Prosecutors Argue Dispensary Credit Card Scheme Case Should Move Forward

The dispensary credit card fraud scheme that has ensnared the delivery company Eaze is set to move forward.

In March, Ruben Weigand and Hamid “Ray” Akhavan were charged with conspiracy to commit bank fraud over charges that occurred between 2016 and 2019. They are alleged to have created a bunch of fake companies to trick banks into processing credit and debit payments for marijuana products from legal sellers. The two asked the court to dismiss the indictment saying that no one was harmed in the scheme.

[The major credit card companies have refused to work with the cannabis industry as it is still federally illegal. This has caused major difficulties for retailers whose customers are accustomed to using debit and credit cards for most transactions. Numerous workarounds have been devised like installing ATM machines in dispensaries or creating a transaction where the buyer is making a debit transaction versus a credit card transaction.]

The two also argued that in addition to no one being harmed, “the Rohrabacher-Farr Amendment, a rider on a congressional appropriations bill that bans the U.S. Department of Justice from using its funding to prosecute businesses engaged in a state’s legal medical marijuana industry.”  Law360 has reported that “on Wednesday, the government said the amendment has nothing to do with charges of conspiracy to commit bank fraud. The allegations center on the pair’s efforts to mislead the banks, which is a crime no matter what industry is involved.”

“The indictment clearly alleges facts showing that the issuing banks maintained a property interest in the funds they used to settle credit and debit card transactions for their cardholders, and that the banks issued such payments as a direct result of the deceptive scheme outlined in the indictment,” the prosecutors wrote.

Eaze Not Named

Prosecutors said Weigand and Akhavan worked with executives at an online marijuana marketplace company to facilitate the sales, although they haven’t named the business. Eaze, an online company offering delivery from dispensaries, was the subject of a lawsuit last year that alleged it worked with Akhavan to utilize shell companies to process credit card payments.

While Eaze was not specifically named in the case by the prosecutors, only an unnamed online marijuana marketplace was mentioned, a connection has been made. Eaze was not charged in this case against the two.

The Eaze Connection

In a lawsuit filed in 2019, Herban accused Eaze of ongoing, pervasive criminal activity. It should be noted that this case was dismissed by parties in January 2020 according to Law 360. Eaze was not charged.

 To gain an unfair competitive advantage in the California cannabis delivery market, Eaze is directing,
coordinating, and participating in a scheme to defraud credit and debit card companies and financial
institutions into processing cannabis transactions in violation of a host of criminal laws, including
prohibitions against: (1) wire fraud (18 U.S.C. § 1343); (2) bank fraud (18 U.S.C. § 1344); and (3)
criminal fraud (Cal. Pen. Code § 532). By running a business that avoids the constraint of California
and federal laws, Eaze has obtained an unfair advantage over its competitors, including Herban,
who have been harmed and continue to be harmed by Eaze’s ongoing criminal acts.
To perpetrate these frauds, Eaze created or partnered with Cyprus- and U.K.-
based shell corporations that purport to sell these seemingly innocuous products but in fact exist
solely or primarily for the purpose of misrepresenting the nature of the underlying transactions (the
“Eaze Shell Companies”).
Herban owned Chill, a group of former Eaze employees that split off to create a competing platform. Back in April 2019, the company DionyMed terminated its contract with Eaze and claimed that “Based on review by outside counsel, DYME could not confirm that the processing procedure meets California regulatory requirements.” The company said it was going to invest in its own delivery service called “Chill.” DionyMed through its dispensary store Hometown Hearts claimed that Eaze was using shell accounts to create fraudulent charges and payment processing, which was the excuse it needed to terminate a three-year contract.
Eaze countersued and claimed in its countersuit that Hometown Heart knew that the payment processors it accused of fraud, were its own processors, not Eaze’s. Eaze has said repeatedly, “It doesn’t process claims.”
In its customer delivery receipts, Eaze tells its customers that they will see the charge for their purchase through Eaze on their card statement, and that the charge will be associated with some entity other than the actual merchant from whom they purchased the product. The customer delivery receipts reflect an express promise by Eaze to submit false information into the credit and debit card payment system, which Eaze does, on information and belief, to ensure that the transactions are not flagged or caught by the Payment Card Companies as Precluded Activities.
The complaint went on to say:

Eaze worked with an individual named Hamid “Ray” Akhavan (“Akhavan”) in an effort to restart credit and debit card processing on the Eaze Platform. Eaze directed several cannabis dispensaries, including some of its largest partners, to

meet with Akhavan in Calabasas, California regarding a new credit and debit card solution. In or around March or April 2018, at Eaze’s direction, representatives from various dispensaries attended the meeting with Akhavan in Calabasas (hereinafter the “Akhavan Meeting”). On information and belief, when the representatives for the dispensaries arrived at the meeting
location, Akhavan’s ostentatious purple Lamborghini was parked outside.

Are The Dispensaries Guilty?

Eaze quit accepting payments of this nature in mid-2019. However, the allegations don’t end because the transactions ended. The dispensary owners are no doubt nervously watching the outcome of this case. They could also be dragged into this for committing bank fraud. The case uses the term “conspiracy,” indicating that it isn’t just these two and that others could be involved. If the dispensary owners knew that Vias and Mastercard would not accept payments for cannabis transactions and they still pursued a scheme that managed to make that happen, are they guilty?
At least while cannabis foe Attorney General Bill Barr is at the top of the Department of Justice, the dispensaries are probably right to be worried. Some dispensaries tried to back out of the Eaze deal and were refused by Eaze who told them they had to meet certain volume goals.

In a statement, Eaze said the company is aware of the case and is “fully cooperating with the relevant authorities. Eaze transitioned to supporting new payment systems over a year ago, and this matter does not impact the current customer experience.”

 

 

Debra Borchardt

Debra BorchardtDebra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


One comment

  • Avatar
    Jeffrey Kroll

    July 18, 2020 at 2:24 pm

    Hello , We are a state permitted retail shop , and we get hit all the time , for signing with a service that does credit card processes ….And we decline to use them all the time , the terms and conditions attached to Master card and Visa clearly state, they will not do cannabis business….credit processing……..Every retail store that does this type of credit processing is fully aware of the bank fraud element …they ( the processor , even teaches the store NOT TO DO CHARGE BACKS, Or Card direct credit , for it send a red flag and review…They tell the store , just give the customer cash directly if a customer wants his or her moneys back ….to avoid review…It does hurt us , for the shops that do this , have an edge on doing more sales than we ….not fair , but we here chose not to take the risk period !! ….Jeff

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