Alliance Data Systems Liable for $150 Million in Elder Fraud Scheme
Company reveals 9-figure liability for a business unit the firm no longer owns.
March 17, 2021
In July 2019, Alliance Data Systems (ADS), a provider of brand loyalty, credit card, and payments solutions, sold Epsilon, a marketing company, to Publicis Group. Between 2008-2017, Epsilon used advanced data analytics to identify elderly consumers most likely to fall for scams and sold their contact information to organizations engaged in fraud. The fraud, as described by the Department of Justice (DOJ), included sweepstakes in which victims were told they had to send perpetrators money to claim prizes they had won.

Victims were swindled out of $127.5 million.

As part of the Epsilon sale, Alliance Data Systems agreed to cover any fines levied by the DOJ. On January 19, 2021, Epsilon entered into a deferred prosecution agreement (DPA) with the DOJ to resolve the matter. Five weeks later, Alliance Data Systems filed its 2020 10-K and disclosed:

“Pursuant to the DPA, Epsilon agreed, among other things, to pay penalties and consumer compensation in the aggregate amount of $150.0 million, to be paid in two equal installments, the first in January 2021 and the second in January 2022.”

Victims are being identified as of this writing and will be made whole. Reimbursements will be paid by Alliance Data, which disclosed how it’s accounting for the matter:

“For the year ended December 31, 2019, the Company recorded a loss contingency of $40.0 million, or $32.9 million net of tax, which was included in loss from discontinued operations. For the year ended December 31, 2020, the Company recorded an additional loss contingency of $110.0 million, or $81.3 million net of tax, which was included in loss from discontinued operations.”

To its credit, Alliance Data reduced Q4 2020 and full year 2020 net income by $81.3 million rather than strip it out as a one-time or non-operating item.
Related: MA, V, AXP, DFS
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