Orinda man sentenced to 40 months for bank fraud, wire fraud, money laundering


Date: February 3, 2023

Contact: newsroom@ci.irs.gov

SAN FRANCISCO — Alan Safahi was sentenced today to 40 months 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, announced United States Attorney Stephanie M. Hinds and Internal Revenue Service-Criminal Investigation (IRS-CI) Special Agent in Charge Darren Lian.

Safahi, of Orinda, was convicted on June 30, 2022, following a four week bench trial before Senior United States District Judge Susan Illston. In a 39-page order, Senior U.S. District Judge 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 in turn 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." He fraudulently diverted to himself the remaining balance of the card's value. As an example, a client of Safahi's company CardEx 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.

Safahi's fraud scheme unraveled on September 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.

Evidence showed that Safahi had appropriated the fraud scheme's proceeds for, among other things, purchasing an Orinda home. 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 today'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.

In addition to the 40 months imprisonment, Senior U.S. District Judge Illston 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, 2023, to begin serving his prison sentence. A hearing to determine the amount of Safahi's restitution obligation is set for March 31.

Robert David Rees and Benjamin Kurtis Kleinman are the Assistant U.S. Attorneys who prosecuted the case, with the assistance of Llessica Chan Fierro, Veronica Hernandez, Olivia Hawkins, Leeya Kekona, and Karina Ruiz. The prosecution is the result of an investigation by IRS-CI.