Suspect in Huge Credit Card Case Arrested

Federal agents Tuesday arrested Kenneth H. Taves, the alleged mastermind of a $45.5-million credit card swindle, saying he had concealed millions in a Cayman Islands bank account in violation of a court order.

Taves, 47, of Malibu, was taken into federal custody at the end of a court hearing where a judge found him in civil contempt in a Federal Trade Commission case alleging the credit card fraud.

A separate criminal complaint filed Tuesday by the U.S. attorney’s office charged Taves with violating a court order to disclose the location of his assets. He was also charged with filing a false financial statement with the FTC that didn’t mention a $6.2-million account at Euro Bank Corp. in the Caymans.

Regulators say Taves’ companies billed up to 900,000 credit card holders for Internet services they didn’t order, making it one of the largest credit card scams in history. A court-appointed receiver overseeing Taves’ firms said the source of $45.5 million in revenue last year is “highly questionable” and the income isn’t supported by his records.

Investigators for the receiver, Robb Evans & Associates, say Taves may have transferred more than $23 million into offshore accounts. While on probation for an earlier financial crime last year, Taves obtained court approval to take trips to the Caymans, Switzerland, Ecuador and other nations.

On Tuesday, U.S. District Judge Audrey B. Collins--one of three judges who had approved Taves’ travels--found him and his wife, Teresa, in contempt for failing to disclose or repatriate the Cayman Islands account. The couple were ordered to “take all steps” to ensure the return of the money by noon today or face jail time on the civil charge. Kenneth Taves was also held in contempt for trying to transfer ownership of a $2.2-million Malibu home he appears to own.

In an interview earlier in the day, Taves said he ran a legitimate “customer service” business, providing access to adult Web sites and processing transactions for other sites. He said he believes unscrupulous computer users may have entered fraudulently obtained credit card numbers into the sites, causing the real cardholders to be billed. Other consumers, he said, may have forgotten they had ordered the services.

Taves said the problem “just got out of hand for a while” and that he wanted to settle the FTC allegations by repaying customers who were wrongly forced to pay the access fees, typically $19.95 each month.

“I look at the FTC not as bad guys,” he said. “I just think their tactics are a little bit abusive.”

FTC officials have obtained a court order freezing his assets, he said, forcing him to ask for allotments to pay his legal bills and provide for his family.

When Taves was asked why he had not disclosed the Euro Bank account, a lawyer on the phone with Taves instructed him not to comment. But Taves scoffed at the notion that he used his court-approved trips to stash proceeds offshore.

Thom Mrozek, a spokesman for the U.S. attorney’s office, said prosecutors did not object to the trips because they did not know Taves was running the alleged fraud.

Evans, the receiver, said he will study the role of the two domestic banks that hosted Taves’ firms’ accounts. Evans’ investigators said records the banks turned over indicate they did little to crack down on Taves despite high levels of refund demands--a tripwire banks use to detect possible wrongdoing.

One of the banks, Charter Pacific, said Tuesday it had closed one of Taves’ accounts because of excessive refunds, or charge-backs, in June, six months before the FTC acted. But receiver investigators said the bank had shown them no records to indicate that. Charter also said its records didn’t show Taves owned a second account there, which is now being investigated by the receiver. The bank also said there were adequate reserves on Taves’ accounts to handle consumer demands for refunds.

“In all relevant respects, the bank has acted appropriately, in a safe and sound manner,” Charter said in a prepared statement.

Taves, who has a history of scrapes with the law, faces up to five years in prison if convicted of filing a false statement and six months for violating the disclosure order, authorities said.