Processor pays $12M to settle ‘sham’ merchant case

Humboldt Merchant Services, a payment processing firm specializing in gambling and adult entertainment businesses, has agreed to pay $12 million to settle a Federal Trade Commission (FTC) lawsuit. The FTC alleges that Humboldt processed payments for 1,000+ shell entities used as fronts for fraudulent companies engaged in unauthorized billing scams.

The settlement formalizes existing controls and closes the case without admitting wrongdoing. The fraudulent activities occurred under former Humboldt leadership between 2021 and 2023, totaling around $100 million processed through these sham merchant accounts. The FTC's deputy director, Katherine White, highlighted that Humboldt processed payments despite red flags, catering to high-risk merchants that other processors typically reject due to credit, reputational, or regulatory risks.

The FTC also noted that Humboldt processes transactions for firearms, online gambling, and internet dating industries. As part of the settlement, Humboldt will cease engagement in credit card laundering and stop processing payments for specific merchant categories, including straw companies, Mastercard Alert merchants, those with law enforcement action, and e-commerce businesses using third-party mailbox addresses.