FTC ends elaborate virtual company scam

The Federal Trade Commission (FTC) has put an end to an elaborate off-shore virtual company scam that stole millions, a penny at a time.

MacWorld reports how the scammers were able to use Regus to create fictional addresses near legitimate companies, allowing them to steal the tax identity of the real ones. Another legitimate service called Earth Class Mail was then used to transfer correspondence sent to the fictional address, while United World Telecom’s CallMe800 was used for forwarding calls. Fake websites were set up to further the illusion that the scams were genuine.

You might think having a foreign IP address would be the giveaway here, but they thought of that too and used American IP addresses located near their fictional office building.

The fake companies would charge people between 25 cents and $9, keeping the numbers small to avoid detection. Most fraud systems only come into effect after $10, showing that the scammers were well clued into the loopholes of the system. Even if people recognised that they had been illigitimately charged, they were unlikely to complain about 25 cents, particularly if the phone charges for making the complaint would likely cost more. 94 percent of the illegal charges were uncontested, but since over 1.35 million credit cards were charged the scammers made a whopping $9.5 million (£6.3 million).

To get the money out of the country the scammers hired people via e-mail spam. These naive people would then set up bank accounts and help move the money off-shore. One of these “money mules” mentioned by the FTC was James P. Smith of Brownwood, Texas, who worked for a fictitious Alex Moore, for four years, not realising that the whole endeavour was illegal. We advise people not to take jobs e-mailed to them that they did not apply for, especially if the offers can be found in the spam folder.

116 fake merchant accounts were created, 110 of which were with First Data, suggesting that the payment processing company may be a little lax in its vetting procedures, a fact that scammers would have a keen eye for.

“It was a very patient scam,” said Steve Wernikoff, an FTC attorney working on the case. “The people who are behind this are very meticulous.”

While the scam was quashed, none of the scammers have been identified or caught, allowing them to set up shop in another country.