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Fraud Forces The Tech To Close Bank Accounts

By Keith J. Winstein

STAFF REPORTER

The Tech lost tens of thousands of dollars over the past few months due to fraud involving its credit-card point-of-sale terminal, members of the paper’s governing body revealed this week.

As a result, The Tech’s outside bank accounts have been closed, and the organization is operating out of its MIT-managed account. The matter is being investigated by the Campus Police and the Office of the Dean for Student Life.

Refund feature responsible for loss

The Tech obtained its credit card merchant account and corresponding point-of-sale terminal in late 1999, said Satwiksai Seshasai G, The Tech’s chairman from June 1999 through January 2001. “We used it to collect advertising payments,” Seshasai said.

The fraud apparently involved the password-protected “refund” functionality of the machine. If The Tech misprints or omits a paid advertisement, it can refund an advertiser’s money by putting a credit on the paying credit card using the same point-of-sale machine it uses to send charges.

“The way I heard it described was that there are credits and charges,” said one member of the Managing Board, which consists of the organization’s executive officers and the editors of the various departments. The board member spoke on condition of anonymity. “Credits are supposed to be associated with charges,” in that a merchant will typically only issue a refund, or “chargeback,” corresponding to a previous payment. This was apparently not the case with the fraudulent refunds executed on behalf of The Tech using this machine.

American Express gave first alert

“I think it was American Express,” that first alerted The Tech of suspicious refunds from its account, said J. Wendy Gu ’03, a photography editor and Managing Board member who said she first learned of the issue at a meeting of the Board on Feb. 23.

“It took them a few months to figure it out,” Gu said.

Gu took exception to suggestions that Tech staffers had defrauded the organization. “The credit card machine was just laying in the business office and anyone could have walked in. We don’t know exactly what happened until we do the research.”

“I wouldn’t say people were sloppy,” Gu said. “I don’t think it’s an accident. Someone obviously took money from us.”

With regards to Tech staffer involvement, the anonymous member of the Managing Board said, “I don’t know everyone who had the password .... I was never told about the full functionality of this machine.”

The Tech no longer has the credit card machine in its office, said Laurie Ward of the Office of Student Life Programs.

It was not clear how easy it will be to trace such payments to their destination. “When it comes to getting the money back, I really don’t know,” said the board member. “Sometimes they get back all of it, sometimes none.”

Student Life office to assist Tech

Tech Chairman Jordan Rubin ’02 said he alerted Ward of the discrepancies with The Tech’s accounts in January.

Ward confirmed that in January, “We found out about the situation. We immediately worked with them and turned over information to the Campus Police to work forward with an investigation.”

“My focus is to work with The Tech on managing their money in the future,” Ward said.

The Tech had been in compliance with the “outside bank account” policy by which her office supervises the outside accounts of student groups, Ward said. The policy requires groups to submit biannual summaries of outside bank transactions.

Since the deadlines for submission of reports are Sept. 15 and Feb. 15 (by which time the fraud had been discovered), it is not clear that The Tech’s submissions to the Office of Student Life Programs would have revealed anomalous transactions.

Campus Police are investigating

The matter is “being investigated by the Campus Police,” said Tracy F. Purinton, assistant dean for student activities.

Police Captain David A. Carlson directed questions to John DiFava, the police chief, and later said that the matter was “under investigation” and that DiFava had declined to comment.

The matter is also being investigated by the Office of the Dean for Student Life, confirmed the board member. Dean for Student Life Larry G. Benedict declined to comment.

Huanne T. Thomas ’02, The Tech’s Business Manager, resigned in January. Managing Board members declined to speculate on whether Thomas’ resignation was linked to the monetary matter.

“She cited personal reasons” for her resignation, said the board member.

“In her resignation e-mail she said she didn’t have enough time to continue in her position,” Gu said.

Thomas declined to comment for this article.

Board establishes committees

Rubin said that at its Feb. 23 meeting, “The Managing Board set up two committees. One of the committees has been charged to look into the current situation. The other committee’s job is to establish procedures moving forward.”

The board member said that Contributing Editor Rima Arnaout ’02 is the chair of the committee investigating the situation, which also includes Opinion Editor Jyoti Tibrewala ’03. Technology Director Ming-Tai Huh ’02 is the chair of the second committee, which will also include Rubin and Advertising Manager Aye M. Moah ’05.

“The non-business portion of The Tech should know more about what goes on in that area, because it’s been sort of a black box to us,” Gu said.

Committee sends release to Editor

On Feb. 27, near the completion of work on this story, this reporter was provided with a “Press Release” dated Feb. 24, the day after the Managing Board’s meeting.

The release was issued by the first committee to Editor in Chief Kevin R. Lang ’02 via Arnaout. It does not appear that any other members of the press or anyone else in The Tech has received the release.

“It has come to the attention of the Managing Board of The Tech that a significant amount of money is missing from The Tech’s accounts. The Managing Board has therefore appointed a committee of its members to investigate the current legal and financial affairs of The Tech,” said the release in its entirety.

The release appears to have been used as a device to allow The Tech’s News Editors to assign this story for publication following the Feb. 23 Managing Board meeting, which was conducted “off the record.”

The Managing Board of The Tech, including the Editor in Chief and the News Editors, have recused themselves from editing this story.