Saturday, July 1, 2017

Five Charged In $28 Million Nutraceuticals Credit Card Fraud Affecting Thousands Of Consumers

  Joon H. Kim, the Acting United States Attorney for the Southern District of New York, and David E. Beach, Special Agent-in-Charge of the New York Field Office of the U.S. Secret Service (“USSS”), announced today the unsealing of charges against JAMES BECKISH, RICHARD WITCHER, JAMES TONER, PETER O’BRIEN, and JOSEPH ANTHONY DEMARIA for their respective roles in operating a series of companies between 2013 and 2016 that were used as a cover to place approximately $28 million of unauthorized charges on thousands of consumers’ credit cards.  The websites of the defendants’ companies purported to sell products like dietary supplements but, in reality, were primarily used to repeatedly bill consumers who never ordered their products, or even if they did, almost never received them.  All of the defendants were arrested today and presented before Magistrate Judges in the District of New Jersey, the Middle District of Florida, and the Southern District of Florida.
Acting Manhattan U.S. Attorney Joon H. Kim said: “These defendants allegedly created and operated more than 100 companies that specialized in one service: ripping off consumers and credit card companies.  By allegedly billing consumers for dietary supplements they didn’t order or receive, the defendants reaped millions of dollars, affecting thousands of consumers and leaving credit companies holding the bag.  Thanks to the U.S. Secret Service, this scheme is over.”
Secret Service Special Agent-in-Charge David E. Beach said:  “The Secret Service is committed to aggressively investigating these offenses.  Emerging technologies and cyber capabilities enable criminal networks to evolve and significantly impact financial markets. This case is another example of the transnational investigative capabilities of the United States Secret Service. Our developed partnerships with other federal, state and local law enforcement agencies as well as private sector stakeholders, enables us to focus our resources to uncover, investigate and prevent these crimes more effectively.”
According to the Complaint unsealed today in Manhattan federal court:[1]
Between 2013 and 2016, BECKISH, WITCHER, TONER, O’BRIEN, DEMARIA and others, created and operated more than 100 companies that purported to sell dietary supplements and similar products called “nutraceuticals.”  Although the companies were purportedly distinct, they nonetheless marketed similar products on websites that contained similar photographs, were hosted by the same entity, had similar typographical errors, and used the same or nearly identical JavaScript coding.  These websites were used by the defendants and others to serve as justification for unauthorized and recurring charges that were placed on tens of thousands of credit card numbers that the defendants had illicitly purchased or obtained, or had acquired from consumers who had attempted to order the products in question.  For example, in one email between TONER and BECKISH in October 2013, TONER stated that they could simply charge unsuspecting customers by falsely “say[ing] they opted in online for something.”  In total, more than $28 million in fraudulent charges were placed during the duration of the scheme.  
BECKISH, WITCHER, TONER, O’BRIEN, DEMARIA, and others created these different companies and websites, moreover, because they knew that credit card processors would stop doing business with them over time as consumers noticed the unauthorized charges and sought refunds.  These refunds, called “chargebacks” by credit card processors, are generally low for legitimate businesses but reached extremely high percentages for many of the companies associated with the defendants’ scheme.  In certain instances, the chargeback rates quickly approached or even exceeded 20 percent – that is, consumers were seeking refunds of more than 20 percent of the charges placed by certain of the defendants’ companies.  Credit card processors, in turn, paid millions of dollars in refunds for fraudulent charges associated with the defendants’ companies between 2013 and 2016 in attempts to refund affected consumers.
BECKISH, WITCHER, TONER, O’BRIEN, DEMARIA are each charged with one count of conspiring to commit wire fraud and one count of wire fraud, each of which carries a maximum sentence of 20 years in prison.  In addition, they each are charged with one count of aggravated identity theft, which carries a mandatory consecutive sentence of two years in prison.  The charges also carry a maximum fine of $250,000, or twice the gross gain or loss from the offenses. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants would be determined by the judge.
Mr. Kim praised the investigative work of the USSS and expressed his gratitude for the assistance of the Offices of the United States Attorney in the District of New Jersey, the Southern District of Florida, and the Middle District of Florida.
The allegations contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
 [1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth below constitute only allegations, and every fact described should be treated as an allegation.

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