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Originally published Monday, April 9, 2012 at 4:09 PM

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Brothers plead guilty in scheme to defraud Nordstrom

The two found a flaw that allowed them to get improper refunds and cash-back rewards. The scheme is said to have cost Nordstrom $1.4 million in commissions and fees.

Seattle Times business reporter

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Two brothers pleaded guilty Monday to wire fraud in connection with a scheme to defraud Nordstrom of more than $1.4 million in commissions and rebates, the U.S. Attorney's office in Western Washington said.

Andrew S. Chiu, 29, of Anaheim, Calif., and Allen J. Chiu, 37, of Dallas, devised the scheme after being barred from making further purchases at Nordstrom's website. The Seattle-based department store chain notified law enforcement authorities, and the U.S. Attorney's Office seized more than $970,000, which will be applied toward the resistitution owed to Nordstrom.

U.S. District Judge Ricardo S. Martinez is scheduled to sentence the Chiu brothers on July 13. Under terms of a plea agreement, prosecutors will recommend a sentence of no more than 30 months in prison, and the brothers can request no fewer than 24 months in prison. But the judge isn't bound by the recommendations and can impose any sentence allowed by law up to the maximum 20 years in prison and a $250,000 fine.

According to filings in the case, Nordstrom canceled the Chiu brothers' online-shopping privileges in 2008 after the retailer said they made excessive claims for refunds on products that were purportedly lost or not delivered. But the brothers continued shopping at Nordstrom.com anyway.

Both men belong to FatWallet.com, which generates online sales for retailers through coupons and cash-back incentives. FatWallet paid cash-back rewards to the Chiu brothers for purchases at various online retailers, including Nordstrom.com.

In January 2010, the brothers found a way to exploit a weakness in Nordstrom's ordering system. Although no merchandise shipped and their credit cards were not charged, the brothers received cash-back credit from FatWallet, and Nordstrom unknowingly continued to compensate FatWallet for the orders.

From January 2010 through October 2011, the brothers submitted about $23 million in blocked purchases to Nordstrom.com and received more than $650,000 in undeserved cashback payments — costing Nordstrom about $1.4 million in commission payments and fees, the filings say.

Nordstrom's ordering system has been fixed.

The case was investigated by the FBI. The case was prosecuted by Assistant U.S. Attorneys Katheryn Kim Frierson and Francis Franze-Nakamura.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com. On Twitter @AllisonSeattle.

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