Merchant Account Underwriting Tools


it appears from the referenced documents that a couple of million dollars was paid in merchant fees to “somebodies.”Perhaps there is a lesson for underwriters here.

“The defendants formed and organized more than 240 shell
companies and DBAs that were created to open more than 400 bank accounts and nearly 500 merchant processing accounts. The companies and accounts were
opened for merchant and credit card processing in order to process credit card charges and receive funds and did not have any other business operations.

However, there were other business purposes related to using hundreds of shell companies, DBAs and accounts. Individual defendants confirmed that maintaining and operating hundreds of shell companies, DBAs and processing accounts were necessary and important for the following features and reasons:

1. The common enterprise was able to avoid processing limits for an individual merchant account, generally set at $50,000-$75,000 a month.

2. The common enterprise was able to monitor chargeback and refund activity and to close processing accounts before such activity reached a warning level or an unacceptable activity level set by the merchant processor or the related financial institution.

3. Using hundreds of different names on websites, banner ads, and social and Internet media placements provided a much wider exposure of seemingly unrelated entities to potential consumers.

4. The multiplicity of names also helped to limit reputation risk created from negative postings and comments.

5. Many merchant processing accounts and related bank accounts were opened and operated in name-only ownership by friendly relatives and outsiders. The perception of separate ownership further avoided processing limits and concentration concerns of processors and related financial institutions.

A defendant reported to the Temporary Receiver that his group had discovered a “loophole” to help open and maintain a supply of additional merchant accounts and related bank accounts. The defendant described taking advantage of the loophole involved creating a completed merchant processing account application for an individual. The individual was a relative or friend of one of the defendants, or a friend of a friend, who agreed to provide information, supporting documents, and to sign all required papers, including a re-seller agreement with the common enterprise.

The new individual merchant would receive a small monthly “thank you check”, but all revenue and correspondence would flow to the common enterprise.” (Select “Report of Temporary Receiver’s Activities February 11, 2014 Through March 6, 2014 Filed March 7, 2014”)(See Tab 3)

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