What Is Mass-Marketing Fraud?
Law enforcement and consumer protection authorities sometimes classify particular fraud schemes by the communication mechanism used (e.g., "Internet fraud," "mail fraud,"and "telemarketing fraud"). At the same time, they also recognize that mass-marketing fraud schemes often use multiple communications techniques to maximize their outreach to prospective victims. For example, an advance-fee fraud scheme might begin by using high volumes of unsolicited email ("spam") to make initial contact with potential victims, but then encourage interested recipients to call a particular telephone number for further information, and later mail materials that are integral to the fraud, such as counterfeit checks, directly to the victims.
Based on data from law enforcement and regulatory authorities such as the Internet Crime Complaint Center and the Federal Trade Commission mass-marketing fraud schemes generally fall into three main categories: (1) advance-fee fraud schemes; (2) bank and financial account schemes; and (3) investment opportunities.
Advance-Fee Fraud Schemes. This type of scheme is based on the concept that a victim will be promised a substantial benefit – such as a million-dollar prize, lottery winnings, a substantial inheritance, or some other item of value – but must pay in advance some purported fee or series of fees before the victim can receive that benefit. While there are almost endless variations on the basic scheme, here are some of the more frequent substantial types:
Auction and Retail Schemes. According to data from law enforcement and consumer protection organizations,fraudulent schemes appearing on online auction websites are among the most frequently reported form of mass-marketing fraud. These schemes, and similar schemes involving online retail sites, typically purport to offer high-value items - ranging from high-priced watches to computers to collectibles- 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). In some cases, fraudsters email prospective victims to say that they have additional quantities of the items that had been up for auction, but persuade them to go to other websites that do not offer the consumer protections found on legitimate auction sites.
Business Opportunity/"Work-at-Home" Schemes Online. Fraudulent schemes often contact people to advertise purported business opportunities that supposedly allow individuals to earn thousands of dollars a month in "work-at-home" ventures. These schemes typically require the individuals to pay anywhere from several dozens to several hundreds of 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.
Credit-Card Interest Reduction Schemes. Some fraudulent schemes contact individuals and offer to help them lower their credit-card interest rates, but charge fees without effecting actual reductions in the cardholders' interest rates.
Inheritance Schemes. Some fraudulent schemes contact prospective victims representing that the people contacted are in a position to receive a substantial inheritance from a family member or from an individual who has died without heirs. The person contacted is then subjected to a series of demands for advance payment of various nonexistent fees before the inheritance can be transferred.
Lottery/Prize/Sweepstakes Schemes. Operating from a growing number of countries, such as Costa Rica, the Dominican Republic, Jamaica, the Netherlands, Nigeria, and Spain, fraudulent schemes falsely represent that the person contacted has just won a substantial lottery prize or other sweepstakes or prize contest, but must pay what proves to be a growing number of nonexistent "fees" or "taxes" before he or she can receive the prize.
Online Sales Schemes. Some schemes operate by contacting people who use Websites to advertise large items they are selling, such as cars. The people who contact the prospective seller represent that they want to buy the item, but then send the seller a check for more than the purchase price. The fraudulent "buyer" instructs the seller to use money-transfer businesses to wire the funds in excess of the purchase price to the "buyer." Invariably, after depositing the check into his account, the seller soon finds that the check is counterfeit. This means that the seller not only loses the funds that he wired abroad, but will also be required by the bank into which the check was deposited that he is liable for the full face value of the counterfeit check.
"Romance" Schemes. Some schemes send out masses of emails, in which the senders pretend to be men or women interested in romantic relationships. People who respond to such emails may be subjected to a lengthy stream of emails or even phone calls professing love and affection. In fact, when the responses come exclusively by email, the persons sending the emails to the victims typically are not even the gender or age that they falsely tell their victims. Eventually, the victims may be persuaded to send substantial amounts of money to their "true loves," who lie about needing money to travel or to meet other unexpected expenses. In some cases, victims are even talked into performing tasks that directly further the scheme, such as receiving and redistributing counterfeit checks to be sent to other victims or receiving funds from other victims.
Bank and Financial Account Schemes. Some mass-marketing fraud schemes also involve mass contacts with individuals to trick them into providing their bank or financial account data, so that participants in the scheme can gain unauthorized access to those accounts and siphon off funds or charge goods to the victims' cards. These types of schemes involve not only fraud but also 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.
"Phishing". For example, some schemes engage in "phishing," the use of emails and websites that falsely purport to be associated with legitimate banks, financial institutions, or companies, but that manipulate Internet users into disclosing personal and financial data.
"Vishing". Some schemes also engage in "vishing," the telephone equivalent of phishing. In vishing schemes, fraudsters often call prospective victims, pretending to be officials with the victim's bank and seeking to trick the persona called into disclosing banking details during the call.
Investment Opportunities. As enforcement actions by the Securities and Exchange Commission and criminal prosecutions indicate, there are two basic types of investment criminals are using two basic methods for trying to manipulate securities markets for their personal profit.
"Pump-and-Dump" Schemes. These schemes 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.
Short-Selling "Scalping") Schemes. These schemes take 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 involve direct solicitation of prospective investors through "cold calls" (i.e., calls to people whom the fraud scheme has not previously contacted) or Internet or phone contacts based on lists of people who previously were previously contacted by fraud schemes. These include schemes that simply fail to invest the investors’ money as promised, as well as "Ponzi" schemes (i.e., schemes that recruit multiple would-be investors, but use a portion of the funds received from later investors to pay "dividends" to earlier investors to enhance the appearance of the scheme"s legitimacy).
There is no single study that has definitively measured the direct financial losses associated with mass-marketing fraud in the United States or worldwide. Several sources, however, have generated data indicating that the order of magnitude of such financial losses worldwide can be estimated in the tens of billions of dollars. One 2006 survey by the United Kingdom Office of Fair Trading determined that 6.5 percent of United Kingdom adults (3.2 million people) fell victim each year to mass-marketing fraud schemes, at a cost of £3.5 billion (equivalent at that time to more than $6.8 billion). More recently, the Internet Crime Complaint Center reported that in 2009, it received a record number of complaints (336,655) about online fraud in which the reported fraud losses totaled a record $559.7 million.
But direct financial losses are only part of the story. Many victims of mass-marketing fraud who have lost substantial amounts of money, sometimes even their life savings, report feelings of substantial depression and embarrassment once they realize that their money will never be repaid. Some victims, who suffered more substantial losses, have even contemplated, attempted, or committed suicide. Finally, in certain cases foreign-based mass-marketing fraud schemes have resorted to kidnaping victims who have been persuaded to travel abroad, to ensure that they obtain as much money as possible from certain victims and their families.
As the central agency for enforcement of federal laws, the Department of Justice aggressively pursues mass-marketing fraud schemes, whether based in the United States or foreign countries, through investigation and prosecution. Here are just a few examples of significant mass-marketing fraud cases that the Department is prosecuting or has successfully prosecuted since the start of 2009:
Auction and Retail Website Schemes: In February 2010, a federal court in Miami defendant sentenced a defendant to 68 months imprisonment for operating a massive eBay auction fraud scheme. From October 2003 through June 2008, the defendant conducted more than 5500 eBay sales transactions using at least 260 different eBay accounts, resulting in his receipt of approximately $717,000 from thousands of bidders or purchasers. In every instance, none of the items were ever shipped or delivered, and he simply kept the money for personal use.
Counterfeit-Check Schemes: In January 2010, a federal court in Los Angeles sentenced a Nigerian national who operated a money-transfer business to 97 months imprisonment for his role in a scheme that bilked hundreds of victims out of more than $1.5 million in a scam that had schemers sending bogus checks to victims and falsely telling them they had won a sweepstakes or another lie to induce them to negotiate the fraudulent checks.
Credit Card Interest Reduction Schemes: In February 2010, a defendant charged with involvement in a $25 million nationwide telemarketing fraud scheme, which offered purported credit card interest rate reduction programs, was arrested and made an initial appearance in court in Atlanta upon his return from the Phillippines.
Investment Schemes. In March 2010, the chairman of an Irvine investment firm and his girlfriend were arrested on federal wire fraud charges that accuse them of running a Ponzi scheme that targeted Korean-American victims living California and that took in $8 million from victims.
Lottery Schemes: In July 2009, 11 residents of Israel were arrested by the Israel National Police ("INP") pursuant to a U.S. extradition request on a superseding Indictment filed on July 16, 2009, in Manhattan federal court. From approximately 2005 through 2009, the defendants allegedly participated in a "lottery prize" scheme that targeted victims, mostly elderly, in the United States.
In addition, the Department provides active support and assistance to foreign investigators and prosecutors who pursue international mass-marketing fraud.
For example, the United States Attorney's Office in Washington, D.C. and the National Aeronautical and Space Administration NASA) Inspector General’s Office provided substantial support in the successful prosecution and sentencing of a Nigerian citizen who pleaded guilty and was sentenced to 18 months in prison by the Lagos State High Court in Nigeria for committing fraud on a U.S. citizen and NASA employee.
Finally, the Department closely coordinates with other federal investigative agencies and with foreign investigative and prosecution agencies in developing and implementing strategic approaches to investigating, prosecuting, disrupting, and preventing mass-marketing fraud.
For example, the Department, together with U.S. investigative and regulatory agencies such as the FBI, the Federal Trade Commission, the Postal Inspection Service, the United States Secret Service, and Immigration and Customs Enforcement, actively participates in the International Mass-Marketing Fraud Working Group. This Working Group, which also includes law enforcement and regulatory agency representatives from Australia, Belgium, Canada, France, the Netherlands, Nigeria, and the United Kingdom, meets and confers regularly on cooperative measures to improve the sharing of criminal intelligence, disrupt mass-marketing fraud groups through lawful means, enhance public education and prevention measures, and increase the effectiveness of criminal and civil enforcement actions directed against mass-marketing fraud. The Department also chairs a national-level Mass-Marketing Fraud Working Group for similar coordination within the U.S. law enforcement community.
Although Judging by the sheer number of solicitations and "can't miss" propositions that you can see every day in your e-mail mailbox or posted on message boards or Web sites, Internet scams may seem inescapable. While you can't wholly avoid seeing online solicitations that may be fraudulent, here are some tips on how to deal with them.
General Tips
Don't Judge by First Appearances. It may seem obvious, but consumers need to remember that just because something sounds good over the phone or looks attractive on the Internet or in a mailing, that doesn't mean it's true. For example, on the Internet it’s easy to find or buy software that allows anyone, at minimal cost, to set up a professional-looking Web site. That means that criminals can make their Web sites look as impressive as those of legitimate e-commerce merchants.
Watch Out for "Advance-Fee" Demands. In general, you need to look carefully at anyone who insists that you wire money immediately, before you receive the money, goods, or services you've been promised. Legitimate startup "dot.com" companies, of course, may not have the brand-name recognition of long-established companies, and still be fully capable of delivering what you need at a fair price. Even so, it’s wise to use public sources such as the Internet to research what's behind a "looks to good to be true"opportunity.
Be Careful About Giving Out Valuable Personal Data Over the Phone or Online. If you get calls or see e-mail messages from someone you don't know who's asking you for personal data - such as your Social Security number, credit-card number, or password - don't just disclose the data without knowing more about who's asking. Criminals have been known to send messages in which they pretend to be (for example) a systems administrator or Internet service provider representative in order to persuade people online that they should disclose valuable personal data. While secure transactions with known legitimate and trustworthy e-commerce sites are quite safe, especially if you use a credit card, nonsecure messages to unknown recipients and are not.
Be Especially Careful About Online Communications With Someone Who Conceals His True Identity. If someone sends you an e-mail in which he refuses to disclose his full identity, or uses an e-mail header that has no useful identifying data (e.g., "W6T7S8@provider.com"), that may be an indication that the person doesn't want to leave any information that could allow you to contact them later if you have a dispute over undelivered goods for which you paid. As a result, you should be highly wary about relying on advice that such people give you if they are trying to persuade you to entrust your money to them.
Tips on Specific Mass-Marketing Fraud Schemes
Auction and Retail Sales Schemes. To reduce the chances that you may be victimized by fraudulent online auction or retail sales schemes, here are two basic tips:
Research The Prospective Seller Carefully. If you haven't had personal (and favorable) experience with someone who's offering certain goods for online sale or auction, look for sources of information at the Web site where the offeror's information is posted, and at other Web sites. Some online auction sites provide their member with opportunities to provide "feedback" on their experiences with particular sellers (although certain sellers have tried to manipulate the "feedback" process by posting favorable but false reports about themselves).
Pay by Credit Card or Escrow Service If Possible. If you charge your online purchase on a major U.S. bank-issued credit card, your liability may be limited to $50 under any circumstances, and at least one credit-card issuer has recently indicated that it will waive the $50 deductible. In the alternative, some online auction Web sites offer escrow services that (for a small percentage) will guarantee delivery of the ordered goods before releasing your payment to the seller.
Investment Schemes. To reduce your risks from online investment opportunities that may be fraudulent, here are four basic tips:
Take Your Time In Making Investment Decisions. Remember that in any "get-rich-quick" scheme, there's only one person who's guaranteed to get rich quick: the person promoting the scheme. If you're thinking about pursuing some online investment opportunity, start by recognizing that you need to take your time in making decisions about what you do with your hard-earned money. Sound investing for the long term takes patience, the will to ignore momentary market fluctuations, and a carefully thought-out plan for reaching your investment goals. Whether you're researching an investment opportunity on the Web, or talking with a broker or someone else who's offering you the opportunity, you should make it a habit to take notes of what you're reading or hearing. The North American Securities Administrators Association (NASAA) publishes an investor's notepad entitled, "When Your Broker Calls, Take Notes!"
Research The Potential Investment Opportunity - And Who's Behind It - Carefully. If you're making a major investment decision, here's an easy rule of thumb: Count how many weeks, months, or years it took you to earn that amount of money, and then resolve to spend at least that many days to research the investment opportunity and the people who are promoting or running it.
Several agencies and self-regulatory organizations can give you a substantial hand with your research, at no cost to you:
The SEC's Web site, www.sec.gov, contains a wealth of information about many companies, in at least two principal sources: (1) reports these companies file electronically through the EDGAR system; and (2) the SEC Enforcement Division's online files, which among other things list the persons against whom the SEC has filed civil enforcement actions for securities law violations (and, in some cases, against whom the Department of Justice or state or local prosecutors have filed criminal charges). You can use the built-in search engine at the SEC's Web site to check out names, and see whether you get any hits in the SEC enforcement action listings. The site also contains some excellent lists of questions to ask about any investment opportunity and a discussion of how to spot signs of online investment scams.
The Federal Trade Commission's Web site, www.ftc.gov, also has an internal search engine, which allows you to look for information on particular individuals or companies involved with your prospective investment, including listings of FTC enforcement actions.
State securities regulators in your state may also have information on the company or its organizers that you can obtain. Check your local telephone listings for the securities regulator in your state, or go to the North American Securities Administrators Association's Web site, www.nasaa.org, for a listing of state and provincial securities regulators in the United States, Canada, and Mexico.
If the prospective investment supposedly involves an Internet financial institution, go to the Federal Deposit Insurance Corporation (FDIC)'s Online Banks Web pages, and use the FDIC's Financial Institutions Search Engine you find there to see whether the financial institution has a legitimate banking charter and is a member of the FDIC.
When the potential investment is based outside the United States, remember that your money may be even more at risk, as you may have little or no recourse in the event of loss. The United Kingdom's Financial Services Authority allows investors to check out U.K. and European Union-based investment offers at its Central Register (call 01-71-929-3652).
Finally, use one or more of the many Internet search engines - like the ones available on your Web browser - to help you expand your research on the company's background and market performance.
If you use these resources, and find that one or more of the people behind your prospective investment has been subject to legal action, especially for investment offers, it's a very safe bet that the investment is a high risk at best and an outright scam at worst.
Watch Out for High Pressure Tactics. If someone online is insisting that you invest right away, or telling you that someone else will get the "deal of a lifetime" if you wait, ask yourself at that moment whether you're feeling pressured and uncomfortable. If you are, that's a major red flag warning you away from the investment. Legitimate businesspeople and brokers don't need to subject you to "high-pressure" tactics to make you commit to an investment decision before you're ready. That's why the operations scam artists run are called "boiler rooms": like steam boilers, high pressure is what they're designed to generate (along with a wide array of lies, half-truths, and deceptive statements).
Check Out The Competition. If someone's promising you returns on investment that are far above what you see in the financial pages of your newspaper or at your local bank, ask yourself how they can possibly guarantee those fabulous returns. Sometimes it's because, as in any good old-fashioned Ponzi scheme, they're paying older investors with money that newer investors gave them, and they're trying to string out the fraud to rope in as many investors as possible. Sometimes it's because they'll promise you anything, but give you nothing once you've entrusted your money to them.
If, after you've gone through all of the steps listed above, you still feel like the prospective investment is worth considering, talk to a broker, financial adviser, or banker with whom you've done business for a while, and ask whether his or her firm or financial institution can offer you a comparable type of investment with less risk. The chances are that they'll say no, but they'll be willing to take time with you to walk through the information you have about the prospective investment and point out the risks you may be taking, as well as possible alternative investments that offer more realistic returns. You lose nothing by consulting an investment professional about any major investment decision - and you stand to lose a lot if you don't.
If you have a complaint about any type of Internet crime, you can file an online complaint with the Internet Crime Complaint Center (IC3). The IC3 is a joint project of the FBI and the National White Collar Crime Center (NW3C). The IC3's key functions for federal, state, and local law enforcement agencies will be (1) receiving online complaints, (2) analyzing them to identify particular schemes and general crime trends in Internet fraud, and (3) compiling and referring potential Internet fraud schemes to law enforcement. In addition to FBI and NW3C personnel, the IC3 will include agents and analysts detailed from other law enforcement agencies.
If you have a complaint about any type of consumer fraud, including any type of mass-marketing fraud, you can file a complaint through a toll-free Consumer Help Line, 1-877-FTC-HELP (1-877-382-4357) or online with the Federal Trade Commission
- What Are The Major Types of Mass-Marketing Fraud?
- What Are The Costs of Mass-Marketing Fraud?
- What Is The Department of Justice Doing About Mass-Marketing Fraud?
- How Can I Spot A Mass-Marketing Scam?
- How Can I Get More Information About Mass-Marketing Fraud?
- How Can I Get More Information About Mass-Marketing Fraud?
- Oct. 19, 2011
- http://www.justice.gov/criminal/fraud/internet/