IDENTITY THEFT
IDENTITY THEFT is the assumption of a person’s
identity in order, for instance, to obtain credit;
to obtain credit cards from banks and retailers;
to steal money from existing accounts; to rent
apartments or storage units; to apply for loans;
or to establish accounts using another’s name.
An identity thief can steal thousands of dollars
in a victim’s name without the victim even
knowing about it for months or years. Identity
thieves are able to accomplish their crimes by
doing things such as opening a new credit card
account with a false address, or using the vic-
tims’s name, date of birth, and SOCIAL SECURITY
number.When the thief uses the credit card and
does not pay the resulting bills, the delinquent
account is reported on the victim’s credit report.
As increasing numbers of businesses and
consumers rely on the INTERNET and other
forms of electronic communication to conduct
transactions, so too is illegal activity using the
very same media on the rise. Fraudulent
schemes conducted via the Internet are generally
difficult to trace and to prosecute, and they cost
individuals and businesses millions of dollars
each year.
According to a JUSTICE DEPARTMENT web
site devoted to the topic, INTERNET FRAUD refers
to any type of scheme in which one or more
Internet elements are employed in order to put
forth “fraudulent solicitations to prospective vic-
tims, to conduct fraudulent transactions, or to
transmit the proceeds of FRAUD to financial
institutions or to others connected with the
scheme.” As pointed out in a report prepared by
the National White Collar Crime Center and the
FEDERAL BUREAU OF INVESTIGATION (FBI),
“The Internet Fraud Complaint Center (IFCC)
2001 Internet Fraud Report: January 1, 2001–
December 31, 2001,” major categories of Inter-
net fraud include, but are not limited to, auction
or retail fraud, SECURITIES fraud, and identity
theft.
Securities fraud, also called investment
fraud, involves the offer of bogus stocks or high-
return investment opportunities, market
manipulation schemes, pyramid and Ponzi
schemes, or other “get rich quick” offerings.
In its May 2002 issue, Internet Scambusters
cited a study by GartnerG2 showing that online
merchants lost $700 million to Internet fraud in
2001. By comparison, the report showed that
“online fraud losses were 19 times as high as
offline fraud.” In fact, the study pointed out that
323
Iin the same year more than 5 percent of those
who made purchases via the Internet became
victims of credit card fraud.
The IFCC, in its 2001 Internet fraud report,
released statistics of complaints that had been
received and then referred to law enforcement or
regulatory agencies for action. For the 12-month
period covered by the report, the IFCC received
over 17 million inquiries to its web site, with
nearly 50,000 formal complaints lodged. It must
be noted, however, that the number of com-
plaints included reports of computer intrusions
and unsolicited CHILD PORNOGRAPHY.
Significant findings in the report revealed
that Internet auction fraud was the most
reported offense, comprising 42.8 percent of
referred complaints. Besides those mentioned
above, top fraud complaints also involved non-
delivery of merchandise or payment, credit/
debit card fraud, and confidence fraud.While it
may seem easy to dismiss these concerns as
obvious, the schemes to defraud customers of
money or valuable information have become
increasingly sophisticated and less discernible to
the unsuspecting consumer.
The “IFCC 2001 Internet Report” revealed
that 81 percent of those committing acts of
fraud were believed to be male, and that nearly
76 percent of those allegedly involved in acts of
fraud were individuals. According to the report,
California, Texas, Florida, New York, and Illinois
were the states in which half of the perpetrators
resided. The report also provided a shocking
example of just how difficult a task tracking
down those involved in Internet fraud can be.
According to the report, out of the more than
1,800 investigations initiated from complaints
during 2001, only three arrests were made.
One example of the growing sophistication
of Internet fraud cases can be seen in a 1997 case
brought by the FEDERAL TRADE COMMISSION
(FTC). FTC v. Audiotex Connection, Inc., CV-97
0726 (E.D.N.Y.), specifically concerned a scam
in which Internet consumers were invited to
view or to access free computer images. As
reported in a February 10, 1998, FTC statement
made before a Senate Subcommittee on Investi-
gations of the Governmental Affairs Committee,
when viewers attempted to access the images,
their computer modems were surreptitiously
disconnected from their local Internet Service
Providers (ISPs) and were reconnected to the
Internet through defendants’ expensive interna-
tional modem connections. Exorbitantly priced
long-distance telephone charges continued to
ACCRUE until the consumer turned off the com-
puter, even if he or she had exited the defen-
dants’ web site and moved elsewhere on the
Internet. Approximately 38,000 consumers fell
for this scam, losing a collective $2.74 million
A U.S. Department of Justice web site that
addresses the major types of Internet fraud
reported the following examples of illegal activ-
ity carried out using the medium.
Two separate Los Angeles cases demonstrate
the intricacies of securities fraud and market
manipulation. In the first case, defendants
bought 130,000 shares of bogus stock in NEI
Webworld, Inc., a bankrupt company whose
assets had been liquidated. Defendants in the
case then posted E-MAIL messages on various
Internet bulletin boards, claiming that NEI was
being acquired by a wireless TELECOMMUNICA-
TIONS company.Within 45 minutes of the post-
ing, shares increased from $8 to $15 each, during
which time defendants “cashed out.” The
remaining stock was worth 25 cents per share
within a 30-minute period. The second example
involves a case in which an employee of Pair-
Gain Technologies set up a fraudulent
Bloomberg News web site and reported false
information regarding the company’s purchase
by a foreign company. The employee then
posted bogus E-mail messages on financial news
bulletin boards that caused a 30 percent manip-
ulation of PairGain stock prices within hours.
In another example of investment fraud,
perpetrators used the Internet, along with tele-
marketing techniques, to mislead more than
3,000 victims into investing almost $50 million
in fraudulent “‘general partnerships’ involving
purported ‘high-tech’ investments, such as an
Internet shopping mall and Internet access
providers.”
More than 100 U.S. military officers were
involved in a case of identity theft. Defendants
in the case illegally acquired the names and
social security numbers of the military person-
nel from a web site, then used the Internet to
apply for credit cards issued by a Delaware bank.
In another case of identity theft and fraud, a
defendant stole personal information from the
web site of a federal agency, and then used the
information to make applications for an online
auto loan through a Florida bank.
Finally, the Department of Justice web site
gives an example of a widely reported version of
credit card fraud. In the elaborate scheme, a per-
petrator offers Internet consumers expensive
electronics items, such as video cameras, at
extremely low prices. As an incentive, they tell
consumers that the item will ship before payment
is finalized.When terms are agreed to, the perpe-
trator uses the consumer’s name and address, but
another party’s illegally obtained credit card
number, to purchase the item through a legiti-
mate online vendor. Once the consumer has
received the item, he or she authorizes credit card
payment to the perpetrator. In the meantime,
when the credit card holder, whose card number
was used to purchase the item, stops payment on
the unauthorized order, the vendor attempts to
reclaim the merchandise from the consumer. The
defrauded consumer, the victim of the credit card
theft, and the merchant usually have no simple
means of redress, because by the time they catch
on, the perpetrator has usually transferred funds
into untraceable accounts.
In October 1998, Congress passed the Iden-
tity Theft and Assumption Deterrence Act of
1998 (Identity Theft Act) 18 U.S.C. § 1028 to
address the problem of identity theft. Specifi-
cally, the Act amended 18 U.S.C. § 1028 to make
it a federal crime when anyone: knowingly
transfers or uses, without lawful authority, a
means of identification of another person with
the intent to commit, or to aid or abet, any
unlawful activity that constitutes a violation of
federal law, or that constitutes a felony under
any applicable State or local law. Violations of
the act are investigated by federal investigative
agencies such as the U.S. SECRET SERVICE, the
FBI, and the U.S. Postal Inspection Service and
are prosecuted by the Department of Justice.
The Federal Trade Commission (FTC) is the
federal clearinghouse for complaints by victims
of identity theft. Although the FTC does not
have the authority to bring criminal cases, it
assists victims of identity theft by providing
them with information to help them to resolve
the financial and other problems that can result
from identity theft. The FTC also may refer vic-
tim complaints to other appropriate govern-
ment agencies and private organizations for
further action.
Consumers can protect themselves from this
type of crime by protecting information such as
credit card and social security numbers and by
shredding mailed offers to obtain credit. They
also can check their credit reports for unknown
accounts. In the event of identify theft, an alert
can be placed on a credit bureau that notifies
consumers of potential fraudulent activity. Con-
sumers who are victims can also write a state-
ment that will appear on their credit reports
explaining the criminal activity.Most banks and
major credit card companies have fraud depart-
ments with staff who are trained to address these
situations, but often the consumer feels that the
onus is on him or her to prove lack of wrongdo-
ing, and many victims report frustration at hav-
ing their credit and lives destroyed by identity
theft. A number of states have taken action to
