Mass Marketing Fraud

The term "mass-marketing fraud" refers generally to any type of fraud scheme that uses one or more mass-communication techniques and technologies – such as the Internet, telephones, the mail, and even mass meetings in person -- to present fraudulent solicitations to numbers of prospective victims, to conduct fraudulent transactions with victims, or to transmit the proceeds of the fraud to financial institutions or to others connected with the scheme. Broadly speaking, mass-marketing fraud schemes fall into two general categories: (1) schemes that target larger numbers of victims for comparatively small per-victim losses, ranging from dozens to several hundreds of dollars; and (2) schemes that target numbers of victims for large amounts of per-victim losses, ranging from thousands to millions of dollars, depending on the nature of the scheme.

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 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.

S     Be stingy about giving out your personal information to others unless you have a reason to trust them, regardless of where you are:

At Home:

1. Start by adopting a "need to know" approach to your personal data. Your credit card company may need to know your mother's maiden name, so that it can verify your identity when you call to inquire about your account. A person who calls you and says he's from your bank, however, doesn't need to know that information if it's already on file with your bank; the only purpose of such a call is to acquire that information for that person's personal benefit. Also, the more information that you have printed on your personal bank checks -- such as your Social Security number or home telephone number -- the more personal data you are routinely handing out to people who may not need that information.

2.If someone you don't know calls you on the telephone and offers you the chance to receive a "major" credit card, a prize, or other valuable item, but asks you for personal data -- such as your Social Security number, credit card number or expiration date, or mother's maiden name -- ask them to send you a written application form.

3.If they won't do it, tell them you're not interested and hang up.

4.If they will, review the application carefully when you receive it and make sure it's going to a company or financial institution that's well-known and reputable. The Better Business Bureau can give you information about businesses that have been the subject of complaints.

On Travel:

1.If you're traveling, have your mail held at your local post office, or ask someone you know well and trust ­ another family member, a friend, or a neighbor ­ to collect and hold your mail while you're away.

2.If you have to telephone someone while you're traveling, and need to pass on personal financial information to the person you're calling, don't do it at an open telephone booth where passersby can listen in on what you're saying; use a telephone booth where you can close the door, or wait until you're at a less public location to call.

C    Check your financial information regularly, and look for what should be there and what shouldn't:

What Should Be There:

1.If you have bank or credit card accounts, you should be receiving monthly statements that list transactions for the most recent month or reporting period.

2.If you're not receiving monthly statements for the accounts you know you have, call the financial institution or credit card company immediately and ask about it.

3.If you're told that your statements are being mailed to another address that you haven't authorized, tell the financial institution or credit card representative immediately that you did not authorize the change of address and that someone may be improperly using your accounts. In that situation, you should also ask for copies of all statements and debit or charge transactions that have occurred since the last statement you received. Obtaining those copies will help you to work with the financial institution or credit card company in determining whether some or all of those debit or charge transactions were fraudulent.

What Shouldn't Be There:

1.If someone has gotten your financial data and made unauthorized debits or charges against your financial accounts, checking your monthly statements carefully may be the quickest way for you to find out. Too many of us give those statements, or the enclosed checks or credit transactions, only a quick glance, and don't review them closely to make sure there are no unauthorized withdrawals or charges.

2.If someone has managed to get access to your mail or other personal data, and opened any credit cards in your name or taken any funds from your bank account, contact your financial institution or credit card company immediately to report those transactions and to request further action.

A    Ask periodically for a copy of your credit report.

Your credit report should list all bank and financial accounts under your name, and will provide other indications of whether someone has wrongfully opened or used any accounts in your name.

M    Maintain careful records of your banking and financial accounts.

Even though financial institutions are required to maintain copies of your checks, debit transactions, and similar transactions for five years, you should retain your monthly statements and checks for at least one year, if not more. If you need to dispute a particular check or transaction ­ especially if they purport to bear your signatures ­ your original records will be more immediately accessible and useful to the institutions that you have contacted.

Even if you take all of these steps, however, it's still possible that you can become a victim of identity theft. Records containing your personal data -- credit-card receipts or car-rental agreements, for example -- may be found by or shared with someone who decides to use your data for fraudulent purposes.