Crackdown On Loyalty Program Scams Shows How Ridiculously Sucessful They Were

from the scam,-scam,-scam dept

It's no secret that there are a bunch of companies out there that trick users into signing up for a regular monthly subscription service that's usually nothing more than an excuse to charge your credit card every month. Many of these are incredibly sneaky, such that many users have no idea they signed up for it until they get their credit card statements. Even worse, many of the "tricks" involve getting legitimate sites to offer these "services" to their users -- and those included Continental Airlines, Classmates.com, Priceline, 1-800-Flowers and many others. The government is finally cracking down on some of these, but its latest investigation -- into just three such services (and there are a bunch more) named Webloyalty, Vertrue and Affinion -- found that those three alone brought in over $1.4 billion. Not surprisingly, the folks who work there know quite well that they're misleading users and tricking them into signing up for stuff they don't want and don't need.

It's a bit surprising, by the way, that the investigation was done by the Senate Committee on Commerce, Science and Transportation, rather than the FTC, who you would think would be in charge of stopping these sorts of activities. Of course, perhaps that's because the FTC has been quite busy with other scammers, such as BlueHippo, who the FTC had already reached an agreement with before and then decided to ignore it. The company basically collected millions from individuals without ever sending the promised computers. At one point, BlueHippo had delivered just one computer. After the FTC started investigating more thoroughly, suddenly BlueHippo found more computers to send, but still wasn't delivering computers to many of the people who qualified.

It's really stunning how many blatant scammers there are out there, who are able to get away with these things for so long.

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Virtual Goods, Scams, Investigative Reporting And The Media

from the all-in-one-package dept

For many years, we've been quite skeptical of any business model in virtual worlds/social networks that rely on "buying virtual goods." That's because these are all based on artificial scarcities, and as we all know (hopefully, by now), relying on artificial scarcities for a business model is incredibly risky, especially once people realize the scarcities are artificial. And yet, over the past few years, a number of businesses have been built on this very premise. In fact, Silicon Valley is crawling these days with businesses built on selling virtual goods, and if you talk to many VCs about it, you'll quickly note that they're positively giddy over the fact that people are paying for this stuff. What they don't seem to realize is that it's unlikely to last.

In the last couple weeks, Mike Arrington, over at TechCrunch, did an amazing job calling attention to the widely known, but rarely discussed in polite company, dark underbelly to most of those business models: quite a large part of their revenue is based on scammy offers that effectively trick unsophisticated purchasers (often kids) into signing up for expensive subscriptions to things they don't want. I was at an investor "roundtable" a couple months ago, which was mostly bankers in suits, and they were laughing about just how gullible people are on these things, and it's great to see TechCrunch exposing them, and pushing the worst abusers to clean up their act. Of course, even when some, like Zynga, claim to be cleaning up their act, Arrington was able to dig up a video where Zynga's CEO proudly talked about the scammy tactics he used -- and then noted that these same scammy tactics showed right back up on Zynga, after the company promised they were gone. Those who use these kinds of tactics may find that while they "bring revenue now," it may be short-lived. Companies that focus on such abusive tactics live to regret it (just ask RealNetworks).

But, the really amazing thing, as pointed out by Dan Lyons/Fake Steve Jobs, in an amazingly un-Fake-Steve-Jobs-like rant, is to compare the series of writeups by Arrington with the love letter to Zynga and other "virtual goods" companies in the NY Times, which came out after most of Arrington's posts, and makes no mention of them at all. As Lyons/FSJ notes:

So: they walked into this shit-storm and somehow, by some miracle, managed not to notice the fecal matter flying all around them. It's like covering a football game that took place in the middle of the blizzard and neglecting to mention the weather.

Now, maybe they did all the reporting before Arrington's stuff broke. In which case they should have gone back and updated their info. Or maybe, just maybe, Zynga's PR people teed up a Times story as a kind of rebuttal to what Arrington was reporting. Either way, that's what ended up happening: Zynga used the Times to deflect the bad shit flying at them from Arrington. They need good press because they're hoping to cash out by going public next year. That story in the Times will be worth millions. Many millions.

Meanwhile, Arrington, still digging, blasted again on Saturday night, reporting that sleazy ads had popped up again on Zynga, despite promises that they would be taken down.

Um, New York Times? If you guys are still wondering why people are dropping their subscriptions and getting their news from blogs instead of you -- this is why.

After which, Lyons/FSJ notes:

And to all those people who go around wringing their hands and saying what are we going to do when the "real newspapers" all die and we have to get our news from Gawker and HuffPo and TechCrunch? Friends, I think we're going to be just fine.... What really cracks me up is how often I still hear people say that bloggers are mere "aggregators" and the "real journalism" gets done at places like the Times. Because time after time, blogs are simply beating the shit out of the newspapers. They're the ones who still dare to go for the throat, while their counterparts at big newspapers just keep reaching for the shrimp cocktail.

Of course, there's just a bit of irony in noting that Dan Lyons wrote one of the quintessential blog bashing articles four years ago, when he was writing for Forbes, at one point suggesting that blogger "journalists" were no different than notorious (NY Times) maker-up-of-stories, Jayson Blair. Nice to see he's coming around to recognizing things perhaps aren't so bad in the blog world.

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Advance Fee Scams Are Based On Greed, So Their New Favorite Target? Lawyers!

from the first-thing,-we... dept

While the "classic" Nigerian 419 "advance fee" scam was based on telling someone they had been awarded/won millions of dollars, which is just held up by bureaucratic problems, a popular variation that's been around for years is buying something online with a bogus check written for significantly more than the amount sold. This scam hit eBay users pretty hard for a while. Basically, it relies on a fundamental misunderstanding of how check processing works. As an example, a check for $10,000 is sent on an item that only costs $2,000, with the buyer asking the seller to send back a check for the difference along with the product. The seller deposits the check and a few days later the bank says that the check "cleared." Banks have to clear the checks in a short period of time. Then the buyer sends off the product and the excess money... only to find out a few days (usually about a week or so) later, that the check is a forgery and the money is gone (along with the product and the legitimate "difference" check that was sent out).

The real issue here is that banks say the check "cleared" which people assume means that the check is legit. But it's not. Fix this problem and this particular scam would disappear overnight.

Of course, most of these scams are based on playing on someone's greed. To brush aside anyone's concerns on these types of deals, sometimes the buyer will ask for only some of the difference back, making the seller think they actually got away with making more money.

But, if you're going to base on a scam on greed, why prey just on small-fry eBay sellers? Why not go after the bigger dogs... like lawyers? You might assume that lawyers would be more sophisticated and not as quick to fall for this sort of thing, but at least with some (and, no, I'm not painting all lawyers with this brush), you'd be wrong. Earlier this year, we wrote about a lawyer who fell for exactly this trick... and then (of course) sued Citibank for letting him make this mistake -- which cost his firm nearly $200,000. Not bad for a simple scam... and thus, it appears that more lawyers are being targeted with just such a scam, even to the point that local bar associations are warning lawyers to watch out for it.

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Nigeria Demands Apology From Sony For Mentioning Nigerian Fraud In A Commercial?

from the really? dept

I have to admit that this story seems so bizarre that I'm not quite sure I believe it. A bunch of folks have been submitting the news that the Nigerian government is apparently so upset by a Sony Playstation commercial that it's demanding an apology from Sony for allegedly "portraying Nigeria as a home of fraud where its citizens hardly do genuine business." Must be quite a commercial right? The only problem is that the commercial does no such thing:

It just mentions, in passing, as a part of the joke of the commercial that "You can't believe everything you read on the Internet. Otherwise I'd be a Nigerian millionaire by now." I don't quite see how that implies that Nigerian citizens hardly do genuine business. It just suggests that there are Nigerian scammers out there -- which is hardly something the government can credibly deny. Hell, there are popular songs in Nigeria all about fleecing dumb Americans in online scams. Honestly, the whole complaint from the Nigerian gov't seems so odd, that it feels like part of Sony's marketing campaign...

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Is It Identity Theft Or A Bank Robbery, Part II: Couple Sues Bank Over Money Taken

from the i've-still-got-my-identity dept

Last month, we posted an amusing discussion (and comedy act) concerning whether or not "identify theft" was really a crime, or if it was really a bank robbery where the bank was passing off the liability for its poor authentication system onto the bank customer. Apparently, just such an argument is already playing out in the courts. Steven Hoy alerts us to a story of a couple who are suing their bank, after someone masquerading as them accessed their account and transferred $26,000 to Austria. The details of the case are a bit complex, but basically, the couple claims that the bank did not live up to basic standards in authentication, and cite the Federal Financial Institutions Examination Council's claim that notes that "single-factor authentication is inadequate and calls on banks to implement two-factor systems." Thus, the argument goes, the fault was the bank's security, and thus, the bank should be liable. The judge found that to be convincing:

"In light of Citizens' apparent delay in complying with FFIEC security standards, a reasonable finder of fact could conclude that the bank breached its duty to protect Plaintiffs' account against fraudulent access.... If this duty not to disclose customer information is to have any weight in the age of online banking, then banks must certainly employ sufficient security measures to protect their customers' online accounts."

Chalk one up for those who believe "identity theft" is actually a "bank robbery."

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Is It ID Theft Or Was The Bank Robbed?

from the which-one-seems-more-accurate dept

Via Clay Shirky, comes a very good point from Kevin Marks concerning claims of "identity theft," where he notes that identity theft is not actually an identity being stolen but is usually a bank/credit card company being robbed and passing off the blame for their own poor security on the victim. He point to a brilliant comedy routine by Mitchell and Webb that makes this all pretty clear:

"They took all the money? That sounds more like a bank robbery."
"No, no. If only. 'Cause we could take the hit. No, no. It was actually your identity that was stolen, primarily. It's a massive pisser for you."
"But, it's actually money that's been taken..."
"Yes"
"From you?"
"Kind of."
"I don't know what you want from me other than my commiserations."
"You see it was your identity. They said they were you!"
"And you believed them?"
"Yes, they stole your identity."
"Well, I don't know. I seem to still have my identity, whereas you seem to have lost several thousands of pounds. In light of that, I'm not sure why you think it was my identity that was stolen instead of your money."

The problem isn't "identity theft." It's bad security and verification processes by a financial institution.

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DJs Buy Their Own Music Online With Stolen Credit Cards To Grab Royalties

from the scheming dept

A group of people in the UK have been arrested after they allegedly put their own music on the iTunes Music Store and Amazon, then purchased it with stolen credit-card numbers. Police say they made 19 tracks and put them up in the shops, then spent about $750,000 on the music, grabbing about $330,000 in royalties from the purchases. It's quite the scam, since one difficulty in stealing credit-card numbers is converting them into cash. One way to do this is to sell the numbers themselves; another common way for people to do this is to take a stolen card, then go buy gift cards from a store with it, then sell the cards on the street at a discount. But selling Wal-Mart gift cards and hawking them on the street seems like an awful lot of work, compared to what a criminal with a computer and some music software can do. Of course, it's not too smart to continually buy the same tracks over and over with 1,500 stolen cards...

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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FTC Cracking Down On Car Warranty Robocall Scammers

from the about-time dept

It was just last week that we questioned why the FTC hadn't been able to track down the scammers behind the "this is the 2nd notice that the warranty on your car is about to expire" robocalls. Apparently, we were just a little anxious. On Thursday, the FTC filed complaints against two of the companies involved in the scam, noting that they were apparently placing 1.8 million calls per day, with no regard for the Do Not Call List. Apparently, the scam has already brought in $10 million from people who were duped, though the FTC is trying to get all that money back.

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Computer Repairman Steals Hard Drive, Tries To Charge Company For 'Retrieving' Data

from the so-close-yet-so-far dept

It's widely known that internal staff are the biggest threat to IT security, but what about your computer repairman? After a hard drive was stolen from Real Living Action Realty in Pennsylvania, the company called Kevin Andrew Lutes, who had done repair work for them in the past, to fix the machine. He told them he could retrieve the files, but the owner later called the computer manufacturer and learned that it's impossible to do this... without the hard drive. Oh, and the police learned that Lutes' car -- computer repair sticker and all -- was spotted outside the office on the night of the break-in. When he returned a few days later with the stolen hard drive back inside the computer and tried to charge the company $2000 for the "repair," Lutes was arrested and charged with theft. You'd think that with potential access to the machine, he could have done something a little more subtle or sinister, but, lucky for the company, their repairman turned out to be a pretty dumb criminal. Someone should let him know that basing a business model on artificial scarcity is a bad idea...

Blaise Alleyne is an expert at the Insight Community. To get insight and analysis from Blaise Alleyne and other experts on challenges your company faces, click here.

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No, The FBI Isn't Gunning For The Business of Mailboxes Etc.

from the stupidity-reigns dept

A note to all the stupid criminals out there: when making a purchase with a forged check, you're probably better off not using your local FBI office as the delivery point for the goods you're trying to scam. That's what a mastermind in Monroe, La., did recently, giving the feds' address for a shipment of cell phones he wanted to receive. The firm he "bought" the phones from noticed something fishy when the guy paid with a "cahier's check" (as opposed to a cashier's check), and they called the authorities, who later found the guy trying to flag down a delivery driver outside the FBI office. Sometimes, you have to wonder, do these people just want to get caught?

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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The Rise Of Corporate Identity Fraud

from the expect-to-see-more-and-more... dept

A few years ago, we wrote about the odd (and somewhat amusing) case of a group of fraudsters in China who didn't just build knockoff NEC products, but created an entirely fake version of NEC in China. Yes, they set themselves up as if they were a legitimate division of NEC, but had nothing to do with the company (other than producing knockoff NEC gear). That was corporate identity fraud taken to an extreme level, but it seems like others are starting to jump into corporate identify fraud in a way quite similar to personal identify fraud. Michael Scott points us to a story about some scammers in West Virginia who took on the identity of various vendors to the state, and were able to scam $2 million out of the state before the scam was exposed. While the article calls this a "rare" occurrence, I'd be willing to bet that it's going to become a lot more common. For scammers looking for a big score, taking on a corporate identity rather than an individual's seems likely to get you into higher dollar amounts much more quickly...

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Reddit Community Discovers Phone Numbers To Reach Car Warranty Telemarketers...

from the poetic-justice? dept

Pretty much everyone is getting those telemarketing scam car warranty calls these days. They're the ones that start out "this is the second warning that the factory warranty on your car is about to expire...." Of course, it's not the second warning (in some cases it's the 100th) and it doesn't matter if your car warranty is about to expire or even if you own a car. They just call everyone. Last summer, the FTC announced that (partly in response to those calls), all prerecorded telemarketing calls were banned. But, considering these guys are scammers, that wasn't going to stop them. It looks like the folks over at Reddit got fed up and social engineered the phone numbers of the company out of a rep, and then the community just started calling repeatedly, overwhelming the company's phone lines. Of course, while it certainly has that poetic justice feel to it, it won't stop them. They'll change their phone number and get right back to it. What's not clear is why the Reddit folks could track down who was responsible while the FTC has been unable to do so...

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Merck And Elsevier Exposed For Creating Fake Peer Review Journal

from the wow dept

I know I've mentioned for a while that I've been spending a lot of time looking into the healthcare industry -- particularly pharmaceutical companies, but haven't written that much about them yet because I haven't had the time to put everything together. However, the one thing that seems pretty consistent is how incredibly untrustworthy some of these companies are. The claims that it costs $800 million to make a pill are totally unsubstantiated. The idea that patents are necessary to create drugs is also entirely unsubstantiated. The more you look at it, the more you realize that patents have actually allowed the pharma industry to slow down many potential life-saving innovations in favor of a drug-based solution that isn't always the best. That isn't to say that there aren't some valuable pharmaceuticals, but the industry has a long history of deception and convincing the public and politicians that they need a lot more protection and money than they really do -- and that their drugs are more effective than they really are.

Even so, I was still somewhat stunned to read (via Clay Shirky) that Merck supposedly created a fake peer-reviewed journal to publish data that made its drugs look good. It also got Elsevier to publish the journal to make it look legit (Elsevier being one of the bigger publishers of -- of course -- proprietary medical journals). Two companies with a history of locking up information and data teaming up to mislead doctors and the public? What a shock...

Of course, this is exactly the sort of thing that you can do when everything is locked up and proprietary, rather than open. There's almost no way to confirm or check the data or information to make sure it's legit, so people tend to assume it is. In that regard, perhaps it's no surprise that the two companies eventually went down this road, but it does highlight one of the problems with the way the system works today. As Shirky later points out this is hardly unique for a firm like Elsevier, which has faced some serious ethical questions regarding its publications in the past as well.

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As Long As People Keep Buying, Scams (and Spam) Will Keep On Coming

from the pt-barnum dept

It looks like if anything is going to be able to effectively stop spam, it might be pressure on spammers' profit margins that makes spamming a less attractive line of work. But that still seems a ways off, as long as enough people continue to buy the stuff being sold in spam messages. Spammers know if they can reach a high enough volume, they'll find enough suckers to make it worthwhile. Scareware, too, is a volume business: a new report looked at a recent scam in which users were sent to booby-trapped web sites which said their computers had a virus. They were then directed to a site selling them some $50 "anti-virus" software. While a small percentage of people actually ponied up the cash, enough did to allow the scammers to pay more than $10,000 per day to the people who used SEO techniques on keyword typos to drive marks into the scam. It's easy to say that people shouldn't be so stupid and fall for the scams, but at the same time, perhaps a bigger issue lurks for the legitimate security software industry: if people can't distinguish between legitimate warnings from their products and scams, it could be a problem for them.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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Office Depot Employees Blowing The Whistle On Outright Scams

from the reputation-is-a-scarce-good dept

For many years, there have been stories of various shady online electronics (especially camera) retailers (many of whom are based in the same neighborhood in Brooklyn). The main scam is to offer super cheap prices on cameras to get you "in the door" (either online or in person), and then focus on trying to sell you all sorts of massively over-priced add-ons and warranties. If you turn them down, they suddenly "discover" that the original product you ordered is out-of-stock. At times, over the years, various authorities have cracked down on such resellers, though they often pop right back up under a different name.

Still, folks who know the business were well aware of such shady companies and often knew to avoid them... but it's a bit different to find out that some large brand name retailers appear to be doing the same. Laptop Magazine is reporting on a series of whistle-blowing employees at Office Depot, detailing how they pulled off similar scams. The typical "oh, that's out of stock" trick is apparently quite common, but it even gets more advanced, with some employees creating photoshopped price signs, in order to "hide" the price of an expensive warranty add-on in the "list price" for a computer. These practices are quite illegal, and it looks like the report might trigger some FTC interest, especially given the multiple reports, suggesting that this isn't just a few rogue employees.

It does make you wonder what Office Depot was thinking. The obvious answer is: "anything for a sale," but that doesn't tell the whole story. Sooner or later, companies that do this sort of thing are going to get caught -- and when that happens (beyond the fines), the damage to a company's reputation can be massive and debilitating. It just seems like the cost of being outed is so high, it's ridiculous that any company would encourage such behavior.

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Porn Shakedown Company Takes Its Business Model And Moves On

from the good-riddance dept

Last year, a company called Platte Media came to light in the UK, after it started running a slightly bizarre spyware extortion scheme. The company would suck users in with a site promising licensed blockbuster movies, then take users through a registration process that involved installing some adware on their PCs. It didn't actually have the movies, just some trailers, and drove users to pornographic content. If users didn't cancel the "trial" they'd unwittingly agreed to in the process, they'd start getting popups on their screen, demanding payment of subscription fees. But the company has now shut up shop in the UK, though it's not clear if it's because the company wasn't properly paying taxes or because of scrutiny from the country's Office of Fair Trading. The company says it's pulled out for business reasons, but nobody will likely care too much, as long as it just goes away.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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Scamming Looks Like A Growth Industry In These Economic Times

from the jobseeker-beware dept

Scammers look they're being stimulated by the government's stimulus plan, and it seems likely that they're finding plenty of marks in these gloomy economic times. For instance, fake job ads that are fronts for identity theft are up 345% over the last three years. It wouldn't be a stretch to think they'll become even more common, as more and more people start searching for jobs -- and their desperation leads them to lower their defenses in hopes of landing employment.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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ATM Hackers Caught Following Car Chase And Gun Shots

from the just-like-the-movies dept

A few years back, there were some stories about how some scammers had found online manuals for popular ATMs, which included a default password, which was rarely changed (yes, that's an amazingly stupid design). This meant that it was fairly easy to program the ATM to believe that it held different denomination bills. For example, you could program it to think that it held $5 bills when it actually held $20s -- and then if you took out "$40" you would be given 8 bills -- or $160. Not surprisingly, other hackers have replicated this scam a bunch of times -- aided in large part by ATM owners who still haven't changed the default password.

Still, if you were a scammer pulling such a scam, you might think that it would make sense not to pull it at the same store multiple times. But, that's exactly what two guys did last year, where they tried to hit a local restaurant's ATM for the fourth time. By that point, the manager had been alerted to look out for them, and called the police on them when they came in again. There was a bit of a mess after that, as the manager tried to pull a gun on the scammers, and there was some sort of scuffle, a gunshot, and then a car chase... but eventually the guys were arrested. So, once again: ATM makers: stop offering machines with default passwords. ATM owners: change the default password on your machines. Scammers: don't be so dumb as to try to rip off the same place multiple times (or, maybe that's what we want, since it makes them easier to catch... but it's still dumb).

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The Stimulus Package Appears To Be Stimulating Scammers...

from the they-wanted-job-creation... dept

This probably isn't much of a surprise for most folks, but scammers have wasted no time at all in using news about the massive government stimulus plan to try to trick suckers into various scams. Many of these are scams trying to get people to sign up to pay a "fee" to find out how they can get their "stimulus check" even though the stimulus program isn't sending out checks to individuals. Expect to see plenty more similar scams as well.

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DEAR CITIBANK: I WOULD LIKE REQUEST TO YOU HELP IN SECURING 27 MILLION DOLLARS US

from the writes-itself dept

As the US government looks to take over a bigger chunk of Citibank, you might wonder what the bank has been doing with its money lately. Apparently, part of it was going to a slightly more ambitious than usual Nigerian 419 scam. The scammer and some colleagues tricked Citibank into believing they represented the National Bank of Ethiopia, that country's central bank -- and convinced Citibank to then transfer $27 million to accounts they controlled. It doesn't sound like the scam actually worked in the end -- as questions arose, and the receiving banks transferred the money back eventually. Also, the supposed mastermind behind the scam has now been arrested. But, apparently, 419 scammers have figured out that, given how well various banks have managed their money over the last few years, they're just as good as targets, compared to clueless spam recipients.

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