Irvine-based CommerceWest Bank agreed Tuesday to pay $4.9 million to settle federal civil and criminal cases alleging the bank helped a payment processor take money from customers for services they did not authorize.
Federal prosecutors alleged that despite a deluge of complaints from customers that money was taken from their accounts for services or fees they did not authorize, CommerceWest did not try to shut down its business with the third-party payment processor.
About half of the transactions from V Internet Corp LLC of Las Vegas were rejected by customers and their banks, prosecutors said.
CommerceWest issued a statement saying that the bank was part of the federal government’s Operation Chokepoint and “cooperated fully” with the investigation.
V Internet was set up as a company that would help customers draft electronic checks to pay for fees or services from various merchants. Prosecutors alleged that one of the merchants was a phony telemarketing company and another charged hundreds of thousands of bank customers for payday loan referral fees that were unauthorized.
“CommerceWest Bank ignored a parade of red flags indicating that a third-party payment processor was defrauding hundreds of thousands of innocent victims,” Acting Assistant Attorney General Benjamin C. Mizer said.
“As the civil and criminal actions filed against CommerceWest Bank today demonstrate, we will hold financial institutions accountable when they choose unlawfully to look the other way while fraudsters use the bank’s accounts to steal millions of dollars from American consumers,” he said.
According to CommerceWest’s statement, bank officials did not admit the government’s allegations of mismanagement leading to fraud as part of the settlement.
CommerceWest officials do “not believe any bank employee knowingly assisted with or willfully ignored signs of fraud being committed by V Internet, and has not admitted liability in the civil settlement,” according to the bank’s statement. “In hindsight, the bank recognizes that factors pointed to a problematic customer that deserved more scrutiny that (CommerceWest) provided.”
CommerceWest is suing V Internet in Orange County Superior Court.
By May 29, 2013, A CommerceWest official concluded that all of the V Internet transactions dating back to December 2011 were phony or unauthorized, prosecutors alleged. The bank, however, did not decide until July 2013 to terminate its business with the company, and even then it wasn’t shut down until prosecutors threatened an injunction, court papers allege.
About $2.9 million of V Internet’s accounts at the bank have been seized, along with property from the company’s owner, including five airplanes, a Land Rover, a Dodge Charger, several tractors, five all-terrain vehicles and a fire truck, prosecutors said.
As part of the settlement, CommerceWest admitted to failing to file a “suspicious activity report” regarding V Internet, and the criminal count will be dismissed in two years if bank officials comply with the terms of the agreement.
Commerce West “is pleased that (the Department of Justice’s) investigation is now concluded, and we look forward to continuing to serve our business customers with banking services specifically tailored to their needs,” said Ivo Tjan, the bank’s chairman and chief executive officer.
The senior officers who managed the V Internet account no longer work at the bank, officials said.
— City News Service