Two Long Island men were arrested on Tuesday and charged in Manhattan federal court with operating a $30 million credit card processing business permeated by fraud that ripped off millions from merchants.
Michael Mendlowitz, 42, of Woodmere and Richard Hart, 36, of East Meadow were charged with mail fraud and wire fraud for allegedly lying in sales pitches and misleading their customers and their parent company to charge hidden and excessive fees.
Their companies — known as Commerce Payment Systems, Evolution Bankcard and other names, and located in Hewlett according to online listings — serviced up to 12,000 merchant customers and took in $30 million from 2013 to 2015, the government said.
“Small businesses . . . are entitled to be treated fairly and to have their bills honestly reflect the services they received,” said acting U.S. Attorney Joon Kim. “That is not what the businesses that Mendlowitz and Hart dealt with got. Instead, they allegedly got a series of lies and misrepresentations to support tens of millions of dollars in overbilling.”
The two-count indictment did not name any customers whom the two allegedly scammed, and also did not name their parent company. Mendlowitz and Hart both pleaded not guilty and were released after a brief hearing. Hart’s lawyer declined to comment.
“My client is a wonderful husband and father of seven kids,” said Mendlowitz’s lawyer, Marc Agnifilo. “The facts will tell a very different story than what is in the indictment.”
The scheme, the government said, included false marketing, misrepresentations by CPS sales staff to potential merchant customers and misrepresentations to customers when they called to complain about overcharges.
Processors act as middlemen between a merchant, the merchant’s bank, a cardholder, the cardholder’s bank and the credit card company — such as Visa or MasterCard. The majority owner of CPS, the charges said, was a larger processing company.
Mendlowitz and Hart, the government said, charged merchants fees that were “several times higher” than what they were promised during sales pitches, charged duplicate fees multiple times and added in bogus charges such as “IRS reporting fees” and “inactivity fees.”
They also manipulated computer images of sales agreements, according to the indictment, so that it appeared to their parent company that customers had initialed and okayed fees that they had in fact been assured would not be charged.