The owner of a defunct online clothing retail operation has been arrested and charged with wire fraud for allegedly overcharging customers by more than $5 million (£3.10 million).
New York-based Classic Closeouts and owner Daniel Greenberg allegedly used customer credit and debit card numbers on file to charge accounts multiple times for items customers did not order, the US Department of Justice said in a press release. Between June and December 2008, the operation charged customers for unordered items more than 70,000 times, the DOJ said.
Greenberg made an initial appearance in US District Court for the Eastern District of New York on September 2 and faces a maximum sentence of 20 years in prison.
Customers charged multiple times
In some cases, the same card was charged "multiple" times over the course of several weeks, the agency said. The charges ranged from $59.99 to $79.99, said the US Federal Trade Commission, which filed its own civil complaint against ClassicCloseouts.com and Greenberg in June 2009.
When customers disputed the unauthorised charges with their credit card companies and banks, Greenberg asserted that the charges were valid because the customers had enrolled in an alleged "frequent shopper club," the DOJ said. In some cases, customers were denied credit cards after the disputes or were pressured into paying the fraudulent charges, plus late fees and interest, the agency said.
"Thousands of unsuspecting former customers were victimised by the defendant," said Loretta Lynch, US attorney for the Eastern District of New York. "With this arrest and prosecution, the Closeout scheme has now been closed down."
Accused already filed for bankruptcy
The FTC announced a settlement with Greenberg in January of this year, with Greenberg banned from owning any internet businesses that handle credit or debit accounts. The settlement also imposed a monetary judgment of nearly $2.1 million, although Greenberg had filed for bankruptcy before the settlement.
Many of the DOJ complaints "were handled previously" in the FTC case, said Greenberg lawyer Leo Kimmel. "My client denies having defrauded anyone."
It is uncommon for the DOJ to bring criminal charges after the FTC settles a civil case against a defendant.
The charges were brought in coordination with President Barack Obama's Financial Fraud Enforcement Task Force, established in November 2009 to investigate and prosecute financial crimes. The task force includes representatives from several federal agencies, regulatory authorities, inspectors general, and state and local law enforcement.