Bogus Charges, Unknowingly Paid
FTC Accuses 2 of Raiding 90,000 Bank Accounts in Card Fraud
By Griff Witte
Washington Post Staff Writer
Friday, May 28, 2004; Page E01
The Federal Trade Commission has accused two men of attempting to extract more than $10 million from the bank checking accounts of thousands of individuals for phony discount pharmacy cards that consumers never ordered.
In most cases, customers didn't have any contact with Pharmacycards.com and other companies the two men set up and would have noticed they were being charged only when a debit for $139 showed up on their bank statements, according to an FTC complaint filed this week in federal court in Las Vegas. In all, 90,000 people are believed to have been affected, many of whom still aren't aware of what happened.
"Both in terms of the number of people who were victimized and the amount of money, this was an enormous scam," said Claudia Bourne Farrell, an FTC spokeswoman.
Consumer experts said the alleged scam is noteworthy for weaknesses it exposes in laws and practices set up to protect individuals' private financial information in the Internet age.
FTC officials said yesterday that they believe the scheme started with the companies purchasing bank account information from an unidentified third party. Although it's illegal for a financial institution to sell checking account numbers, the law does not apply to other kinds of companies, according to banking privacy experts.
"This gap typifies American privacy law. We have special statutes for financial and medical institutions, but we don't have a comprehensive law to protect personal information, including checking accounts," said Peter P. Swire, a law professor at Ohio State University who served as privacy counselor in the Clinton administration.
Nearly 70 percent of the attempts to take $139 from individual bank accounts were canceled or returned because of bad account numbers, fraud protection measures at the banks or vigilance on the part of bank customers who noticed the fraud and reported it. The operation was shut down within about three months of its start after customers reported the fraud to their banks or to fraud watchdog groups.
According to the FTC's complaint, David Graham Turner of London and Steve Pearson, who used a British driver's license, used two companies, 3rd Union Card Services Inc. of Delaware and HelmCrest Ltd. of Cyprus, to run the Web site and perpetrate the scheme.
After obtaining the list of names with associated checking account information, the FTC said, Turner and Pearson used the Web site to convince three payment processors that theirs was a legitimate business, claiming that WalMart and Target were participants in the discount card program. They hired a customer call center to hear from complaining consumers. Between them, 3rd Union and HelmCrest had addresses in Vermont, Delaware, Canada, the United Kingdom and Cyprus.
"This was a scheme that was truly international in nature and never involved face-to-face contact. It was all done by Internet, facsimile and phone," said Tracy S. Thorleifson, an FTC lawyer.
© 2004 The Washington Post Company