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Internet
Fraud
General Schemes.
In general, the same types of fraud schemes that have
victimized consumers and investors for many years
before the creation of the Internet are now appearing
online (sometimes with particular refinements that
are unique to Internet technology). With the explosive
growth of the Internet, and e-commerce in particular,
online criminals try to present fraudulent schemes
in ways that look, as much as possible, like the goods
and services that the vast majority of legitimate
e-commerce merchants offer. In the process, they not
only cause harm to consumers and investors, but also
undermine consumer confidence in legitimate e-commerce
and the Internet.
Here are some of the major types of Internet
fraud that law enforcement and regulatory authorities
and consumer organizations are seeing:
- Auction and Retail Schemes Online.
According to the Federal Trade Commission and Internet
Fraud Watch, fraudulent schemes appearing on online
auction sites are the most frequently reported form
of Internet fraud. These schemes, and similar schemes
for online retail goods, typically purport to offer
high-value items - ranging from Cartier® watches
to computers to collectibles such as Beanie Babies®
- that are likely to attract many consumers. These
schemes induce their victims to send money for the
promised items, but then deliver nothing or only
an item far less valuable than what was promised
(e.g., counterfeit or altered goods).
- Business Opportunity/"Work-at-Home"
Schemes Online.
Fraudulent schemes often use the Internet to advertise
purported business opportunities that will allow
individuals to earn thousands of dollars a month
in "work-at-home" ventures. These schemes
typically require the individuals to pay anywhere
from $35 to several hundred dollars or more, but
fail to deliver the materials or information that
would be needed to make the work-at-home opportunity
a potentially viable business.
- Identity Theft and Fraud. Some Internet fraud
schemes also involve identity theft - the wrongful
obtaining and using of someone else's personal data
in some way that involves fraud or deception, typically
for economic gain.
- In one federal prosecution, the defendants allegedly
obtained the names and Social Security numbers of
U.S. military officers from a Web site, then used
more than 100 of those names and numbers to apply
via the Internet for credit cards with a Delaware
bank.
- In another federal prosecution, the defendant
allegedly obtained personal data from a federal
agency's Web site, then used the personal data to
submit 14 car loan applications online to a Florida
bank.
- Market Manipulation Schemes.
Enforcement actions by the Securities and Exchange
Commission and criminal prosecutions indicate that
criminals are using two basic methods for trying
to manipulate securities markets for their personal
profit. First, in so-called "pump-and-dump"
schemes, they typically disseminate false and fraudulent
information in an effort to cause dramatic price
increases in thinly traded stocks or stocks of shell
companies (the "pump"), then immediately
sell off their holdings of those stocks (the "dump")
to realize substantial profits before the stock
price falls back to its usual low level. Any other
buyers of the stock who are unaware of the falsity
of the information become victims of the scheme
once the price falls.
- For example, in one federal prosecution in Los
Angeles, the defendants allegedly purchased, directly
and through another man, a total of 130,000 shares
in a bankrupt company, NEI Webworld, Inc., whose
assets had been liquidated several months earlier.
The defendants then allegedly posted bogus e-mail
messages on hundreds of Internet bulletin boards,
falsely stating that NEI Webworld was going to be
taken over by a wireless telecommunications company.
At the time of the defendants' alleged purchases
of NEI Webworld stock, the stock was priced between
9 cents and 13 cents a share. Ultimately, in a single
morning of trading, NEI Webworld stock rose in 45
minutes from $8 per share to a high of $15 5/16,
before falling, within a half-hour, to 25 cents
per share. The defendants allegedly realized profits
of $362,625.
- In another federal prosecution in Los Angeles,
a man who worked for a California company, PairGain
Technologies, created a bogus Bloomberg news Web
site which falsely reported that PairGain was about
to be acquired by an Israeli company, and posted
fraudulent e-mail messages, containing links to
the counterfeit Bloomberg news site, on financial
news bulletin boards. On the day that the bogus
report was posted on the Internet, PairGain stock
rose approximately 30 percent before PairGain issued
its own press release stating that the report was
false.
- Second, in short-selling or "scalping"
schemes, the scheme takes a similar approach, by
disseminating false or fraudulent information in
an effort to cause price decreases in a particular
company's stock.
- Other Investment Schemes.
Other types of fraudulent investment schemes may
combine uses of the Internet with traditional mass-marketing
technology such as telemarketing to reach large
numbers of potential victims.
- In a federal prosecution in San Diego, a major
fraudulent scheme used the Internet and telemarketing
to solicit prospective investors for so-called "general
partnerships" involving purported "high-tech"
investments, such as an Internet shopping mall and
Internet access providers. The scheme allegedly
defrauded more than 3,000 victims nationwide of
nearly $50 million.
- Credit-Card Schemes.
Some Internet fraud schemes, which appear to be
variations on the online auction schemes described
earlier, involve the use of unlawfully obtained
credit card numbers to order goods or services online.
- One widely reported and intricate scheme, for
example, involves offering consumers high-value
consumer items, such as video cameras, at a very
attractive price (i.e., below the price set at legitimate
e-commerce Web sites). When a potential consumer
contacts the "seller," the "seller"
promises to ship the consumer the item before the
consumer has to pay anything. If the consumer agrees,
the "seller" (without the consumer's knowledge)
uses that consumer's real name, along with an unlawfully
obtained credit card number belonging to another
person, to buy the item at a legitimate Web site.
Once that Web site ships the item to the consumer,
the consumer, believing that the transaction is
legitimate, then authorizes his credit card to be
billed in favor of the "seller" or sends
payment directly to the "seller".
- Other Schemes.
Some Web sites on the Internet have purported to
offer those who want a "quick divorce"
an opportunity to obtain a divorce in the Dominican
Republic or other foreign countries for $1,000 or
more, without even having to leave the United States.
These sites often contain false, misleading, or
legally inaccurate information about the process
for obtaining such divorces (e.g., that neither
spouse has to visit the country in which the divorce
is being sought). Typically, people who have sent
money to one of these schemes eventually receive
false assurances that they are legally divorced.
In fact, victims of the scheme have neither received
legitimate legal services nor obtained valid divorces.
People who are interested in obtaining a divorce,
whether in the United States or elsewhere, should
seek a lawyer with whom they can speak personally,
and not rely solely on e-mail exchanges or online
information.
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