Flooz.com collapse linked to massive credit card fraud
Published: 28 Aug 2001 14:24 BST
American federal investigation officers are thought to be investigating the possibility that credit card thieves managed to defraud Flooz.com out of over £200,000.
US-based Flooz.com, which sold online gift certificates, closed down its operations and filed for bankruptcy on Monday. According to reports, the gang -- some of whom were based in Russia -- used stolen credit card details to buy the currency, which was called "flooz". The FBI, who apparently helped to inform Flooz.com that it could have suffered the theft, is reportedly now investigating.
Monday's New York Times quoted sources close to Flooz.com claiming that the fraud contributed to the company's downfall.
The newspaper believes that the dot-com's fate was sealed once its credit card processor realised that massive amounts of flooz had been charged to credit card users whose details had been stolen. The processor is alleged to have refused to pass the revenue from genuine credit card sales onto Flooz.com until it held enough in reserve to cover possible fraudulent orders. This caused Flooz.com's cash flow to break down, as it was under obligation to pay Internet retailers who were still accepting flooz as payment for online purchases.
Senior executives refused to confirm the suggestion, and blamed the company's collapse on the slump in the tech sector. However, Tuesday's Guardian said that chief executive Robert Levitan has admitted that fraud had become a problem. Levitan is reported to have said that financial institutions were refusing to pass on revenue from payments made using flooz to the company.
In a statement posted to its Web site, Flooz admitted that attempts to save itself by finding a buyer had failed. "Flooz.com has been adversely affected by dramatic changes in capital markets and the general slowdown in the economy. Flooz.com had been in merger discussions with a number of companies but was unable to find a suitable partner," it said.
Flooz.com's collapse comes hot on the heels of the closure of fellow online currency company Beenz.com. Both firms, during the heady days of the Internet boom, had hoped to dominate the new economy landscape, but it seems that credit card payment will prevail on the Internet, in the short term at least. However, Levitan said yesterday that he thought that Flooz had been a great idea, and predicted that another company would make a success of Internet gift vouchers in the future.
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