Michael Mendlowitz, also known as Moshe Mendlowitz, is the former CEO and part-owner of Commerce Payment Systems, a credit card processing company that federal prosecutors said cheated more than 12,000 small businesses out of over $30 million. A Manhattan federal jury convicted him of wire fraud and conspiracy to commit wire fraud in May 2019, and the Second Circuit Court of Appeals affirmed that conviction in March 2023.1U.S. Department of Justice. CEO of Payment Processing Company Convicted of Overbilling Fraud Scheme2CourtListener. United States v. Mendlowitz, 21-2049
How the Overbilling Scheme Worked
From around 2010 through July 2015, Mendlowitz ran Commerce Payment Systems, which also did business as Commerce Payment Group, Merchant Commerce, Empire Payments, Evolution Bankcard, and Optimal Bankcard.3U.S. Department of Justice. United States v. Michael Mendlowitz and Richard D. Hart The company sold credit and debit card processing to small merchants across the country. Prosecutors said Mendlowitz and his co-defendant Richard Hart, the company’s vice president and director of sales, built the business around deception.
Sales representatives pitched merchants with promises of “no hidden fees” and rates “guaranteed for life,” and they used rigged cost comparison calculators designed to make the company’s rates look lower than they were.4U.S. Department of Justice. Top Two Executives of Credit Card Processing Company Charged in $30 Million Overbilling Scheme After a merchant signed up, the company would hide or delete contract pages that contradicted the sales pitch and then quietly change customer accounts to add higher, undisclosed fees.1U.S. Department of Justice. CEO of Payment Processing Company Convicted of Overbilling Fraud Scheme
When negative reviews began building online, prosecutors said, Mendlowitz and Hart spun up new corporate entities with fabricated histories and invented customer relationships. One, for example, falsely claimed “300,000 satisfied customers.”4U.S. Department of Justice. Top Two Executives of Credit Card Processing Company Charged in $30 Million Overbilling Scheme The point was to get around the complaint trail and keep signing up new victims.
Charges and Conviction
A federal grand jury in the Southern District of New York returned a sealed indictment on April 24, 2017. It was unsealed on May 2, 2017, when Mendlowitz and Hart were arrested.5CourtListener. United States v. Mendlowitz, 1:17-cr-00248 The initial charges were conspiracy to commit wire and mail fraud, wire fraud, and mail fraud, each count carrying a maximum of 20 years in prison.4U.S. Department of Justice. Top Two Executives of Credit Card Processing Company Charged in $30 Million Overbilling Scheme
Hart took a different path. He pleaded guilty to a single count of conspiracy to commit an offense against the United States, with a five-year maximum, under a superseding information.6Newsday. Commerce Payment Systems Fraud
Mendlowitz went to trial before U.S. District Judge Vernon S. Broderick. A superseding indictment filed on March 27, 2019, charged him with conspiracy to commit wire fraud, wire fraud, and aggravated identity theft.7vLex. United States v. Mendlowitz On May 23, 2019, the jury returned a split verdict: guilty on the two wire fraud counts, not guilty on aggravated identity theft.1U.S. Department of Justice. CEO of Payment Processing Company Convicted of Overbilling Fraud Scheme
What Happened on Appeal
Mendlowitz appealed to the Second Circuit, raising three arguments. He said the trial judge wrongly excluded an expert he wanted to call on industry practices, which the defense tied to a good-faith theory. He said a recorded conversation with a cooperating witness should have come in because it bore on his state of mind. And, as an Orthodox Jew, he said the judge should have asked prospective jurors directly about their views on Jewish people rather than only about the defendant’s “physical appearance.”8Federal Defenders of New York. Circuit Rejects New Trial Bid Despite Evidentiary Errors and Refusal to Voir Dire on Antisemitic Bias
The Second Circuit agreed with him on the first two points, finding the expert testimony relevant and admissible and finding the recording was neither irrelevant nor hearsay. It rejected the voir dire argument, holding the questioning fell within the trial judge’s broad discretion over jury selection.8Federal Defenders of New York. Circuit Rejects New Trial Bid Despite Evidentiary Errors and Refusal to Voir Dire on Antisemitic Bias
Even so, the panel affirmed the conviction in a summary order dated March 2, 2023, concluding the evidence against Mendlowitz “was strong enough that… it is exceedingly unlikely that the result would have been different.” The errors, in other words, were harmless.2CourtListener. United States v. Mendlowitz, 21-2049 The judgment mandate issued on March 23, 2023.
Who Was Harmed
The victims were overwhelmingly small merchants who used Commerce Payment Systems and its affiliates to process customer card transactions. Prosecutors put the count at more than 12,000 businesses and the loss at over $30 million, taken through hidden fees and rate manipulation.3U.S. Department of Justice. United States v. Michael Mendlowitz and Richard D. Hart The Southern District of New York’s victim-witness services office has listed the case on its case updates page, which is where affected merchants are notified and directed for assistance.9U.S. Department of Justice. USAO SDNY Victim Witness Services
A Note on the Company Name
Commerce Payment Systems, the company in this case, is not the same business as CPS Payment Services, an Atlanta-based B2B payments and accounts payable automation company founded in 2011 and acquired by Repay Holdings Corporation in 2020 for up to $93 million.10U.S. Securities and Exchange Commission. Repay Holdings Corporation Press Release They share the “CPS” shorthand but are unrelated.