Credit card scheme traps another bank

A growing credit card scheme has bilked another US bank.This time it was the Security Pacific Bank in California. The Los Angeles-based bank has lost some $200,000 in a new type of credit card scam that is spreading across the country and involving thousands of unwitting cardholders.

The scheme is relatively simple: A clerk in a store copies names and credit card numbers from legitimate charges. Then someone buys plain plastic and has the names and numbers of those charges embossed on them. As a last part of the plan, the individual forms a phony business and runs the bogus cards through a charge machine, depositing the charges as cash in his company's bank accounts. Finally, the "charge slip" thieves leave town.

In the case of Security Pacific, the fraud involves a fictitious company using the name California Wholesale Jewelers, which is under investigation by the Los Angeles Police Department as well as the Postal Inspection Service.

In Chicago, a grand jury is reportedly close to handing down indictments involving a similar case, and in New York, 18 people are under investigation or indictment for similar types of credit card schemes.

Although there are no statistics indicating the total scope of the fraud, the two major credit card companies, MasterCard and Visa, together handle $54 billion of legitimate charges each year. According to a spokesman for Visa, the total amount of charge-offs related to fraud, counterfeiting, and theft each year comes to about $180 million. MasterCard has about the same charge-off.

While the card companies like to play down the amount of fraud involved with their cards, Sherry Trueax, a consumer protection specialist with the Postal Inspection Service who investigates the frauds, says they are an increasing and continuing problem.

In fact, on Feb. 10, as a result of an investigation by the Postal Inspection Service, a part of the Postal Service, the US Attorney's Office for the Eastern District obtained an indictment against seven individuals for conspiracy to commit bank fraud.

According to R. V. Murry, the postal inspector in charge of the investigation , since 1978 as many as 300 retailiers in the New York area have participated in schemes to defraud, using tens of thousands of lost, stolen, or counterfeited cards. As a result, Mr. Murry said, "banks throughout the US and Europe were defrauded in excess of $15 million." As of March 4, the Postal Inspection Service reports that 18 people had been charged with similar federal offenses in the district.

The California Wholesale scam is similar to another credit card scheme that cost Chase Manhattan Bank nearly $300,000 recently. According to an indictment handed down in mid- February, one Gad Rosenshtook, an Israeli citizen, created two phony corporations, Transword Electronics and Venice Fashion Jeweleries, which submitted 950 phony sales slips to Chase between August and December of last year. The slips carried real account numbers of Chase customers who had not bought anything from either of the two companies. Neither Mr. Rosenshtook or California Wholesale Jewelers could be reached for comment.

Chase found the transactions and alerted the Manhattan district attorney's office during a normal computer audit of its merchant customers. Mr. Rosenshtook was arrested on Feb. 3 at JFK International Airport.

A spokesman for Chase pointed out that the consumer has no liability whatever in such a case. However, consumers are asked to cut up and return their credit cards and are reissued new cards and new account numbers. And, Ms. Trueax of the Postal Inspection Service says, consumers should hold on to their credit card receipts. "You would be surprised," she says, "at the number of credit card receipts picked up off the ground, giving someone your name and card number."

Although bankers point out that there is no foolproof method to prevent credit card frauds, there are ways to minimize them. Detective Greg Schwein of the Los Angeles Police Department suggests that the banks tighten up credit card rules for their merchant customers.

For example, instead of allowing "cash deposits" of charge slips, the banks could hold off payment until the slips return to the customer's bank. And one head of security for a large New York bank noted that there are computerized screening methods that catch fraudulent charges. "Since New York experiences these schemes before a lot of other areas," he says, "we try to move around the country explaining to other banks what they can do to prevent these things."

Finally, as Marion Bestani, a spokeswoman for Chase Manhattan Bank, comments, "We like to cooperate with the press on these stories so people know you can't get away with these things. You're going to get caught if you try it."