Wednesday, September 16, 2009

Scamming America

It’s one of the biggest scams in the USA , according to the Federal Trade Commission. Yet chances are that most Americans don’t know much about it. In a bizarre twist on our nation’s traditions of justice, victims of this financial ripoff are treated like criminals, forced to pay for someone else’s fraud—and, in some cases, arrested for being taken in by widespread, professionally run counterfeit check and money order operations.

"It’s usually the elderly who get scammed," says a detective assigned to financial crime cases in a Los Angeles suburb. But not always. Younger people using the Internet to look for a roommate, sell an item or answer an ad for making money doing online work have also been hooked by sophisticated hustlers. "I investigated a case where a woman thought she was doing work online for medical billing. She went to the bank and got arrested for depositing a counterfeit check," the Glendale , California detective added.

Glendale police are currently investigating a case where a 29-year-old local man, a relative of mine, got entangled in a check scam while seeking a roommate to share rent, through an ad placed on craigslist. While such fraudulent financial schemes—involving interstate email communications and transfers of money via UPS and Western Union —are a federal crime, the local detective holds out little hope of anyone being convicted in this type of scam. "I guarantee that the federal government isn’t going to do much," he said. Yet, "only they have the resources" to investigate and shut down these operations.

The problem from a local police perspective, said Detective Jason Ross, is that "it can take two to three weeks to get access to investigate the IPO address" of the party who responded to the roommate ad and arranged for a check to be sent—to cover a month’s rent and pay a bill from a shipper for the new roomie’s things—that turns out after it’s been cashed to be counterfeit. And then it could turn out that the emails were sent from Eastern Europe or Nigeria , outside of American legal jurisdiction.

Tracing the cash sent by the unwitting Glendale man to a shipping company in Arkansas can be just as frustrating, the detective added. "The money goes to a Western Union office, but it can be diverted along the way to another office" and picked up by an unknown party. "It’s impossible to track down."

The key piece of this scam that allows the operators of these financial crimes to get off scot-free is that they are manipulating a loophole provision in American banking procedures. That provision holds that the person who cashes a check is responsible for knowing whether it is a valid check. "The banks typically aren’t held responsible for this," the detective said.

That means the victims are stuck with repaying the bank for a counterfeit check or money order that the bank accepted and paid cash on. And so these financial scams have mushroomed like Madoff’s international investment Ponzi schemes. "The only way to prevent them is to educate people about scams," the detective concluded.

Yet, there is much more to this story than the need for more press releases from police on the latest scam. For one thing, this form of fraud is so pervasive it has its own category on the Federal Trade Commission website, its own entry on Wikipedia and a dedicated website devoted to trying to stop this particular form of fleecing Americans. It is also descibed in an "avoid scams & fraud" section posted on the craigslist website. Information on how this fiscal ripoff works, however, clearly did not come to the attention of people who were victimized. One reason is that the warnings are provided in the equivalent of the fine print in credit card documents.

Federal and state agencies, including banking regulators, appear to be dozing on these cases. A call to the FBI about the Glendale man’s case resulted in being referred to the Glendale police department. An email contact with the federal Internet Fraud Complaint Center was not responded to. An email to the California Attorney General’s Office of Victim Services got no response.

As for the bank that cashed the dubious check for the Glendale man, it seems to have multiple procedures regarding checks. Another branch of the same bank refused to cash a second check sent to the victim, even though it was drawn on another prominent bank and was purportedly from a legitimate company. So why was the first check readily accepted and cashed at the young man's neighborhood bank branch?

A Congressional hearing, with witnesses testifying under oath, could get to the bottom of why banks and law enforcement agencies seem unable to stop a wide-scale scam of bank clients that may rival Bernie Madoff’s wholesale victimization of investment clients.

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A former detective in Houston, Texas, Brian Bagent, provided more information on these types of fraud, in a reply to a version of this article posted on

Jan, a giant part of this problem is that there is almost nobody investigating it. I spent my last two years in the Forgery Detail of the Houston Police Department investigating exactly this kind of crime.

We had about 15 detectives in our unit, out of a total of about 5200 sworn personnel, allocated to investigate these things (serving a population of 2 million). The Harris County Sheriff’s Department had less than we did (serving a population of 1.1 or 1.2 million). The United States Secret Service’s Houston field office had maybe 10 or a dozen agents assigned to this sort of thing. The FBI’s Houston field office had 7 or 8 agents dedicated to this. We all (the various agencies) concerted our efforts whenever the opportunity arose because most of these rings operated across jurisdictions, as your essay suggests. I spent about a half of each month working cross-jurisdictional cases.

And we were absolutely inundated with financial crimes. Most investigators in HPD (Burglary and Theft, Robbery, Homicide, Vice, etc) were assigned about 25 – 30 cases a month. We were assigned 100 to 125 cases a month. There was no way to even read that many cases, let alone work all of them, so I cherry-picked the ones with losses in excess of $20K, and still had more than I could do anything about. While testifying at a federal trial in Corpus Christi, Texas, my case load came out in the trial. It was embarrassing, to say the least.

It gets worse. Even when we got convictions, sentencing was light – usually no more than 2 or 3 years for thefts that exceeded $100K.

Granted, this was 10 years ago, but I don’t expect much has changed except that it has probably gotten even worse.

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