Targeted in online check scam, FTC sues

Bob Sullivan Technology correspondent • Profile • E-mail

A federal court in California has ordered a Web site to stop e-mailing personal checks without verifying the identity of the check-writers in response to a Federal Trade Commission lawsuit alleging that the practice has resulted in widespread fraud. The action came after brazen crooks used the Qchex Web site to try to steal from federal agencies, including the FTC itself.

U.S. District Judge William Q. Hayes last week issued a temporary restraining order barring Qchex from e-mailing the checks while the FTC pursues a lawsuit against the San Diego-based company.

In seeking the order, the FTC said it had received over 600 complaints from consumers who say the practice was used to fraudulently withdraw money from their accounts.

The agency said criminals also wrote 20 checks drawn against FTC and Federal Communications Commission bank accounts. Neither the 16 fake checks worth a total of $100,000 written on the FCC accounts nor those drawn on FTC accounts was cashed, so no money was lost, it said.

The company did not immediately respond to requests for comment on the lawsuit.

Site popular with fraud artists
MSNBC.com first warned consumers about Qchex.com more than a year ago. The site offers consumers the ability to register their checking accounts, then send checks via e-mail. But the service quickly became popular with fraud artists who discovered that Qchex didn't verify that its users were the legitimate account holders before giving them the ability to draft checks drawn on an account.

The FTC said most of the complaints it received about Qchex came from businesses defrauded by criminals who paid by a Qchex check that eventually was returned as worthless. Generally, criminals used the fake checks to purchase merchandise online.

While personal checks generally must be signed in order to be valid, federal and state banking regulations contain an exception to the rule that the criminals are exploiting. Known as "demand drafts" or "remotely created checks," the documents look like personal checks but are stamped with a message such as "signature not required."

This enables Qchex users to easily write a fraudulent check if they have the bank routing number and account number that appear on every paper check and deposit slip. A criminal can create a fraudulent check even if the account holder's name and address are incorrect, as long as the bank routing number and account number are accurate, the FTC said.

Qchex victims told the FTC that the company was virtually unreachable, or could only be contacted only through "Herculean persistence." One Utah company complained that 20 Qchex checks were drawn on its business account over several months despite numerous attempts to reach the company by phone and e-mail.

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