Mass-Marketing Fraud

George Abrue, 30, was a bright and articulate man. Unfortunately, he was also an unscrupulous and callous coward.

That was how Detective Chief Inspector Dave Clark of the City of London Police described the ringleader of one of the U.K.'s largest-ever "boiler room" frauds after Abrue was recently convicted and sent to prison for five years. The courts also convicted eight other family members and friends in the scheme. Many more have been arrested.

Abrue's gang members, who called potential victims from boiler-room operations in Spain, would use aggressive, high-pressure (hence "boiler room") sales tactics to sell shares in bogus mineral and biofuel companies, which they said were about to float on the stock market. The crooks produced professional websites and brochures to convince victims, many elderly and on fixed incomes, to part with their savings.

Abrue laundered the money through Swedish and Italian bank accounts to fund a lavish lifestyle for himself and his associates. He threw parties for up to 300 in top Barcelona hotels, and he purchased expensive sports cars.

"(Abrue) showed no sentiment in his crime and clearly thought nothing of the impact his fraud had on its victims," said Clark. "Some of those victims have been suicidal, and the psychological effect on them and their families have been tragic, all so Abrue and his friends could live the lifestyle of a Premier League footballer spending astronomical sums of money."

MASS-MARKETING FRAUD TENTACLES AROUND THE GLOBE

According to a threat assessment report¹ issued in June 2010 by the International Mass-Marketing Fraud Working Group,² mass-marketing fraud has gradually transformed in the past two decades from a "predominately North American crime problem into a pervasive global criminal threat." For example, the assessment report revealed that fraudsters using the Nigeria 419 type schemes, which traditionally had been targeting the U.K. and the U.S., are now targeting more African countries and individuals residing in more countries.

Although precise numbers are not yet known, the FBI has reported that there are "strong indications that the order of magnitude of global mass-marketing fraud losses is in the tens of billions of dollars per year." The FBI derived some of the indications from findings in several consumer fraud national surveys, fraud complaint data and extrapolations from the dollar amounts of fraud in other nations.

The Royal Canadian Mounted Police reported in June 2010 that mass marketing fraud losses in Canada are estimated to be greater than $10 billion annually, according to Canadian Anti-Fraud Centre data.

A 2006 U.K. Office of Fair Trading study estimated that each year 3.2 million U.K. adults fall victim to mass-marketing fraud to the tune of 3.5 billion pounds in combined losses. A 2008 study by the Australian Bureau of Statistics reported that 806,000 Australians 15 and older were victims of personal fraud in the previous 12 months; 453,100 of those victims had combined losses of AUS $977 million.³

The U.S. Federal Trade Commission used the U.K. and Australian studies to estimate "30.2 million consumers (13.5 percent of the U.S. adults) may have been victims of various consumer fraud schemes (including foreign lottery and prize-promotion schemes) during the preceding year" with combined losses between "$23 to $25 billion a year to mass-marketing fraud."⁴

NEW TECHNOLOGY PROPELS MASS-MARKETING FRAUD GROWTH

So what exactly is mass-marketing fraud? The U.S. Justice Department on its web page calls it a scheme that uses one or more mass-communication techniques such as the Internet, telephone and the mail.

Have you received a cold call asking for verification of personal information? An email claiming to be from an official or spouse of an official from Nigeria or other foreign country seeking assistance in transferring funds into your account for a small pre-paid fee? A spam or pop-up message on your computer asking you to update/validate/confirm your account information?

In today's texting, iPoding, Facebooking, tweeting, cell-phoning, debit/credit card-scanning global world, the opportunities for defrauding consumers are exponentially expanding. Frank Abagnale, who was the infamous con artist depicted in the movie "Catch Me If You Can," said, "What I did is now 4,000 times easier," at the Technology Management Conference of the Security Industry and Financial Association on June 29, 2009. Technology now provides a simple way to connect to the masses with a keystroke.

Mass-marketing fraud — a high-volume, lower-value fraud — exists because greedy criminals seek out the most vulnerable in our society, often the elderly and infirm. A 2008 survey conducted by Help the Aged and Barclays revealed that seven out of 10 older people in Britain — more than 6.6 million — are targeted by scams every month, either by telephone or letter. These criminals, who have caused numerous suicides and robbed many life savings, enter victims' details onto "sucker lists" so other fraudsters around the world can ensnare them in other scams.

In all the scams aimed at the elderly, the fraudsters tell the victims they have won contests or are beneficiaries of cash awards, but they first have to send money. Sometimes, the fraudsters ask for a small amount, but then they increase the requests until the victims believe they have to make those last payments to redeem their investments and then also get the prizes or benefits. Of course, that never happens.

In one mail-order fraud, the victim receives a letter declaring he or she is one of six winners in a postal code zone of the Spanish national lottery. All the recipient needs to do is to send $10 to an address in another country to cover administration fees, and then the award will be forwarded.

FIGHTING BACK

If Betty has sent $10 to Canada and has not received an award, she is unlikely to go to the police. And even if she does, there is a slim chance that law enforcement will make inquiries in Canada for $10. So, for many years these crimes have largely not been investigated.

However the U.K. has recently introduced Action Fraud, a single repository run by the National Fraud Authority, to which anyone in the U.K. can report a fraud. These complaints are then sent to the National Fraud Intelligence Bureau (NFIB) run by the City of London Police. The NFIB gathers further intelligence on reported fraud and collates links. So, now the address to which 1,000 people have sent money is immediately identified and sent to enforcement officers for action.

The NFIB, which began in 2010, has identified about 100,000 criminal networks and pinpointed 858 groups of interest. These groups link to 23,000 persons of interest and almost 31,000 victims, and the numbers are growing. From April to December 2010 it recorded 790 new victims with losses of more than 15 million pounds.

In contrast to the single U.K. repository, the U.S. Department of Justice Department takes a lead role in coordinating with other federal agencies in "developing and implementing strategic approaches to investigating, prosecuting, disrupting, and preventing mass-marketing fraud."

HELPING OUR COMMUNITIES

As CFEs, we need to increase public awareness of mass-marketing frauds and warn those with elderly relatives to check their mail and to hang up on suspicious aggressive sales calls. The callous fraudsters deliberately seek out the vulnerable in our society including the aged and those suffering from dementia. We need to make sure our nearest and dearest do not become the next victims of these evil criminals.

This scourge, which now reaches around the world, must be fought with the cooperation of national governments and anti-fraud groups.

Tim Harvey, CFE, JP, is director of the ACFE's U.K. Operations, a member of Transparency International and the British Society of Criminology.

Richard Hurley, Ph.D., J.D., CFE, CPA, is a professor in the University of Connecticut (Stamford) School of Business. 

1 View the report at http://www.ice.gov/doclib/cornerstone/pdf/immfta.pdf.
2 The IMMFWG is a U.S. multi-agency working group, chaired by the Fraud Section of the U.S. Department of Justice, which provides a forum for interagency coordination and exchange of information and ideas on telemarketing and Internet fraud law enforcement. 
3 See Australian Bureau of Statistics, "Personal Fraud, 2007" (June 27, 2008). 
4 See Federal Trade Commission, "Consumer Fraud in the United States: The Second FTC Survey" (October 2007). 

Sidebar 1: 

Anatomy of a Typical Boiler-Room, Mass-Marketing Fraud

A team of villains based in the U.K. — we will call them Andy, Bertrand and Charlie — just closed down an illegal operation and began planning a new one. First, they created a company in Spain — ABC Investments. Secondly, they placed an advertisement in a magazine read by South African students. The ad offered full-time telesales jobs and free flights to the country after successful telephone interviews. Andy and Bertrand hired 15 bright, young students; rented a cheap-rate office in Hendon, North London; and purchased a contact list of American doctors and dentists.

During employee training, Andy and Bertrand told the students that they were entrepreneurs who had acquired a number of highly valuable ancient jewelled Peruvian artifacts, and they were going to offer these to wealthy investors because their value would continually rise. They showed photos of the artifacts to the students, and they told them that a quick Google search would reveal their great worth.

They asked the students to learn a scripted sales pitch, which included a smooth spiel about the rare artifacts' discovery among Inca mummies in Peru. Andy and Bertrand told the students that their wages would be directly related to their sales figures: no sales, no wages; great sales, great wages with bonuses.

Andy and Bertrand also told the students that the artifacts were so rare that they were kept in a bank safety deposit box. Students were to tell prospective investors that ABC would: 1) help them avoid taxes by sending their payments to a bank account in Spain, 2) authenticate owners' certificates and 3) safely store the artifacts until the investors wished to resell them.

The students began phoning U.S. doctors and dentists from the contact list to tell them they could own a part of history with a small investment from $1,000 to $6,000 that eventually would reap them handsome returns.

Charlie, a master salesman and motivator, would mark students' performance on a whiteboard. He rewarded good sales and openly chided no sales with threats of dismissal.

The scam worked. If a victim thought twice about his purchase and phoned back to say he wanted to sell, he was passed to Charlie who quickly told him that his "investment" had already increased in value by 15 percent. Charlie also told him that coincidentally ABC also had another identical artifact for sale, and because he was an existing customer he could also buy that at a 20 percent sale price.

The good doctors bought it — or rather they did not buy it because our villains never actually owned any artifacts, just some pretty Internet pictures.

Eventually, someone tipped off the London Metropolitan Police who raided the operation. The students denied any wrongdoing; they explained they were just trying to earn some honest summer-job money. The police lacked statements from the U.S. victims and evidence of money deposited into the Spanish bank, so they could not charge the villains. Lawyers and prosecutors argued about legal jurisdiction. Meanwhile, Andy, Bertrand, Charlie and company were all released on bail and immediately fled to Amsterdam where they began their next operation using innocent U.K. students.

Sidebar 2:

Sham Company Sold Tickets To Nowhere

Olympic fever was running high. About 5,000 people from around the world had bought their tickets to the 2008 Beijing Olympics via the websites of Xclusive, a U.K. agency, and were packing to go. Unfortunately, they never received their tickets or refunds. Xclusive was a mass-marketing scam.

Recently, two Xclusive executives were convicted of fraudulent trading, money laundering and other charges. Another defendant pleaded guilty to aiding and abetting fraudulent trading. The company had pocketed more than 5 million pounds for tickets to the Olympics and many musical events that never existed.

"Xclusive was a sham that not only cost a lot people their hard-earned money but dashed their dreams," said Richard Alderman, director of the U.K. Serious Fraud Office (SFO). "Now we shall do our best to get the money back for the victims."

Apparently, Xclusive, which claimed to specialize in supplying "hard-to-get tickets to sold-out events," was designed to be a fraud from the beginning. According to the SFO, people ordered tickets online, which were to be delivered a few weeks before the events. The victims did not realize they were scammed until the last minute.

The SFO said the defendants paid Google more than 400,000 pounds to ensure that Xclusive would be at the top of search listings for tickets for the Beijing Olympics and other events.

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