before the bank returns it, they would charge expensive items and cash advances.

The scheme also relied on federal bankruptcy laws, figuring that those who ran up credit card debts could get them erased in bankruptcy court.

“This is a very pervasive scheme largely within Orange County, particularly in the Vietnamese community,” said Assistant U.S. Atty. Marc R. Greenberg. “It is such common knowledge in the community that some are doing this on their own without the assistance of anyone.”

Federal law--along with misguided notions of federal bankruptcy laws--has created such a huge opportunity for fraud that the nine-month investigation, called Operation Repayment, targeted only those who had more than $100,000 in credit card debt, Greenberg said.

“This corrupts the community because people were told they could go bankrupt and wouldn’t go to jail because we have no debtor prisons,” Greenberg said. “But theft and fraud is still theft and fraud.”

Among those arrested Thursday were Minh C. (Big Ming) To; his wife, Nina Nguyen To, and Hai Phuoc Nguyen, all of Westminster. The Secret Service identified them as the alleged ringleaders.

The To couple operated VNK Professional Services in a storefront on Bolsa Avenue near Brookhurst Street on the eastern edge of Little Saigon. VNK billed itself as a company that could help people with financial problems, but the Secret Service affidavits said it was a front for the “Expert Group,” which ran the scheme.

Hai Nguyen operated out of his car, a Secret Service affidavit stated, and advertised a pager number in the Nguoi Viet newspaper, one of the largest and most established Vietnamese-language daily newspapers in the nation.

According to Secret Service affidavits filed in U.S. District Court in Los Angeles, cardholders joined in the collusion to make the scheme work in the following way:

* A person with a checking account and one or more credit cards would sign a number of checks and turn them over to a ringleader, along with credit card account numbers. Checks for $2,000 to $20,000--called booster checks--would be sent to the credit card company to pay bills that might be only $200.

* Using the credit card company’s automated information line to find out precisely when the excess amount is credited, the cardholder and the ringleader quickly buy expensive goods and pick up large cash advances.

* Once the credit limit is exhausted, the cardholder splits the proceeds evenly with the ringleader. After checks are returned for insufficient funds and payment is demanded, the cardholder files for bankruptcy protection.

Some individuals have opened six or more accounts with debts totaling $100,000 to $685,000 each, the Secret Service said.

Though VNK is in one of the oldest shopping centers in Little Saigon, where many entrepreneurs have sold their wares for years and know each other by trade, the company remained elusive to its neighbors.

Nearby business owners and employees said they regularly see three men and two women--all in their 20s and 30s--coming in and out of the shop, which has vertical blinds that usually remain closed.

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The Scheme

According to the U.S.Secret Service, this is how credit card fraud worked:

1. So-called booster checks for $2,000 to $20,000--drawn on insufficient funds--are sent to the credit card company to pay bills that might be only $200.

2. Credit card companies are required by law to post the check to the account as soon as it is received, before it clears the issuing bank, regardless of the person’s credit limits.

3. Once the booster check is posted, the cardholder and the operator of the scheme go on a shopping spree and pick up large cash advances.

4. The cardholder splits the proceeds 50-50 with the operator of the scheme. After the checks are returned for insufficient funds and payment is demanded, the cardholder files for bankruptcy protection to thwart collection efforts.

Source: U.S. Secret Service affidavits.