5 ms·

The Seller Who Allegedly Defrauded Square Out of Millions

43 points by coloneltcb 11y ago

jacquesm 11y ago
If square is the 'merchant of record' that is a very risky proposition. See also: DMR and iBill.
- jasonlotito 11y ago
  This should not be surprising to anyone. This is how these things work. It's the reason PayPal is so brutal. To avoid things like this.
  - jacquesm 11y ago
    > This is how these things work. It isn't always. Segregated merchant accounts are the way to go if millions of dollars change hands at that level the overhead of setting up a merchant account are negligible, and if you can't get one then that's a pretty good sign you shouldn't be working with that kind of money. A couple of these instances and square will get shut down by VISA and that's the end of that. That's the references to iBill and DMR, that's exactly what happened to them and all their merchants were left without recourse.
    - blackguardx 11y ago
      Visa doesn't care about this because Square has paid them their money. For the most part, fraud is just a line item expense for the card networks. They care about it as long as fraud mitigation doesn't slow down payment transaction volume.
    - URSpider94 11y ago
      Dude, this is EXACTLY what PayPal, Stripe, Square, etc. etc. have been doing for YEARS. The card networks all know full well. It's driving volume for them, and the payment services eat the charge backs, so they just don't care.
    - pbreit 11y ago
      How would segregated accounts help? Square's 0.1% loss rate would never be grounds for a shut down. Do you have any idea what you're talking about?
      - jacquesm 11y ago
        Yes, I have an idea what I'm talking about. I followed the shut-down of Dacotah Marketing and Research and iBill from 'row #1' (as a mid-sized merchant with an inside line into the company about what was going on) and the main problem was that amongst the 1000's of good merchants there were a few bad ones. VISA warned them once, fined them the second time and shut them down the third. In both cases I lost a ton of money and I am definitely not the only party that did so. Since then I have my own merchant account and never a problem since. What is the main difference between 2015 and 2004?
        jasonlotito 11y ago
        > Yes, I have an idea what I'm talking about. > I followed the shut-down of Dacotah Marketing and Research and iBill from 'row #1' (as a mid-sized merchant with an inside line into the company about what was going on) To be fair, that's still as an outsider for one particular incident. Has someone who was basically on stage to your "row #1" for other companies, you are missing a few pieces. Maybe not in that case, but the idea that segregated accounts is some magical pill for someone in the IPSP space isn't entirely true. And if Visa was involved, it wouldn't do anything.
    - jasonlotito 11y ago
      > Segregated merchant accounts are the way to go... Yes, I know all this, and it doesn't change what I say. Even with many merchant accounts, it's still going to happen. And again: It's the reason PayPal is so brutal. To avoid things like this. > A couple of these instances and square will get shut down by VISA and that's the end of that. Yeah, it's a bit more involved than that, and at the same time, segregated merchant accounts aren't going to completely solve the problem. It's also the reason I stopped dealing with banks after 10 years of doing this. The only "rule" is money talks.
- ellius 11y ago
  I saw Square present on risk management at the Merchant Risk Council this year, and the audience was very skeptical that they were effectively managing their fraud and credit risk. Their procedures as they appear to be in place are dangerous enough in the US, and I expect if they try to expand internationally they are going to run into significant problems. One reason I have much greater faith in companies like Braintree is that I've spoken to their risk managers and they seem to be much more cognizant of the risk involved in merchant processing and have more effective controls in place.
mediumdeviation 11y ago
The lawyer's words don't pass the smell test. > “I don’t know with 100% certainty, ma’am, but I would guess that [Urbanovsky and the single seller] probably are [the same person],” her lawyer Steven Lefler told BuzzFeed News. He just admitted on record that his client cost the payments company they used several million dollars. > “This is a case that I didn’t charge enough money for,” Lefler told BuzzFeed News. > “But of course, I’m her lawyer. So who gives a shit what I think.” This is quite possibly the single least professional lawyer I've ever seen.
- jacquesm 11y ago
  The only words he should have spoken were 'no comment' and hung up. If he were my lawyer he'd be out on his ass.
  - URSpider94 11y ago
    I'm guessing he is figuring out that he's not getting paid for this gig ...
- jessaustin 11y ago
  He just admitted... No he didn't. Since Square's filing didn't mention Urbanovsky by name, the reporter wanted to confirm that it referred to her. Urbanovsky's lawyer confirmed that, but he certainly didn't admit to any particular allegation made in the filing or anywhere else. I don't think the legal strategy is to deny that payments were received, anyway. Apparently they're hoping to blame this scheme on insufficiently-supervised employees, but that seems unlikely to succeed. Bankruptcy is likely, which means the lawyer is correct that he should have charged more up-front.
mherdeg 11y ago
I was confused about what "bogus discounted travel vouchers" were so I found some more detail about the fraudulent business in this local TV story: http://www.ketv.com/news/company-sold-flight-vouchers-but-now-cant-honor-them-all/31926228 http://www.ketv.com/news/company-sold-flight-vouchers-but-no... > "The price that I was look at was for a 90 day in advance reservation for $139 round trip anywhere that Southwest flies," Creative Creations customer Phyllis Hicks said. > Hicks paid for several tickets and received a receipt. The voucher explained that customers would fly on the days they requested, and a confirmation should arrive at least month before departure. > However, Hicks never received her confirmation email because Creative Creations exceeded the 2,000 vouchers for flights in March. > "They're asking people to cancel their March vouchers. Well, I travel March 26, and it's not an option to cancel," Hicks said. What a weird model. The "you can only redeem 2,000 of these per month" angle almost makes this sound like the business was trying to be a Ponzi scheme. But it just doesn't make a lot of sense.
- sjburt 11y ago
  It sounds like they resold the vouchers before buying them from Southwest expecting that they could buy an unlimited number. But Southwest got wise to it and limited the program. And then their business didn't maintain enough cash reserve for refunds (or had customers unwilling to accept refunds). I wonder if the intent was ever to defraud, or if they just made a colossal mistake.
  - mherdeg 11y ago
    To my knowledge Southwest doesn't sell such a 'voucher' product, though. It seems possible that this company was just selling 'vouchers' and, when it came time to fulfill the 'voucher', they were just buying a plane ticket with cash. You could get away with this for a while by booking flights only for the people who wanted the least expensive itineraries and only on sale … and by taking in new money promised against future months to pay for the current month's sales.
steven2012 11y ago
I find the 0.1% loss rate for Square to be much, much lower than expected. I'm actually shocked by that, especially given their size.
coldcode 11y ago
"But of course, I’m her lawyer. So who gives a shit what I think". Wow, I've never heard that from a lawyer. I bet he's not getting any money either.

43 points by coloneltcb 11y ago

jacquesm 11y ago

If square is the 'merchant of record' that is a very risky proposition. See also: DMR and iBill.

jasonlotito 11y ago
This should not be surprising to anyone. This is how these things work. It's the reason PayPal is so brutal. To avoid things like this.
- jacquesm 11y ago
  > This is how these things work. It isn't always. Segregated merchant accounts are the way to go if millions of dollars change hands at that level the overhead of setting up a merchant account are negligible, and if you can't get one then that's a pretty good sign you shouldn't be working with that kind of money. A couple of these instances and square will get shut down by VISA and that's the end of that. That's the references to iBill and DMR, that's exactly what happened to them and all their merchants were left without recourse.
  - blackguardx 11y ago
    Visa doesn't care about this because Square has paid them their money. For the most part, fraud is just a line item expense for the card networks. They care about it as long as fraud mitigation doesn't slow down payment transaction volume.
  - URSpider94 11y ago
    Dude, this is EXACTLY what PayPal, Stripe, Square, etc. etc. have been doing for YEARS. The card networks all know full well. It's driving volume for them, and the payment services eat the charge backs, so they just don't care.
  - pbreit 11y ago
    How would segregated accounts help? Square's 0.1% loss rate would never be grounds for a shut down. Do you have any idea what you're talking about?
    - jacquesm 11y ago
      Yes, I have an idea what I'm talking about. I followed the shut-down of Dacotah Marketing and Research and iBill from 'row #1' (as a mid-sized merchant with an inside line into the company about what was going on) and the main problem was that amongst the 1000's of good merchants there were a few bad ones. VISA warned them once, fined them the second time and shut them down the third. In both cases I lost a ton of money and I am definitely not the only party that did so. Since then I have my own merchant account and never a problem since. What is the main difference between 2015 and 2004?
      - jasonlotito 11y ago
        > Yes, I have an idea what I'm talking about. > I followed the shut-down of Dacotah Marketing and Research and iBill from 'row #1' (as a mid-sized merchant with an inside line into the company about what was going on) To be fair, that's still as an outsider for one particular incident. Has someone who was basically on stage to your "row #1" for other companies, you are missing a few pieces. Maybe not in that case, but the idea that segregated accounts is some magical pill for someone in the IPSP space isn't entirely true. And if Visa was involved, it wouldn't do anything.
  - jasonlotito 11y ago
    > Segregated merchant accounts are the way to go... Yes, I know all this, and it doesn't change what I say. Even with many merchant accounts, it's still going to happen. And again: It's the reason PayPal is so brutal. To avoid things like this. > A couple of these instances and square will get shut down by VISA and that's the end of that. Yeah, it's a bit more involved than that, and at the same time, segregated merchant accounts aren't going to completely solve the problem. It's also the reason I stopped dealing with banks after 10 years of doing this. The only "rule" is money talks.
ellius 11y ago
I saw Square present on risk management at the Merchant Risk Council this year, and the audience was very skeptical that they were effectively managing their fraud and credit risk. Their procedures as they appear to be in place are dangerous enough in the US, and I expect if they try to expand internationally they are going to run into significant problems. One reason I have much greater faith in companies like Braintree is that I've spoken to their risk managers and they seem to be much more cognizant of the risk involved in merchant processing and have more effective controls in place.

mediumdeviation 11y ago

The lawyer's words don't pass the smell test. > “I don’t know with 100% certainty, ma’am, but I would guess that [Urbanovsky and the single seller] probably are [the same person],” her lawyer Steven Lefler told BuzzFeed News. He just admitted on record that his client cost the payments company they used several million dollars. > “This is a case that I didn’t charge enough money for,” Lefler told BuzzFeed News. > “But of course, I’m her lawyer. So who gives a shit what I think.” This is quite possibly the single least professional lawyer I've ever seen.

jacquesm 11y ago
The only words he should have spoken were 'no comment' and hung up. If he were my lawyer he'd be out on his ass.
- URSpider94 11y ago
  I'm guessing he is figuring out that he's not getting paid for this gig ...
jessaustin 11y ago
He just admitted... No he didn't. Since Square's filing didn't mention Urbanovsky by name, the reporter wanted to confirm that it referred to her. Urbanovsky's lawyer confirmed that, but he certainly didn't admit to any particular allegation made in the filing or anywhere else. I don't think the legal strategy is to deny that payments were received, anyway. Apparently they're hoping to blame this scheme on insufficiently-supervised employees, but that seems unlikely to succeed. Bankruptcy is likely, which means the lawyer is correct that he should have charged more up-front.

mherdeg 11y ago

I was confused about what "bogus discounted travel vouchers" were so I found some more detail about the fraudulent business in this local TV story: http://www.ketv.com/news/company-sold-flight-vouchers-but-now-cant-honor-them-all/31926228 http://www.ketv.com/news/company-sold-flight-vouchers-but-no... > "The price that I was look at was for a 90 day in advance reservation for $139 round trip anywhere that Southwest flies," Creative Creations customer Phyllis Hicks said. > Hicks paid for several tickets and received a receipt. The voucher explained that customers would fly on the days they requested, and a confirmation should arrive at least month before departure. > However, Hicks never received her confirmation email because Creative Creations exceeded the 2,000 vouchers for flights in March. > "They're asking people to cancel their March vouchers. Well, I travel March 26, and it's not an option to cancel," Hicks said. What a weird model. The "you can only redeem 2,000 of these per month" angle almost makes this sound like the business was trying to be a Ponzi scheme. But it just doesn't make a lot of sense.

sjburt 11y ago
It sounds like they resold the vouchers before buying them from Southwest expecting that they could buy an unlimited number. But Southwest got wise to it and limited the program. And then their business didn't maintain enough cash reserve for refunds (or had customers unwilling to accept refunds). I wonder if the intent was ever to defraud, or if they just made a colossal mistake.
- mherdeg 11y ago
  To my knowledge Southwest doesn't sell such a 'voucher' product, though. It seems possible that this company was just selling 'vouchers' and, when it came time to fulfill the 'voucher', they were just buying a plane ticket with cash. You could get away with this for a while by booking flights only for the people who wanted the least expensive itineraries and only on sale … and by taking in new money promised against future months to pay for the current month's sales.

steven2012 11y ago

I find the 0.1% loss rate for Square to be much, much lower than expected. I'm actually shocked by that, especially given their size.

coldcode 11y ago

"But of course, I’m her lawyer. So who gives a shit what I think". Wow, I've never heard that from a lawyer. I bet he's not getting any money either.