Assignment 5

Telemarketing Fraud

 

Prepared for:

Michael Guth

Faculty Mentor

Northcentral University

MICHAEL A. S. GUTH, Ph.D., J.D. Professor of Financial Economics and Law send e-mail (E-mail is quickest method of contact).   116 Oklahoma Ave.   Oak Ridge, TN   37830-8604   Phone: (865) 483-8309

Financial Economics Homepage      ||       Attorney at Law Homepage

Prepared By:

Peter H. Rast

White Collar Crime

CJ5009

Week 7

PETER H. RAST, BSEng - MSFS - MBA
Collision Forensics, Accident Reconstruction, Causation Analysis
P.O. Box 783
Blairsden, CA 96103
Office 530-836-0608, Fax 530-836-0151
e-mail: peterast@inreach.com

Introduction

 

Chapter 8 in the text¹ describes the telemarketing crime known as a boiler room operation, how it is generally accomplished, who does it, and then describes a specific group of telemarketing fraud perpetrators and their characteristics. Telemarketing fraud is characterized by polished delivery, resourcefulness, deceit, paying before delivery, failing to deliver anticipated goods or results, and difficulty in prosecuting offenders².

 

The text describes a boiler room scheme that has as its purpose the fraudulent sale of securities over the phone. There are, however, many other types of telemarketing frauds³:

 

•                     Charity schemes

•                     Credit card, credit repair, and loan schemes

•                     Cross border schemes

•                     Internet related schemes

•                     Investment and business opportunity schemes

•                     Lottery schemes

•                     Magazine promotion schemes

•                     Office supply schemes

•                     Prize promotion schemes

•                     Recovery room schemes

•                     Rip and tear schemes

•                     Psychic lines

 

The National Consumers League reports the average loss reported to them in 2003 was $1504⁴. The most common scam was credit card offers. Interestingly, Nigerian 419 scams (named after the Nigerian Criminal Code section prohibiting such scams) were not on the 2003 list, but were on the 2002 list. Florida, California, and New York are the three top scamster locations. The top payment method is bank account debit; the top method of initial contact is telephone, followed by mail and print. The top two locations for victims are Georgia and Mississippi, fourth is Florida. The age group most defrauded is the 40-49 group. The 30-59 group accounts for 53% of the victims. The over 70 group accounts for 23% of victims, up from 15% in 2002.

 

Prosecution

 

My local department makes no distinction in investigation between telemarketing fraud and other types of fraud. Accordingly, I contacted larger agencies in Sacramento County. I also contacted the District Attorney’s Office in Sacramento County, California, for information concerning telemarketing crime prosecution⁵. I asked basic questions about telemarketing fraud prosecution including crimes prosecuted, conviction rates, and sentences. I was a bit surprised to learn that this office was unable to locate any telemarketing prosecutions. Unfair business practices are normally handled civilly in the consumer protection division. Activities identified as possibly having telemarketing components were normally handled as other matters. This office has no statistics available of conviction rates or sentences.

 

Investigation

 

On July 19, 2004, I met with Lt. Robert Lozito⁶of the Sacramento County Sheriff’s Office. As Operations Commander of the Sacramento Valley Hi-Tech Crimes Task Force, Lt Lozito supervises a task force of 65 people representing thirty four agencies plus five contract forensic examiners. Two deputy district attorneys are assigned to the task force. The Task Force is currently funded at about $6.3 million, much of which comes from federal grants or federal agencies. The balance is provided by local agencies - 40% from the Sacramento County Sheriff’s Department. (http://www.sachitechcops.org/).

 

Sacramento County Sheriff’s Department handles telemarketing fraud in basically the same manner as my department, Plumas County Sheriff’s Office. Initial complaints are handled by patrol deputies or by community service officers at substations. Plumas County Sheriff’s Office deputies would handle the entire investigation. Sacramento deputies may then investigate, or the case may be assigned to a generalist detective. The case may be referred to a specialist detective or, under certain circumstances, to the task force. Once the investigation is complete, or it becomes otherwise necessary, the case may be referred to the District Attorney for further investigation or prosecution.

 

In general, telemarketing frauds are treated locally as larceny and prosecuted under larceny or certain other statutes which involve telephone or other wire communications fraud and theft. However, because the victim pool is large and telemarketing fraud often crosses jurisdictional lines, telemarketing fraud is often handled by state authorities, interagency cooperation, federal authorities, or internationally through Interpol. At present, much fraud activity originates in Africa and Canada.

 

Telemarketing Fraud and the Computer

 

The really interesting revelation that came from this assignment is the melding of telemarketing fraud and computer crime. Computer crime is a broad area of criminal activity of which computer fraud is a subset. Telemarketing crime is migrating to the computer combining compatible elements of both technologies. Lt. Lozito expects more involvement with telemarketing crime as computer use grows in this area.

Background of the merger

 

In the 1970s, as an engineer and sales engineer, I worked with Stromberg Carlson when the company developed the first and second generations of digital central office switches. Western Electric and Siemans, among others, were doing the same. Digital switches are specialized computers that have largely replaced the mechanical switches common in the telephone network for over half a century. This was the beginning of the digital communications network. Broadband digital communications by fiber optics, satellite, and cable have accelerated the evolution of the telecommunications system to what is really a distributed computer system.

 

Today, digital switching, packet switching, and broadband are mature technologies used in the local and long distance telephone network. It is the heart of the cell phone system. The telephone system today is nothing more than a specialized, ubiquitous, distributed computer system. And, the internet is the ultimate contemporary embodiment of the combined telephone and computer system.

 

Telemarketing fraud and the computer

 

Recently, I received the following email, as well as 419 emails and several stock promotion emails:

 

THE UK NATIONAL Lottery Headquarters:

Customer Service

28 TANFIELD ROAD,

CROYDON.LONDON

 

Ref: EAASL/941OYI/02

Batch: 12/25/0034

 

 

WINNING NOTIFICATION:

 

We happily announce to you the draw of THE UK NATIONAL Sweepstake Lottery International programs held on the 1st of JULY 2004 in London. Your e-mail address attached to ticket number: 564 75600545 188 with Serial number5388/02 drew the lucky numbers: 31-6-26-13-35-7, which subsequently won you the lottery in the 2nd category. You are therefore, been approved to claim a total sum of US$2,500,000.00 (Two million, five hundred thousand, United States Dollars) in cash credited to file KPC/9080118308/02. This is from a total cash prize of US $125 Million dollars, shared amongst the first Fifty (50) lucky winners in this category.

 

Please note that your lucky winning number falls within our European booklet representative office in Europe as indicated in our play coupon. In view of this, your US$2,500,000.00 (Two million, five hundred thousand, United States Dollars) would be released to you by our affiliate bank in London. Our agent will immediately commence the process to facilitate the release of your funds to you as soon as you make contact with her .

 

All participants were selected randomly from World Wide Web site through computer draw system and extracted from over 100,000 companies. This promotion takes place annually. For security reasons, you are advised to keep your winning information confidential till your claims is processed and your money remitted to you in whatever manner you deem fit to claim your prize. This is a part of our precautionary measure to avoid double claiming and unwarranted abuse of this program by some unscrupulous elements.

 

Please be warned.To file for your claim, please contact our fiduciary agent with the below details for processing of your claims.

 

AGENT: Mrs Vivian Joseph

Email:vivianjoseph@linuxmail.org

To avoid unnecessary delays and complications, please quote your reference/batch numbers in any correspondences with us or our designated

agent. Congratulations once more from all members and staffs of this program. Thank you for being part of our promotional lottery program.

 

Sincerely,

Micheal Ronin.

Online coordinator for UK NATIONAL LOTTERY

Sweepstakes International Program

 

This is the computer version of the telemarketing scam known as a cross border or lottery fraud. Note that secrecy is urged. Also note the grammar and punctuation is similar to that in 419 scams. As the Justice Department points out, these scams are being carried out partly or entirely by computer, as well as by telephone. In other similar solicitations I have received, there have been telephone numbers to call as well as email addresses to which to respond. I have received 419 scam letters by mail as well as by email. Lt Lozito advises 419 scams still snare lots of people.

 

This morning I received this email:

 

Mon, 26 Jul 2004 06:05:43 -0500

 

               Hot For July 26th,2004 Ticker:NCVM

 

       literati---Special_Alert-NCVM---roustabout

 

            *NCVM is our new special alert - Nova To Acquire Multimillion

            Dollar Company The best stock for short and long term investors.

 

            *Nova To Acquire Multimillion-Dollar Company

 

    !! EXPECT HUGE COVERAGE and Positive news from the company!!

 

            NCVM - this stock will get enourmous exposure and very goodnews

            are being extected Read this - Nova To Acquire Multimillion-Dollar

            Company,

 

            HOT New Issue - Nova Communications Ltd.- TICKER: NCVM

 

            HUGE NEWS: Nova To Acquire Multimillion-Dollar Company

 

            The Stock will EXPLODE on 26th of July .. Huge Exposure expected

 

            Dont sleep on this stock - get in today! NCVM will explode on 26th

            of July and next week when even better news are expected

 

            NCVM just released Very HOT news. Please read below, we expect that

            any newsletters will cover NCVM in next 5 days and we believe the

            stock is headed to $3-5 cents.

 

            Price:0.012

            Near-term:0.05

            Long-term:0.09

 

                      NCVM*NCVM*NCVM*NCVM*

 

            Great News:

            TORRANCE, Calif., (BUSINESS WIRE) -- Nova Communications Ltd.

            (NCVM) announced today that pursuant to its recently announced

            acquisition and business development initiatives, it has signed

            a binding Letter of Intent to acquire Mid-Cities Paper Box, Inc.

            in a stock transaction.

 

            With 2004 revenues projected to exceed $20,000,000, Mid-Cities

            is based in Orange County, Calif., and was established in 1949.

            The Company is one of the oldest and largest packaging and printing

            companies in the Western United States.

 

            The execution of this Letter of Intent is in accordance with the

            Company's previously announced plans to identify, evaluate, and

            acquire flourishing companies in both watercraft and diversified

            industries.

 

            Nova CEO Ken Owen commented, "Having found a number of interesting

            projects and companies to possibly add to our current business

            development initiatives, Management believes we have found a 'golden

            opportunity' in Mid-Cities Paper Box, Inc."

 

            "Mid-Cities is a long-established and profitable cash cow that is

            projected to generate revenues in excess of $20,000,000 in fiscal

            2004. After thorough research and due diligence reviews of this

            industry, Management feels this is a tremendous opportunity for

            Nova and its shareholders," Owen added.

 

            Get It Immediately Monday Morning For Great Gains All Week!

            soughtD, is cla im, er.sprout

 

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S. ec. urities Lit. ig ation Reform Act of 1995. These statements may include

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            third party to send this report. Do your own research before investing.

            You may lose money from investing in Pe. nny S.to, cks.

 

This is the internet version of the boiler room scam. Notice the very poor spelling and grammar

 

Investigation and prosecution

 

Because most telemarketing fraud is interstate or international, most of the enforcement activity appears to be on the national and international level⁷. Even the case described by Doocy, et al, was national in scope. Enforcement was by federal authorities. An example of a successful national cooperative effort involving local and national agencies was Operation Disconnect⁸.

 

The Department of Justice prosecutes civilly and criminally through various agencies. Indictments are handed down by federal grand juries for:

 

 

•                                             Wire fraud                                                                        18USC1343

•                                             Mail fraud                                                                        18USC1341

•                                             Conspiracy to engage in wire and mail fraud            18USC371

•                                             Money laundering                                                            18USC1956 and 1957

•                                             Financial institution fraud                                                18USC1344

 

Civil action is undertaken at the request of the Federal Trade Commission for unfair business practices and for the Securities and Exchange Commission for securities violations. These actions result in injunctions, cease and desist orders, and restitution. Violations of the orders are contempt of court which can result in federal prison terms.

 

Conclusion

 

Telemarketing crimes are often investigated and prosecuted interjuridictionally, generally on the state or national level. Locally, such frauds are handled in the same manner as other frauds.

 

Most interestingly, traditional telemarketing scam techniques seem to be giving way to computer based scams, although telephone scams will not soon disappear. Traditional telemarketing scams are merging with computer scams. Investigation and prosecution of computer based telemarketing scams may be handled more frequently by task forces that cross state and national borders. Investigation techniques will rely more on computer crime investigation teechniques than on more traditional fraud investigation techniques.