Humboldt Merchant Services, an independent sales organization that focuses on payment processing for gambling and adult entertainment, agreed Tuesday to pay $12 million to settle a Federal Trade Commission lawsuit alleging it handled payments for “sham merchant accounts.”
Humboldt “processed payments for more than 1,000 merchants that were shell entities that served as fronts or pass-throughs for fraudulent companies engaged in unauthorized billing scams,” the Federal Trade Commission said in a Tuesday press release announcing its lawsuit and concurrent settlement agreement.
Humboldt is the business name of 5967 Ventures, a company based in Tempe, Arizona, with an affiliated office in Troy, Michigan, according to the FTC’s lawsuit, which was filed Tuesday against 5967 Ventures in the U.S. District Court of Eastern Michigan. The agency filed the settlement agreement at the same time for court approval.
In a statement Tuesday, Humboldt said the agreement “formalizes many processes and controls already put into place,” and will close the matter “with no admissions of wrongdoing.”
The actions detailed in the lawsuit occurred “under former Humboldt leadership,” according to the statement.
The company processed about $100 million through more than 1,000 sham merchant accounts between 2021 and 2023, the FTC lawsuit said.
“Humboldt was processing payments for companies despite red flags indicating they were scamming consumers,” Katherine White, deputy director of the FTC’s Bureau of Consumer Protection, said in the press release.
The company caters to small and midsize businesses, “specializing in ‘tough to place’ or ‘high risk’ merchants — businesses that are usually rejected by other processors because of disqualifying credit, reputational, or regulatory risk,” the FTC wrote in its lawsuit.
Humboldt’s website lists its industries as adult, gaming and pharmacy transactions, including for firearms, online gambling and internet dating. The company, which says it was founded in 1992, accepts Visa, Mastercard, American Express and Discover cards and works as a registered ISO of Chicago-based BMO Harris Bank.
Card networks prohibit credit card transactions processed through another company’s merchant account, the lawsuit noted, a practice called “credit card laundering.”
“Laundering helps fraudulent merchants circumvent underwriting or risk monitoring criteria established by acquirers or ISOs—criteria they may be unable to satisfy if they were to disclose their real identity, for example if they previously had been flagged for excessive chargebacks or fraud,” the lawsuit said.
As part of the agreement, Humboldt will not engage in or assist others involved in credit card laundering.
The company also will stop payment processing for four merchant categories: straw companies; merchants on the Mastercard Alert to Control High-Risk list for excessive chargebacks and fraud; merchants that have been subject to law enforcement action; and e-commerce companies that use only third-party mailbox addresses as their sole business location.
The settlement agreement with a payment processor was the FTC’s second in a week, following the resolution last week of the agency’s complaint against Montreal-based Nuvei.
