Tech Live Connect CEO Michael Cotter used a system of fake invoices and virtual debit cards to hide high fraud rates from payment processors. This scheme allowed the company to mask widespread scams targeting American consumers.
The scams typically began with pop-up messages warning users of potential viruses. These messages directed users to a toll-free number, connecting them to a call center in India.
Call center employees, often posing as Apple or Microsoft representatives, requested remote access to computers. They then diagnosed fake technical issues and charged customers hundreds of dollars for unnecessary repairs.
The fraudulent scans always returned positive results, prompting users to seek help. These workers used the remote access to manipulate the user's system and justify the costs.
The influx of defrauded customers led to a surge in credit card chargebacks. These disputes occur when customers ask their banks to reverse payments made to the company.
By mid-2015, the high volume of disputes threatened the company's operations. One payment processor warned that it might terminate five of the company's merchant accounts due to these chargeback concerns.
High chargeback ratios often trigger penalties from payment processors. If the ratio climbs too high, processors may stop a company from accepting credit cards entirely.
Cotter claimed he maintained a policy of firing call center workers who engaged in fraudulent activity. However, he later admitted that this policy “was not enforced consistently.”
In some instances, repeat scammers at the company received promotions rather than termination.
Diluting the fraud
To protect the company's ability to process payments, Cotter implemented a new strategy in 2016. He began purchasing virtual debit cards to create a stream of artificial transactions.
Tech Live Connect used these cards to pay fake invoices, effectively paying itself. This influx of new, seemingly legitimate transactions increased the company's total transaction volume.
The additional volume diluted the impact of the fraudulent chargebacks. This manipulation successfully lowered the company's chargeback ratio, making the fraud less visible to payment processors.
This strategy focused on the mathematics of the chargeback ratio. By increasing the total number of processed transactions, the percentage of fraudulent claims decreased.
