The owner and operator of a payment processing company that was involved in the unauthorized withdrawal of millions of dollars from consumers’ bank accounts pleaded guilty to fraud, the Justice Department announced today.
Neil Godfrey, 76, of Santa Ana, California, pleaded guilty to a one-count information charging him with wire fraud in the Eastern District of Pennsylvania. The information described how, working as a payment processor, Godfrey knowingly enabled fraudulent merchants to withdraw money from consumers’ bank accounts without the consumers’ knowledge or consent.
In pleading guilty, Godfrey admitted that he used a Santa Ana processing company named Check Site Inc. to assist at least two fraudulent merchants. The merchants operated websites that purportedly offered payday loans. The websites were simply a ruse to harvest consumers’ bank account information. Instead of providing consumers with payday loans, the merchants operating the websites used the information provided by the consumers in loan applications to withdraw money from the consumers’ bank accounts. Using Check Site, Godfrey knowingly processed the merchants’ fraudulent withdrawals and provided the merchants access to the banking system.
“Payment processors commit a federal offense when they knowingly facilitate consumer fraud,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “The Justice Department will not sit idly by while companies and individuals take money from victims’ accounts without their consent. As this case demonstrates, the Department of Justice will continue to prosecute those involved in perpetrating or knowingly assisting fraud schemes.”
In pleading guilty, Godfrey admitted to using payment devices called remotely created checks (RCCs) to facilitate fraud schemes. Once the fraudulent merchants had obtained consumer names and bank account information, the merchants created RCCs, which Check Site submitted through the banking system to the consumers’ banks. Unlike an ordinary check, an RCC is generally honored without the signature of the account holder. When the RCCs were processed, Check Site kept a fee and transferred the remainder of the withdrawals to the merchants.
The information to which Godfrey pleaded guilty charged that he was an expert in finding banks that were willing to facilitate these transactions and ignore the red flags raised by these transactions. Such banks included one located in Irvine, California, and one located in Philadelphia. The information also alleged that Godfrey helped the fraudulent merchants stay off the radar of other banks and regulators so that the fraud could continue. For example, Godfrey advised merchants how to change the names of their companies and set up the facade of a legitimate company to defeat banks’ attempts at due diligence.
In an email message quoted in the information, Godfrey advised a fraudulent merchant that “the lesson we have learned is that we must trick the [bank] folk. It means you need to set up some type of website front. What we need to do is set up a legitimate website selling anything you can think of – that is what you get approved on. It is irrelevant if anything is ever sold there – just so it exists. . . . In the mean time we set up false credit card approval etcetera. It is this we use to run the transactions. Yes, there will be a lot of returns, but what we do is send through transactions over the next few weeks that don’t have high returns. They stop looking and then we can run the regular stuff. . . . [A]fter several months we junk that company and go to another company.”
Principal Deputy Assistant Attorney General Mizer thanked the Federal Trade Commission for providing Attorney Michelle Chua to serve as a Special Assistant U.S. Attorney on the case, and commended the FBI for its thorough investigation. The case is being prosecuted by Assistant U.S. Attorney Patrick J. Murray of the Eastern District of Pennsylvania and Trial Attorney Patrick Jasperse of the Civil Division’s Consumer Protection Branch.