Alleged Credit Card Scam May Rank Among Largest

Puzzled by a charge on her MasterCard statement for Internet access, Bettina Leeney of Calabasas figured someone had made a mistake. She couldn’t owe $19.95 to a company called Netfill, she thought. She had never ordered Internet service for her home computer.

The 29-year-old Rocketdyne worker was among up to 900,000 credit cardholders worldwide who were billed by Malibu-based Netfill in what federal regulators say is one of the largest credit card scams in history. A U.S. District Court judge in Los Angeles has ordered the company’s owner to appear in court today to respond to Federal Trade Commission allegations that he has been concealing millions of dollars in offshore bank accounts.

Kenneth H. Taves, who controlled Netfill, took in more than $49.4 million last year, only a fraction of which came from legitimate charges for access to pornographic Web sites, according to regulators and a court-appointed receiver. One federal law enforcement source said the extent of the alleged scam was “off the scales.”

FTC officials have not yet determined how Taves may have obtained almost a million unique credit card numbers, but they are investigating whether he may have used a number-generating computer program. MasterCard officials said such a program is believed to be circulating on the Internet.

Taves’ attorney declined to comment Monday.

While running the alleged scam, Taves--an admitted accessory to a 1980 murder--was permitted by a federal judge to travel repeatedly to the Cayman Islands while on probation for an earlier financial crime, court records show. Taves’ firms are now under the control of a court-appointed receiver, Sun Valley-based Robb Evans & Associates.

Investigators for the receiver are scouring banks across the globe for more than $23 million they say Taves may have stashed in offshore accounts. While Taves was on probation for check counterfeiting last year, courts also let him travel to Switzerland, Ecuador, Singapore and other nations.

“We are confident that . . . there will be a significant recovery for consumers,” predicted Gary O. Caris of Frandzel Share Robins & Bloom, the firm representing the receiver.

Meanwhile, the case has pointed up potential weak spots in the banking system’s oversight of credit cards. Two banks where Taves’ companies held accounts took little action despite the fact their own records showed customers were demanding refunds at stratospheric levels.

Generally, businesses must maintain bank reserves to repay cardholders who are billed improperly. Credit card associations count on the banks to monitor those reserve accounts for excessive refund demands, a signal of possible wrongdoing.

Evans, the receiver, said he was still examining the “apparent willingness” of Charter Pacific Bank and Heartland Bank to host Taves’ volatile corporate accounts. Records show refund demands on Taves’ company accounts averaged 8% last year, far higher than industry standards of about 2.5%. But neither bank shut down his accounts.

Attorneys for the two banks did not return phone calls Monday.

Evans’ investigators who examined Taves’ companies--primarily JK Publications and MJD Service Corp.--found that only about $3.9 million came from “presumably legitimate” business, either from Web access fees or commissions on other Web transactions. The source of the remaining $45.5 million, according to a receiver’s report, is “highly questionable” and is not supported by the customer data in files seized from Taves’ firms.

The receiver’s investigators are now in a mad scramble to locate Taves’ assets. A sworn financial statement indicates he has a net worth of about $2.5 million, with ownership of a Malibu home, a private plane and 50% ownership of a house in the Caymans.

But investigators believe he owns much more. Last week, investigators said they found previously undisclosed Taves accounts in a Cayman Islands bank with $6.2 million in cash and securities.

Taves and his wife, Teresa, have been ordered to appear in federal court today to explain why the accounts were not disclosed.

Documents reviewed by The Times show a check for $1.5 million from one of Taves’ firms was deposited at Euro Bank Corp. in the Caymans last Nov. 16, while Taves, on probation, was scheduled to be there on a trip approved by U.S. District Judge Lourdes G. Baird.

No one from the U.S. attorney’s office or the U.S. probation office ever objected to Taves’ overseas trips, which also were approved by U.S. District Judges Dickran M. Tevrizian Jr. and Audrey B. Collins.

Taves, 47, is still on probation for his role in a 1997 check-counterfeiting scheme.

That was not his first run-in with the law. Taves was also charged in Los Angeles County for the 1980 murder of Jeffrey Rockman, who had allegedly swindled him in a business deal.

According to two law enforcement sources, Rockman was in the federal witness-protection program when his body was found in his oceanfront Venice apartment.

A local handyman told authorities that Taves had hired him to shoot Rockman. But the handyman died in a car accident before trial. With no case left, prosecutors let Taves plead guilty to accessory to murder. He received probation.