Credit Card Fraud is a common crime in federal courts here in Dallas and Texas (and across the country), and most of these federal fraud charges come with sizable amounts in controversy.   Texas fraud defense attorneys are used to defending people facing fraud charges with large amounts of money ribboning through complex scenarios.

However, yesterday’s news from the Federal Bureau of Investigation threw a shadow on some of the biggest fraud cases that the Lone Star State has seen, as the FBI arrested over a dozen people in 4 different states on a massive, global credit card fraud operation in what the federal agency calls a “sprawling criminal enterprise.”

It’s been considered one of the largest, if not the largest, credit card fraud case ever prosecuted by the Department of Justice, according to U.S. Attorney Paul Fishman.

Yesterday’s Bust of $200 Million Credit Card Fraud Scheme Heralded as One of the Largest Fraud Charges Ever Made by Justice Department

As of this morning, 18 people have been arrested in this sting operation, where the FBI charges that literally thousands of fake identities were created in a plan that successfully grabbed $200 million through credit buys using credit cards established in these fake identities.  It’s the stuff of a Matt Damon movie.

First, the defendants are alleged to have made up all these fake identities (identity fraud).  Then they got credit cards based on these fake identities (credit card fraud).  Then they went further:  they took to the credit reporting agencies and messed with things so their Fake People could get higher credit scores, which would allow the Fake People to get more credit and buy more and bigger things.  Part of this strategy included creating Fake Companies to support the Fake People getting higher credit scores and bigger credit lines.

Which apparently happened quite a lot as the Fake People bought Big Things and borrowed Big Loans (bank fraud)and never paid back the account balances.  To the total, according to the FBI number crunchers, of $200,000,000.00.  Somewhere in all this, the mail was used of course – so tag some mail fraud and wire fraud charges in here, too as the conspirators allegedly wired millions of dollars to over 28 states (including Texas) and 8 countries around the world (the complaint lists Canada, China, India, Japan, Pakistan, Romania, the United Arab Emirates, and the United States)(see footnote 1 on page 2 of the Complaint).

The Federal Bureau of Investigation’s Official Explanation of What Was Going On Here:  The Very Big, Bad Fraud

They’re being charged and prosecuted out of the United States District Court in Newark, New Jersey.  Here’s the FBI’s official description of what has happened here:

The defendants and their conspirators stole hundreds of millions of dollars through a scheme repeated thousands of times to create more than 7,000 false identities and fraudulently obtain tens of thousands of credit cards (the “fraud cards”). The scheme involved a three-step process in which the defendants would:

• “Make up” a false identity by creating fraudulent identification documents and a fraudulent credit profile with the major credit bureaus.
• “Pump up” the credit of the false identity by providing false information about that identity’s creditworthiness to the credit bureaus. Believing the furnished information to be accurate, the credit bureaus would incorporate this material into the false identity’s credit report, making it appear that the false identity had excellent credit.
• “Run up” large loans using the false identity. The higher the fraudulent credit score, the larger the loans that the defendants could obtain. These loans were never repaid, and the defendants reaped the profits.

The Sham Companies

The enormous size and scope of the Criminal Fraud Enterprise required the defendants and others to construct an elaborate network of false identities. Across the country, the defendants and their co-conspirators maintained more than 1,800 “drop addresses,” including houses, apartments, and post office boxes, which they used as the mailing addresses of the false identities.

They created dozens of sham companies that did little or no legitimate business, obtained credit card terminals for the companies, and then ran up charges on the fraud cards. To accept payments in the form of credit cards, a business must establish a merchant account with an entity known as a merchant processor. The merchant processor provides the business with equipment to process credit cards, receives payments from credit card companies for credit cards run at the business, and deposits those payments, minus a fee, into the business’ bank account. When the merchant processors shut down accounts operated by the conspirators for fraud, they would apply for new terminals and create new companies.

The sham companies also served as “furnishers,” providing the credit bureaus with false information about the credit history of numerous false identities of people who purportedly worked at or owned the sham companies.

Tradelines

The defendants used sophisticated methods—including a network of black-market businesses called “tradelines” providers—to commit fraud.

Tradelines come in two varieties: primary tradelines and authorized user tradelines. Primary tradelines are lines of credit in a credit history. If a credit card user has primary tradelines in good standing, it can have a significant impact on the user’s credit score, enabling the user to borrow more from credit card issuers. The defendants, however, trafficked in fraudulent primary tradelines.

A second kind of tradeline is the “authorized user” tradeline, where a credit card holder adds another, so-called “authorized user,” to a credit card account. This raises the credit score of the authorized user, who inherits some of the primary user’s credit history.

Some defendants created and sold fake lines of credit for false identities made up by other defendants. These fraudulent primary tradelines were then used to increase the credit limits on fraud cards, so that the defendants could reap even larger profits. Defendants used the authorized user tradelines to create new identities.

Complicit Businesses

The defendats also relied upon complicit businesses, including several jewelry stores in the Jersey City, New Jersey area to extract money from the fraud cards. The complicit businesses would allow the defendants to conduct sham transactions on the fraud cards and would then receive the proceeds from the credit card companies and split them with the other conspirators. These complicit businesses maintained multiple credit card merchant processing accounts at the same time. By operating dozens of accounts, these businesses furthered the conspiracy by allowing more fraudulent transactions to be processed before the merchant processors shut down the account. The proceeds from these merchant terminals were deposited into various business checking accounts, and the money was paid out to the owners of the complicit businesses, along with other defendants and conspirators.

Lavish Spending

The conspiracy generated enormous profits for the defendants—even though they spent millions of dollars sustaining the elaborate network of drop addresses and running credit reports on the thousands of false identities. Records of the New York and New Jersey Departments of Labor reveal that many of the defendants have no reported legitimate employment in the last five years. Nonetheless, the defendants used the proceeds of the criminal enterprise to buy luxury automobiles, electronics, spa treatments, expensive clothing, and millions of dollars in gold. They also stockpiled large sums of cash. Law enforcement discovered approximately $70,000 in cash in the oven of one defendant.

The defendants also moved millions of dollars through accounts under their control and wired millions of dollars overseas. An analysis of 169 bank accounts of the defendants, sham companies, and complicit businesses has identified $60 million dollars in proceeds that flowed through the accounts, much of it withdrawn in cash. The conspirators wired millions of dollars to Pakistan, India, the United Arab Emirates, Canada, Romania, China, and Japan. Due to the massive scope of the conspiracy, which involved over 25,000 fraudulent credit cards, loss calculations are ongoing. Final figures may grow beyond the present confirmed losses of more than $200 million.

The charge and allegations contained in the complaint are merely accusations, and the defendants are considered innocent unless and until proven guilty.