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article imageThis Nebraska woman allegedly scammed Square out of $5.7 million

By Megan Hamilton     Oct 27, 2015 in Business
Omaha - Square has been doing quite well in the mobile payments business, and the company is on the edge of going public. As is expected, the company is allowing potential investors to examine the risks and uncertainties it has to contend with.
Things have been going well for the company, except for one big, glaring case mentioned in the company's $1.00 filing. Someone scammed the company by posing as a seller of discount travel vouchers, bleeding the company to the tune of $5.7 million, The Verge reports, but adds this number may be the company stating the worst-case scenario.
Square reported that the loss was "related to fraud by a single seller." That one person represented almost 23 percent of the company's transaction and advance losses for the first half of this year. The Wall Street Journal questioned Square's ability to prevent fraud, BuzzFeedNews notes.
Surprisingly, it wasn't some high-tech hacker wearing a grease-stained t-shirt and scarfing Doritos. Instead, BuzzFeed discovered, it was an Omaha-based company that was unimaginatively named Creative Creations. The company is owned by a woman named Patricia Urbanovsky, 30.
It's alleged that Urbanovsky sold bogus travel vouchers that were based on an also bogus connection to Southwest Airlines. Unhappy customers began requesting refunds, but Creative Creations wouldn't pay up, thus leaving Square holding the bag.
Urbanovsky's lawyer, Steven Lefler, told BuzzFeed that although he wasn't completely sure, he thought it was likely that Urbanovsky and the single seller are probably the same person.
According to the Omaha World-Herald, Square filed a criminal report with the Omaha Police Department. The report stated that between Oct. 2014 and March 2015, the company accepted over $7 million in credit card and debit card payments, and it was out $2.8 million in chargebacks — these are payments that are disputed and refunded to customers. However, it's likely that the amount reported in regards to the SEC filing is actually higher, reflecting the largest possible loss to the company.
Ross Nadel, Square's lawyer, described the situation as a Ponzi scheme, and said the company will "take the loss" if Urbanovsky can't come up with the money to cover the chargebacks, reports.
The investigation was touched off early this spring because Omaha's Better Business Bureau was hit with complaints about the company's discount travel voucher program. The number of complaints has risen to over 1,500, and the alleged losses stemming from the complaints totals over $1.35 million, Jim Hegarty, president and chief executive officer with the BBB said.
It's not likely that Urbanovsky will be able to pay the scam victims back, iTechPost reports. He said creditors, attorney generals, and better business bureaus had asked him about this.
"If there's money, we'll pay everybody back, but I don't think there will be any money," he said.
While this loss might seem glaring, Square's loss rate for transactions is actually better than those of at least some of its competitors. According to a July filing by the Securities and Exchange Commission (SEC), PayPal's transaction and loan loss rate was more than 0.27 percent of its total payment volume for a period of three months that ended in June 2015, an increase from 0.25 percent year-over-year, BuzzFeedNews reports. Square, however, showed transaction and advance losses of 0.1 percent out of the gross payment volume for 2014 in its filing with the SEC.
As the case becomes increasingly more complicated, the FBI and IRS have also begun investigating, and Urbanovsky's home was recently raided.
Interestingly, Jack Dorsey, Square's founder and CEO, is also the founder of Twitter and is currently serving as the company's CEO, USA Today reports.
More about Square, Scammed, $57 million, bogus travel vouchers, mobile payments
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