Baker Fraud Report

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60 Minutes US looks at grandparent scams and other online scams, especially those aimed at  older victims

BBB updates study on employment/job scams; complaints increased 250% over last year

49 State AG’s sue Avid Telecom, allege it is responsible for billions of illegal robocalls

Consumer Federation of America list of top ten fraud in 2022; complaints to State and local consumer agencies; auto repair tops the list

Myth #7:  One of the best ways to prevent fraud crimes is to teach financial literacy.  By Anthony Pratkanis

Financial literacy refers to fundamental concepts of finance and is typically measured with quizzes about compound interest, asset diversification, bond pricing, etc.  An oft-heard claim is that financial literacy is a protective factor in fraud victimization and thus an important intervention tactic.  There is no scientifically-valid evidence for this claim.

Knowing that bond prices fall as interest rates go up is of little relevance in recognizing and responding to romance fraud, lottery scams, government impostors, grandparent schemes, and the like.

However, what about investment fraud?  In a 2006 study, my colleagues and I found that verified investment fraud victims had significantly higher financial literacy than non-victim investors. This finding was replicated in 2014 by Graham of UK’s FCA and again in 2017 by Kieffer and Mottola of FINRA.  Some of the most sophisticated investors have been fraud victims:  Jay Gould, CalPERS, JPMorgan Chase, Sequoia Capital, Rupert Murdoch, Blackrock, Y Combinator, Andreessen Horowitz, and Wells Fargo former CEO Richard Kovacevich, to name a few. 

Why this finding?  Knowing the value of a diversified portfolio is of little use in recognizing pump and dumps, Ponzi schemes, and entrepreneurial fraud. It is like knowing the rank of poker hands without knowledge of coolers, seconds, mucks, and other forms of cheating.  Active investors will gain financial literacy through their activities and will also be more likely to encounter con grifters who infiltrate the financial system.  And, as always, a con criminal will use the target’s knowledge (and lack of knowledge) to tailor the pitch for best effect.

The good news:  While financial literacy is of little value in fraud prevention, teaching about fraud schemes, as my colleagues and I first showed, effectively reduces victimization.

All myths collected here

Houston: Man from India pleads guilty to fraud in work with call center in India; they called victims claiming to be federal agents; he cashed out gift cards and picked up packages of cash at mail drops; took in millions

Australia reports that the majority of fraud complaints involve money mules

UK: Scotland Yard takes down iSpoof, company that faked caller ID’s to help scammers pretending to be banks; owner gets more than 13 years prison  BBC story here

DOJ announces fifth major effort against money mules; took more than 4000 actions, including warning letters and prosecutions

Myth #6:  Last year Americans only lost $8.8 billion in fraud crimes, by Anthony Pratkanis

According to the FTC, “consumers reported losing nearly $8.8 billion to fraud in 2022.”   The key word is “reported,” as the amount of stolen money comes from reports to the FTC’s Consumer Sentinel Network.  However, given that it is based on self-reports, it vastly underestimates the damages.

In research I conducted with my colleagues, we asked known fraud victims if they had been the victim of a scam.  Less than half (43%) reported the fraud – a typical result as Deevy and colleagues found in their review.  This makes sense as victims may not yet recognize that they have been defrauded,  have forgotten the incident, or the victim is reluctant to discuss it.

The use of complaints further contributes to underestimating harm from fraud.  Research finds that relatively few consumers file complaints with the government, and, when they do, they tend to complain about the product and not about deceptive practices.

The FTC figure is based on financial losses to the victim and overlooks several important but real secondary effects, including (but not limited to):  psychological harm to victims and their family and friends, hours wasted using 2FA, repairing credit and identity, or trying to determine if something is a scam, unfunded needs of charities, taxpayer dollars spent on fraud prevention and damage mitigation, opportunity costs to entrepreneurs as funding goes to fraudulent entities, lost economic growth as resources are wasted, threats to national security as fraud crimes fund adversaries, cost to businesses for training and prevention, and the deterioration of trust needed, not only for commerce, but for everyday social life.

The FTC Sentinel provides important information, just so we realize that the $8.8 billion is the tip of the iceberg of harms and damages caused by fraud criminals.  The reality is that the iceberg is huge.

All myths collected here

Full Report here

Top Stories

FCC orders phone companies to block all calls from US-based gateway carrier that allows overseas robocalls into the US system

DOJ files civil case on behalf of the FTC against company for assisting and facilitating illegal robocalls

Australia gets funding for National Fraud Centre

Kansas City: Illinois man pleads guilty to selling stolen financial information, such as debit and credit cards, on the dark web

Myth #5:  If the victim wasn’t greedy they wouldn’t have fallen for the scam.  By Anthony Pratkanis

This myth gained prominence in a 1956 interview of con criminal “Yellow Kid” Weil, who bragged: “They wanted something for nothing. I gave them nothing for something.”  The greed myth is one way for fraud criminals to deflect blame onto the “greedy” victim. 

If the myth was true, there would be no charity fraud, phishing, grandparent scams, government impostors, identity theft, or any of the other fraudulent schemes which promise no financial rewards.

But what about frauds that pitch financial gain,  such as investment fraud?  Taking inspiration from the cons’ old saw of “greedy victims,” DiLiema, Shadel, and Pak found a small, but significant 0.12 correlation between victimization and materialism (their measure of greed), profiling investment fraud victims as having a greedy mindset.

In contrast, Boyd found that 70% of Eron victims “invested” to secure basic retirement and needs, compared to 19% who sought a materialistic goal of enhanced lifestyle.  Moreover, a 2006 UK study found victims were more likely to report desperation and not greed as their motive.  In teaching undercover FBI agents how they commit fraud, financial fraud criminals Phil Kitzer and Mel Weinberg both state that they are looking for DMs – desperate men (and women) in need of money.  As AARP states: “Even though no single personality trait has been discovered that explains all fraud victimization, faulty generalizations abound.  For example: . . . ‘all scam victims are either greedy or stupid…or both.’ Such labels are not only offensive and demeaning to those who have lost money to this crime, but they are simply untrue and belie previous research that has repudiated such simplistic explanations

Full report here

Brooklyn: Russian man indicted for platform Try2Check which tests stolen credit card numbers to see if they are valid; sold service on the dark web; made at least $18 million; large reward offered for his capture

New study released on romance scams

• State by state breakdown of victims/losses
• Crypto most common payment method
• Surveys most common reasons scammers claim to need money
• 75% of victims have college educations
• 100 most common photos used

Myth #4:  Unlike other crime victims, the victims of fraud crimes do not experience much of the pain and trauma typically associated with crime victimization, by Anthony Pratkanis

Hollywood movies and the mass media in general often romanticize the cunning cleverness of the con grifter and fail to show the consequences to victims, as if fraud was a victimless crime.

Research reveals a much different reality, one in which fraud victims experience much pain and trauma, in addition to their financial losses.  Ganzini and her colleagues found that among the victims of a Ponzi scheme, 45% experienced generalized anxiety, 29% were clinically depressed, and over 6% had suicidal thoughts (all rates greater than a matched control).  Boyd and his colleagues investigated the victim impact of the Eron securities fraud and observed that among those losing more than $50,00, 54% stated it harmed their emotional well-being, 29% their physical health, and over 20% noted that it had damaged friendships and family and marital relationships.  In a UK survey looking at the victims of frauds such as bogus investments, fake lottery, advanced fee fraud, and identity theft, Button and his colleagues showed that victims reported feeling anger and stress, with 39% reporting psychological and emotional issues, 17% damage to family and partner relationships, 11% physical health problems, and just under 2% reporting an attempted suicide. 

Sadly, these research findings are often observed by those who work with fraud victims.  As victim advocate Debbie Deem describes, fraud victimization often results in a loss of trust in others, in society and its institutions, in family and friends, and even in one’s own ability to make decisions.

Full Report here

Texas: Chinese man arrested for ID theft; got information from driver’s licenses on the dark web and used them to get new licenses and then used them to get credit cards; got 1273 licenses; part of organized crime group

McAfee survey in India finds that 47% have experience scams that use AI voices or know someone who has

Europol takes down international dark web marketplace selling drugs; arrest 288; nine countries involved

UK approves major anti-fraud push; allocates £400 million; 400 new investigators; new fraud center

Los Angeles: 14 indicted for international scam that debited bank accounts for millions; claimed charges were for things like cloud-computing

Full Report here

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DOJ announces US coordinated effort against vaccine fraud; 18 arrested; includes fake billings for vaccine; counterfeit vaccination cards; billing the government for test kits that were not needed

Nevada: Man pleads guilty to check fraud; got bank account information from foreign telemarketers and then used that to create checks and debit accounts; took in millions
 
Spain dismantles crypto investment operation; arrest 1; took in $110 million; marketed on internet, phone calls; gave investors web page with fake account information, graphics

Myth Two: For most of us, fraud schemes are easy to spot. By Anthony Pratkanis.  The general public believes that scammers usually employ giveaway clues such as typos, poor grammar or a shifty demeanor on the phone.

In explaining why Australians lost a record amount to scams last year, Catriona Lowe, Deputy Chair of the Australian Competition & Consumer Commission, points to a factor identified by others:  “We have seen alarming new tactics emerge which make scams incredibly difficult to detect.  This includes everything from impersonating official phone numbers, email addresses, and websites of legitimate organizations to scam texts that appear in the same conversation thread as genuine messages.”

Over 50 years of research on detecting lies finds that the same results apply to detecting fraud.  People generally think that they can spot liars based on their insincere demeanor.  This may work for the people we encounter on an everyday basis, but these types of cues are a poor means of detecting lies (slightly above chance in laboratory tests).  This is especially the case for con grifters who ooze fake sincerity with a “naturalness and uniformity of action.”  Unfortunately, con criminals’ ability to do this will only improve as they adopt new artificial intelligence tools.

The implications for fraud prevention:  (a)  when training or educating people do not assume that a fraud can be easily spotted and, (b) based on research in lie detection and my own research on fraud (with Doug Shadel and published by AARP in Off the Hook), all of us need to be very skeptical and question critically the information we receive.

Full Report here

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FBI warns of scammers calling Chinese speakers and claiming to be with the Chinese government, accusing the victim of fraud, and threatening to arrest or repatriate them; often use spoofed numbers of Chinese consulate

FTC announces increased efforts to stop robocalls coming from outside the US

• Identifies US gateway carriers that transmit calls into the US phone system
• Issues warnings
• Sues those who don’t stop
• 22 of 24 companies contacted have stopped these calls
• FTC calls this effort “Point of no entry”

Full Report Here

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DOJ seizes $112 million in crypto from crypto investment scams

UK announces arrest of 299 for romance and other frauds

FBI, Europol, take down dark web market for stolen credentials such as passwords and bank accounts, identities stolen with bots; 119 arrested; Dutch police have site to see if your ID was stolen

Full Report here

Arizona: Nigerian man gets more than four years prison for BEC, Romance, fake check, and romance scams; hired people with online jobs and used them to assist the frauds; worked with others in Malaysia;  which extradited him to the US

Florida: One man extradited from Spain (Nigerian?) pleads guilty to inheritance scam; send mail to older victims and told them  to pay money for various fees to get their money; six others charged; got $6 million; used former victims as money mules

DOJ arrests founder of BreachForum, worlds largest hacking forum; takes down marketplace

Australia warns of sharp jump in bank impersonation scams; victims get text from the bank phone number, claiming to be security; ask victims to transfer their money to “keep it safe”

Full Report here

San Diego: Six members of Romanian organized crime gang arrested; laundered jewelry stolen from elderly people in the area, also for theft of unemployment benefits; much money went back to Romania; losses at least $1.4 million

UK’s Which? reports survey on mass marketing fraud there

• Nearly nine in 10 adult internet users have encountered content online which they believed to be a scam or fraud.
• Nearly half of adult internet users have personally been drawn into engaging in an online scam or fraud, while four in 10 knew someone who had fallen victim.
• A quarter of those who said they’d encountered online scams lost money as a result, with a fifth being scammed out of £1,000 or more.
• Three in 10 experienced a potential scam or fraud via email, just under a quarter via social media and just under a fifth through websites and apps.

Brooklyn: New Jersey man pleads guilty to mass mail campaign claiming victims had won a prize or part of a legal settlement (they had not), took in $1.6 million; he did that while awaiting sentencing for another mass mail campaign claiming people had won and needed to pay $20 to claim winnings (no one won) that took in $50 million

Issue of the week, Recidivism by Fraudsters:  A fraud expert and regular reader noted the story above, and suggested that convicted confidence crime criminals (for example, people who do mass marketing fraud and who work in boiler rooms, commit mail fraud, or engage in on-line frauds such as romance scams) have a high rate of re-arrest and continue to be involved in fraud crimes.  

One study (by Weisburd & Waring, 2001) found that many criminals in street gangs tend to “age out” of criminal life, but that  “white collar” criminals have long careers and possibly learn more tricks and stay in the scam game. This study also found that 62% of those who commit the crimes of mail, credit, or false claims are re-arrested for another crime — a high rate of recidivism. 

I’ve surely seen convicted scammers return to their ways after being convicted, and romance scammers often point to the absence of prior arrests in seeking lighter sentences. So:

• Are scammers less likely to be caught and prosecuted?
• Do they tend to get shorter sentences because they don’t have prior arrests? 
• And are they more likely to continue to engage in fraud after their jail time?
• What other data bears on the recidivism rates for con criminals?

Let’s open this discussion up, and let me know what your experience is.

Full report here