KeyBank has sued a Hudson Valley religious charity and a co-founder for allegedly running a $950,000 credit card chargeback scheme.
KeyBank of Cleveland sued Mordechai Gold and BHMD BY on Chevron Inc., of Kiryas Joel, Orange County, Dec. 16 in White Plains federal court.
“KeyBank seeks to prevent the fraudulent transfer or dissipation of assets, including those assets that they have already tried to put beyond the reach of KeyBank,” the lawsuit states.
Gold responded in a court filing that the allegations are a “complete fabrication.”
The bank “has attempted to dress up its contract claim as being an elaborate fraud involving over 40 conspirators,” he stated, “yet KeyBank has proffered no evidence of fraud.”
Gold, 26, Yoel Shtosel and Joel Fekete set up BHMD BY on Chevron in 2015 to establish a place of worship, Bnai Yisroel, on Chevron Road, according to the incorporation papers, and to “support the spiritual needs of the community with providing free loans and to support the religious, intellectual, moral and social welfare among them.”
Shtosel and Fekete are not named in the complaint.
BHMD opened a settlement account with KeyBank in March for handling credit card transactions. Fiserv, a vendor working for the bank, processed credit and debit card charges for BHMD merchandise bought by cardholders, collected funds from the credit card banks and paid the merchants.
From April to early September, about $984,000 was deposited in the Keybank settlement account. During the same period, Gold transferred about $950,500 out of the account.
The transactions include $22,308 in cash withdrawals, $41,150 wired to a family trust, $84,000 wired to a member of Gold’s family and $533,996 transferred to Gold and BHMD accounts at NorthEast Community Bank.
Fiserv became suspicious and opened an investigation. BHMD was repeatedly charging the same, even-amount for transactions on high-reward credit cards. When the vendor questioned Gold, he said BHMD had been taking advance orders for Hebrew texts. Fiserv pressed for details, the complaint states, but Gold could not provide them.
Fiserv concluded that Gold and BHMD had colluded with customers to process fraudulent credit card transactions, collect the credit card rewards and steal the funds.
“BHMD and Gold then transferred the fruits of the fraud into outside bank accounts and took cash withdrawals,” according to the complaint.
Fiserv referred its findings to the FBI.
After KeyBank closed the settlement account in September, there was an enormous spike in chargebacks. Customers demanded refunds, claiming that the amounts of the transactions were incorrect, they didn’t recognize the transactions or the goods were not provided.
By mid-December, the chargebacks totaled $630,400, and KeyBank expects the number to surpass $950,000.
KeyBank had processed credit card transactions that resulted in $984,000 in deposits to the settlement account, “even though no actual goods or services were sold or delivered,” the complaint states. Then Gold and BHMD “plundered” $950,500.
The settlement account had insufficient funds for refunding the credit card banks, so KeyBank had to pay them.
Gold states in his declaration that BHMD functions as a charitable institution, raising money from contributors that it distributes to “needy families to help cover their costs (of) yeshiva, holidays, weddings and basic needs.”
BHMD had been offered a large supply of religious books and bookcases, he says, that it used as incentives to encourage donors to contribute $990,000 to his organization. But the supplier failed to deliver the items and BHMD was unable to honor its incentives.
“This resulted in a massive business failure in which over 40 contributors, disgruntled over the failure of BHMD to supply the promised items, issued chargebacks for their contributions.”
Gold said BHMD was unable to cover the chargebacks because it had immediately distributed the contributions to “needy recipients.”
The bank accuses Gold and BHMD of breach of contract and fraud. It is asking for a court to order to preserve all assets and for judgments for damages and enforcement of a personal guaranty Gold signed when he opened the settlement account.
KeyBank is represented by Manhattan attorneys Emily J. Mathieu and Brian K. Steinwascher. BHMD and Gold are represented by Richard M. Mortner of Manhattan.