Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Fraud Examination, 4E Chapter 15: Consumer Fraud

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives  Define what consumer fraud is and understand its seriousness.  Understand identity theft.  Classify the various types of investment and consumer frauds.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Consumer Fraud Definition  Any fraud where consumers are victims.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Consumer Fraud Two Primary Types of Consumer Fraud 1.Identity Theft – most common type of consumer fraud, affecting thousands of people everyday. 2.Consumer Scams – fraudsters use various schemes to earn consumer’s confidence and then use that confidence to get the consumer to pay or invest money or provide personal information.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Consumer Fraud Seriousness of the Problem The US Federal Trade Commission released a statistical survey in October 2007 with the following findings:  Nearly 30 million adults—13.5% of the adult population— were victims of fraud during  20% of African American were victims  18% of Hispanics were victims  12 % of non-Hispanic whites were victims

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Consumer Fraud Numbers of Victims in the Top 10 Frauds 1.Fraudulent weight-loss products – 4.8 million 2.Foreign lottery scams – 3.2 million 3.Unauthorized billing-buyers’ clubs – 3.2 million 4.Prize Promotions – 2.1 million 5.Work-at-home programs – 2.4 million 6.Credit card insurance – 2.1 million

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Consumer Fraud 7. Unauthorized billing-Internet services – 1.8 million 8. Advanced free-loan scams – 1.2 million 9.Credit repair scams 1.2 million 10.Business opportunities—0.8 million

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Consumer Fraud US FTC’s Response to Consumer Fraud Consumer Sentinel – a complaint database developed by the US Federal Trade Commission that tracks information about consumer fraud and identity theft and makes it available to law enforcement partners across the US and throughout the world.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Identity Theft  Identity theft is used describe those circumstances when someone uses another person’s name, address, Social Security number (SSN), bank or credit card account number, or other identifying information to commit fraud or other crimes.  40% of the frauds reported to the FTC over the last few years have involved some type of identity theft.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Identity Theft Cycle

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Identity Theft How Identity Theft Occurs Stage 1: Discovery Gain Information Phase:  Searching trash  Stealing mail  Phishing  Scanning credit card information Information Verification Phase:  Telephone scams (Pretexting)  Trash searches

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Identity Theft Stage 2: Action Accumulating Documentation Phase:  Perpetrator gets the tools to commit the fraud (applying for credit cards, a driver’s license, or fake check in the victim’s name) Cover-up or Concealment Actions Phase:  Perpetrator takes steps to cover or hide the financial footprints left throughout the identity theft process.  Example: Changing the billing address on a credit card so that the statements go to the fraudster’s address.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Identity Theft Stage 3: Trial 1 st Dimensional Actions Phase:  First attempts to test the stolen information.  If the test works, the fraudster attempts more 2 nd Dimensional Actions Phase:  Actions taken after the tests are successful  The fraudster usually attempts face-to-face transactions 3 rd Dimensional Actions Phase:  Fraudster opens bank accounts, establishes phone accounts, secures auto loans, etc.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Identity Theft Personal Information  Financial Gain The perpetrator may…  Buy large-ticket items  Take out car, home, or other loans  Establish phone or wireless services  Use counterfeit checks or debit cards  Open new bank accounts  File for bankruptcy  Report victim’s name to police  Open new credit card accounts  Change victim’s mailing address

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Identity Theft Stealing a Victim’s Identity  Dumpster diving  Skimming  Social engineering  Stealing wallets/purses  Sneak into a victim’s home and steal information  Shoulder surfing  Phishing  Steal mail

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Identity Theft Minimizing the Risk  Guard your mail from theft  Opt out of preapproved credit cards  Check you personal credit information at least annually  Guard Social Security card and number  Safeguard all personal information  Guard trash from theft  Protect wallet and other valuables  Protect the home, computer, passwords

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Identity Theft  Prosecution of Identity Theft  When identity theft is committed, the perpetrator can be prosecuted criminally and/or civilly.  For prosecution, it is necessary to show the perpetrator acted with intent to defraud—usually easy to prove if evidence of the fake identity used to purchase an item, open an account, or obtain a credit card is collected.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Identity Theft Once Identity Theft Occurs Victims should…  Contact the Federal Trade Commission  Contact local FBI and/or US Secret Service agencies  Contact the credit reporting agencies  Contact the local Postal Inspection Service  Contact the Internal Revenue Service  Contact the Social Security Administration  Contact personal financial institutions  Change personal identification information

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Consumer &Investment Scams Foreign Advance-Fee Scams  Nigerian Money Offers  Clearinghouse Scam  Purchase of Real Estate Scam  Sale of Crude Oil at below market price  Disbursement of money from wills

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Consumer & Investment Scams

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Consumer & Investment Scams Work-at-Home Schemes  Multilevel Marketing  Pyramid Scheme  Chain Letter, Mail Stuffing, Product Testing, and Craft Assembly

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Consumer & Investment Scams Bogus Mystery Shopping Scams  Perpetrators promise victims a job to stroll through stores, enjoy the displays, shop for merchandise, and file reports about their experiences.  Fraudsters promise victims compensation ranging from $10–$40 an hour, plus the opportunity to keep all products evaluated.  Although some mystery shoppers’ advertisements are legitimate, the majority are not. Usually victims are conned out of “application charge”.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Consumer & Investment Scams Telemarketing Frauds  Fraudsters set up giant rooms (referred to as boiler rooms) in rented offices where they train salespeople to find and defraud victims  Move from city to city using different names  Unwary investors lose about $1 million every hour to investment fraud promoted over the telephone  Elderly are more susceptible to telemarketing fraud than almost and other type of fraud.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Consumer & Investment Scams  Safeguards Against Telemarketing Frauds  Never give a Social Security, credit card, or other information over the phone unless you initiate the call.  Put your information on the “do not call” registry

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Investment/Consumer Scams Investment Scams  Unreasonable promised rates of return  Investments that do not make sound business sense  Pressure to get in early on the investment  Use of a special tax loophole or a tax avoidance scheme  A business with a history of bankruptcy or scandals