Major Crackdown Targets Credit Card Fraud; 16 Held

In one of the nation’s largest crackdowns on credit card fraud, federal authorities arrested 16 people in early morning raids Thursday and shut down two rings believed to have bilked financial institutions nationwide of $40 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 26 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 of 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 [for this kind of crime],” 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.”

In August, Secret Service agents, charged with investigating certain financial crimes, arrested 98 people in a series of Southland raids involving the use of fake credit cards. Banks had lost only $2.5 million in those cases, but the raids collected bogus cards with a potential credit limit totaling $170 million.

James E. Bauer, special agent in charge of the Secret Service’s Los Angeles district, said Thursday’s raids shut down two separate rings operating out of Orange County’s Little Saigon that accounted for $40 million of the $100 million that banks nationwide have lost in a different kind of credit card scheme.

“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 was credited to their accounts but before the bank returned 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.”

About 120 banks nationwide country have been hit with this particular scheme, he said.

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.

Among those arrested Thursday were Minh C. (Big Ming) To, 30, and his wife, Nina Nguyen To, 28, both of Huntington Beach, and Hai Phuoc Nguyen of Garden Grove. 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 Nguoi Viet, one of the largest 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 was credited, the cardholder and the ringleader would quickly buy expensive goods and pick up large cash advances.

* Once the credit limit was exhausted, the cardholder would split the proceeds evenly with the ringleader. After checks were returned for insufficient funds and payment was demanded, the cardholder would file for bankruptcy protection.

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

Nearby business owners and employees said three men and two women would go to work at VNK and keep to themselves behind darkly tinted windows and blinds that were usually closed.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

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.