FTC Charges Online Check Writing Marketers with Contempt

The Federal Trade Commission has filed a civil contempt action charging an Internet-based check creation and delivery service and its operators with violating a 2009 court order. The FTC is asking the court to impose a daily fine or imprisonment if the allegedly unlawful conduct is not stopped, and to make the defendants compensate affected consumers and give up their ill-gotten gains.

According to papers the FTC filed with the court, the contempt defendants violated the court order by enabling consumers to create and e-mail checks via the Internet without any verification of users’ identities or their authority to draw funds on the financial accounts they use, leaving unsuspecting consumers’ financial accounts vulnerable to fraud. They also failed to provide contact information for their Web site, FreeQuickWire.com, and failed to investigate and respond to complaints of unauthorized use of financial account information.

In the case that led to the 2009 order, three of the contempt defendants, Thomas Villwock, James M. Danforth, and G7 Productivity Systems, Inc., operated a similar Web site, Qchex.com, that created and delivered checks without verifying that users had authority to access the accounts referenced on the checks. As a result, fraudsters worldwide drew checks on the accounts of unwitting third parties and used the checks mainly for wire transfer schemes. [see Consumer Alert, “Money Transfers Can Be Risky Business,” – http://ftc.gov/bcp/edu/pubs/consumer/alerts/alt034.shtm] The court found the defendants’ operation an unfair practice under the FTC Act and ordered them to pay $535,358, which represented all of their profits from the illegal operation. The court also ordered the defendants to implement specific fraud-prevention safeguards for any check creation and delivery service they offer.

In the current contempt action, the FTC alleges that the contempt defendants are continuing to “ring the dinner bell for fraudsters,” as the court stated in 2009, by failing to perform any of the authentication procedures required by the 2009 court order. The other contempt defendants are iProlog Corporation and FreeQuick Wire Corporation, which Villwock and Danforth control. The court has ordered the contempt defendants to appear in court on February 16, 2010, to explain why the court should not hold them in contempt for violating the 2009 order. The contempt action was filed in the U.S. District Court for the Southern District of California.

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 1,700 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.