FTC Alleges $10 Million Fraud Scheme

Fraudsters Said to Have Pilfered 1 Million Consumer Accounts
FTC Alleges $10 Million Fraud Scheme
The Federal Trade Commission (FTC) says it has stopped a $10 million international scheme that was siphoning off small amounts from more than 1 million credit and debit card holders.

On June 28, the FTC announced a federal court order to stop the elaborate scheme that allegedly used identity theft to place more than $10 million in fraudulent charges on consumers' cards. The FTC says that consumers were hit with one-time charges of $10 or less, and then their payments were routed through fake corporations here in the U.S. to Eastern European and Central Asia bank accounts. The operation used an expansive network of money mules to move the money overseas.

This case comes only eight months after the FDIC alerted financial institutions to be on the lookout for money mules operating out of the U.S.

Named as defendants are the 16 sham companies and one or more persons who are unknown to the agency at this time. The FTC charged them with making unauthorized charges to consumers' credit cards in violation of Section 5 of the FTC Act. The court ordered the defendants' assets be frozen and for the organizations to stop operating, pending a final hearing.

According to FTC court filings, the defendants used phony company names resembling real companies, and information taken from identity theft victims in the United States to open more than 100 merchant accounts with companies that process charges to consumers' credit and debit card accounts. The FTC says it believes the defendants may have run credit checks on the identity theft victims first, to be sure they were creditworthy. The accused scammers also cloaked each fake merchant with a virtual office address near a real merchant's location, a phone number, a home phone number for the "owner," a web site pretending to sell products, a toll-free number consumers could call, and a real company's tax number found on the Internet.

The FTC alleges the scammers used spam email to recruit at least 14 money mules. These people were in the United States and were paid to form 16 dummy corporations, open associated bank accounts to receive the card payments, then transfer the money overseas. The scammers used debit cards linked to these bank accounts to set up telephone service, virtual addresses and web sites that helped deceive the card processors, states the FTC's complaint.

The 14 money mules were duped into responding to spam email pretending to seek a U.S. finance manager for an international financial services company. The FTC says it hasn't determined how the defendants obtained the stolen identities or consumers' credit and debit account numbers. Payments were sent to bank accounts in Lithuania, Estonia, Latvia, Bulgaria, Cyprus, and Kyrgyzstan. Security expert Uri Rivner says that most times the unwitting money mules don't realize they are part of a money laundering ring until their bank or law enforcement agencies contact them. In cases like this typically, money mules are recruited, "given some story, receive money transfers, take the money out and wire it internationally to a money drop," he says. "Then the money goes to the real criminals."

The FTC says no consumers affected by the scam had contact with any of the accused scammers. Most either didn't notice the charges on their bills or didn't seek chargebacks because of the small amounts - charges ranged from 20 cents to $10. Consumers who called the toll-free numbers that appeared on their bills either found them disconnected or heard recordings instructing them to leave a message.

Linda McGlasson, Managing Editor, contributed to this report.

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