Leader of International $200 Million Credit Card Fraud Scam Pleads Guilty

TRENTON, NJ—A New York man has admitted his role in leading one of the largest credit card fraud schemes ever charged by the U.S. Department of Justice, U.S. Attorney Paul J. Fishman announced.

Tahir Lodhi, 53, of Hicksville, New York, pleaded guilty before U.S. District Judge Anne E. Thompson in Trenton federal court to an information charging him with one count of conspiracy to commit bank fraud.

“Today’s admission of guilt by Tahir Lodhi brings to justice a leader of one of the biggest credit card fraud schemes ever charged by the United States,” U.S. Attorney Fishman said. “This type of fraud increases the costs of doing business for every American consumer, every day. Lodhi hurt not only the credit card issuers, but everyone who pays increased interest rates and fees because of the money sucked out of the system by criminals.”

“The criminal enterprise under Mr. Lodhi’s direction took advantage of the system and the good faith of banks and credit lenders they defrauded to the tune of hundreds of millions of dollars,” Aaron T. Ford, FBI Special Agent in Charge, Newark, said. “In doing so, they took advantage of the American public and legitimate users of the banking industry so that they and their families could live a lavish lifestyle. Today’s plea is the result of the hard work of the men and women of the FBI and our partners at the U.S. Secret Service, U.S. Postal Inspectors, and the U.S. Social Security Administration, as well as a significant partnership with the private sector. In today’s world, where more and more individuals seek the fast buck by trying to defraud hard-working Americans, the Newark Office of the FBI remains committed and focused on combating fraud at all levels of society.”

According to documents filed in this case and statements made in court:

Lodhi directed the activities of a number of other conspirators in fabricating more than 7,000 false identities to obtain tens of thousands of credit cards. They doctored credit reports to pump up the spending and borrowing power associated with the cards. Lodhi and others then borrowed or spent as much as they could, based on the phony credit history, but did not repay the debts, causing more than $200 million in confirmed losses to businesses and financial institutions.

The scheme involved a three-step process in which the defendants would:

• “Make up” a false identity by creating fraudulent identification documents and a fraudulent credit profile with the major credit bureaus.
• “Pump up” the credit of the false identity by providing false information about that identity’s creditworthiness to the credit bureaus. Believing the furnished information to be accurate, the credit bureaus would incorporate this material into the false identity’s credit report, making it appear that the false identity had excellent credit.
• “Run up” large loans using the false identity. The higher the fraudulent credit score, the larger the loans that the defendants could obtain. These loans were never repaid, and Lodhi and his conspirators reaped the profits.

The Sham Companies

The enormous size and scope of the criminal fraud enterprise required Lodhi and his conspirators to construct an elaborate network of false identities. Across the country, Lodhi and his conspirators maintained more than 1,800 “drop addresses,” including houses, apartments, and post office boxes, which they used as the mailing addresses of the false identities.

They created dozens of sham companies that did little or no legitimate business, obtained credit card terminals for the companies, and then ran up charges on the fraudulent cards. To accept payments in the form of credit cards, a business must establish a merchant account with an entity known as a merchant processor. The merchant processor provides the business with equipment to process credit cards, receives payments from credit card companies for credit cards run at the business, and deposits those payments, minus a fee, into the business’ bank account. When the merchant processors shut down accounts operated by the conspirators for fraud, the conspirators would apply for new terminals and create new companies.

The sham companies also served as “furnishers,” providing the credit bureaus with false information about the credit history of numerous false identities of people who purportedly worked at or owned the companies.

Tradelines

Lodhi and his conspirators also used sophisticated methods—including a network of black-market businesses called “tradelines” providers—to commit fraud.

Tradelines come in two varieties: primary tradelines and authorized user tradelines. Primary tradelines are lines of credit in a credit history. If a credit card user has primary tradelines in good standing, it can have a significant impact on the user’s credit score, enabling the user to borrow more from credit card issuers. Lodhi and his conspirators, however, trafficked in fraudulent primary tradelines.

A second kind of tradeline is the “authorized user” tradeline, where a credit card holder adds another so-called “authorized user” to a credit card account. This raises the credit score of the authorized user, who inherits some of the primary user’s credit history.

Certain of Lodhi’s conspirators created and sold fake lines of credit for false identities made up by Lodhi and others. These fraudulent primary tradelines were then used to increase the credit limits on fraudulent cards, so that the conspirators could reap even larger profits. Lodhi and other conspirators used the authorized user tradelines to create new identities.

Complicit Businesses

Lodhi and his conspirators also relied upon complicit businesses, including several jewelry stores in the Jersey City, New Jersey area, to extract money from the fraudulent cards. The complicit businesses would allow certain conspirators to conduct sham transactions on the phony cards and would then receive the proceeds from the credit card companies and split them with the other conspirators. These complicit businesses maintained multiple credit card merchant processing accounts at the same time. By operating dozens of accounts, these businesses furthered the conspiracy by allowing more fraudulent transactions to be processed before the merchant processors shut down the account. The proceeds from these merchant terminals were deposited into various business checking accounts, and the money was paid out to the owners of the complicit businesses, along with other conspirators.

Lavish Spending

The conspiracy generated enormous profits for Lodhi and his conspirators—even though they spent millions of dollars sustaining the elaborate network of drop addresses and running credit reports on the thousands of false identities. Records of the New York and New Jersey Departments of Labor reveal that many of Lodhi’s conspirators had no reported legitimate employment in the last five years. Nonetheless, Lodhi and his conspirators used the proceeds of the criminal enterprise to buy luxury automobiles, electronics, spa treatments, expensive clothing, and millions of dollars in gold. They also stockpiled large sums of cash. Law enforcement discovered approximately $70,000 in cash in the oven of one of Lodhi’s conspirators.

Lodhi’s conspirators also moved millions of dollars through accounts under their control and wired millions of dollars overseas. An analysis of 169 bank accounts of the defendants, sham companies, and complicit businesses has identified $60 million dollars in proceeds that flowed through the accounts, much of it withdrawn in cash. The conspirators wired millions of dollars to Pakistan, India, the United Arab Emirates, Canada, Romania, China, and Japan. Due to the massive scope of the conspiracy, which involved more than 25,000 fraudulent credit cards, loss calculations are ongoing. Final figures may grow beyond the present confirmed losses of more than $200 million.

The count to which Lodhi pleaded guilty is punishable by a maximum potential penalty of 30 years in prison and a fine of $1 million, or twice the gain or loss caused by the offense. Sentencing is scheduled for October 1, 2013.

The investigation previously resulted in the arrest of 22 defendants and the seizure of more than $4 million in gold from jewelry stores in Jersey City.

U.S. Attorney Fishman praised special agents of the FBI’s Cyber Division, under the direction of Special Agent in Charge Aaron T. Ford, for the investigation leading to today’s guilty plea. He also thanked postal inspectors under the direction of Postal Inspector in Charge Marie L. Kelokates, the U.S. Secret Service, under the direction of Special Agent in Charge James Mottola, and the U.S. Social Security Administration for their roles in the investigation.

The government is represented by Assistant U.S. Attorneys Daniel V. Shapiro and Zach Intrater of the Economic Crimes Unit and Barbara Ward of the Asset Forfeiture Unit of the U.S. Attorney’s Office in Newark.