Head Of Telemarketing Operation Pleads Guilty To $19 Million Credit-Card-Laundering Scheme
Defendant Used Phony Merchant Accounts to Obtain Credit Card Processing for His Deceptive Business
Damian Williams, the United States Attorney for the Southern District of New York, announced that STEVEN SHORT, the former head of Florida-based E.M. Systems & Services, LLC and affiliated companies (collectively, “E.M. Systems”), pled 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 deceptive Florida-based telemarketing operation, through a California-based company called CardReady LLC (“CardReady”). SHORT pled guilty today by videolink, before U.S. District Judge Loretta A. Preska. His sentencing is scheduled for December 7, 2022.
According to the Superseding Indictment, court filings, and statements made in Court:
SHORT and his co-conspirators fraudulently secured access to credit-card-processing services for SHORT’s underlying telemarketing scheme. From about 2012 through 2015, SHORT and E.M. Systems generated over $19 million from thousands of customers who received cold calls promising to reduce their overall debt burdens in exchange for fees of up to $1,495. The telemarketing operation resulted in hundreds of complaints by customers of fraud and deceptive tactics, and requests for millions of dollars in refunds and chargebacks. Credit-card-processing companies prohibit the processing of credit-card charges for purported “debt consolidation” and “interest rate reduction” services. SHORT and his co-conspirators fraudulently subverted those prohibitions using CardReady, which functioned as a sales agent engaged in the business of securing credit-card payment-processing services. To execute this fraud, SHORT and others created dozens of sham merchant accounts and false merchant applications, concealing the true nature of SHORT’s telemarketing operation, and defrauding an associated credit-card-processing company and a federally insured bank into processing more than $19 million in payments for the scheme.
SHORT controlled E.M. Systems. Beginning in 2012, SHORT sought to use E.M. Systems to carry out a telemarketing scheme targeting people with outstanding debt, and to offer them purported financial services. In order to charge for such purported services via credit cards, SHORT sought access to the credit-card-processing market through CardReady, a Los-Angeles based company acting as a sales agent in the credit-card-processing industry. As part of its business as a sales agent, CardReady found merchants who wanted credit-card-processing services, such as SHORT, and submitted merchant applications on behalf of those merchants to a Manhattan-based Independent Sales Organization (the “New York ISO”). The New York ISO then evaluated the 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 by customers who had used credit cards. Under E.M. Systems’ deal with CardReady, CardReady kept approximately one-third of the credit card sale transactions of SHORT and E.M. Systems, in exchange for providing them access to the credit card processing network.
From approximately 2012 through 2015, SHORT and E.M. Systems carried out a telemarketing scheme in which they used telemarketers to cold-call consumers, targeting consumers with outstanding credit card debt. The cold-callers offered the customers services, including debt consolidation and interest-rate reduction on their debts, which were prohibited by the applicable guidelines from Bank-1 and associated processing entities (the “Guidelines”), and which — as SHORT knew — would produce chargebacks from dissatisfied customers far in excess of the number and rate of chargebacks permitted under the Guidelines.
In securing credit-card-processing for E.M. Systems to process the fees paid by its customers, SHORT and CardReady concealed that E.M. Systems was the true underlying merchant. Instead, SHORT and his co-conspirators, over a period of more than twenty months, created approximately 26 sham merchant companies, each headed by a “signer” (the “Sham Merchants” and the “Sham Merchant Accounts”). The 26 signers for the 26 Sham Merchants typically had no business of their own, and knew little or nothing about E.M. Systems’ business. In return for signing paperwork, the signers were paid a nominal fee by CardReady. These false merchant applications also concealed the Sham Merchant’s true association with E.M. Systems.
By steering E.M. System’s payment processing through these Sham Merchant Accounts, SHORT and CardReady accomplished a number of fraudulent purposes. First, the use of these Sham Merchant Accounts made it possible for E.M. Systems to conceal its identity from Payment Processor-1 and Bank-1 and to maintain payment card processing. This was particularly relevant as Payment Processor-1 repeatedly required CardReady to close individual Sham Merchant Accounts because of excessive chargebacks and reports of sales of prohibited services. SHORT and CardReady then quickly replaced the closed Sham Merchant Accounts with new Sham Merchant Accounts, precluding Payment Processor-1 from shutting down its processing of Telemarketer-1 and other high-risk merchants. Second, the fraudulent processing scheme enabled E.M. Systems to spread out its charges, refunds, and chargebacks across multiple Sham Merchant Accounts. SHORT and CardReady thus enabled E.M. Systems to evade chargeback monitoring programs operated by Bank-1, Payment Processor-1, and the New York ISO.
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SHORT, 45, of Tampa, Florida, pled guilty to Count One of the Superseding 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 from the offense.
Also charged in the superseding Indictment is Brandon Becker, 51, of Los Angeles, California, whose trial is scheduled to begin on November 14, 2022 before Judge Preska. Becker is presumed innocent unless and until proven guilty.
The maximum potential 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 Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys David Raymond Lewis and Vladislav Vainberg are in charge of the prosecution.