Internet Fraud Casebook

The World Wide Web of Deceit

Joseph T. Wells, Joseph T. Wells

• Publisher: Wiley
• Year: 2010
• ISBN:
  9780470875506
• Edition: 1
• Topic: Business
• Subtopic: Auditing
• Index: Business

Real case studies on Internet fraud written by real fraud examiners

Internet Fraud Casebook: The World Wide Web of Deceit is a one-of-a-kind collection of actual cases written by the fraud examiners who investigated them. These stories were hand-selected from hundreds of submissions and together form a comprehensive, enlightening and entertaining picture of the many types of Internet fraud in varied industries throughout the world.

• Each case outlines how the fraud was engineered, how it was investigated, and how perpetrators were brought to justice
• Topics included are phishing, on-line auction fraud, security breaches, counterfeiting, and others
• Other titles by Wells: Fraud Casebook, Principles of Fraud Examination, and Computer Fraud Casebook

This book reveals the dangers of Internet fraud and the measures that can be taken to prevent it from happening in the first place.

CHAPTER 1

Phantom Figurines

JOHN OUELLET

She was a widow with three grown sons. Her late husband left her with a he was a widow with three grown sons. Her late husband left her with a tidy inheritance that would have been sufficient for most women, but not for Eleanor Wallace; she was far too motivated and independent. At a mere 63 years old, she wanted more from life than idle contentment.

He was unhappily married and living on the western side of Michigan, some 200 miles from Eleanor. Like Eleanor, Roland Granger was not one to let life pass by without noticing him. He was two years younger than her, with a head for business and an eye for women.

Eleanor was refined; Roland was brash. She was tall and slender; he was compact with a burgeoning belly. She took great pride in her appearance and kept her hair smartly colored and coiffed. He was gray, balding and often disheveled. She chose her clothing carefully, for appearance and fit, while he kept the appearance of a weekend golfer in mid-July on the 18th green. In a bit of a character turnabout, it was Eleanor who preferred the informal “Ellie.” He insisted on “Roland” for its formality, because most nicknames lacked respectability, and others he thought were just plain silly.

They met at an antique show. He was a seasoned pro, having been in the business with his wife for several years, and Ellie was still green. She used the money left to her by her late husband to start up her own business. Her sons warned her against such a venture. After all, she was getting on in years and had no experience — better to hand it over to an investor and live on the dividends. But Ellie had more trust in her own instincts than those of a stranger.

Ellie Wallace’s business was really more of a consignment shop. She took in trinkets and gadgets, knickknacks and doodads. Those items she liberally called antiques had no place among Roland Granger’s genuine artifacts.

Roland was smooth. His glib ways made it easy for him to sell and for folks to buy. He knew his merchandise and priced it right. Anyone near his booth was a buyer — or so he reasoned. They just didn’t know it until they heard his pitch. But he wasn’t condescending. He didn’t argue, tussle or mortify. Most of those who waved him off often returned later for small talk and perhaps a purchase or two.

Ellie was impressed. She was a more striking figure than Roland, but she was stiff and uncomfortable in the role of salesperson. She had little confidence in her business acumen and none in her products. During a respite in his day, Roland challenged himself: “See that piece you’ve got?” he asked Ellie, pointing to a costume brooch. “I’ll sell it for a glass of wine with you after the show.” He took it back to his booth and returned an hour later with $45.

A House Divided

It was a sordid affair that blossomed into a model business arrangement. Roland left western Michigan, and his wife of seven years, and moved into Ellie’s modest ranch home in a town 35 miles north of Detroit. They married within a month. Ellie Wallace thrilled at changing her name to Ellie Granger.

If Ellie’s sons were nervous about her delving into the business world, they were downright horrified by this new addition to an already turbulent time in their mother’s life. Their horror quickly turned to fury. Her three sons were small businessmen, and each had been taken advantage of one way or another — burned by partners, ripped off by employees, manipulated by lenders or cheated by suppliers. If there was a fraud one of the three hadn’t fallen victim to, they had at least of heard of it. They had very strong suspicions about Roland Granger.

And yet they had no proof. They had no criminal history on this character, no references and no background checks. Jeff, the youngest, suggested — with tongue in cheek — hiring a private investigator. The other two thought hard about it but declined. How could they? How insulting would that be? Still, this Roland Granger was an unknown. He had come into their mother’s life from nowhere. And why? For selling a brooch? He had left behind a wife and a business. How long before he did the same to their mother?

The boys downplayed their concerns, choosing to be tactful. However, hints — though unheeded — were not unheard. “Roland’s right,” she barked at them one night during a family dinner, “you’re all just afraid of losing your inheritance!”

And with those words, sides were chosen, battle lines drawn.

Internet Auction Figures

When Roland Granger married Ellie Wallace, he took over her sinking consignment operation in the small, quiet town and turned it into an antique boutique called Classic Collections. Ellie opened a scrapbooking shop two doors down. With his background in antiques, Roland restructured Ellie’s business. Consignments would be a sideline to get people in the door and, to focus the market more, Roland suggested ceramic figurines as their staple product. But Ellie was skeptical. Not just any figurines, he assured her, high-end figurines, retired figurines — Lladros, Wee Forest Folk and Hummels.

Although sales at Classic Collections’s strip mall location were respectable, Roland didn’t think they were reaching enough people, so he took the show on the road — where he was more comfortable and successful. He established a new customer base while reviving his old one. He used newsletters and e-mail to keep in contact with them, informing them of new products in his inventory and even serving as a middleman in procuring hard-to-find items.

It was around this time that online auctions began appearing on the Internet. Roland saw the advantages immediately. He had a core of buyers who were, for the most part, well-off but ornery collectors. Complaints about his business were few and revolved around his prices. To keep the small niche market coming back, he begrudgingly sold below his asking price at times. On the auction sites, he could let the system take the haggling out of the equation.

Once again, Ellie was skeptical. She was just getting comfortable with the standard business model. But she eventually concurred, not that her concurrence was requested. She was very hands-off with the business, except for filling in on occasions when Roland was away. Sales were brisk and profits considerable — better than she could have done — something she never hesitated to let her sons know. Her intermittent stand-ins at the shop ended when Roland hired two young employees.

Vanishing Act

At the time, I was a special agent working in a Detroit FBI resident agency office, which focused primarily on child pornography, child enticement and related interstate matters. As the only dedicated computer crimes unit in the area, we were the repository for computer frauds, as well. We began receiving complaints from the Internet Fraud Complaint Center (IFCC), a clearinghouse operated by the FBI. Ironically (and seemingly counter-intuitively), the IFCC will forward complaints to the local, county and state agencies with jurisdiction, but not to the local FBI. Thus, eBay complaints were handed over to me whenever I stopped by the task force office. The eBay complaints I received on Roland Granger focused on Classic Collections after a two-week online auction that sold his rare and expensive ceramic collectibles. The volume of complaints submitted in just over a week and the difficulty of an interstate case like this one, meant the county happily passed along the complaints to me.

One mid-morning, I returned to the FBI office after attending a meeting with the task force, where I was handed another IFCC complaint. When I came in, I walked past a fellow agent who was consoling an irate and visibly shaken, elderly woman and two young men. I cringed upon hearing the names Roland Granger and Classic Collections, anticipating my first face-to-face meeting with three very ill-tempered victims. The woman, however, wasn’t an ordinary victim. She was Eleanor Granger, who, I learned shortly thereafter, was not filing a complaint for the eBay fraud (she had no idea it had even occurred), but about her husband who had vanished with the entire proceeds from their bank account. The young men were two of her sons.

Through a two-way mirror, I listened intently to the interview. At first blush, I was sure Eleanor and her sons were eyebrow deep in a conspiracy; this trip to the FBI was just to establish a line of defense. As I heard Eleanor explain it, she and her husband of six years had built up a substantial business and accumulated about $220,000, which was deposited in a joint account at a local bank. Two days ago, her husband vanished during lunch. Concerned that night, she called their best friends, Averill and Linda Burkhart. Averill happened to be the head teller at the bank where the Grangers had their account and had seen Roland just that afternoon around one. Averill told Ellie that over the past few weeks Roland had come into the bank to withdraw large amounts of cash. Roland claimed he was purchasing very expensive pieces for the store. Each time, Averill recommended that Roland obtain a cashier’s check for security reasons, but Roland wanted cash.

“How much did he withdraw?” Ellie demanded.

“All told? ’Bout a quarter of a million.”

“You can’t do that!” Ellie screamed, “That was my account.”

“And his,” Averill countered. “We filled out the CTRs by law. His name is on the signature card. It’s a joint account. It was all done legally.”

“What did he say to you this afternoon about where he was going?”

“Nothing. Just said this would be the final payment on the items. Then he withdrew the last sixty grand.”

Mounting Complaints

When they left, I spoke with the agent who took their complaint and explained to her my current involvement with Roland Granger. We agreed that given Ellie Granger’s unmistakable rage and the mountain of third-party complaints against Roland Granger, she was probably not a coconspirator. I called Ellie the next day and informed her that I would be handling the case. She was relieved someone was taking her problem seriously, though I didn’t immediately tell her the bank was correct in stating the crime was not in Roland withdrawing money from the joint account: I knew that wouldn’t go over very well.

And I needed time to wrap my head around the mounting eBay complaints coming from a wagon wheel of directions. There were the IFCC complaints being funneled to the cybercrimes task force. The task force, in turn, gave victims my name and contact information (which I advised them to do), so I was receiving direct calls. I had asked the IFCC to forward the complaints directly to me, which sometimes they did and other times they did not. The state and local agencies were also receiving complaints from the victims and IFCC. I eventually got them, as well.

There was a problem of victims unintentionally filing multiple complaints, due to the time delay and number of agencies involved. For example, John Q. Smith initially reported to the IFCC that he purchased Lladros “The Happiest Day” under screen name HardcoreBuyer on Monday for $450. A week later, he reported directly to his local law enforcement agency in New Jersey that on the last day of the auction, he purchased Wee Forest Folk “Haunted Mouse House” for $800 using screen name BestBuy. These duplicates were easily overlooked at first glance.

Before this case, I knew of Excel — and had even seen spreadsheets — but I never envisioned using it myself. However, I knew I needed a scorecard to organize all the information. With help from the FBI administrative experts, I set up a spreadsheet that included screen name, real name, item purchased, amount paid, date and time of bid, method of payment, U.S. mail used (yes or no) and the all-inclusive miscellaneous column for printouts of e-mails with Granger, letters, certified mail receipts and canceled checks.

This spreadsheet proved invaluable. Not only did it keep me and the data organized, but I was able to identify and eliminate double complaints, which cases had the elements necessary for mail or wire fraud and list the evidence I had to support each complaint as interviews were conducted and responses to grand jury subpoenas came in. A secondary benefit came up when the Assistant United States Attorney (AUSA) used my spreadsheet in drafting the eventual criminal complaint and federal pretrial services used it their sentencing and restitution report.

Modeling a Case

Up to this point, I hadn’t approached an AUSA for a prosecutorial opinion. I knew I had a fraud based on the sheer volume of complaints, but I had no concept of how it was committed, and I wouldn’t go to an AUSA without solid preliminaries. I also needed an approximate dollar loss. There is usually a threshold amount that the U.S. Attorney’s office sets on financial crimes; if a case doesn’t meet the threshold, an AUSA won’t take it. It varies by district, type of financial crime and extent of the crime problem. It is never a hard and fast rule, and I recommend taking a strong stance if a case is declined because the loss is below the threshold. I’ve never met an AUSA who isn’t swayed by a passionate and driven investigator. If a case is declined by the federal government, then it must be prosecuted locally or not at all.

While doing data entry, I needed to unravel the scheme to defraud, if there was one, and determine if it fit the elements of mail fraud or wire fraud. These were the two federal statutes I knew the government would pursue, because bank fraud was not applicable and because mail and wire fraud laws are extremely broad; they are the workhorses of federal white-collar crime prosecutions.

Bid Winner

At that point I had more than 40 victims. My spreadsheet was populated with information from filed complaints, but I needed someone to fill me in. Ellie was not going to be helpful. She was just learning the extent of the fraud from the irate victims who began calling her at Classic Collections when she took over operations. Plus, she was miffed at the FBI for not looking into the money Roland withdrew from the bank account. My decision on who to interview first was logical — I picked the person who lost the most money.

Joy Minot of Eugene, Oregon, lost $23,718 on nine Wee Forest Folk figurines, and she was eager to fill me in. She had been a serious collector for more than seven years and was considered one of the foremost experts in the country. About three years before, she heard that Classic Collections had some very rare pieces, which she purchased without a problem. She was so impressed with Roland Granger that she kept in contact with him via e-mail, and even with an occasional phone call for other collectibles. When she made her bids (and won) on the figurines from the estate sale in Phoenix that Granger advertised he had been entrusted to liquidate, she felt no anxiety. And his recommendation that she meet him at a hotel in Phoenix to pick up her high-value figurines was another gesture of his professionalism. But the exchange would have to wait until after the two-week eBay auction was complete, which, of course, she understood.

When the meeting came, he didn’t show up at the hotel. When Joy requested that the front desk call his room, they told her they had no reservations for Roland Granger currently, in the past or in the foreseeable future. Her heart sank when the horrific realization started to set in. Her anger at herself was soon replaced by her fury at Roland Granger, and I learned through dozens of similar statements that victims of fraud can have more rage than victims of violent assault. That is because fraud is the only crime requiring voluntary victim assistance; these people felt like fools.

Joy returned home and set up a Web site dedicated to Roland Granger’s auction misdeeds. I already had most of the victims’ names, but Joy’s Web site supplied me with background on the scheme. It was a feast that led to another challenge. Although the victims were eager to talk to me, it was difficult to keep them on track, and, because 99 percent of the interviews were over the phone, I spent a lot of time listening rather than interviewing. At first I saw this as a sound approach because the victims all se...