Wilson da Silva

Science journalist, feature writer and editor.

Dec. 17, 1996
9 min read
TECHNOLOGY | Scammed!

Some of the oldest cons have found a new medium to reach their victims - and it’s harder than ever to catch the perpetrators, WILSON da SILVA reports.

IT HAD to happen. The carpetbaggers have invaded the Net. Cyberspace, it would seem, is now crawling with scam artists, swindlers, flimflam men, blacklegs, shysters and purveyors of shonky schemes.

Take the case of Augustine Delgado. With partners Libby Gustine Welch and Donald Grant, Delgado is accused of having duped 15,400 Internet users in 63 countries into sending hundreds of dollars each to a rural address in the State of Washington in the United States.

“What if you paid ... $250 a month which produced a minimum of $5,250 income each month for you, while you simply watched?” said one of the many messages posted across a number of Internet newsgroups (or billboards) by the trio’s small firm, Fortuna Alliance. 

Thousands took the bait. The victims included 2,220 New Zealanders and 1,560 Australians, ranking second and third respectively in the scam-takers’ stakes. Each paid between $US250 ($320) and $US1,750 to join the pyramid scheme, believing claims that members will eventually just sit back and receive over $US 5,000 per month in “profits” after inducing others to “enrol”. Fortuna used snazzy, professional-looking Web sites.

They sent glossy brochures and other promotional material, advising “members” how to set up their own Web sites to recruit others to join the pyramid.

As far as investigators from the US Federal Trade Commission can tell, Fortuna opened for business on the Net with its first newsgroup public posting in December 1995.

By May 24 this year, when US District Judge Walter McGovern issued warrant C96-0799-D in Seattle - freezing bank accounts and assets of the company and authorising a raid - the trio had amassed at least $US8 million.

Only $US2 million was ever found in Fortuna’s American bank accounts, and those of the three main accused; about $US6 million had been transferred to accounts in the tiny Caribbean island-State of Antigua and Barbuda.

Welcome to the new age of the big swindle.

The medium may be different, the delivery may be high-tech, but the cons are the same tried-and-true low-brow swindles you’ll find in any carpetbaggers’ kit: from “get rich quick!” schemes to too-good-to-be-true “investment opportunities”.

“This brand new, high-tech scam is as old as Methuselah,” said Jodie Bernstein, director of the FTC’s Bureau of Consumer Protection. “Behind all the techno-jargon and the mathematical mumbo-jumbo, this is just an elaborate, electronic version of a chain letter. Early entrants may make some money, but eventually, the pyramids collapse and most of the ‘members’ are left holding the bag.”

The Fortuna scam is the biggest on the Internet - so far. And the speed with which the scheme amassed the amounts has left authorities open-mouthed.

“It’s certainly possible to make a very small company - one that’s essentially operating out of someone’s garage - look very large once you put them on Internet,” Charles Harwood, the Seattle-based regional director of the FTC, said.

“On the Internet, Fortuna looks just like IBM.”

“It’s the cyberspace version of the itinerant trader, who appears at your door, offers all these wonderful things, takes your money and disappears,” said Neil Lawson, Commissioner for Consumer Affairs in Queensland.

Lawson, whose office received complaints from Fortuna victims in the State when it was pulled off the air by the FTC, has been in touch with the investigators.

He said there was little his office could do. And it was not the first Net scam to hit Australians.

“The sort of complaints we’re getting are about how something’s represented over the Internet,” he said.

“And if someone misrepresents a product or engages in fraudulent activity, they can be fairly hard to find. They can come on the Internet fairly readily and disappear.”

Last month, the FTC and law enforcement officials in the US launched Operation Missed Fortune, a huge crackdown against Net scamsters. Seventy-five court orders were executed in 25 American States.

Consumer groups are noticing an upsurge, too. Since the US National Consumer League launched Internet Fraud Watch, it has been inundated with stories of scams. Pyramid schemes topped the list, followed by bogus Internet-related services, such as consultants designing Web sites or setting up Internet access accounts, who demand payment and vanish.

There have been sellers of computer equipment, who promise huge discounts on memory chips or other equipment, then deliver hardware of lower quality, or not at all.

Fraudulent business opportunities, offering sky-high profitability, ranked fourth, followed by shonky work-at-home offers with a modern twist: instead of addressing cards or stuffing envelopes, buyers were told they could make hundreds of dollars a month converting graphic and photo files or doing word processing.

And it’s not just the wannabe end of town that is trying its luck on the Net.

Two weeks ago, the Securities & Exchange Commission (SEC) - which polices American high finance and the investment community - brought its first case against a publicly traded company for fraud in cyberspace.

A US judge froze the assets of the chairman of a maker of video-conferencing equipment, Systems of Excellence (SoE), based in Virginia. The SEC charged that the company’s chairman, Charles Huttoe, “secretly distributed millions of SoE shares to his family members and corporations, manipulated the market by issuing false favourable information concerning SoE and its business, and then sold the shares into the inflated market.”

It said the company also posted false press releases on its Web site and bribed the owners of an Internet newsletter SGA Goldstar, to talk up the shares.

Huttoe and his partners allegedly made more than $US10 million out the scheme. Systems of Excellence has said it is co-operating with the SEC investigation.

But it’s the high-tech telephone call-back scams that have the potential to catch a lot of people unawares. You don’t even have to be on the Net. You receive a message on your answering machine, voicemail or pager, asking you to call what looks like a number in the US (often with an 809 prefix).

In each case, you are induced - without knowing it - into calling a number that will charge you up to $30 a minute. Sometimes the person who answers the phone will speak broken English and pretend not to understand.

Whatever the ruse, the idea is to keep you on the phone as long as possible as the charges mount.

The only way to avoid the scam is not to call an overseas number unless you know what the call is about.

Internet Fraud Watch can be reached by e-mail at nfic@ internetmci.com, or found on the Web at http://www.fraud.org

THE LINES THEY SPIN

THE PYRAMID

Usually begins with lines like: “How To Make Big Money From Your Home Computer!!!” In reality, such offers are an electronic version of “pyramid” scams, in which participants make money solely by recruiting new participants. This type of fraud is perfect for the Net, since scamsters can send messages to thousands or millions instantaneously. The schemes soon collapse when no new “investors” can be found.

THE RISK-FREE FRAUD

Offer “Exciting, Low-Risk Investment Opportunities” to participate in exotic-sounding investments, such as cable projects, prime bank securities and eel farms. Promoters misrepresent the risk by comparing their offer with something safe, such as bank certificates of deposit. Often, an investment product does not even exist.

THE “PUMP AND DUMP” SCAM

Messages are posted online urging readers to buy shares in a company that is poised for rapid growth, or sell out of one headed for disaster. Scamsters claim to have inside information or to use a combination of economic and sharemarket data. In reality, the promoter may be an insider who gains by selling shares after the share price is pumped up by gullible investors, or a “short seller” who gains if the price plunges. Often used on little-known, thinly traded shares.

Source: US Securities and Exchange Commission