Internet Scams

^{Internet
Scams}
by Laura Duncan

Introduction

In January of this year I received a rather innocuous appearing email. The program that I use to receive and read my electronic mail displays just the “name” of the sender, and not their email address. The name said it was from “Mike,” and being as I have several friends named Mike, I decided that the letter must be from one of them. Imagine my surprise when I opened the letter, and it was another piece of SPAM. SPAM, the bane of the Internet. And SPAM is just one of the ways that scams are run on the Internet. Normally I delete every piece of SPAM that arrives in my mailbox, but this one I kept. Why? Because it was a solicitation for one of the more ingenious scams that I have run across. The letter was an advertisement for bulk email lists, where one can buy all of the addresses and then send them advertisements for one’s own products. However, this letter had a catch. If you wanted to be removed from their mailing list, you needed to call a long-distance number and use a special code, provided in the email, to verify that you really want to be removed. This was an innocent enough looking option, but then I started researching the topic on the Internet. Apparently many people who sell bulk email lists charge extra for addresses that they can claim as “active.” In order for an address to be active, the recipient must not only receive email, but also open it and respond. I looked at the area code given in the letter, and it was for the state of Nevada. More interesting was the return address for the email sender, which ended in “.gr”. After doing more research on the Internet, I discovered that that specific prefix comes from Greece. Obviously this letter was a scam, and I did not respond to it, but I wonder how many people did make that call, and what they heard on the other end. It is likely that the unsuspecting email recipient would be offered some sort of “Make Money Fast” scheme, and that more than a few of the respondents would fall for it In short, it was a scam.

The Rise of Internet Scams and Fraud

According to the National Consumers League, “[c]onsumers lost over $3.2 million to Internet fraud last year in incident reports to the National Consumers League’s Internet Fraud Watch” (National Consumers League Report). In 1999, according to the same report, Internet fraud complaints rose 38 percent when compared to the statistics for 1998 (National Consumers League Report). In 1996, the National Consumers League’s Internet Fraud Watch received 689 complaints of fraud on the Internet, in 1999 they received 10,600 (National Consumers League Report). This sharp increase will only continue as more and more people get wired and begin to explore the World Wide Web. The exponential growth of new, unwary users of the Internet has provided a wide target audience for people who use the medium to perpetuate fraud. But in addition to new potential targets, the Internet has also allowed criminals to commit their crimes in a cheaper, less complex manner. The Securities and Exchange Commission (SEC) for the United States says that “[a]nyone can reach tens of thousands of people by building an Internet web site, posting a message on an online bulletin board, entering a discussion in a live ‘chat’ room, or sending mass e-mails” (Securities and Exchange Commission). The very things that are attracting ever-increasing numbers of people to the Internet are the very same things that are attracting the criminals. The face-less anonymity afforded by the Internet, the ability to be connected to the world at the click of a mouse, and the increasingly user-friendly interfaces, all which make Internet surfing easier and more enticing, also make it easier for criminals to find their next targets. According to the National Consumers League, “…to con artists. They have taken advantage of the low cost medium that it affords, the capacity to reach a worldwide audience, and the fact that it is difficult to distinguish whether information and the source of that information is legitimate or not” (National Consumers League Report).

The Internet has given criminals the ability to appear legitimate, even to the more wary consumer. Anyone with access to the Internet, some basic web-page building skills, and a scheme in mind, can design professional looking web sites that will lure the audience into believing that what they are seeing is legitimate. Dee Harris, from the North American Securities Administrators Association, as quoted in the Federal Trade Commission’s report on consumer fraud, says that, “…high-tech scams are the latest in a long line of swindles to be pawned off on the American public that seems to be blindly in love with anything and everything labeled high-tech” (Federal Trade Commission). The fact that many people are in awe of this new medium, and seem to want to believe that it is all good and legitimate, are sitting ducks for the criminal.

Different Scams

"Anyone with access to the Internet, some basic web-page building skills, and a scheme in mind, can design professional looking web sites that will lure the audience into believing that what they are seeing is legitimate."

There are many different types of scams currently being run on the Internet. Some have developed with the new technology, but many are just variations on scams that have been perfected and perpetrated for many years. There are two significant differences between Internet scams and those that are run using traditional methods. First, Internet scams can be run by anyone because “[i]t does not require large numbers of employees or the boiler room facilities that characterize [other types of fraud]” (National Consumers League Report). Secondly, the age of victims in Internet scams is much younger than other types of fraud, such as telemarketing. According to the National Consumers League, “[m]ost of the Internet fraud victims where in their 20s, 30s and 40s” (Report). This is in contrast to telemarketing fraud, where the victims tend to be older.

According to an article in PC World, there are seven basic types of scams currently being run over the Internet (Hogan). Each of these scams have been run before, in other mediums, such as solicitation phone calls, also called telemarketing, or through the regular mail. However, on the Internet these scams appear to be more legitimate and reach a wider group of unsuspecting potential victims. Robert Pitofsky, in his cover letter for the Federal Trade Commission’s 1997 report on consumer fraud, says that, “[o]nce a local threat, the snake oil salesman now can market fraud on a national -- even international – scale” (Federal Trade Commission). Neil J. Gallagher, in his report to the Congressional Joint Economic Committee, says that he ten most fraudulent fraud reports involve undelivered Internet and online services; damaged, defective, misrepresented or undelivered merchandise; auction sales; pyramid schemes and multilevel marketing; misrepresented cyberspace business opportunities and franchises; work-at-home schemes; prizes and sweepstakes; credit card offers; books and other self-help guides; and magazine subscriptions (Gallagher).

According to different reports, there appears to be conflict over what scams are most prevalent on the Internet. What cannot be disputed, however, is that the scams are difficult to avoid. Some of the more common scams are work-at-home fraud, pyramids, Ponzis, stock manipulation, the long-distance scam, and scams involving health. Each of these is designed to make the victim feel that they are getting something for free or for little effort and they all guarantee large amounts of money or improved health for the consumer.

The basic work-at-home fraud, which has been run for many years through advertisements in the classified sections of newspapers as well as elsewhere, basically promise the consumer that they will make large amounts of money by investing in proven work-at-home businesses. These scams ask for the victim to invest money in up-front fees, which can range in amounts from a few dollars to thousands of dollars. The victim then receives no product, or product of a shoddy quality. Using the Internet, this fraud is usually perpetuated through advertisements posted on newsgroups and bulletin boards, as well as through mass emailing (Hogan).

The Pyramid scheme, considered by many to be the most prevalent scam on the Internet, promises riches to those who invest a small amount of money. This scam usually involves the victim sending in a specified amount of money, say five dollars. They then recruit others to join. Out of each of the five dollars that the new people pay in, the original investor receives a percentage, say two dollars. The rest is sent to people higher up the “pyramid.” These schemes usually collapse back on themselves. With the Internet, most victims are reached through newsgroups, bulletin boards, and mass emailing (Snyder). There are two variations on the pyramid scheme, one of which is a “charity pyramid” in which “a noble cause diverts attention from the mathematical mumbo-jumbo of a run-of-the-mill pyramid. Participants seem more willing to be fleeced if the cause is noble” (Hogan). The other variation is what is called a “Ponzi scam.” With the Ponzi, there is another pyramid structure. However, the initial investors do receive large amounts of money, from those that invest after them (Hogan).

Another scam that has found a new home on the Internet is one which takes advantage of the sick. Much like the peddler of snake oil in small town America, these scams make claims to cure whatever ails the victim, from gout to cancer. These scams reached their victims through postings to bulletin boards, newsgroups, mass mailings, and web sites that contain phony “testimonials” (Hogan).

Another age-old scam that has found a new outlet on the Internet is stock-related scams. Ranging from bogus securities to fraudulently inflated stock values, the Internet has provided a new ground for investors to be ripped-off. According to the SEC, most stock-related Internet fraud fits into one of four categories: the “pump and dump” scam, the pyramid, the “risk-free” fraud, and off-shore frauds (Securities and Exchange Commission). With the pump and dump scam, Internet investors are told of “inside” information that the stock is about to rise in value. The investor buys large quantities of this stock and is told that they can sell the stock and reap large investments as soon as the price rises. The criminal, mean time, has bought large amounts of the stock and then unloads it to the victim, who is left with stock that is worth little (Securities and Exchange Commission). The risk-free scam, is fraudulent even in its name, because no investment is risk-free. These scams usually invite the victim “…to participate in exotic-sounding investments.” (Securities and Exchange Commission). Frequently the investment products that are being advertised do not even exist. The off-shore fraud, which used to be difficult to perpetrate because of “conflicting time zones, differing currencies, and the high hosts of international telephone calls and overnight mailings” (Securities and Exchange Commission). is now easy to run. Because of the difficulty of prosecuting across international borders, many victims in these frauds lose all of their money and have no means by which to recoup it. The Internet investment scams reach their victims in many ways, from email solicitations to posting to bulletin boards. However, they commonly find their victims through online investment newsletters, through banners at web sites, through their own web sites, and through “chat” rooms.

One of the more fascinating scams that has evolved on the Internet is a twist on the phone scam. This scam was originally run through the regular mail, and it told the victim to call a phone number to claim a prize. Frequently this phone number had what appeared to be an area code within the United States, but it in fact was to another country, and the consumer was billed at prices up to $20.00 a minutes (Snyder). There are two Internet twists on this scam. The first is that the victim is contacted vie email instead of through the postal mail. The second twist is more devious. By contacting the victim through email or luring them from adult entertainment sites, the victim is promised “free access to X-rated images as soon as the user downloaded proprietary viewer software” (Snyder). Once the program was downloaded, it ran as promised, and the victim had access to many images at different sites. However, the downloaded software had a built-in “scam.” It “…turned off the modem’s speakers…disconnected the modem from the user’s Internet service provider. Then it surreptitiously dialed a phone number in the Eastern European country of Moldova, at a charge of about $3.00 per minute” (Snyder). In this report, Snyder quotes an FTC staff attorney, Paul Luehr, who says that, “…more than 38,000 people were victimized and billed in excess of $2.74 million” (Snyder).

Law Enforcement and Internet Scams

The Internet has made finding and prosecuting scam-artists more complex than the process was before the advent of the World Wide Web. One of the main problems that law enforcement encounters when attempting to prosecute Internet fraud is jurisdiction. “Depending on the case, each state has various business, criminal, and civil codes that may apply….A crime perpetrated over the Internet is particularly difficult to prosecute because -- without a geographical location -- it's harder to determine who has jurisdiction” (Hogan).

Another complexity of prosecuting scams on the Internet is the fact that a scam can be run with relative anonymity. All the criminal needs is to set-up a web site and to rent a post office box. Because both of these can be done without the criminal’s name being known, it is sometimes difficult to track down the criminal. However, the law enforcement community also uses the Internet to find scams and to track down and prosecute the criminals who run them. “There is, however, one big shortcoming to the Web, at least as far as cyberscamsters are concerned – regulators can find them just as easily as can investors” (Brooker). According to John Stark, the head of the Securities and Exchange Commission’s Internet Enforcement Unit, “[f]or those people, [the Internet] is a real double-edged sword” (Brooker). Now, many law enforcement officials spend their time surfing the Internet, much like that average citizen. However, these officials are deliberately searching out fraudulent web sites and postings to bulletin boards. When a potentially fraudulent or shady looking web site is found, law enforcement officials usually send a warning to the criminal. The Federal Trade Commission routinely “warns [w]eb site operators to back up their claims of business-opportunity earnings potential with solid evidence, or face legal action” (Snyder). The result is that some sites change their claims, or they just disappear. The problem with the Internet, though, is that it is easy to repost a site to a new address. All that is involved is moving the files and creating new paths. This is much easier than having to pack-up a storefront business and head to a new town.

The Federal Bureau of Investigation (FBI) is also attempting to crackdown on the number of Internet scams. The Bureau advises that news laws need to be developed and new jurisdictions determined, in order to make fighting Internet scams easier, and to protect the consumer. “[W]e need to make sure that existing laws are amended, where necessary, to address crimes involving emerging technologies” (Owens). Additionally, “[the FBI] will continue to assess the need for legislative changes and, if such changes are necessary, we will coordinate closely with other members of the Justice Department” (Owens).

In addition, law enforcement authorities are starting to work with each other on a global scale. According to Neil J. Gallagher, “[t]he FBI is working closely with law enforcement officials in other countries to combat computer crimes and enhance coordination, and improve our combined capabilities” (Gallagher). This still does not help the problem of jurisdiction and crimes committed on an international level, using the Internet, but it is a step toward stronger regulation and control.

The task of monitoring potential scams is not just limited to sworn law enforcement officials, though. The Internet has given rise to a new breed of vigilantism, and these people have come to be identified as “cybervigilantes.” Cybervigilantes are everyday people who have taken it upon themselves to seek out Internet scams and to expose the criminals. Occasionally cybervigilantes work in tandem with law enforcement communities, but frequently they work on their own. They search for Internet scams and then publicize what they find. Many times they have found fraud, and they send that information on to law enforcement, as well as posting the information to newsgroups, bulletin boards, and discussions in “chat” rooms (Brooker). These cybervigilantes also set-up their own personal web pages or web sites that deal with the Internet scams that they have run across, as well as tips for avoiding becoming a victim.

The Wary Consumer

While law enforcement and cybervigilantes are struggling to keep the Internet free from scams, it is an overwhelming and perhaps impossible task. Without strict control and monitoring, the Internet is a medium where just about anything goes. Consumers need to learn how to determine what on the Internet is legitimate and what is a scam. Unfortunately, that is not always a simple task. Additionally, “…no matter how many times online investors are warned about cyberscams, human nature dictates that fraudsters will always be blessed with an endless supply of victims” (Brooker).

There are many excellent web sites whose sole purpose is to inform the consumer of the risks of the many scams on the Internet, as well as how to detect scams and avoid becoming a victim. It is sometimes difficult, though, to determine what sites are legitimate and what are, in fact, a scam in and of themselves.
While seeking out information about the topic of scams and the Internet, I came across many personal web sites that decried the use of the Internet for fraudulent purposes. But I also came across sites that claimed to be aimed at protecting the consumer, but after closer inspection I determined had to be scams in their own right. One site offered a free weekly newsletter, to be emailed to the subscriber, that would list the latest scams and how to avoid them. Payment could only be maid via a personal check, sent to a post office box. A questionnaire also had to be completed. In one section the rather lengthy form asked for the Social Security number of the subscriber. Later in the form, it asked for the maiden name of the subscriber, as a way of establishing a “password.” These two bits of information would make it very easy for a criminal to take advantage of an unsuspecting person. I sent an email to the webmaster of that site, asking why they requested so much information, and did not receive a reply. When I went back to the site, several days later, it had disappeared. I am certain that if I searched for long enough I would be able to find it again, at a new URL, asking the consumer to fill out the same form.

Where, then, should the consumer turn for information and for help? There are some simple tips that every consumer should keep in mind, when surfing the Internet. First, “don’t accept technological savvy as a sign of credibility,” according to an article in Newsweek (Spragins). Anyone can set-up a web site, using tools that are easily available. Just because a web site or other Internet venue looks good, that does not mean that it is legitimate. Second, do business with companies that are well known. And along that same line, check-out the company as best you can before you buy their products or invest with them. Third, pay with a credit card. “When you use your credit card for a purchase and there is a problem, you have a right to notify your card issuer that you are disputing the change, and you don’t have to pay it while your dispute is being investigated” (National Consumers League Warns). Fourth, do not download programs that will allow you to see or experience certain aspects of web sites. Many times these downloads are innocuous, but they also have the potential to contain viruses that can cause financial problems for the consumer. Fifth, use your own common sense. If something sounds too good to be true, chances are that it is. Do not allow yourself to be lured into believing that this latest “opportunity” is something that you need to jump on. Instead, investigate the offer and talk with people that you know and trust about the subject. Additionally, research the offer and the person making it. Finally, do not EVER respond to an unsolicited email advertising an easy money making deal. Not only is this a scam, but if you respond asking to be taken off of the mailing list, your email address is flagged as being “desirable” because you have shown them that you read and respond to advertisements, and your name will be sold to many more companies who will fill your electronic mailbox with more offers for scams.

If the consumer wishes to heavily research the topic, there are several good, reputable web sites that are safe for the consumer to use to look into Internet scams. Governmental sites include the Federal Trade Commission, located at http://www.ftc.gov, the Federal Bureau of Investigations, located at http://www.fbi.gov, and the Securities and Exchange Commission, located at http://www.sec.gov. In the private sector, the National Consumers League, a non-profit organization which frequently advises the federal government, has a very informative site located at http://www.fraud.org. This site also has links to other governmental web sites, international sites, and contains information on how to report an Internet scam.

The Internet has provided the average person with access to amazing amounts of information. Unfortunately, it has also given criminals a new medium in which they can perpetrate their crimes. The consumer must be on their guard at all times, but through using good common sense and not making hasty, uninformed decisions, they can use this new technology to explore a whole new frontier.

Bibliography

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