The U.S. Federal Trade Commission has filed a civil contempt complaint against an online check-writing service, saying the company continues to allow customers to create and e-mail checks without verification of their identities.
Even after a January court order requiring Thomas Villwock, James M. Danforth and G7 Productivity Systems to implement fraud prevention safeguards at online check-writing service Qchex.com, the defendants continue to operate a "nearly identical" operation at FreeQuickWire.com, the FTC said in a complaint filed with the U.S. District Court for the Southern District of California.
The defendants are "engaged in business as usual" FreeQuickWire.com, even though the court in January issued an injunction and said their business model could help customers engage in fraud by stealing funds from unsuspecting people's bank accounts, the FTC said.
The FTC has asked the court to impose fines of US$10,000 a day or send the defendants to prison, for their "utter disregard" of the January order.
Qchex.com created and delivered checks without verifying that users had authority to access the accounts referenced on the checks, the FTC said. Fraudsters worldwide drew checks on the accounts of unwitting third parties and used the checks mainly for wire transfer schemes, the agency alleged.
Messages left through the Qchex and FreeQuickWire Web sites were not immediately returned.
Qchex, however, has appealed the January court order. The FTC doesn't have the authority to write consumer protection laws, the company said in a July court filing.
Qchex is also not responsible for the actions of its users, the company argued. "The Qchex system consisted of nothing more than software and a website, sitting dumb and inactive unless and until a user chose to use it," the company said in its appeals brief. "Unfortunately, some of the Qchex users created Qchex checks with stolen consumer information -- an unlawful act that occurred prior to and completely separate and apart from use of the Qchex system. It is this unlawful activity that is the cause of any consumer injury here."
In January, the court found the defendants' operation an illegal unfair business practice and ordered them to pay $535,358, which represented all of their profits from the 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 defendants have failed to perform any of the authentication procedures required by the earlier court order. The other contempt defendants are iProlog and FreeQuickWire, which Villwock and Danforth control. The court has ordered the contempt defendants to appear in court on Feb. 16.