Jeremy Johnson case sets bank fraud precedent in negative option billing schemes

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Jeremy Johnson, creator of iWorks, is currently serving more than 11 years in prison for providing false information to banks to acquire Visa/Mastercard merchant accounts, AKA “MIDs.”   Johnson used these MIDs to load balance negative option recurring charges across hundreds of merchant accounts for the purpose of defrauding unwary consumers.

The scam worked by utilizing affiliate marketers to send consumers to Johnson’s negative option schemes.   Thereafter, consumer’s would sign up for a free product offering, assuming that there would be no recurring charges because the terms were obscured from plain sight.   This of course is a violation of FTC negative option laws, which allowed the government to swoop in and file a civil forfeiture of all of Johnson’s assets.

With millions of dollars frozen, the DOJ/FBI then charged Johnson criminally with 86 counts of bank fraud, wire fraud, money laundering, and making false statements to banks.   With this staggering indictment, Johnson faced over 300 years in prison.   Johnson’s negative option load balancing scheme involved “bank pages” via “signers” to acquire “MIDs” to “load balance” credit card transactions.  The government argued that Johnson’s load balancing scheme was designed to keep his negative option schemes off the radars of regulartors like the FTC and Visa/Mastercard fraud programs.

Broke, Jeremy Johnson represented himself at trial

And had a fool for a client.   With all assets frozen and completely blackballed by his brethren in the negative option industry, Johnson spent years defending himself in court.   The result was was that Johnson caught a lucky break by beating most of the charges.   Instead of spending the next 300 years in prison, Johnson was handed a sentence of 135 months — more than 11 years — behind bars.

Not Guilty of 78 charges, Guilty on 8 minor charges…11+ years in prison

Jeremy Johnson - Jury Verdict

Jeremy Johnson Indictment

128996430-Jeremy-Johnson-Superseding-Indictment

What the Johnson case means for negative option advertisers in 2018

The Jeremy Johnson case set the precedent for the DOJ to template criminal charge negative option marketers that submit false information to banks for the purposes of acquiring multiple MIDs to run online scams.

With a FTC civil forfeiture followed by a criminal indictment, the double whammy is enough to completely kill these schemes…and the operator’s behind them.

As previously reported, sources have confirmed that the authorities are probing negative option bank fraud schemes.

According to our sources, over the past 5 years, a groundswell of negative option advertisers have engaged in billions of dollars in transactions utilizing a similar business model to Jeremy Johnson.   In the Johnson case, employees and vendors alike were criminally charged.

Cristin Severance, Consumer Justice Investigative Reporter at CBS 11, recently reported on a number of negative option billing schemes that led back to a company called Hashtag Fulfillment.  Authorities have now confirmed that they’ve opened an investigation into both “Hashtag Fulfillment and related companies.”

In 2018 and beyond it is possible that the DOJ will start to indict a number of operators of fraudulent negative option schemes.   Anyone that aids and abets advertisers of these schemes may find themselves indicted as well, just like we saw in the Jeremy Johnson case.

DOJ: $31 billion budget & 99% conviction rate

The DOJ has an annual budget of $31 billion and boasts a 99% conviction rate.   To take a Federal Indictment to trial, it can cost the defendant millions of dollars and their lives.   When a case is taken before a jury, and a defendant loses, odds are that the maximum sentence will get handed down.

That’s why most cases settle in the Federal Justice System, resulting in pleas of often decades in prison and complete forfeiture of assets.

Even the highest powered white collar defense attorneys seek to plea bargain their cases, taking away the uncertainty of life-long prison setences for their clients.

The hammer of the DOJ is slow, but when it hits it completely destroys everything in its path.

Check back for updates to this emerging story.