Not Just Websites:
Scam Artists have been around for centuries.
Years have passed and new technology has emerged
And so have a new breed of con artist;
A wise man once said
"money is the root of all evil"
could this be one of the things he was referring to?
THE ONLINE FRAUDSTER.
Utilizing various aspects and tools of the Internet,
the online fraudster has become more successful
then ever in defrauding a large target audience.
So successful, that the issue has been the
subject of much concern in recent years.
Online fraud is still continuing to thrive.
As long as the fraudster is motivated by greed and able
to deceive others, fraud will always be in existence.
This report will closely examine the emergence
of the fraudster into cyberspace.
It will discuss what tactics and methods
the online fraudster utilizes in his/her attempts to
successfully deceive others.
Furthermore, it will provide a profile of those individuals.
Lastly, several conclusions will be drawn
regarding Internet fraud.
THE VENTURE INTO CYBERSPACE
Imagine a medium in which information or ideas
can be passed on to a large audience of individuals
in a relatively short period of time.
If you haven't been living under a rock in recent years,
you would know that such a thought is in fact reality.
The Internet, has now found its way into
the commercial and private sectors of countries around the globe.
The number of net users increases greatly with the passing of each day.
As the population of people on the Internet continually grows,
so do the potential threats and vulnerabilities associated with it.
The Internet can provide a wealth of information.
However, it can also be viewed as a breeding ground for fraud.
What is Internet Fraud?
The F.B.I. defines Internet fraud as
"any fraudulent scheme in which one or more components of the Internet,
such as Web sites, chat rooms and e-mail, play a significant role
in offering nonexistent goods or services to consumers,
communicating false or fraudulent representations about the
schemes to consumers, or transferring victim's funds,
access devices or other items of value to the control of the scheme's perpetrator".
Just think, the Internet has made things so much easier for the fraudster.
No longer is there a need to rent office space,
hire employees and spend countless hours on a telephone pitching to targeted audiences.
Time and funding have been reduced significantly.
As a result, the Internet looks extremely attractive.
Furthermore, with the usefulness,
popularity and global reach of the Internet continuously growing,
it doesn't take much to try and understand why fraudsters
are venturing off into cyberspace.
Who Are They? / What is Their Motive?
So, who are these online fraudsters?
fraudsters are individuals "who defraud others".
Fraudsters have been around for centuries.
"throughout the centuries, people have committed frauds of all
sorts in order to gain, through taking advantage of others".
Virtual scam-artists are similar to the traditional scam artists
in the real world. Their fundamental motive is greed.
However, there is one distinct difference; they utilize
a completely different medium/environment in their mission to
ultimately accomplish their goal of successfully deceiving others.
The typical traditional fraudster starts his/her venture
off in a similar manner to that of a business entrepreneur.
In regards to financing his/her operation,
To get up and running a relatively small amount of money is required.
As little as one individual to as many as twenty staff
can operate a typical operation. Some operations can be
small and generally done on one's spare time,
while others may involve full time work.
No matter how sophisticated the operation may be, each fraudster
must rely on his/her ability and motivation
to find the weaknesses of their target audiences and exploit them out of greed.
During the months of May 2000 through November 2000
an extensive study to help address the issue of fraud
committed through the Internet was undertaken.
In this study, a thorough and complete data list was compiled,
which allowed a general profile of a typical online fraudster to be made.
According to the study, the data suggests that
individuals who are involved in fraudulent activities
via the Internet are generally,
individuals and not businesses.
Furthermore, these individuals are predominantly males
residing in largely populated states.
The data also suggests that these individuals have
diversified international backgrounds with representation
in the United States, Eastern Europe and Canada.
In a recent article relating to the emergence of Internet fraud
stemming from the recent terrorist attacks on
the World Trade Center and the Pentagon
(fake donation funds,etc.)started to pop up,
an official at Britain's National Criminal Intelligence Service
(NCIS) stated "fraudsters
typically exploit human misery, so they invariably create human misery.
They are without scruples because this is how they make money.
It is very grubby money".
There is a saying: "another day, another dollar".
If there is a dollar to be made,
the fraudster will do whatever it takes to make it.
Fraud Exists in Various Corners of Cyberspace
The Internet has allowed for people thousands of miles away
to communicate with one another in real time.
The most dominant forms of communication over the Internet are
electronic mail, newsgroups, Usenet, "chat" rooms,
Internet relay chats, list serves.
Types of Online Scams Used by Fraudsters:
Bulletin boards also serve as major mediums of communication.
Electronic mail is of great use to online fraudsters.
In literally a few minutes,
an online fraudster can create a personalized email
and send it to thousands of individuals in his/her target audience.
Using e-mail to accomplish such a task is known as "spamming".
The fraudster knows that many people will simply delete the e-mail
once it arrives.
However, it is also likely that many will be made curious
by the subject heading of the e-mail message,
and therefore click the message to read on.
The people who do open the message,
a small percentage just may fall into the fraudster's trap.
have also proven useful to online fraudsters.
Bulletin boards are a typically the location where
many individuals exchange information with one another.
Many online fraudsters utilize message boards.
Offering schemes to subscribers/browsers of such boards.
Fraudsters, who target
securities investors for example,
utilize the message boards to pass on bogus
"inside" information on certain stocks or corporations.
Many fraudsters prefer this medium because it adds the benefit
of them being able to easily hide their true identities with the
use of aliases. Using multiple aliases,
a fraudster can make it seem as though many people
share the same opinions or have the same
"inside" information that the fraudster does.
According to a study released in May 2001.
Internet auction fraud makes up a majority (64%) of all online fraud.
Internet auction houses have become extremely popular in recent years.
An online auction is very similar to a real life auction.
The only differences in an online auction are that the auction
has a global reach and that there is no need to have an
auction house with limited seating.
On the Internet, it is quite possible to have multiple bidders and
millions of potential bidders for a specific item. It's a great concept;
however, there are multiple reasons, why
Internet auction fraud is the number one type of online fraud.
According to the May 2001 study "Internet auction fraud involves "nondelivery,
misrepresentation, triangulation fee stacking, black market goods,
multiple bidding and shill bidding".
In regards to
"non-delivery",this type of fraud involves
having an auction on an item that does not exist.
Misrepresentation results when the seller deceives the potential buyers.
Essentially the seller lists false values and conditions for the items up for bid.
Triangulation involves the selling of an item (by the perpetrator)
using fake identities and payment information to a bidder at an online
auction web site.
The winning bidder and online merchant are later questioned as to how
they came across the stolen merchandise.
In regards to Fee stacking, this type of fraud
involves the tacking on of extra fees
by the seller after the auction closes.
Black-market goods are another type of Internet auction fraud.
Black market goods are generally
goods that are shipped to the winning bidder without a box,
instructions or manufacturer's warranty.
Occurs when the buyer places multiple bids
for the same item using different aliases.
Once the other potential bidders have lost
interest and the auction is coming to a close,
the high bids are withdrawn and the item is won at a lower bid.
the seller, using different aliases/or with the help of associates,
bids on the item, which results in driving the price of the item up.
It is estimated that in the year 2000, auction customers lost $4 million.
Over 1.3 million transactions take place daily on online auction sites.
Online investment fraud is a type of Internet fraud,
which is becoming all too common.
Many brokerage houses/firms are providing clientele with great incentives to
manage their accounts online.
Furthermore, a countless number of websites have popped
up within recent years that offer financial advice.
Although a majority of these websites
offer reliable news and advice on specific stocks and corporations,
the web user should be weary.
In a recent study conducted by ABCNews.com, it was found that seven million
Americans used the Internet to trade investments.
This figure suggests that approximately twenty five percent of all
investment trades made by individual investors take place online.
That number is astounding. It is no wonder why many fraudsters prey on those
individuals who manager their investment portfolios via the Internet.
There are several different tactics that the fraudster can employ
when attempting to commit investment fraud.
Typically fraudsters generate and distribute online newsletters.
Such newsletters, which are commonly found on web sites,
bulletin boards or via e-mail,
often carry no subscription fee and offer the online investor
valuable information about specific stocks/corporations.
Many of these online newsletters are in fact legitimate.
It is known that many corporations legally pay individuals
to create and distribute newsletters promoting their companies.
The newsletters are legitimate as long as the company files
that such a newsletter has been made, who created it,
how much they were paid, and to whom it was distributed.
At any given time there may be hundreds of thousands of
newsletters of the sort floating around cyberspace.
However, it is often difficult for the average web
surfer/individual online investor to determine the legitimacy of
the information provided in the newsletters.
If the fraudster spends a little time and effort in developing the
newsletter and making it appealing to the human eye,
he may just be successful in deceiving some of those in his targeted audience.
Based on the information they obtain from such newsletters,
many individual investors may chose to either buy or sell a
particular stock featured in the newsletter.
It doesn't take a genius to realize that a
fraudster can profit considerably from either
investing or selling the stocks he/she features in his/her newsletters.
Many fraudsters are also turning to message boards
to obtain financial information.
Many websites feature message boards, company information and real time
quotes on companies trading on the NYSE or NASDQ stock market exchanges.
The most popular website of this sort is Yahoo! Financial.
To gain access to such information it only takes a
few keystrokes necessary to enter in the URL of the web site
into the web browser. Information is then at your fingertips.
One can easily view all the information about a particular corporation
or its stock history. The web surfer can view anything from
the latest real time quotes, company news, and press releases
to even the most recent trades made by top executives in that specific corporation.
If one wants to be able to post any information on the message board
of a particular stock a simple registration process needs to be completed.
No information needs to be verified to obtain the user ID and
password necessary to gain full access to the boards.
A few simple questions and a fraudster can be just moments away
from posting a message to his/her targeted audience.
If the fraudster wants to make even more of a statement
about a particular stock or corporation he/she intends to focus on,
it only takes a few more minutes of his/her time to generate more accounts/aliases.
Fraudsters interested in committing investment fraud via the Internet are finding their
way into live chat rooms. It is here where fraudsters can engage in real-time
conversations with individuals who are interested in investing.
Through the use of such chat rooms,
fraudsters can easily relay information to those individuals in the
chat room he/she intends to deceive.
Chat rooms can be a great tool for the online fraudster.
Not only can he/she engage in real-time conversation with his/her target
audience, he/she can also hide his/her identity through the use of aliases as well.
There are several categories of Internet Investment fraud. One of the common is
known as the pump and dump scam.
In such a scam, the fraudster creates in his/her
intended target's mind the need to either buy or sell a stock immediately.
Usually the fraudster creates newsletters or posts on message boards
claiming knowledge of inside information on a particular stock.
In reality, this is just a neat little game the fraudsters
play to reel their victims in. The fraudsters who typically own shares of stock in this
company want others who are gullible to buy the stock.
In a sense, by promoting a stock, the fraudster is engaged in the
pumping aspect of the scheme. Once the stock price has increased,
the fraudster will then decide to sell or dump the stock. As a result,
the gullible investors lose money,
while the clever fraudster may profit enormously from the scheme.
The fraudster may also employee this type of scheme if he/she wants to merely
affect a corporation's stock price out of spite.
Fraudsters frequently use this ploy with small,
thinly-traded companies because it's easy to manipulate a stock when there's
little or no information available about the company.
Common schemes employed by fraudsters targeting online investors
are those that fall into the following categories:
the pyramid, risk free fraud and off shore frauds.
The pyramid is a commonly used tactic.
Risk free fraud involves investment opportunities associated
with selling too good to be true investments. Usually,
such deals are offered via the Internet and it doesn't
take much money or effort for the individual investor
(the fraudster's gullible target) to become involved.
It is not uncommon for the investment and so called
unbelievable opportunity to be non-existent.
Offshore fraud, this type of fraud, involves investments in
overseas countries or markets.
With the use of the Internet,
previous barriers have been eliminated.
However, these investments are particularly risky because
they are ventures into areas outside of your own Country and they become
difficult to investigate if the investor suspects fraud.
Online fraudsters have many ways of using the Internet
to put their plan to deceive others into action.
We have seen how the various aspects of the Internet are used.
Now, we will examine just how these online "tools"
help the fraudster accomplish his/her goals.
Pyramid schemes are gaining tremendous popularity
amongst fraudsters. Essentially, a pyramid scheme is "a fraudulent system of making
money, which requires an endless stream of recruiters for success.
Recruits (a) give money to the recruiters
and (b) enlist fresh recruits to give them money".
One may think that such a system is legal. However,
the opposite is true.
In fact, "the result of such a scheme is inevitable:
at best a few people walk away with a lot of money,
while most recruits lose whatever money they put into the scheme.
The only way anybody can make money through a pyramid scheme is if
people are defrauded into giving money upon a promise of getting
something in return when it is impossible for them
to get anything at all in return.
That is to say, in plain English, schemes such as these always constitute fraud".
Online fraud can encompass a wide range of categories.
According to Internet Fraud Watch statistics compiled for the year 2000,
the top 10 forms of Internet Fraud are:
online auctions (78%), general merchandise sales (10%), Internet Access Services (3%),
Work-At-Home (2%), Advance Fee Loans (2%), Computer Equipment/Software (2%),
Nigerian Money Orders (1%), Information Adult Services (1%),
Credit Card Offers (0.5%) and Travel/Vacations (0.5%).
A Profile of the Victims
The results of a Six Month Data Trends Report, conducted in the year 2000,
allowed for a profile of a typical online fraud complainant.
The results of the report concluded that the typical complainant was generally
an individual who is male
and between the ages of 20 and 35.
It was found that a majority of the complainants
reside in the United States, Canada and the United Kingdom.
The results of the report show that a majority of
the complainants from the United States reside in
California,Washington,Florida and New York.
Never invest based solely on bulletin board postings or an online newsletter,
look for key phrases, take your time on proposed opportunities,
Always find review sites and read if and how they have been tested
Be wary of international opportunities,
The virtual cyber scammer is really no different then
the traditional scam artist of the real world.
the online scam artist has many advantages over the traditional
The online scam artist can target a tremendously large audience
without ever having to come into physical contact with
those he/she plans to deceive.
Furthermore, the online scam artist doesn't need much time,
effort or money to reach his/her intended audience.
It may take only fifteen minutes or so for the
online fraudster to compose and send
a customized email message to thousands of people.
It would take months if not more,
for the traditional scam artist to accomplish such a task.
This is just one reason why many fraudsters are making their way into cyberspace.
Not only is it easy for cyber scammers to deceive others online.
It is also easy for them to cover their tracks.
With the use of aliases and such they can hide their identity
and location it makes it less likely for the fraudster to get caught;
why would anyone want to pick, another profession?
With the introduction of review sites
it is now a little easier to find genuine offers.
Although there seems like a lot of progress has been made in
attempting to combat Internet fraud, more has to be done.
Internet fraud exists now, and it will continue to thrive well into the future.
There will always be those who because of greed,
want to defraud others.
It is a known fact that fraudsters have been around since
the beginning of mankind.
There will always be those who will,
through human nature, fall victim to fraudsters.
Therefore, the issue can never be resolved it can only be addressed.
The best way to address the issue is by informing and educating others on the issue.
Through education comes knowledge. From knowledge comes understanding.
If one understands then one is less likely to be a victim.
I truly hope this makes people aware of the many scams out there,
always try and locate a good review site before you buy your product
as review site owners will not usually allow any product on there site that
has not been tested or researched in one way or another.
If you cant find a good review site
research the company as much as possible or the owner of the product you want to buy.
Buying well-known products on the web is always a good place to start
believe it or not reputation does mean a lot on the web.
Good luck in your future.
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