Bank ordered to pay $1.2 million penalty over ZeekRewards involvement

Zeekler (WGHP)

A U.S. District Court judge has approved an order that requires an eastern N.C. bank linked to ZeekRewards.com to pay a combined $1.2 million penalty.

The judgment signed by Judge Terrence Boyle has Four Oaks Fincorp Inc. paying a $1 million civil penalty to the U.S. Treasury and a $200,000 fine to the consumer fraud fund of the U.S. Postal Inspection Service related to wire fraud allegations. The money is required to be paid by Friday.

Four Oaks is based in its namesake Johnston County town.

Although Four Oaks has neither admitted nor denied the facts presented by U.S. Justice Department officials, it said in January the settlement “is fair, adequate and reasonable, and accords with the public interest.” It said today in a statement it is in the “bank’s best interest in order to avoid a lengthy and protracted legal fight.”

Four Oaks was involved with a privately owned, third-party payment processor in Texas most commonly known as TPPP-TX.

Justice’s complaint was that Four Oaks knowingly allowed, and profited from, TPPP-TX having direct debit-transaction-processing access to the Federal Reserve Bank of Atlanta.

Among TPPP-TX’s clients was Rex Venture Group LLC, an affiliate of defunct ZeekRewards.com of Lexington. Rex Venture was able to process about $60 million in ACH transactions before the companies were shut down by federal regulators in August 2012.

TPPP-TX, along with at least 22 Internet payday lenders it had as clients, were able to make authorized and unauthorized debit withdrawals from customer accounts through the ACH (automated clearinghouse) electronic payment network. As a result, the groups could keep making debit withdrawals even after a customer had fulfilled payment obligations.

The complaint listed the bank as permitting 9.8 million ACH debits on behalf of at least 22 TPPP-TX clients. The dollar value of the debit transactions was estimated at $2.4 billion. In return, TPPP-TX paid Four Oaks more than $850,000 in gross fees.

Four Oaks must cooperate fully in any civil, criminal and administrative investigation involving current and former officers, directors, employees and the TPPP-TX affiliates for a five-year period.

“The board of directors shall take all actions necessary to assure that the conduct alleged in the complaint does not occur in the future, and that the conduct of any or the bank’s officers, directors and employees is appropriately addressed,” according to the settlement. “Such actions, where appropriate, should include terminations from employment and removals from positions of authority to eliminate the continued risk of similar violations.”

In March, the bank reached a securities purchase agreement with a private investor, Kenneth Lehman.

The bank said it would conduct a public offering with its existing shareholders at an offering price of $1 a share. Lehman has agreed to buy up to 10 million shares, and potentially as many as 16 million shares. The share price was trading at $2.65, down 11 cents, at noon today.

The bank has about 8.87 million shares outstanding, according to MoneyMSN.com.

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