This Texas business paid a steep price for someone else’s pandemic credit card fraud

The owners of a small medical supply company in North Texas said they hope their involvement in an ongoing credit card fraud dispute — and the disappearance of 450,000 medical gloves — serves as a warning to other business owners.

The company, Reveal Medical of Grand Prairie, is a relatively new entity that employs a handful of people in an office south of DFW Airport. Reveal Medical, a company with roughly $1 million in annual sales, is now stuck with a nearly $75,000 loss, after selling two huge shipments of nitrile medical gloves to a buyer who — as the company found out weeks later — used fraudulent credit cards to make the purchases.

The pallets loaded with 4,500 boxes of gloves — enough to cover 450,000 hands — were apparently delivered to the thief or thieves on the west coast, and have since disappeared.

Also, the identity of the man who used the credit cards fraudulently has not been disclosed, and there are no known police investigations of the fraud underway.

Reveal Medical is now in a dispute with Intuit, a California company that makes a popular accounting software, QuickBooks, which was used to process the credit card payments.

Intuit has notified Reveal Medical that, according to its merchant agreement, the Texas company is responsible for paying the remaining balance of $74,295.79 in disputed charges, and has until early February to pay the amount due. Reveal Medical is appealing that decision, arguing that the pallets of medical gloves were delivered to the customer as promised, and the customer’s credit card payments were successfully processed through Intuit’s QuickBooks system — only to be reversed weeks later, after the credit card owner disputed the charges.

David Fennessy, Reveal Medical’s president, said in an interview that his company has hired a lawyer to fight Intuit’s decision, and is trying to get Intuit to stop attempting to make automatic withdrawals from Reveal Medical’s bank account to pay off the balance.

“I am getting absolutely hounded like I’m a criminal,” Fennessy said. “But I’m the honest businessman who delivered the quality products.”

Merchants stuck holding the bill

Cases of credit card fraud are spiking during the COVID-19 pandemic, according to the Federal Trade Commission, as businesses have expanded their phone and online ordering systems to make up for a lack of in-person sales.

Fraud losses totaled $1.9 billion nationwide in 2019, even before the pandemic began, according to an FTC report. Credit card fraud was the most common form of identity theft, and telephone contact was involved in 74% of fraud cases, the FTC said.

Texas experienced an estimated $100.9 million in fraud losses in 2019, and about 30% of that total involved identity theft, according to the FTC.

Many consumers may not realize that, while they as individuals are offered wide protections against credit card theft — for example, many credit card companies fully protect card holders against losses that are reported promptly — businesses on the other end of the transaction are often left paying for a crime they didn’t commit.

“Credit card fraud always gets laid at the door of the merchant or retailer — and it happens all the time and it can be very costly,” said Michael Sherrod, a publishing and web-based businessman now serving as the William M. Dickey Entrepreneur-in-Residence at Texas Christian University.

Sherrod noted that recent improvements to credit cards such as security chips have helped to dramatically reduce in-person fraud, but don’t necessarily help with safeguarding phone or online purchases.

He said cases of “friendly fraud” are up during the pandemic as well.

“A customer orders an item online and then claims it was stolen, it was lost, it wasn’t what they ordered, or they didn’t order it,” Sherrod said, describing a typical friendly fraud scam. “If the merchant can’t prove otherwise, they get stuck holding the bill.”

According to Intuit’s merchant agreement, which businesses must agree to before using QuickBooks software, businesses are responsible for verifying the identity of a credit card user.

“We informed Reveal Medical that the reason for the chargebacks were Fraud – Card Absent, meaning the card information was either given over the phone or through email,” Intuit spokeswoman Kim Amsbaugh said in an email. “And while Reveal Medical provided us with documentation about the charges, they did not provide any information that indicated the buyer was in fact the owner of the card.”

Amsbaugh added, “It is included in our merchant agreement (section 25) that it is the merchant’s responsibility to validate their customer’s identity to ensure card information is legitimate. It’s also outlined in the same agreement (section 16) that based on the card issuing bank’s determination, the merchant is responsible for the amount of the chargeback, plus any applicable fees.”

Rough year for Reveal Medical

Reveal Medical was launched just under a year ago by Fennessy and Carlton Dixon, the chief executive officer.

Fennessy and Dixon were already partners in a custom clothing company known as Reveal Suits, which for about five years has specialized in tailoring suit coats, jackets and other formal wear for individuals and groups — sometimes including entire football teams. The company was originally founded by Dixon as Simply Sophisticate, but recently rebranded as Reveal Suits.

In early 2020, Fennessy and Dixon realized the pandemic was going to seriously impair their suit business for months, or possibly years, and they needed to find other options to keep the company going. Seeing an immediate need for medical supplies across the United States in the early weeks of the pandemic, Fennessy and Dixon created a sister company, Reveal Medical, and began offering disposable medical items such as gloves, face masks and gowns.

Although Reveal Medical and Reveal Suits operate from a small office along Texas 360 south of DFW Airport, the company only keeps a small number of samples of its products on site. Many of their goods are shipped to and from warehouses elsewhere in the United States, Fennessy and Dixon said.

The missing medical gloves

The saga involving the $75,000 and the 450,000 missing medical gloves began in early October with an unsolicited email from a man in California who went by the name of Brad Pallete. On Oct. 7, after a series of emails and phone calls to Reveal Medical, Pallete used a Visa card to pay for $39,078.25 worth of nitrile medical gloves, according to Reveal Medical company records.

After the credit card charge was accepted, the gloves were picked up by a courier at a warehouse in Buffalo, N.Y. and shipped to California, where within days they were delivered to the customer.

After that order was fulfilled, Reveal Medical representatives contacted Pallete to ask if he was satisfied with the shipment. Pallete explained that not only was he satisfied but that he needed another big order of medical gloves as soon as possible. So on Oct. 22, Pallete used a different Visa card to pay for a $35,722.50 worth of medical gloves.

There was one other key difference with the second order — something Reveal Medical officials didn’t notice until later. The man’s name was spelled slightly differently on the second credit card transaction — and this time it was Brad Peralte.

The Fort Worth Star-Telegram, using a national online legal database, was unable to locate either a Brad Pallete or Brad Peralte in California for comment. Authorities have told Fennessy that it was likely the culprit lived somewhere in California.

In the first purchase, the buyer gave his name and credit card number over the phone to a Reveal Medical employee, who then initiated the credit card payment on QuickBooks. For the second purchase, Reveal Medical sent the customer a QuickBooks invoice, and the customer inputted his own credit card information, Reveal Medical officials said.

Fennessy said his fledgling company is way too small to absorb the loss, which is actually closer to $120,000 in total. In addition to the loss of $75,000 in fraudulent credit card payments, Reveal Medical also is out approximately $45,000 which it has already paid to suppliers who provided the gloves that are now missing.

He hopes that by fighting the charge he can at least draw attention to the credit card fraud, and perhaps get the FBI or other law enforcement agencies involved. He has kept records showing the shipments of medical gloves being checked in and out of all the various warehouses, and he even has a photo copy of the driver’s license of a truck driver who picked up one of the shipments.

Fennessy said that in recent weeks he consulted police in both Grand Prairie and Trophy Club — the latter is his town of residence — and they were sympathetic but didn’t feel they had jurisdiction to launch a criminal investigation.

“No one is interested in going after the guilty party,” he said.

Fennessy also said that Intuit would not provide any information about who committed the fraud. They also have not identified the rightful owner of the credit cards who, three weeks after the second purchase of medical gloves, disputed the charges and had the $75,000 credit card payments reversed.

“I think the best advice I could give is to know that your credit card processing company is not your friend,” Fennessy said. “They are happy to take your money when things go well but, when you run into trouble, you’re on your own.”