Crimes Against Businesses Contribute to Job Losses

Organized retail crime costs retailers billions of dollars. In an era, where retailers are closing stores or going completely out of business, it's logical to assume that organized retail crime is a contributing factor to retailers shutting their doors and people losing their jobs. With the sour economy inspiring more and more theft and fraud, it is becoming more critical than ever before for companies to control their losses in their struggle to remain viable.

When retailers lose money to theft, the end result can be (assuming they don't go bankrupt) that jobs are cut. Payroll is normally the largest and most controllable expense in any business. When businesses start to show negative earnings — like a lot of them are right now — payroll is normally the first place they look to cut when trying to avoid shutting their doors.

In an effort to fight what experts say is a $30 billion a year organized retail crime issue, the National Retail Federation is welcoming legislation being introduced to give them more tools to fight this problem. Yesterday, three bills were introduced in Congress to assist retailers and law enforcement in this effort.

The three bills introduced are "the Combating Organized Retail Crime Act of 2009, sponsored by Senate Majority Whip Richard J. Durbin, D-Ill.; the Organized Retail Crime Act of 2009, sponsored by Representative Brad Ellsworth, D-Ind.; and the E-Fencing Enforcement Act of 2009, sponsored by House Judiciary Committee Crime, Terrorism and Homeland Security Subcommittee Chairman Bobby Scott, D-Va. The measures are similar to legislation first introduced last summer" according to the press release and podcast on this matter by the National Retail Federation.

In case you are unfamiliar with "Organized Retail Crime," it involves organized retail theft activity for profit. Once the merchandise is stolen, it is fenced (sold) to get a cash value out of it. Traditionally, this merchandise was sold at flea markets/dishonest retailers, but more and more often nowadays, retail crime rings are turning to auction sites to unload their stolen goods.

The reason for this is if they sell it on an auction site, they make a lot more money than in the more traditional fencing venues. Experts believe they net 70 percent of the retail value by selling their stolen wares on an auction site versus the 30 percent of retail value they receive in more traditional fencing venues.

Another possible factor contributing the problem is that consumers — who are operating with ever-decreasing personal budgets — are flocking to these sites to stretch their buying dollars. Without knowing it, they might be adding fuel to the fire and unknowingly buying this stolen merchandise.

Even if the retailer can prove that merchandise on an auction site is stolen, it can be extremely difficult for them to get the site to cooperate in going after the criminals selling it. Due to a lot of red-tape imposed by these sites to release information, it requires a lot of time/effort to get the site to cooperate in an investigation. Because of this, the crooks are normally long gone before any effective investigative action is taken.

Another phenomenon called phishing makes the activity even more anonymous/hard to track on auction sites. Phishing is where a person (user) is tricked into giving up their credentials to an account. For years, eBay and PayPal have ranked as some of the most phished brands out there. Criminals use this information to take over an account and commit fraud using someone else's selling account. When investigating auction fraud, time is of the essence, otherwise the trail is often too cold to track. The crooks use one of these accounts for a short period of time and then move on to another phished account to avoid detection.

Organized retail crime is also taking advantage of the identity theft/financial crimes phenomenon and working with the hacking element that has been attacking the financial industry. Counterfeit payment cards (credit/debit), checks and identification are all being used to electronically boost merchandise and walk right out the store with it. In the TJX data breach — which was the largest hack of financial data to date — a group was caught using cloned payment cards to buy $8 million worth gift cards from Walmart. In the more recent data breach at Heartland Payment Systems — which looks like it might surpass TJX in the amount of data stolen — the only arrests made thus far were a group using the stolen data to clone gift cards. Since gift cards are redeemed at retailers, this is yet another example of how the financial hackers and organized retail crime types are working together. To me, this is evidence that organized retail crime is becoming more sophisticated in their theft techniques, which will likely make this problem get even worse than it already is.

The three bills being introduced will force auction sites to cooperate with retailers and law enforcement, define organized criminal activity as a federal offense and establish stricter sentencing guidelines for criminals convicted of organized retail crime. Too frequently, under current laws, criminals involved in this activity are treated like petty thieves and get a slap on this wrist when they are caught. Last, but not least, it will hold auction sites more accountable for the sale of stolen merchandise if it could have been prevented.

Besides fencing, there is a lot of other fraud on auction sites that isn't necessarily tied in to fencing and victimizes auction customers/sellers, more personally. Legitimate e-commerce sellers are frequently ripped off with bogus financial instruments. Buyers are also defrauded in a wide variety of scams on these sites. Like the major retail types, who are behind this legislation, the more ordinary victims are often hung out to dry when they try to get any assistance from the auction sites. There is little doubt (my opinion) that auction sites need to clean up all the fraud that occurs on them. While they do provide value and a fun way to buy things, there have been too many innocent people victimized on them.

While this legislation primarily focuses on fencing, it's a start in the right direction. Perhaps other groups should join in and support this legislation, which if passed, will likely set some needed legal precedents. It will also make it a little harder for the criminally inclined to operate on auction sites.

Supporting this legislation makes a lot of sense for a lot of different reasons. These are not victimless crimes and the consequences are being felt by innocent consumers and businesses.

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Will Heartland Become the Largest Data Breach in History?

According to a press release from Heartland Systems, a payment card processor, their data has been being compromised since sometime last year. On the site, Heartland set up to cover the incident, it says they promptly notified the Secret Service and hired two teams of forensic computer investigators to look into the case after they discovered their systems had been compromised.

Heartland was initially notified by Visa/Mastercard of suspicious activity, which led to malicious software being discovered in their system. The malware in question was harvesting and (obviously) transmitting data. In the press release, they state they believe the breach has been contained. Heartland claims no merchant data, social security numbers or unencrypted PINs were compromised. They were also quick to add that their check management systems, Canadian payroll, campus solutions, micropayments operations and recently acquired Network Services and Chockstone processing platforms had not been compromised, either.

It should be noted that in previous breaches, additional items were later discovered to have been compromised as the investigation progressed.

Brian Krebs at the Washington Post interviewed Robert Baldwin, Heartland's president and chief financial officer, who stated they don't know how many transactions were compromised. In the interview, Baldwin pointed out that since the card numbers compromised didn't have address information; it would be hard for fraudsters to use them in card-not-present (e-commmerce) transactions. Most e-commerce platforms validate the address tied to the card as a security measure. I thought about this for a second and remembered that Visa/Mastercard had warned Heartland about suspicious transactions. If there were suspicious transactions, I would deduct someone is using this data to commit fraud. Besides that, I doubt anyone sophisticated enough to pull this off would go to all this trouble (and potential legal exposure) if they couldn't use the information to make money. This is another thing that might suggest additional information will be discovered as the investigation progresses.

In the interview, Baldwin declined to name any of their customers, who were compromised. Heartland processes payments for about 250,000 customers and processes about 100 million transactions per month. He also said they will not be offering identity theft protection since not enough information was stolen to commit identity theft.

On the Truston blog, Tom Fragala, aptly pointed out that this equates to four billion transactions a year. Many are speculating that this will turn out to be the largest known data breach in history. Tom's company, which offers a privacy-friendly identity theft prevention and recovery service, offers a 45 day free-trial of their services. Even after the 45 days, the prevention part of the service is free.

Tom blogs on matters like this and wrote an interesting article pointing out the consumer protection features of debit and credit cards. Please note, debit cards offer less protection. The point is that if a card owner doesn't discover the fraud in a specified time period, they can be held liable for the financial loss. It's probably a good time for everyone to pay attention to their statements, carefully.

Given the mandatory notification laws, which have been passed in almost all 50 states, this is going to equate a lot of people that have to be notified. Simply stated, it's going to be a "notification nightmare." It should be noted that shutting down all the compromised cards and notifying victims is a substantial cost in any data breach.

SC Magazine also covered the story and got a quote from Rich Mogull, founder of IT security consultancy Securosis, who pointed out there is a trend of malicious software being planted somewhere in the processing system in all the high-profile data breaches seen in recent history. TJX (94 million cards compromised), Hannaford and CardSystems (40 million cards compromised) are all being cited as examples.

According to Visa, Heartland was validated as Payment Card Industry Data Security Standard (PCI DSS) compliant on April 30, 2008. They then stated this status was being reviewed. Trustwave is Heartland's PCI assessor. Hannaford was PCI compliant at the time they were compromised, also. According to the article in SC magazine, TrustWave wouldn't return calls to comment on this.

On the Heartland site, it mentions they are a founding supporter of the Merchant Bill of Rights, which advocates for and educates merchants on fair practices when they accept payment cards. Two of the biggest heartaches for merchants accepting payment cards are the interchange fees and becoming PCI compliant, which is considered an expensive process. Interchange fees are a tariff charged by the credit card companies on every transaction and according to the critics are not very equitable. Estimates have been made in the past that they equate to $30 billion in extra fees added to the cost-of-goods sold with payment cards, yearly. Ultimately, these are costs are often passed on to the consumer.

So far as PCI compliance — which now seems to have been proven ineffective in at least two instances — the National Retail Federation has responded by going on record to challenge the card issuers on their requirements to store data. Because of the cost, a lot of merchants have been slow to adopt PCI data-security standards and the merchants who are not in compliance face fines by the payment card industry.

Storing this data is required to prevent the third headache merchants face when accepting payment cards, or what is known as chargebacks. Chargebacks are when transactions are charged back to a merchant account because of alleged fraud. The NRF contends that being forced to maintain the data to protect themselves makes it easier to compromise.

Heartland is being challenged for releasing this information during the inauguration, when it was less likely to be a hot story. Although this seems to be the case, we need to realize the stakes in data-breaches are high. In the last breach involving a card processor (CardSystems), the card-issuers stopped doing business with the company and the end-result was the company is no longer in existence. Also, it should be pointed out that Heartland wouldn't be the only company that seemed to be very cautious when disclosing the fact that their data was compromised. Once disclosed, there is little doubt that the company in question faces some extremely unfavorable public exposure.

On a closing note, data breaches continue to occur at alarming rates. All sides of the equation need to come together and figure out solutions that work. One of them might be to upgrade the plastic to chip and PIN technology, which has become the standard in other countries. Nigeria was the most recent country to mandate this technology. While this might not directly stop data breaches, it would make it a lot harder to counterfeit the plastic, which is what the criminals use to cash-out the proceeds of data breaches with.

The other problem is that credit card fraud has been made too easy to commit. Card data and the tools to produce counterfeit cards are easy to obtain and even sold in chat rooms. A lot of this technology can also be bought on (what I consider) questionable sites, including eBay. Very few of these fraudsters get caught and because of this; it appears that the activity is getting more and more organized. Historically, the cost of all this seems to have been written off as a cost of doing business. In reality, a lot of these "costs" are passed on to the consumer in the form of higher interest rates and fees.

My prediction is that with the state credit is currently in with the sour economy, coupled with the increase in criminal activity, we are getting to the point where it is going to be hard to simply write-off all the financial costs. Until we start punishing the criminals effectively for this type of activity, it is going to continue to grow and probably prosper.

Update 2/13/09: It appears that the first arrests in the Heartland Data Breach have been made in Leon County, Florida. Three men (Tony Acreus, Jeremy Frazier and Timothy Johns) were encoding numbers stolen in the breach on gift cards and using them at Walmart.

The official press release from the authorities credits Walmart for supporting the investigation.

While it's great a few people got caught -- this probably only accounts for a small amount of the stolen data. My guess is that our three fraudsters bought the numbers via anonymous sources (probably on the Internet).

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Fraudulent Checks Too Profitable for Criminals

Fraudulent checks, bank drafts, money orders, travelers cheques and gift cheques seem to be showing up all over the place. While a portion of these are passed by professional criminals — who sometimes recruit people off the street to pass them — a lot of people are being tricked into cashing them because they believed a (too good to be true) money-making opportunity.

Unfortunately — with the current state of the economy — people seem to be falling for the too good to be true scam opportunities more and more frequently.

Even though the quality of these fraudulent instruments varies, many of these counterfeit items are now produced with magnetic ink that scans. High quality check stock complete with the latest security features can be purchased in office supply stores or on the Internet. This means they scan through most of the readers in point of sale systems at businesses. When used with a real account number, which is why counterfeiting works, these items can be difficult to detect as fraudulent.

The increase in counterfeiting isn't limited to checks. Complete sets of counterfeit documentation are being presented at banks to open new accounts. A small amount of money is put into the account so funds verify on an individual check and then an area is plastered with a lot of checks. Sometimes this is done over the weekend and the funds put in to verify the checks are removed the following Monday. The identities used to pass these checks are often stolen. Since the identities and checking accounts are changed frequently to avoid detection, it's difficult to tie all the activity back to one group or person.

Frequently, people who are down-and-out are recruited to pass these items after receiving a promise for a few quick bucks. If they are caught they are normally considered "expendable" by the people behind the schemes. Sometimes, they even do this using their own identities.

It should also be noted that the groups opening fraudulent accounts and counterfeiting checks also set up phony numbers and even business addresses that get listed in 411 and on information sites fairly easily. Most people would be amazed at how easily they accomplish this because little to no verification is done by the companies listing these numbers. This is also done in a lot of the Internet-related scams and it is not uncommon for them to list a number to a financial institution that isn't real. When they set up these numbers, while the scam is active, they have people answering the lines. Often, if you listen carefully, it's pretty obvious that it is not a legitimate business and sometimes calls are forwarded to cell phones.

Another growing phenomenon is that fewer and fewer banks verify funds when businesses try to find out if a check being presented is good. In this instance, privacy laws and fear of litigation probably have enabled the problem to get worse. A lot of businesses use computerized check verification services, but when stolen identities are used, the checks pass through these systems fairly easily. Even worse, after the check is determined bad and the data goes in the system, innocent people are pegged as passing bad checks.

These checks often returned by the bank for “non-sufficient funds" because they aren't aware the account was set-up with fake information. Eventually the account is closed by the bank, but by this time the damage is done. Since banks frequently don't investigate thoroughly enough to determine the account was set up with fake (often stolen) information, it is never identified as fraud. The exception might be when the bank takes a loss, but more frequently they pass the losses to the entity cashing the check.

It's almost impossible to get anyone prosecuted criminally for non-sufficient funds/account closed cases, which means there is little fear of getting caught in this type of scam. Privacy laws also make it difficult for anyone outside the bank to investigate individual cases. In most cases, law enforcement needs a subpoena, which take time and effort to obtain. Given the resources available at most white collar crime units and the amount of fraud, it often seems like the system is ripe for manipulation by criminals.

Technology and the anonymous nature of the Internet have made check fraud grow substantially. All the necessary software/hardware needed is available right for sale at merchants that sell software and office supplies and on the Internet, itself.

There are also Web sites that appear to be dedicated to providing all the materials to commit fraud despite disclaimers that the items are for educational purposes only. One example, of one of these sites is called HackersHomePage. If you take the time to look at this site — you will see that the the items for sale on this site might enable someone to commit a lot more than simple check fraud.

Another growing phenomenon over the past several years has been the sheer number of counterfeit instruments being passed for a “too good to be true” money making scheme. These schemes, which normally don’t make sense, normally involve secret shopper job opportunities, offers to become a financial representative, auction deals and of course, winning a sweepstakes or lottery.

These scams lure people via spam e-mails, which are sent by the millions, daily. Once someone makes contact with the unknowing victim, they are shipped bogus financial instruments to cash. Along with the bogus financial instrument to be cashed there is a letter instructing the victim to wire the bulk of the money (normally over a border) back to the location of the scammer. Another twist in these money making schemes is to buy small and expensive items, normally electronics or jewelry, and ship them (again) normally overseas. A lot of eBay and Craigslist sellers get taken by these schemes.

From the botnets spewing the spam e-mails out in the millions to the counterfeit checks being sent by the parcelful all over the world, there is little doubt that some pretty organized criminals are behind this activity.

In 2007, an International Task Force monitored the mail in Africa, Europe and North America and intercepted billions of dollars worth (face-value) of counterfeit checks.

The coordination across International borders in these scams is pretty amazing. In any individual scam, the e-mail can come from one country, the checks from another and the request to wire the money to a third.


(Picture of checks intercepted in the mail)

There is also a trend where opportunists receive these items, cash them and keep all the money for themselves. If caught, they pretend to be a victim. If no attempt is made to wire the money to an exotic locale, they are probably in the scheme for their own personal gain. It isn't hard to look in just about any inbox or spam folder, reply to the right e-mail and have all kinds of bogus financial instruments shipped whatever address a person wants.

The first step to recognizing these scams is to understand how they work. Most if not all of the reasons these checks are being presented aren't going to make sense to a reasonable person. The cliche is that they are too good to be true and they normally are.

The best places for potential individual victims to learn how not to be taken are FakeChecks.org and OnlineOnGuard.gov.

A good resource for businesses and other public entities to learn about check fraud is the National Check Fraud Center.

In closing, the sour economy is probably fueling an increase in all kinds of fraud. The bottom line is that individuals and businesses are being ruined by it. When it comes to businesses, any dollar lost to fraud normally equates to a dollar off the bottom line. So far as the individuals being victimized, cashing these items can lead to being financially ruined and even arrested.

The best defense against becoming a victim is to know how these scams work. After all, very few people become victims when they know they are being ripped-off!

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How to Legally Buy Hot Merchandise

(Courtesy of PropertyRoom.com)

Auction sites like eBay and Craigslist are frequently criticized for the amount of stolen and counterfeit items being sold on their sites. Even worse, stories about their customers being scammed have become Internet folklore.

Now there is a site that openly advertises that it is selling stolen merchandise. Even better, when you buy hot merchandise off this site, you need not worry about the authorities showing up at your door in the wee hours of the morning with a search warrant. The reason for this is that the site is stocked by over 1500 Police Departments and is run by former law enforcement types.

The site, PropertyRoom.com is an e-version of the more traditional auctions held by Police departments to get rid of unclaimed stolen property. "With distribution and service centers nationwide, PropertyRoom.com specializes in the auction of stolen, seized, found and surplus goods and vehicles. Serving over 1,100 law enforcement agencies nationwide, we offer a fraud-free marketplace with superior customer support." according to the "about us" page on the site.

I decided to surf the site and it contains a wide array of goodies at cheaper prices than what I've seen being fenced (speculative) on other Internet auction sites. For instance, desktop computers being auctioned were being bid at well under $100, laptops were showing bids of $100 to $400 and iPods were being bid anywhere from about $16 to $150. Of course computers aren't the only items available on the site, which hawks all kinds of electronics, watches, jewelry, tools, cameras, cars and a host of other high theft items.

It is well known that criminals like to steal high value items that are easy to transport. They also tend to go after items that are popular and easy to sell (fence). If you are looking for popular items, this site is a good place to buy them at an almost too good to be true price, legally.

PropertyRoom.com also is in the fund raising business and will help charitable organizations raise money. All the costs of putting on the event are covered by PropertyRoom.com. I should also mention that some of the proceeds of the sales on the site help fund law enforcement agencies, who like the rest of us, are dealing with ever-dwindling financial resources.

They also maintain the only nationwide registry available to the general public for recovering lost or stolen goods. This service is completely free. You can register items that were stolen already, or your high value items that might be stolen at a later date. If they receive an item that matches what you have registered — your property will be returned to you. Try doing this at any of the other auction sites!

The Internet has opened new avenues for criminals to fence stolen merchandise. This has made it easier to sell stolen merchandise and there are many who believe that it contributes to the problem. The most recent survey by the National Retail Federation estimates that Organized

Retail Crime is a $30 billion a year issue. Their most most recent Organized Crime Survey showed that e-fencing on traditional auction sites has grown by six percent. In response to this, they are even pushing bills in Congress to force the auction sites to allow more access to law enforcement and retailers, who are attempting to shut down this activity.

Even the government has found some of their stolen merchandise available for sale on eBay and Craigslist.

Please remember this doesn't even take into account the billions of dollars of property stolen from ordinary people. It also doesn't take into account the ordinary people who are scammed on auction sites, either. I wouldn't worry about getting scammed on PropertyRoom.com — I'm pretty sure they cooperate with law enforcement to the fullest extent.

We all know money is tight this Christmas season and there are a lot of people trying to stretch their limited resources. PropertyRoom.com is a place where you can do it and be certain that you are not contributing to a growing problem.

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Were Internet Scammers Preparing to Exploit Hurricane Gustav?

Gustav has passed and it seems like it wasn't as bad as it could have been. One positive aspect to it all was the emergency responders, who were on top of it this time. They really did a first-class job of ensuring the public's safety and deserve to be commended for their efforts.

Unfortunately, this might not be the case with everyone who was preparing for the worst Gustav might have dished out. Cyber criminals appear to have been positioning themselves on the Internet to divert as much of the relief money as they could get away with. And although it wasn't as bad as it could have been, we might still see these crooks try to take advantage of the situation.

Gary Warner, who is a blogger and computer forensics research type, recently posted a list of names that appear as if they might used to impersonate Gustav relief efforts on his blog. Some of the potential fraud domain names listed include contributiongustav.org, donategustav.org, donationgustav.org, gustav-relief.org, gustavassistance.org, gustavattorney.com, gustavclaims.net, gustavcontribution.org, gustavhelpers.org and gustavlawsuit.com. Many more of these domains can be seen on his blog post.

Gary also pointed to interesting package deal of domain names being offered on eBay. The seller has a 94.1 percent approval rating on eBay and offers to give 10 percent of the purchase price to a charity of the buyer's choice. Additionally, he assures anyone bidding on these names that their User ID will be kept private.

eBay isn't the only e-commerce place selling these domain names, I found some on DNForum.com, also. In fact, DomainPulse.com is reporting that 100 names related to Gustav were registered in less than 48 hours.

The good folks at the SANS Internet Storm Center are also keeping an eye on this activity and have an interesting diary going on about it. They are asking that anyone with any further information about this send them a quick note so they can stay on top of the subject and hopefully report it to the federal authorities.

Whether or not these domain names will be used for fraud is purely speculative at this point. However with the Louisiana Attorney General reporting that phishing attacks using Gustav as a lure have already started, it's probably only a matter of time before some of these sites are used in an attempt to dupe the general public. It should be noted that phishing is a time-tested method used to direct unsuspecting users to fraud websites, where they are tricked out of money via social engineering schemes or can even have malicious software dropped on their operating system. Becoming a Phish normally carries the risk of identity or information theft, also.

Identity theft isn't the only reason malware is dropped on a system. Often the intent is to take over a system and turn it into a member of a botnet so it can be used as a spam spewing zombie. It's always considered wise not to click on links received in e-mails from unknown sources.

The average person can check out if a charity is legitimate by visiting the Better Business Bureau Wise Giving Alliance, Charity Navigator or the American Institute for Philanthropy.

If you happen to detect a site that appears to be fraudulent, the socially responsible thing to do is to report it to Internet Crime Complaint Center.

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Report Reveals That Internet Fraud Threatens E-Commerce

The Center for American Progress just released a report indicating that not enough is being done to protect the public from fraud on the Internet. It's also warning that the convenience, choices and lower prices enjoyed by Internet users are at risk because of this.

They report reveals that high levels of fraud and abuse may cause more and more consumers to lose trust, a key-component of any successful business. Malicious software, phishing and spam were cited as primary causes for the high levels of fraud and abuse on the Internet.

Studies indicate that over 80 percent of all e-mail is spam. It should be noted that spam is the preferred delivery vehicle of fraud and abuse on the Internet. Malware and phishing normally start with a spam e-mail. In Phishing schemes -- which are designed to steal personal and financial information -- the use of malicious software to automatically steal information is on the rise. In the past, phishing normally relied on a social engineering scheme to accomplish this goal.

The Anti Phishing Working Group, an organization that tracks phishing activity, has noted an increase in the use of malicious software to phish information. They speculate that ability of e-criminals to use automated tools to spread crimeware (a.k.a. malware) could be the reason for the increase.

The report states that although the Federal Trade Commission is stepping up enforcement activity, it's resources are limited and more action by the State attorney generals is desperately needed. It cites as an example that over the past three years, only 11 cases against spyware distributors have been brought forward by the States, which is the same number taken for action by the FTC.

The Center for American Progress and the Center for Democracy and Technology asked States to provide data on the complaints they received 2006 and 2007. Thirty six States responded and most of them had a Internet related category listed in their top-ten complaints. It was also noted that overall Internet related complaints increased from 2006 to 2007. Eight of the States listed Internet related complaints in their top-three and four States listed them as being the number-one complaint.

The FTC, who gathers data on a much wider scale noted an increase of 16,000 Internet related complaints in 2007 versus the number received in 2006. When comparing the numbers to 2005, a 24,000 increase in complaints was noted.

The report points out that many experts speculate that not all cybercrime is reported or even discovered. Additionally, the standard for classifying it varies from State to State, which makes it hard to evaluate current statistical data. Given these factors, many believe the problem is understated.

In looking at the enforcement level by the States, the Center for American Progress and the Center for Democracy and Technology gathered information from annual and biennial reports, websites, news articles, and the bimonthly Cybercrime Newsletter released by the National Association of Attorneys General.

Data from the Cybercrime Newsletter revealed that 60 percent of the cases prosecuted were for the sexual enticement of minors or pornography. Crimes involving the theft of information or identity theft represented 8.9 percent of the total and 15.5 percent involved online sales and services. The majority of the cases involving online sales and services were for false advertising or the quality of a product or service.

The conclusion given by the researchers is that not very many crimes involving phishing, spyware, spam, adware and hacking were being effectively investigated or prosecuted. "Internet crime requires almost no expense to execute, carries potentially high financial rewards, and involves relatively little risk of being caught and punished," according to the report.

The monetary cost of all this activity isn't cheap, either. In 2007, an estimated $7.1 billion was lost due to phishing, viruses and malware in the United States, alone. Given that the estimated losses in 2006 was a mere $2 billion, this would lead a reasonable person to speculate that the problem is a growing one. Worldwide estimates put the losses at about $100 billion.

The report gives a possible reason for the increase in activity. With few overhead or start-up costs a phishing group can net about $250,000 a month and operate anonymously from just about anywhere in the world.

Do it yourself (DIY) phishing kits for sale on the Internet have been cited as a primary cause of more and more activity, also. Some of these DIY kits even come with technical support. The bottom line is that it no longer takes much technical knowledge to become a phisherman.

The report speculates that we shouldn't be surprised that online fraud and abuse are at high levels and calls for stronger deterrents. They believe that stronger action by the state attorneys general is key to this effort.

While more support at the State level is needed, I'm not sure if the States can control Internet crime all by themselves. Internet crime moves across borders with a click of a mouse and it's going to be difficult for Alabama to prosecute a spammer or phisherman living in Moscow, Shanghai, Montreal or London.

Two so-called spam kings were recently prosecuted by the federal government. One later escaped and killed himself and family members in the process. These arrests didn't seem to make much of a dent in the amount of spam being sent. Both of the government press releases on these stories mentioned they were catering to commercial clients. Any solution to crime on the Internet will have to take a long and hard look at what enables the activity to be too easy to facilitate in the first place.

Some blame the Internet Service Providers (which seem to be a dime a dozen) for looking the other way because spam brings in revenue for them. Of course, auction sites like eBay have long been criticized for looking the other way at the the criminal activity on their sites. Since Internet Service Providers and Auction sites operate worldwide with a click of the mouse, it's difficult to prosecute or investigate anything on the Internet.

This list of Internet crime enablers is long and the one's referenced regarding service providers and auction sites are merely two examples of them. But if you were to take a look at all them, they have one thing in common: which is maintaining an environment conducive to making money easily. The question is how long will it take for the financial and social costs of Internet fraud and abuse to inspire a more responsible and practical approach to the problem?

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Bills Introduced to Combat Organized Crime on Auction Sites

While stories of individual people getting scammed on auction sites are legendary, individuals aren't only ones victimized on these sites. Large retailers and brand owners are victimized when their stolen or counterfeit merchandise is sold on these sites, also.

In response to this, two bills are being introduced to combat this problem in the halls of Congress.

The reason this has become a growing issue is that criminals can net 70 percent of the value of stolen merchandise on an auction site versus the going 30 percent received on street corners, flea markets and pawn shops. So far as all the knock-off (counterfeit) goods being sold on auction sites, it's hard to put a dollar loss to it, but many believe it's substantial.

According to the International Anticounterfeting Coalition, counterfeiting costs U.S. businesses $200 to $250 billion a year. Counterfeiting and e-fencing pose safety risks to the public-at-large, also. Outdated or merchandise that isn't what it is advertised to be could potentially poison people, or cause bodily harm when it doesn't work like it's supposed to.

Simply stated auction sites, provide an anonymous marketing environment to sell both stolen and counterfeit goods.

“By hiding behind the anonymity of the Internet, they can make more money with less risk of getting caught than selling to a stranger on a street corner who might turn out to be a police officer. This bill would lift that cloak and help law enforcement put on-line criminals where they belong – behind bars,” according to Joe LaRocca, the National Retail Federations Vice President of Loss Prevention.

To address this problem, a federal bill (H.R. 6713, the E-Fencing Enforcement Act of 2008) is being introduced by Representative Bobby Scott, chairman of the House Judiciary Committee’s Subcommittee on Crime, Terrorism and Homeland Security.

The bill will require on-line auction operators to maintain information about high-volume sellers and provide the information to a person with "standing" once a police report is filed. The definition of a person of standing would be a law enforcement officer or a representative from a company, who has an interest in the merchandise being illegally sold on an auction site.

This is the second bill introduced recently to combat organized retail crime, which costs retailers anywhere from $15 to 30 billion a year. On July 15th, H.R. 6491, the Organized Retail Crime Act of 2008, was introduced by Representative Brad Ellsworth, a former county sheriff, along Representative Jim Jordan, as the lead co-sponsor. The bill establishes that unless auction site owners can show specific steps to prove goods being sold were not being obtained by theft or fraud, they could be viewed as "facilitating" the activity. This bill will also require site operators to cooperate with the police and organizations with a stake in stopping the activity. In certain instances, it will also allow merchants to initiate civil actions over stolen merchandise being sold on an auction site.

In the past, auction operators have been criticized for not effectively cooperating with companies and law enforcement when they made an inquiry into suspected criminal activity on their sites. It has also been established that smaller (individual) victims and merchants often receive little to no assistance after being victimized in an Internet auction deal.

E-fencing, phishing, counterfeit goods and the use of fraudulent financial instruments to buy merchandise from unsuspecting customers have all victimized countless people and organizations on auction sites.

Criminals often lure people to do their dirty work, also. Recruits are normally harvested off the Internet, sometimes from job sites, and offered work to reship stolen merchandise and or launder money from fraudulent transactions. Much of this activity involves sending money, or hot merchandise across an International border --making it extremely difficult to track.

A lot of criminal activity is facilitated on auction sites by what is known as phishing. Phishing is where an account owner is tricked into giving up their account details, either via social engineering, or more and more often, after downloading some malicious sofware. The stolen account details are then used to take-over the account and use it for illicit purposes.

In fact, eBay and PayPal accounts are frequently the most phished brands out there.

Phishing, normally facilitated by spam e-mails, is another ever-growing criminal activity on the Internet. Recent studies by the Anti Phishing Working Group show that it is becoming more automated and malicious software (crimeware) used to automatically steal information is becoming more prevalent.

There is little doubt that a lot of the criminal activity on auction sites is sophisticated and reeks of organized crime.

For anyone investigating fraud on an auction site, the only way to effectively do so, is to have access to information quickly and with as little red tape as possible. A lot of these crimes cross over borders quickly and by the time and investigator gets what they need, the trail is often pretty cold.

When auction site owners -- who suffer no financial liability and collect a lot of revenue in fees from this activity -- don't cooperate or move too slowly, it only ensures that criminals will be laughing all the way to the bank.

Even the government has had their stolen inventory sold on eBay and Craigslist. In April, the GAO issued a report that military items, including F-14 components, were being sold on auction sites. In August of last year, a U.S. Attorney was quoted as saying that stamps being stolen from self service vending machines with cloned payment cards were being sold on auction sites. At the time, I ran a simple search query and found some pretty good deals on stamps. As of today, these great deals still exist. Many of them are being sold below cost and the last I checked the Postal Service still offers credit. Why would someone sell stamps below cost?

In my opinion, both of the bills don't only serve the large merchants out there, but have the potential to protect everybody from fraud on auction sites. While both of these bills are being driven by the National Retail Federation, I see a lot of benefits to passing them for everyone concerned with fraud on auction sites.

I highly recommend that these other people, join in with the NRF and the Congressmen involved, and support getting these bills passed.

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NRF Survey shows Organized Retail Crime activity is growing!

According to FBI estimates, Organized Retail Crime (ORC) is a $30 billion a year business. The National Retail Federation's 2008 Organized Crime Survey shows another alarming trend, which is that the amount of e-fencing to sell stolen merchandise on auction sites like eBay and Craigslist has grown 6 percent.

Also mentioned in the survey are shady e-commerce sites being put up on the Internet to fence the proceeeds of ORC.

In case you've never heard the term, Organized Retail Crime, here is a good description of the activity:

Organized retail crime (ORC) refers to groups, gangs and sometimes individuals who are engaged in illegally obtaining retail merchandise through both theft and fraud in substantial quantities as part of a commercial enterprise. These crime rings generally consist of “boosters” who methodically steal merchandise from retail stores and fence operators who convert the product to cash or drugs, as part of the criminal enterprise. Some of the more sophisticated criminals engage in changing the UPC bar codes on merchandise so they ring up differently at checkout, this is commonly called “ticket switching.” Others use stolen or cloned credit cards to obtain merchandise or produce fictitious receipts to return products back to retail outlets.

The report acknowledges that these groups are using cloned credit cards to steal merchandise and or get the necessary receipts to refund the merchandise for cash.

In the wake of the TJX data breach, where up to 94 million personal and financial records were hacked, a group was caught in Florida using data from the breach (cloned cards) to buy a reported $8 million worth of gift cards.

Please note that TJX is hardly the only retailer, or financial services institution that has had personal and financial records hacked from their systems in recent history. Attrition.org does a good job of recording the known breaches on their Data Loss Database - Open Source .

Although not addressed in the current report, I suspect the use of fraudulent checks are used to obtain merchandise and receipts, also.

This could be fueled by another organized crime activity. Portable technology has made the counterfeiting of identification documents another growing trend. Over the past two years or so, I've had the pleasure of being able to speak with Suad Leija and her husband about this organized criminal activity on a semi-regular basis. Suad, the step-daughter of one of the top players in this game was recruited in an intelligence operation and eventually exposed a cartel operating throughout North America to the government. Prosecution of members of the cartel is ongoing in this case and Suad is currently working on a book.

These documents, which are available throughout the United States, can be easily used to support both check and refund fraud by using names that get past the data bases designed to protect retailers from these types of fraudulent activity.

Portable technology is also being used to clone payment cards and some of it is easily found on auction, or shady e-commerce sites set up to sell these devices. As of this writing, I was easily able to find credit card encoders for sale on eBay. A site called HackersHomePage.com provides an array of devices that could be used to steal and produce payment (credit/debit) cards. They also provide tools to make counterfeit checks and even, paper for fake prescriptions. They do have a "disclaimer" stating that none of their products are to be used for illegal purposes, but it is pretty obvious someone could.

There is no doubt that there is a lot of technology that is enabling a lot of criminal activity out there!

NRF's Vice President of Loss Prevention, Joe LaRocca, made what I consider a sage comment on this activity:

“Law enforcement and retailers alike are fed up with organized retail crime rings and are stepping up efforts to stop them in their tracks,” said NRF Vice President of Loss Prevention Joseph LaRocca. “The brazen and unethical behavior of organized retail crime suspects results in possible health risks for consumers, adds unnecessary fees to consumers’ purchases and funds criminal enterprises, including the mob and terrorist organizations around the world.”

When I stated that this activity hurts all of us, the reason is that retailers have to make up the $30 billion they are losing to this activity somewhere. This normally equates to higher prices, or in extreme circumstances (especially in tight economic times) cutting payroll. Simply stated, people might be losing their jobs because of this activity.

So far as health risks, the report sums up the obvious risks rather well:

For example, criminals may not keep stolen merchandise in a temperature-controlled environment, so merchandise like baby formula and over-the-counter medicines can easily spoil. When criminals sell these items online through third party auction sites consumers are left with no way to guarantee they are getting safe and reliable healthy and beauty products.

I decided to see if I could find baby formula on eBay. As you can see - there seems to be a lot of it for sale on the site at discounted prices. At the time I checked 26 pages of it were for sale on the site.

Actual cases in the report that support how organized this activity has become are a $60-$100 million dollar case in Florida involving health, beauty, cosmetic products and over-the-counter medicines. Another case mentioned involved a high ranking member Gambino Crime Family and a sophisticated ticket/UPC switching case and extortion. In this case, a planted employee was making up the labels and providing temporary credit cards to move the merchandise through point-of-sale systems.

Recent initiatives to combat Organized Retail Crime include launching LerpNET, which is a crime database available to both retailers and law enforcement. Also highlighted was legislation against ORC throughout the country to "reduce the rewards and increase the risk" to the groups involved in it. Several States have already passed this legislation and more are considering it.

Full 2008 ORC Survey, here.

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Vladuz busted, according to eBay

Vladuz, the mysterious hacker, who seemed to take great pleasure in hacking eBay has been arrested, according to eBay.

Ina Steiner reports on the AuctionBytes blog:

A cyber-criminal who embarrassed eBay for nearly a year with claims he had hacked the site was arrested on Thursday, according to eBay. "Vladuz" had harassed eBay with his taunting from December 2006 through October 2007, when he accessed eBay servers and gained limited access to a very small number of eBay accounts on the eBay.com site. (eBay said at the time that at no point did the fraudster get any access to financial information or other sensitive information.).

Thus far only eBay is confirming the arrest:

eBay spokesperson Nichola Sharpe said local Romanian law enforcement officials would have to confirm details, as they considered the case confidential until a conviction was made. Asked why eBay had issued a press release, Sharpe said eBay wanted to thank all of the law enforcement agencies involved who collaborated in the case. She also said that the community was aware of Vladuz, and said, "This is obviously great news."

eBay states that Vladuz never accessed any financial information, but I’m not certain that was his intention in the first place.

There are some, who believe his intention was to point out the massive amount of fraud occurring on auction sites and show weaknesses that could be exploited in eBay’s system.

After all, unless he is mentally disturbed, why would he make his effort so public otherwise? Most criminals prefer to remain anonymous when they are committing financial crimes. They make a lot more money that way.

Here is a previous post, I did on the mysterious, Vladuz:

Did Vladuz hack eBay, or is stockpiled stolen information being used to make it look like he did?

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eBay/Craigslist praised by Congressman for efforts to curb sales of stolen military equipment on their sites (?)

I've written a few things about scams and fencing stolen merchandise on auction sites. Recently, the GAO discovered that items stolen from the military are for sale on eBay and Craigslist.

Even more interesting were the results of narrowly focused hearings (my opinion) on this matter in Washington, which can be seen at the bottom of this post. The reason I believe they were "narrowly focused" is because there is no shortage of fraud, phishing and financial misdeeds on auction sites.

Of course, there is also no shortage of ordinary citizens and businesses that have been taken to the cleaners on an auction site. Stolen government items are only a small part of the overall problem.

From the GAO report:

GAO found numerous defense-related items for sale to the highest bidder on eBay and Craigslist. A review of policies and procedures for these Web sites determined that there are few safeguards to prevent the sale of sensitive and stolen defense-related items using the sites. During the period of investigation, GAO undercover investigators purchased a dozen sensitive items on eBay and Craigslist to demonstrate how easy it was to obtain them. Many of these items were stolen from the U.S. military. According to the Department of Defense (DOD), it considers the sensitive items GAO purchased to be on the U.S. Munitions List, meaning that there are restrictions on their overseas sales. However, if investigators had been members of the general public, there is a risk that they could have illegally resold these items to an international broker or transferred them overseas.

Apparently, body armor, MRE (meals ready to eat), uniforms, night vision goggles, NBC (Nuclear Biological Chemical) equipment and even F-14 components were some of the items purchased on eBay and Craiglist by undercover investigators.

The obvious concern would be terrorists, or other not very friendly people getting their hands on some of this stuff.

Given the organized effort on a lot of auction sites to fence stolen merchandise via some pretty sophisticated methods, it's not surprising that the GAO found military equipment for sale on the sites. Many have speculated that these sites are used as a means of fencing the proceeds of what is known as organized retail crime. Of course, less organized criminals obviously sell their goods on auction sites, also.

Organized retail crime obtains their goods by a variety of methods from common theft to using stolen financial instruments. A lot of stolen financial instruments are used to purchase items on auction sites and e-commerce sites. Of course, they are used in more traditional store settings for the same purpose, also.

On eBay, account credentials and payment accounts (PayPal) are phished all the time, enabling an additional layer of anonymity to the schemes. In fact, over the years, many experts have stated that eBay and PayPal are the two most phished brands out there.

One thing not mentioned in the report is that people don't always get what was advertised on these sites. It isn't inconceivable that a complete fighter jet might be put up for sale, paid for and in the end a toy, or "nothing at all" is received by the buyer.

Trust me, this wouldn't be the first time something like this has happened on an auction site.

A lot of counterfeit (knock-off) merchandise is sold on the sites, advertised as the "real thing," also.

Our leaders in Congress reacted by calling Jim Buckmaster (Craigslist) and Tod Cohen (eBay) in to speak with them on the matter.

Anne Broache (CNet) writes:

By calling Craigslist CEO Jim Buckmaster and eBay government relations chief Tod Cohen to Washington for the hearing, the subcommittee seemed to be preparing to place those executives in the hot seat. But the tone of that questioning was actually quite cordial. At the end of the panel, Tierney even praised the companies for "trying very hard" to keep sensitive military goods off their sites and acknowledged the rules of the road aren't the most clear.

Based on her article, which reports that Buckmaster and Cohen were treated with "kid gloves" during the session, my prediction is that little is going to be done to regulate the sale of stolen goods on auction sites as a result of this.

Meanwhile, everyone running for office is saying they will be the one doing something about the problem of special interests in Washington.

On a closing note, I want to commend the GAO for their efforts to expose a problem. I'm just saying it's a shame that no one listened to what they were saying, very carefully.

HTML version of the GAO report, here.

PDF version, here.

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OCCRP reports on Eastern European/Eurasian organized crime

(Photo courtesy of the OCCRP site)

Eastern European/Eurasian organized groups seem to have their hands in a wide variety of organized criminal activity. They are often mentioned when referring to anything from auction fraud to payment (credit/debit) card skimming and computer crimes.

eBay claims there are entire towns in Romania making a living via auction fraud on it's well known site.

A new site called the Organized Crime and Corruption Reporting Project has been launched by a group of journalists to cover this activity, which seems to have to have a global reach.

In their own words, here is their vision:

The Organized Crime and Corruption Reporting Project (OCCRP) is a joint program of the Center for Investigative Reporting in Sarajevo, Romanian Center for Investigative Journalism, Bulgarian Investigative Journalism Center, Media Focus, the Caucasus Media Investigation Center, Novaya Gazeta and a network of investigative journalists in Montenegro, Albania, Moldova, Ukraine, Macedonia and Georgia.

Our goal is to help the people of the region better understand how organized crime and corruption affect their lives. OCCRP seeks to provide in-depth investigative stories as well as the latest news pertaining to organized crime and corruption activities in the Eastern Europe and Eurasia. In addition to the stories, OCCRP is building an online resource center of documents related to organized crime including court records, laws, reports, studies, company records, etc that will be an invaluable resource center for the journalists and public alike.

The site has been given financial support by the Foundation Open Society Institute (FOSI) and the United Nations Democracy Fund.

Although many of the journalists aren't well known in Western Europe and North America, they have been recognized as putting out some award winning work:

Recently, the program’s first project on energy traders was awarded the Global Network of Investigative Journalists “Global Shining Light Award” for quality investigative journalism under adverse conditions. The project was done in cooperation with SCOOP.

Journalists who have participated in projects published on this website have included Stanimir Vaglenov, Alison Knezevich, Boris Mrkela, Sorin Ozon, Eldina Pleho, Beth Kampschror, Stefan Candea, Roman Shleynov, Mirsad Brkić, Michael Mehen, Mubarek Asani, Paul Cristian Radu, Milorad Ivanović, Vitalie Calugareanu, Vlad Lavrov, Michael Mehen and Altin Raxhimi. The Editors are Rosemary Armao, Paul Radu and Drew Sullivan.

The site covers a wide variety of organized criminal activity (besides what I mentioned above) coming out the the area. Some of these activities include narcoterrorism, illegal arms sales, shell companies and even tobacco smuggling.

Interestingly enough, by reading through the site, I discovered that organized crime even has it's hands in the energy business in the region.

This subject, or the underlying causes of it aren't covered in depth when we read about this phenomenon in the West. Normally, we hear rumors pointing to mysterious Eastern European gangs associated with a sophisticated scam that has surfaced in our own back yard.

In scam circles, some of these people are referred to as "Vlads," which refer to Vlad Tepes, who as the inspiration for the Dracula story. Recently, a person who goes by the name of "Vladuz" has given eBay and the authorities considerable grief when hacking into their system.

Given that this activity reaches far beyond Eastern Europe and Eurasia, this has always amazed me. If you live in any major city in North America or Western Europe, Eastern European/Eurasian organized crime groups are probably operating not very far from where you live.

As the site matures, my guess is that it will provide evidence to ties between these groups and terrorist organizations, also. In fact, if you read what is on the site, some of the evidence I mention is already being written about.

The OCCRP is an excellent and well-written resource for the lay person and professional writer to learn more about a problem, which has become International in nature. Furthermore, since it is written by journalists from the Region, it is a great research tool for anyone interested in the subject.

OCCRP site, here.

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When will we realize how serious the problem of counterfeit devices has become?

On March 6th, Queens District Attorney, Richard Brown announced a series of indictments against a major counterfeiting ring. Although based in New York City, the group was operating nationwide. The ring was obtained skimmed card information from hackers in China. Subsequent news reports have stated that skimmed information was obtained from hackers in the Ukraine, also.

From the press release:

Queens District Attorney Richard A. Brown, joined by Police Commissioner Raymond W. Kelly, today announced that a forged credit card and identity theft ring based in Queens County and with roots in the Far East has been successfully dismantled following the indictment this week of thirty-eight individuals. The ring was allegedly responsible for stealing the personal credit information of scores of American consumers and costing these individuals, financial institutions and retail businesses more than $1 million in losses over the past year.

Counterfeit identification documents to match the counterfeit financial devices were being produced, also.

DA Brown explains why this is of greater concern than mere financial crime:

Many of the defendants charged today are accused of going on nationwide shopping sprees, purchasing tens of thousands of dollars worth of high-end electronics, handbags and jewelry with forged credit cards that contained the account information of unsuspecting consumers. Particularly disturbing is the fact that, in a number of cases, the defendants are charged with using bogus documents to purchase airline tickets and then using those documents as identification to board commercial aircraft. In the hands of terrorists such documents could have easily undermined the efforts of homeland security and other law enforcement officials intent on keeping our borders and citizens safe.

Given that the scope of this crime potentially crosses three continents, it probably demonstrates different organized crime groups are working together. The potential these items might be sold to people with twisted political and or religious motives isn't too far a stretch.

It has been reported that Al Qaeda training manuals teach their minions to use credit card fraud as a means of financing their activities.

I doubt if most of these criminals could care less, who they are selling them to. Even if they did, the full intent of the purchaser might not be readily apparent.

Suad Leija -- who has been providing information on a major counterfeiting cartel to the government -- says that this was the reason she turned on her family members running the cartel.

This latest example shows that despite a lot of focus on security to prevent terrorist attacks, counterfeit documents are a clear threat to all of us.

Prior to Suad turning against her family, her husband says he tried to get the cartel to let the government use their database as a tool to identify potential terrorists, who might have already crossed our border.

I'm sad to report that the database was never accessed and that the criminal case against the cartel is facing some serious challenges at the present time.

This series of indictments also shows how the Internet is being used to fence a lot of stolen merchandise. Normally, we hear about it happening on auction sites, such as eBay or Craigslist; however in this instance this group had an e-commerce website of their own. This website, Easttrades.com, is still up and running at the time I am writing this.

I decided to run the domain through "Whois" and it’s registered right here in the United States.

Maybe it’s just me, but it appears that we need to take the counterfeiting problem a little more seriously. They appear to be easy to produce and are available to too many people.

They are a gateway for criminals, or worse to commit all sorts of illegal activity. I would love to ask the political candidates running in the current election what they think about this problem.

Unfortunately, my guess is that no one is going to ask them and that this is an issue they would rather not talk about.

Queens District Attorney press release on this, here.

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On eBay, the buyer better beware!

Despite a lot of publicity that eBay is going after fraud, the bottom line is that the buyer better BEWARE when they purchase something on eBay, or for that matter, any digital auction site.

This morning, I read a story from Wales, where a person just got caught selling laptops that didn't exist.

From the Evening Leader:

Christopher Malcolm Amos, from Green Lane, Shotton, admitted swindling customers of the online auction site out of thousands of pounds to fuel his gambling addiction.

Under the user name 'Whitefruit,' the 22-year-old accepted payments from 130 bidders wanting to buy laptop computers.

Some used eBay's PayPal facility, while others transferred the cash directly into Amos's bank account, but nobody ever received their orders.

Please note that at least some of the fraud victims used eBay's preferred method of payment, PayPal.

And Mr. Whitefruit, who I gather is a gambling addict, didn't get into very much trouble for swindling about 100 people. He was ordered to pay some restitution and got a 12 month suspended sentence.

I'm sure eBay fraudsters around the world are quivering in their boots!

I ran into another story in the ChronicleHerald (Halifax, Canada) describing a significantly larger operation involving selling neat "tech toys" that never existed:

Police said Wednesday several complaints about alleged electronic commerce crimes have come in during the past week to 10 days. Customers are from such countries as Australia, Sweden, Norway, the United States, Italy and Estonia. Const. Jeff Carr, a spokesman with Halifax Regional Police, said Canadian EBay users have allegedly been victimized as well, but there are no complaints from the Maritimes.

The person behind this, who hasn't been caught yet was selling laptops that didn't exist.

The story also indicates that PayPal was used on some of these transactions:

He said one complaint, from PayPal of San Jose, Calif., includes more than 100 alleged victims. PayPal, which was acquired by EBay in 2002, is an online money-sending service that provides users worldwide an opportunity to buy and sell goods without sharing personal financial information.

Even when you get the merchandise you paid for on an auction site, you are taking the chance that it is a cheap "knock off," or might be some of the stolen merchandise being fenced on some of these digital marketplaces.

Knock off merchandise can be dangerous when it doesn't work as well as the item it is passing itself off does. Buying stolen merchandise poses certain moral issues, also.

When buying something on an auction site, it is up to the buyer to make sure (beware) they are getting what they paid for. This can include using some good old "horse sense," and being able to realize when the deal you seem to be getting is a "little too good to be true."

Previous posts, I've written about fraud on eBay, can be seen, here.

Evening leader story, here.

I've also written about a company called buySAFE, who certifies sellers and guarantees what they sell. The seller pays for this -- and while I suppose the cost is included in their cost of goods sold -- this might be a good way to avoid fraud without having to do a lot of homework.

buySAFE's CEO, Steve Swoda does a blog, which I read from time to time can be seen by clicking, here.

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Digital gangsters can buy everything they need to commit fraud right on the Internet!

There is a lot of technology with questionable applications being sold on the Internet. Of course, this is merely my opinion, but I have my reasons for believing this.

Robert McMillan, IDG News Service wrote an INTERESTING article about spyware being sold on eBay that has questionable applications.

From his article:

Think your wife may be cheating on you? Wondering who your boss might be talking to? "Learn the truth. Spy today."

So reads an ad for "Bluetooth Spy Pro-Edition," one of nearly 200 mobile phone spyware products currently listed for sale on eBay.

The software, which costs as little as US$3.99, can be used to view photographs, messages and files on the phone, listen into phone conversations, and even make calls from the phone being spied upon.

Security experts are concerned, because while these products aren't illegal, installing them without authorization to spy on someone else most definitely is.

Of course, eBay wasn't able to be reached for comment.

In August, I did a post called, Self service stamp machines targeted by credit card thieves. When writing it, I saw a quote that some of the stolen stamps were being sold on eBay and decided to see for myself. What I found was a lot of stamps for sale for what seemed to be too good to be true prices.

To be completely fair, eBay isn't the only one selling questionable merchandise on the Internet. The problem exists on auction sites in general and there are e-commerce companies that specialize in selling devices, which are marketed specifically as tools to violate other people's privacy.

In the wrong hands, these devices can be used for more sinister purposes, also.

A good example of this is keylogging software, which is is a favorite tool of cybercriminals to steal people's personal and financial information. Keylogging software is legal and easy to purchase in a variety of places, including the Internet.

Another example, which is similar to Robert McMillan's story concerns a company called FlexiSpy. I did a post on this company, who sells technology designed to spy on Smart Phone users.

In the post, I wrote:

There is already a lot of "buzz" that mobile phones, especially those of the smarter variety will be targeted for their "information value."

A product called "FlexiSPY" is being legally sold, which allows anyone (with the money to buy it) to invade the privacy of someone, who uses a smart phone.

Despite all the controversy at the time, FlexiSpy seems to be alive and selling their product to anyone with the money to buy it.

To end this post, I will refer to the worst site of this type (my opinion) out there. Hackershomepage.com is a one stop e-commerce shop selling technology and a host of manuals that could be used to commit a host of financial crimes.

I covered this website in a post entitled:

It is no wonder why skimming (credit/debit card fraud) is becoming a nasty problem!

Here is the websites legal disclaimer:

We WILL NOT answer emails from anyone asking about illegal activities, or how to use our products for illegal activities...they will automatically be deleted. All products are designed for testing and exploring the vulnerabilities of CUSTOMER-OWNED equipment, and no illegal use is encouraged or implied. We WILL NOT knowingly sell to anyone with the intent of using our products for illegal activities or uses. It is your responsibility to check the applicable laws in your city, state, and country.

Hackershomepage.com, who has the motto "they make it we break it" is up and running at the time of this writing and boasting they've been in business for eleven years.

While there might be legitimate uses for some of this technology being marketed on the Internet, you would think at the VERY least we might want to put a few controls on who it is being sold to?

When I say some of this technology MIGHT have legitimate uses, there is also some that I can think of no legitimate use for!

Unfortunately, until laws are enacted that hold the sellers accountable, little can be done about this.

One thing to remember is that even though the sellers aren't being held accountable, the buyers will be if they are caught using them in a manner deemed to be illegal. Just because it appears easy to buy doesn't mean that using it won't land a person in a lot of trouble.

It's safe to say that we could find people in correctional institutions that could attest to this fact.

IDG News Service story (courtesy of PC World), here.

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eBay shoppers crack QVC fraud case

eBay and auction sites are found to have HOT merchandise being sold on them too frequently (my opinion). I ran across a story in the Register, written by Dan Goodin, where two eBay customers cracked a $412,000 fraud case being committed against QVC.

As reported by Dan Goodin:

A woman has pleaded guilty to fleecing the QVC home-shopping networking of more than $412,000 by exploiting a gaping hole in its website that allowed her to receive merchandise without paying for them.

Quantina Moore-Perry ordered handbags, jewelry and electronics and then immediately canceled the transactions. The flaw allowed the North Carolina woman to take delivery of more than 1,800 items without being billed. Moore-Perry would then sell the booty on eBay, according to the Associated Press, which cited authorities.

I wonder if QVC offered a reward to the two eBay shoppers, who discovered this flaw in their system?

This would also make me wonder if this woman was the only one who has defrauded QVC in this manner?

There is a lot of controversy surrounding the sale of stolen merchandise on eBay and other auction sites. I've heard that some companies now have a dedicated person in their security departments to watch these sites for stolen merchandise.

Register story, here.

For other posts, I've written concerning stolen merchandise on auction sites, click here.

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How much money is lost by businesses due to coupon fraud?

Here is an interesting blurb about an Arby's employee, who stole $14,524 by using coupons to conceal the fact he was dipping into the till.

NBC10.com (Philadelphia) is reporting:

A fast-food restaurant employee was charged with theft after police said he was skimming the cash register by using coupons.

Curtis Smith, 32, of Coatesville, was an employee at the Arby's store located on Concord Pike for several years, police said.

Police said Smith used $1 off coupons at the register and would then take that money from the register. He obtained between $50 and $150 at a time, police said.

The investigation started because of declining revenues at the restaurant.

Coupon fraud can be a huge problem for companies, who use them as marketing tools. A few years ago, Subway discontinued a promotion because too many coupons were being reproduced and sold on auction sites.

CouponInfo.com has some pretty good descriptions of the types of coupon fraud going on out there. According to the site, there is even an underground market in counterfeit coupons.

They state that coupon fraud costs companies millions of dollars a year.

After reading this, I decided to go on eBay and see if I could find coupons for sale. After going to the site, I was able to find quite a selection. If you want to take a look, click here.

Because everyone always picks on eBay, I decided to see what Google had to say. After doing this, I was amazed at the market out there in selling coupons.

No wonder CouponInfo.com couldn't put an exact figure to the losses caused by coupon fraud. It would be pretty hard to figure out!

Going back to the story about the Arby employee, the article doesn't state where he got the $14,523 in coupons. Of course, it's hard to say, but it wouldn't be hard to find them by doing a little surfing on the Internet.

Maybe this is something that businesses, who issue and redeem coupons should watch a little more carefully?

NBC.com story, here.

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The continuing saga of Vladuz and Phishing on eBay

Here is an update to the ongoing saga of Vladuz versus eBay. Apparently, Vladuz, or someone claiming to be him, accessed eBay's servers and suspended some eBay accounts.

Ina Steiner reports on the AuctionBytes blog:

eBay confirmed that a known fraudster had limited access to a very small number of eBay accounts on the eBay.com site and the company appeared to have reacted quickly to block him on Friday. eBay spokesperson Nichola Sharpe said, "At no point did the fraudster get any access to financial information or other sensitive information." In a strange twist, some users reporting the incident said they had been openly critical of a hacker calling himself Vladuz and had been suspended briefly during the incident.

It is strange that some of the people suspended were openly critical of Vladuz?

Notably, this is the first time eBay has admitted Vladuz accessed their servers.

In another development, eBay, PayPal and Yahoo are joining forces to combat phishing. Phishing is a phenomenon that has caused a lot of eBay and PayPal account holders a lot of grief. Experts maintain that eBay and PayPal are the two most phished brands out there.

Phishing is where an account holder is duped into giving up their access information via social engineering (trickery).

The intent of the phishermen, who target eBay/PayPal accounts is normally to take the account over and commit even more fraud.

This activity gets more sophisticated all the time with crimeware (malware) being used (which steals the information automatically), and DIY (do-it-yourself) phishing and hacking kits being marketed in underground Internet forums.

Reuters, courtesy of the Washington Post is reporting:

EBay and PayPal have upgraded their computer systems to support an emerging technology standard known as DomainKeys invented by Yahoo that authenticates e-mail senders are who they say they are, allowing Yahoo to block fake e-mails.

The technology upgrade will be made available to Yahoo Mail users worldwide over the next several weeks, the company said.

If you are interested in how bad the phishing phenomenon is getting, the National Consumers League has a very well written and informative paper on the subject, here.

They also have an interesting document, which although is a little dated, shows the increase in auction fraud and calls out that eBay severed their ties with them.

It should be noted that auction fraud doesn't only occur on eBay. It can and does happen on all the auction sites. The reason we hear more about it on eBay is because they are the used by more people than the other sites.

For the scammers that means there are more potential victims to harvest there.

NCL article on auction fraud, here.

AuctionBytes blog post on this, here.

Reuters story on eBay/PayPal's efforts to combat phishing, here.

Here is my most recent post about Vladuz allegedly raising his head again:

Did Vladuz hack eBay, or is stockpiled stolen information being used to make it look like he did?

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Tools to verify those too good to be true financial instruments you got in the mail

(Counterfeit check picture courtesy of cknlomein at Flickr)

There are a record amount of counterfeit cashier's checks, official checks, money orders, travelers and gift cheques in circulation. This is an attempt to pass on information that the average person can use to tell IF the item is real or a counterfeit (fake).

As a disclaimer -- this is only a guide and if you deposit or cash items from people you don't know -- you do so at your own risk. The quality of these items is getting better all the time.

I’ve put together a list of the known counterfeit items in circulation, along with the current telephone numbers to verify them. You will probably receive these items after being lured with a (too good to be true) get rich quick scheme that doesn't make very much sense.

The best method to verify an item is to go to the maker, or issuer of the check (cheque). They probably will know if they issued it. The key here is to make sure you are speaking with the real issuer (maker) of the item.

Never trust a number provided on the instrument, fake telephone numbers are sometimes set up that will even verify in 411 (information).

Simply stated, as long as the communication companies think they are being paid, setting up a fake number is no problem. We are seeing fake numbers set up by scammers pretty frequently.

Since these numbers are often set up in 411 (information) rather easily, I recommend using Phonevalidator.com. This site provides a service that shows if a number belongs to a cell, or a land line. It also provides telephone directory and Google results for the number queried.

Quite often, fake numbers set-up to verify checks are cell phones.

The Internet is a good way to find the true issuer (maker) of an item. The key is to make sure you are visiting a legitimate site.

Fake websites (especially those pretending to be financial institutions) are a growing problem, also. An easy way to check if a site is legitimate is by using TrustWatch, which verifies whether a site is known (trusted) or not.

If you are interested in taking a look at some fake sites, claiming to be financial institutions the Artists Against 419 has some great examples of them on their site.

A common denominator in most of the scams is that there will be a request to send the proceeds, minus your paltry cut (normally via wire transfer) back to the person sending you the instruments. That is (unless) they are buying goods from you. In this case, your property is what they want you to send to them.

Some of these lures include, but aren't limited to (new lures surface frequently), secret shopper, romance, lottery, work-at-home and auction scams.

The National Consumers League recently set up a site (fakechecks.org), which is a great reference on Internet scams involving checks (complete with visual presentations), here.

So far as auction scams, eBay will no longer offer any protection for paper financial instruments on their site.

Here are some of the known items being counterfeited in large quantities and literally circulating worldwide:

Visa Travelers Cheques: 1-800-227-6811.

MoneyGram Money Orders (counterfeits may still use the old Travelers Express logo): 1-800-542-3590.

US Postal Money Orders: 1-877-876-2455 (mail fraud) option 4, then go to option 2.

American Express Gift and Travelers Cheques: 1-800-221-7282.

FDIC Alerts on the counterfeit cashier's and official checks in circulation, here. There is a feature that allows you to search them. I would try it by using the name of the institution.

Counterfeit cashier's and official checks change almost daily. The counterfeiters use legitimate account numbers and convincing looking check stock that will verify in most automated telephone verification systems.

It's probably good advice to never trust an automated system. In the case of a counterfeit, real ABA/account numbers are used by the counterfeiters. Because the information is real, they get past an automated verification system fairly easily. If you really want to know and believe an item is a counterfeit, ask to speak to a live person, preferably in the fraud department.

If you are dealing with a suspected counterfeit cashier's, or official check, I highly recommend reading a post I collaborated on with Tom Fragala (CEO of Truston Identity Theft Protection Services):

Counterfeit Cashier's Checks Fuel Internet Crime

Bank employees sometimes verify counterfeit instruments as legitimate. In some instances, especially at a teller window, they have been mistaken. If this occurs, you will be notified days later and the bank will take no responsibility.

Even more alarming, I have talked to and get comments/e-mails from people all the time who are getting arrested after trying to negotiate these items.

Here is what I wrote about this growing phenomenon in a previous post, along with my personal speculation as to why this is happening more frequently:

When the check is discovered to be fraudulent, anywhere from right on the spot to about ten days later the person passing the item is left holding the bag. This can translate into a loss of their freedom (getting arrested), being held financially liable, or a combination of both these consequences.

The real victims can probably blame this new phenomenon on all the criminals, who are pretending to be victims and then cashing the items themselves. Here is how I described this in a recent post, where an International task force discovered millions of dollars (face value) of these items destined to be shipped, worldwide:

A new trend has been noted called reverse-scamming, also. This occurs when scammers have the bogus instruments sent to them, cash them and then never follow the instructions to wire the money.

If confronted, these reverse scammers will normally claim to be victims. A key way to pick out a reverse scammer is that, in most instances they forget to wire the money back to the scammer that sent them the counterfeit instrument.

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