udge William Q. Hayes of the U.S. District Court of Southern California has ordered the San Diego-based online payment processor Qchex to temporarily stop its method of processing customer payments because it has allegedly allowed Internet scammers to write fraudulent checks.

The FTC sued Qchex on Sept. 19, 2006, alleging the company's practices violate federal law. It asked the court to issue a permanent restraining order to halt the company's practices. On Sept. 22, Qchex voluntarily agreed to a temporary restraining order; services were suspended as of Sept. 27, according to a notice posted on the Qchex Web site that morning.

Qchex had allowed users to create electronic checks that could be e-mailed and printed out by recipients. The FTC said that Qchex failed to verify its customers' authority to write checks on identified accounts. In some cases, when notified by account holders whose accounts were illegally debited, Qchex continued to create and deliver checks on those same accounts.

The FTC has received more than 600 complaints from consumers who say their accounts were illegally debited. But it said most of the complaints about Qchex came from businesses defrauded by con artists who paid them with a Qchex check that was eventually deemed worthless.

The FTC said that before September 2005, Qchex did not make "any effort at all" to verify that customers had authorization to write checks from the accounts they identified as their own, and in fact, even created and delivered checks for customers whose names differed from the names on accounts they used.

Since September 2005, the FTC said, Qchex's security practices have been "haphazard and ineffective." Its motion said Qchex has refused to add verification procedures to its site, and Qchex has "persisted in their course of conduct, even after being notified repeatedly and from numerous quarters of the substantial injury it causes."

According to the FTC, Qchex's practices have harmed both the account holders whose bank accounts have been debited and individuals and businesses who received fraudulent Qchex checks as payment for goods or services.

Qchex checks were also used in overpayment schemes. Con artists overpaid individuals or business owners for products or services and asked them to wire back the difference between the price of the item or service and the amount of the bogus Qchex check.

When the checks initially cleared, recipients of Qchex checks wired the excess funds, as requested. Unauthorized checks later bounced, and the amount previously deposited was debited from the victim's account.

CNET News reported that on Monday Oct. 2, Qchex "...stated on its Web site that its service was suspended until further notice 'due to maintenance.'" But a cached copy of the Qchex Web site data, dated Sept. 27, 2006, indicated Qchex had suspended service until further notice in "agreement and response to an FTC request." At press time, the domain name qchex.com was for sale.. The FTC said it will seek a permanent halt to Qchex's business practices and an order requiring that defendants give up their "ill-gotten gains."

Defendants named in this case are Neovi Inc., doing business as Neovi Data Corp. and Qchex.com; G7 Productivity Systems Inc., doing business as Qchex.com; and their principals, James M. Danforth and Thomas Villwock. All the defendants are based in San Diego, Calif.

Representatives of Qchex did not return phone calls placed for this story.