Contra Costa County Man Sentenced To 40 Months In Federal Prison For Bank Fraud, Wire Fraud, Money Laundering

A 62-year-old Orinda man was sentenced Friday to more than three years in federal prison following fraud and money laundering convictions arising from a fraudulent prepaid debit card scheme which created $2.7 million in unfunded liabilities.

The sentencing of Alan Safahi was announced Friday afternoon by U.S. Attorney Stephanie M. Hinds and by Darren Lian, an Internal Revenue Service-Criminal Investigation special agent.

Safahi was convicted June 30 following a four week bench trial before Senior U.S. District Judge Susan Illston. In a 39-page order, Illston found Safahi guilty of one count of bank fraud, four counts of wire fraud, and one count of money laundering.

As detailed in the court order, Safahi developed an elaborate fraud scheme in which he collected money from clients to buy prepaid debit cards and, while accurately reporting the cards’ balances to his clients, he used a “funding on demand” scheme to defraud the bank that supported his cards. In Safahi’s scheme, legitimate clients paid Safahi’s company, CardEx, in full for prepaid debit cards, but Safahi reported to the bank only the amount that the clients had spent on the card as the card’s “balance.”

Safahi fraudulently diverted to himself the remaining balance of the card’s value.

As an example, a client of Safahi’s company would buy a prepaid debit card for $100 and then spend $10 of that $100 balance. Safahi’s fraudulent “funding on demand” system would report to the bank the “balance” of that card as $10 instead of $100.

In this example, Safahi’s fraud scheme allowed him access to the additional $90. Using the scheme, Safahi fraudulently appropriated unspent funds for scores of such pre-paid cards.

Evidence showed that Safahi had appropriated the fraud scheme’s proceeds for, among other things, purchasing a house in Orinda. Just two days before reporting the true total balance of all the cards to the bank, Safahi issued an $80,000 cashier’s check to himself from his company’s account that, along with other fraudulently obtained funds, he used to purchase the Orinda house. The transaction provided the basis for his money laundering conviction.

In a sentencing memo filed for Friday’s hearing, the government described that Safahi tricked both his bank and his clients.

His clients entrusted their customers’ money to him, having been misled to believe it was protected and secure. Through lies and his fraudulent “funding on demand” scheme, Safahi also misled his bank. Safahi then profligately spent the fraud proceeds to fund a lavish lifestyle, to pay previous debts, and to purchase the expensive Orinda home.

Safahi will serve 40 months imprisonment. Illston also imposed a $100,000 fine on Sahafi and ordered three years of supervision of him following his release from prison. Safahi was ordered to surrender on May 4 to begin serving his prison sentence.

A hearing to determine the amount of Safahi’s restitution obligation is set for March 31.

Safahi’s fraud scheme unraveled on Sept. 25, 2014. On that day, as Safahi was shutting down his CardEx business, he directed an employee to provide the accurate balances of the prepaid debit cards to the bank.

According to the evidence, Safahi had earlier reported to the bank a false total balance of $93,734 on the cards that he had sold. The true total balance on the cards reported to the bank that day was $2,774,953. The difference was nearly $2.7 million in unfunded liability.