Ninety arrested for Internet fraud in FBI sweep

May 23, 2001 (Computerworld)

WASHINGTON -- Federal law enforcement officials said today that they have filed charges against 90 individuals and companies involved in a host of Internet fraud schemes that bilked some 56,000 people out of more than $117 million.

The FBI made the arrests in a nationwide crackdown on Internet fraud, with the cooperation of wide range of federal, state and local law enforcement agencies.

The crimes were uncovered with the help of the National White Collar Crime Center (NW3C) and Operation Cyber Loss, a program initiated by the Internet Fraud Complaint Center, according to an FBI statement. The program is the result of a partnership between the FBI and the NW3C and has operated since May 8 (see story). The government organizations worked with a variety of companies, including Microsoft Corp., PayPal Inc. and The Motley Fool Inc., to identify and report violators.

But despite these arrests, Bruce Swartz, deputy assistant attorney general, told a congressional subcommittee at a hearing today that Internet fraud remains "one of the most pervasive and fastest-growing types of fraud we face." Swartz made the remarks at a hearing before the U.S. House Subcommittee on Commerce, Trade and Consumer Protection.

The fraudulent schemes were wide-ranging and included nondelivery of merchandise ordered over the Internet, unauthorized use of credit cards, offerings of phony job opportunities that included "application" fees, and fraudulent loans and investments, as well as Ponzi schemes or pyramid schemes, in which investors are promised outrageously high profits.

The Internet "is a perfect medium for which fraudsters can reach a large number of people and maintain a cloak of secrecy over their identity," Thomas Kubic, deputy assistant director at the FBI, said at the hearing. "The efforts today are in fact a response to the perceived rise in crime and fraud on the Internet."

U.S. Federal Trade Commission (FTC) figures point to a rapid rise in online fraud. In 1997, the FTC received fewer than 1,000 Internet fraud complaints; last year, it received more than 25,000.

Theft of data stored in business systems is playing a role, officials said. "Time and time again, criminals have demonstrated their ability to obtain information from businesses" on the Internet, said Bruce Townsend, special agent in charge of the financial crimes division of the U.S. Secret Service. "It has become a frightening reality that one individual can literally take over another individual's financial ID without the true victim's knowledge."

But one credit card company, Visa USA Inc., said that fraud of its cards, at least, is at an all-time low. In the late 1980s, fraud accounted for about 0.20% of total Visa card volume; in the early 1990s, it was at 0.15%, and today it's at 0.07%, Mark McCarthy, a company senior vice president, testified at the hearing. The company credited a variety of fraud control programs to help merchants.

"The Internet gives miscreants special capabilities," said House Energy and Commerce Committee Chairman Billy Tauzin (R-La.) "Bonnie and Clyde would have loved this environment."

Sam Costello of the IDG News Service contributed to this article.



Related stories:

• Victims of credit card fraud tell their stories, March 23, 2001



• Net fraud complaints are largely over auctions, Aug. 30, 2000



• Gartner survey sparks debate on Internet retail fraud, July 18, 2000