Flooz.com expires after suffering $300,000 sting

US authorities are investigating a credit card fraud at Flooz.com that could have cost users of the US online currency company $300,000.

A ring of credit card thieves operating out of Russia and other parts of eastern Europe are suspected of using stolen cards to buy the currency over the last three months.

Robert Levitan, chief executive of the New York-based company, said yesterday that the fraud became a real problem last month as banks ceased all payments for goods purchased using the online currency.

He blamed the fraud as well as the difficult economic environment for the collapse of Flooz.com after raising more than $35m over the past three years. Other challenges included a downturn in demand from companies using the site for corporate gifts and em ployee recognition awards.

Cisco, which announced a massive round of redundancies earlier this year, was one of the company's biggest partners.

The company is to file for Chapter 7 bankruptcy protection in the next few days. In contrast to Chapter 11, which offers some hope of a reorganisation, Flooz.com is unlikely to survive after paying off of its creditors.

Flooz, which launched a high-profile advertising campaign using Whoopi Goldberg in 1999, was one of the best-known purveyors of an online currency in the US. Some $25m of Flooz was sold to consumers last year, who then used the currency at a range of participating retailers including Barnes & Noble, the booksellers, and Tower Records.

Ms Goldberg is understood to have given her time free in order to become a business partner in the company. The company also planned to launch a fully-fledged UK venture. These plans were shelved in December after the company had reached agreements with several retailers, including Thomas Pink, the shirtmaker.

Online currency vendors promised to overtake credit cards as the payment of choice over the internet during the heady days of the boom. There are now few of any size left after Beenz.com, a Flooz rival, also announced that it had suspended operations last week.

Mr Levitan said yesterday that such companies had been ahead of their time. "It was a great idea and somebody will do something similar in the future," he said.

But the fraud investigation has reopened fears about the safety of using online currencies as payment. The New York Times reported that the Federal Bureau of Investigations was investigating the possible fraud at Flooz.com yesterday.