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FTC Gets Judgment in Huge Credit Card Scam

September 08, 2000|JEFF LEEDS | TIMES STAFF WRITER

Federal regulators Thursday announced they had won a $37.5 million verdict against a Malibu couple who allegedly charged hundreds of thousands of credit card holders for access to X-rated Internet sites they never purchased.

The judgment against Kenneth Taves and his wife closes a major chapter in the case, which ranks as one of the largest credit card scams.

Lawyers for the Federal Trade Commission said Taves illegally billed about 900,000 credit card holders worldwide for access to pornographic Web sites he operated.

Investigators found that Taves had purchased access to lists of more than 3 million valid Visa and MasterCard cards from Charter Pacific Bank in Agoura Hills. Rather than use the numbers to confirm customers' cards as valid, the FTC said, Taves charged the accounts for services the cardholders never ordered.

The search for answers in the Taves case raised troubling questions about banks' supervision of their accounts. The court-appointed receiver found that Charter Pacific and another bank where Taves kept merchant accounts to process the card transactions failed to close them even as consumer demands for refunds were skyrocketing.

But even as it notches a win in court, the FTC faces a critical test in trying to collect on this judgment. Over the last 10 years, the agency has collected only about 24% of the money it has been awarded in court.

That record owes in part to the fact that con artists have grown adept at concealing their assets.

In the Taves case, however, prospects for collection are fairly strong. The receiver has located about $20 million of Taves' assets--including about $10 million in the Cayman Islands, $7.5 million in the South Pacific island of Vanuatu, and a bluff-top mansion he owned in Malibu worth an estimated $3 million.

But even though Taves' assets have been located, the receiver faces the daunting task of securing their return to the United States. The receiver is pursuing litigation in the Caymans and Australia to win release of the money, which would be distributed to Taves' alleged victims.

Taves also has been indicted in federal court in Los Angeles on charges of filing false statements related to documents he filed with the FTC when its case began. He is scheduled for trial Oct. 3. Taves has denied wrongdoing, saying unscrupulous computer users were using fraudulently obtained card numbers to buy access to his Web sites.

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