At the request of the Federal Trade Commission, a United States District Court has ordered a permanent halt to the illegal operations of an Internet-based check creation and delivery service and ordered the operators to give up all the money they made from the illegal operation.
In September 2006, the FTC charged Qchex with violating federal law by operating an online check creation and delivery service with no safeguards in place to prevent fraud. Qchex.com created and sent checks drawn on any bank account that a Qchex user identified but did not verify whether the user had authority to draw checks on that account. As a result, fraudsters worldwide used the Qchex service to draw thousands of checks on bank accounts that belonged to unwitting third parties. Defendants’ practices harmed innocent account holders whose bank accounts were debited without their knowledge or consent, as well as individuals and businesses who received fraudulent Qchex checks as payment for goods and services.
Following protracted litigation, District Court Judge Janis L. Sammartino of the Southern District of California issued a final order supporting the FTC’s charges that the defendants had created and delivered checks drawn on identified bank accounts without first verifying that a person requesting a check had authority to draw checks on that bank account. She ruled that this constituted an unfair practice in violation of the FTC Act. Judge Sammartino stated:
“The evidence shows that the launch of Qchex.com was a ‘dinner bell’ for fraudsters and resulted in a high number of accounts frozen for fraud . . . Defendants’ own records show that their failure to employ and maintain adequate verification procedures, over approximately six years, led to substantial losses for consumers that had unauthorized checks drawn on their bank accounts.”
The Judge’s order permanently bars the operators, Neovi, Inc., doing business as Neovi Data Corporation and Qchex.com, G7 Productivity Systems, Inc., James M. Danforth, and Thomas Villwock from operating a similar site without verifying that customers are authorized to draw checks from the bank accounts they have specified. Three different authentication methods are described in the court’s order. Further, the court ordered the defendants to give up $535,358 in ill-gotten gains. “Because all checks, both fraudulent and legitimate, were created without verification, the appropriate measure of disgorgement is Neovi’s total revenue,” the court ruled.
The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC ’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.
(Civil Action No. 06-CV-1952-JLS (JMA))
(FTC File No.: 052-3155 )
Office of Public Affairs
Bureau of Consumer Protection