Mass Marketing Fraud is a general term for frauds that exploit mass-communication media, such as telemarketing fraud, Internet fraud, and identity theft. Since the 1930’s, mass marketing has been an accepted and productive way of increasing a customer base. Advanced communications, including computers, speed dialing, automatic dialing, and facsimile machines, along with modern conveniences such as credit cards, electronic banking, and television have led to tremendous growth in mass marketing. With the growth of legitimate mass marketing, however, has come a substantial increase in fraudulent mass marketing.
While these fraud schemes may take a wide variety of forms, they share a common theme: the use of false and/or deceptive representations to induce potential victims to make advance fee-type payments to fraud perpetrators. Although there are no comprehensive statistics on the subject, it is estimated mass marketing frauds victimize millions of Americans each year and generate losses in the hundreds of millions of dollars.
Illegal mass marketers use three primary methods to identify potential victims. First, they may contact individuals with whom they have had no prior contact and attempt to scam these individuals. Second, they prompt prospective victims to contact the mass marketing operation by sending them communications that guarantee substantial awards or other benefits. Third, many mass marketers purchase lists of people who are known to have been victims of prior fraud schemes. These individuals are often receptive to investing in other schemes. Mass Marketing frauds victimize millions of Americans each year and generate losses in the hundreds of millions of dollars.
The predominantly transnational nature of the mass marketing fraud crime problem presents significant impediments to effective investigation by any single agency or national jurisdiction. Typically, victims will reside in one or more countries, perpetrators will operate from another, and the financial or money services infrastructure of numerous additional countries are utilized for the rapid movement and laundering of funds.
The most common mass marketing schemes and others that target individual consumers are:
Advanced Fee Fraud – An advance fee scheme occurs when the victim pays money to someone in anticipation of receiving something of greater value, such as a loan, contract, investment, or gift, and then receives little or nothing in return.
The variety of advance fee schemes is limited only by the imagination of the con artists who offer them. They may involve the sale of products or services, the offering of investments, lottery winnings, “found money,” or many other “opportunities.” Clever con artists will offer to find financing arrangements for their clients who pay a “finder’s fee” in advance. They require their clients to sign contracts in which they agree to pay the fee when they are introduced to the financing source. Victims often learn that they are ineligible for financing only after they have paid the “finder” according to the contract. Such agreements may be legal unless it can be shown that the “finder” never had the intention or the ability to provide financing for the victims.
Foreign Lottery Fraud – In Foreign Lottery Fraud, the victim is notified that he or she has won a lottery or sweepstakes but must first pay various taxes and fees before receiving the prize. The subjects, posing as lottery administrators, often send the victim a counterfeit check representing all or a portion of the victim’s winnings, and require that the victim send money back to cover the taxes and fees only to discover they must reimburse their financial institution for cashing a counterfeit instrument as well.
Identity Theft – Identity theft occurs when someone assumes your identity to perform a fraud or other criminal act. Criminals can get the information they need to assume another person’s identity from a variety of sources, including by stealing wallets and purses, rifling through trash cans or by compromising credit and bank information. They may also approach the potential victim in person, by telephone, or on the Internet and ask for the information.
Letter of Credit Fraud – Legitimate letters of credit are never sold or offered as investments; they are issued by banks to ensure payment for goods shipped in connection with international trade. Payment on a letter of credit generally requires that the paying bank receive documentation certifying that the goods ordered have been shipped and are en route to their intended destination. Letters of credit frauds are often attempted against banks by providing false documentation to show that goods were shipped when, in fact, no goods or inferior goods were shipped.
Other letter of credit frauds occur when con artists offer a “letter of credit” or “bank guarantee” as an investment wherein the investor is promised huge interest rates on the order of 100 to 300 percent annually. Such investment “opportunities” simply do not exist.
Medicare Fraud – Medicare fraud can take the form of any of the health insurance frauds described above. Senior citizens are frequent targets of Medicare schemes, especially by medical equipment manufacturers who offer seniors free medical products in exchange for their Medicare numbers. Because a physician has to sign a form certifying that equipment or testing is needed before Medicare pays for it, con artists fake signatures or bribe corrupt doctors to sign the forms. Once a signature is in place, the manufacturers bill Medicare for merchandise or service that was not needed or was not ordered.
Medical Equipment Fraud – Equipment manufacturers offer “free” products to individuals. Insurers are then charged for products that were not needed and/or may not have been delivered.
Nigerian Letter Scam (419 Fraud) – Nigerian Letter or “419” Frauds combine the threat of impersonation fraud with a variation of an advance fee scheme in which a letter mailed from Nigeria offers the recipient the “opportunity” to share in a percentage of millions of dollars that the author, a self-proclaimed government official, is trying to transfer illegally out of Nigeria. The recipient is encouraged to send information to the author, such as blank letterhead stationery, bank name and account numbers, and other identifying information using a fax number provided in the letter. Some of these letters have also been received via e-mail through the Internet. The scheme relies on convincing a willing victim, who has demonstrated a “propensity for larceny” by responding to the invitation, to send money to the author of the letter in Nigeria in several installments of increasing amounts for a variety of reasons.
Payment of taxes, bribes to government officials, and legal fees are often described in great detail with the promise that all expenses will be reimbursed as soon as the funds are spirited out of Nigeria. In actuality, the millions of dollars do not exist, and the victim eventually ends up with nothing but loss. Once the victim stops sending money, the perpetrators have been known to use the personal information and checks that they received to impersonate the victim, draining bank accounts and credit card balances.
While such an invitation impresses most law-abiding citizens as a laughable hoax, millions of dollars in losses are caused by these schemes annually. Some victims have been lured to Nigeria, where they have been imprisoned against their will along with losing large sums of money. The Nigerian government is not sympathetic to victims of these schemes, since the victim actually conspires to remove funds from Nigeria in a manner that is contrary to Nigerian law. The schemes themselves violate section 419 of the Nigerian criminal code, hence the label “419 fraud.”
Prime Bank Note Fraud – International fraud artists have invented an investment scheme that supposedly offers extremely high yields in a relatively short period of time. In this scheme, they claim to have access to “bank guarantees” that they can buy at a discount and sell at a premium. By reselling the “bank guarantees” several times, they claim to be able to produce exceptional returns on investment. For example, if $10 million worth of “bank guarantees” can be sold at a two percent profit on 10 separate occasions, or “traunches,” the seller would receive a 20 percent profit. Such a scheme is often referred to as a “roll program.”
To make their schemes more enticing, con artists often refer to the “guarantees” as being issued by the world’s “prime banks,” hence the term “prime bank guarantees.” Other official sounding terms are also used, such as “prime bank notes” and “prime bank debentures.” Legal documents associated with such schemes often require the victim to enter into non-disclosure and non-circumvention agreements, offer returns on investment in “a year and a day”, and claim to use forms required by the International Chamber of Commerce (ICC). In fact, the ICC has issued a warning to all potential investors that no such investments exist.
The purpose of these frauds is generally to encourage the victim to send money to a foreign bank, where it is eventually transferred to an off-shore account in the control of the con artist. From there, the victim’s money is used for the perpetrator’s personal expenses or is laundered in an effort to make it disappear.
While foreign banks use instruments called “bank guarantees” in the same manner that U.S. banks use letters of credit to insure payment for goods in international trade, such bank guarantees are never traded or sold on any kind of market.
Overpayment Fraud – Overpayment Fraud often occurs when a person advertises an item for sale in a newspaper or online. The seller is contacted by an individual wishing to purchase the item. The purchaser sends the seller a counterfeit check for an amount greater than the price of the item and asks the seller to deposit the check and to return the remaining money or to send it to another person (often a “shipper” or “agent” who works for the purchaser) only to discover they must reimburse their financial institution for cashing a counterfeit instrument, too.
“Ponzi’ Schemes – “Ponzi” schemes promise high financial returns or dividends not available through traditional investments. Instead of investing the funds of victims, however, the con artist pays “dividends” to initial investors using the funds of subsequent investors. The scheme generally falls apart when the operator flees with all of the proceeds or when a sufficient number of new investors cannot be found to allow the continued payment of “dividends.”
This type of fraud is named after its creator—Charles Ponzi of Boston, Massachusetts. In the early 1900s, Ponzi launched a scheme that guaranteed investors a 50 percent return on their investment in postal coupons. Although he was able to pay his initial backers, the scheme dissolved when he was unable to pay later investors.
Pyramid Schemes – As in Ponzi schemes, the money collected from newer victims of the fraud is paid to earlier victims to provide a veneer of legitimacy. In pyramid schemes, however, the victims themselves are induced to recruit further victims through the payment of recruitment commissions.
More specifically, pyramid schemes—also referred to as franchise fraud or chain referral schemes—are marketing and investment frauds in which an individual is offered a distributorship or franchise to market a particular product. The real profit is earned, not by the sale of the product, but by the sale of new distributorships. Emphasis on selling franchises rather than the product eventually leads to a point where the supply of potential investors is exhausted and the pyramid collapses. At the heart of each pyramid scheme is typically a representation that new participants can recoup their original investments by inducing two or more prospects to make the same investment. Promoters fail to tell prospective participants that this is mathematically impossible for everyone to do, since some participants drop out, while others recoup their original investments and then drop out.
Recovery Schemes – Victims are contacted by perpetrators posing as law enforcement officers, government employees, or lawyers to inform victims that the persons responsible for the original fraud schemes have been arrested or successfully sued and their bank accounts have been seized. The victims are told the seized money is going to be returned to the victims, but the victims must first pay fees for processing and administrative services. Recovery pitches often target victims many months or years after the original fraud schemes.
Redemption / Strawman / Bond Fraud Schemes – Fraudsters employing a Redemption scheme claim that the U.S. government or the Treasury Department control bank accounts, often referred to as “U.S. Treasury Direct Accounts,” for all U.S. citizens that can be accessed by submitting paperwork with state and federal authorities. Individuals promoting this scam frequently cite various discredited legal theories and may refer to the scheme as “Redemption,” “Strawman,” or “Acceptance for Value.” Trainers and websites will often charge large fees for “kits” that teach individuals how to perpetrate this scheme. They will often imply that others have had great success in discharging debt and purchasing merchandise such as cars and homes. Failures to implement the scheme successfully are attributed to individuals not following instructions in a specific order or not filing paperwork at correct times.
This scheme predominately uses fraudulent financial documents that appear to be legitimate. These documents are frequently referred to as “bills of exchange,” “promissory bonds,” “indemnity bonds,” “offset bonds,” “sight drafts,” or “comptrollers warrants.” In addition, other official documents are used outside of their intended purpose, like IRS forms 1099, 1099-OID, and 8300. This scheme frequently intermingles legal and pseudo legal terminology in order to appear lawful. Notaries may be used in an attempt to make the fraud appear legitimate. Often, victims of the scheme are instructed to address their paperwork to the U.S. Secretary of the Treasury.
“Rolling Medical Lab” Schemes – Unnecessary, and sometimes fake, medical tests are given to individuals at health clubs, retirement homes, or shopping malls and billed to insurance companies or Medicare.
Services Not Performed Frauds – Customers or providers bill insurers for services never rendered by changing bills or submitting fake ones.