INTRODUCTION This mini-lesson includes learning objectives,background information, discussion questions,an activity, and sources of additionalinformation.
OBJECTIVESLearners will:• Identify and describe examples of Internet fraud.• List ways to protect yourself from Internet fraud.
Swindlers Have Computers TooCyberspace is a vast new territory forunscrupulous marketers. The National FraudInformation Center reports that whilefraudulent commercial activity on the Internetis becoming a major problem, there is anongoing increase in deceptive and misleadingpromotions.
SwindlersSwindlers are attracted to the Internet because theycan reach thousands of consumers inexpensively,quickly, and anonymously. Few restrictions existon the Internet, making it easy to place deceptiveor misleading information online.Judging the accuracy and reliability of onlineinformation is a major challenge for consumers.False or misleading information related to personalfinance or health issues, for example, could lead toserious consequences for unsuspecting consumers.
FRAUD ON THE NETThe Federal Trade Commission beganinvestigating fraud on the Internet in 1994. Theyfound that the same kinds of fraud that occur inother places also surface on the Net. Electronicbulletin boards, chat groups, and e-mail networksare fertile grounds for old-fashioned scams thatapply false advertising claims and deceptivemarketing practices.
Electronic Bulletin BoardsElectronic Bulletin Boards provide new sourcesof information to Internet users telling aboutproducts, services, and investment opportunities.At the same time these electronic bulletin boardscan carry false and misleading ads for productsthat promise quick solutions to desirable goalssuch as weight loss or easy business success. Theplan is to have you use your PC to make plentyof money in a short period of time.
Discussion GroupsDiscussion groups or chat forums often form onthe Internet where interested parties canexchange information on specific topic areas.These chat rooms sometimes appear to be opendiscussion when they are sales pitches indisguise. In some cases, people involved in thediscussion may have financial ties to businessesthat sell products or services related to the topicarea. This disguised advertising may not beobvious to the consumer.
E-Mail ScamsE-mail scams intentionally mislead consumers byusing deceptive marketing practices to gain theconsumers interest in their product. For example,the use of a particular product is advertised to cure aspecific medical condition. These are the samehealth, diet, and fitness schemes that occur in othermarketplace venues, such as mail-order, TV, andtelemarketing schemes. Other types of e-mail scamsinvolve the sale of worthless products, phony creditrepair companies, easy loans, term paper peddlers,expensive work-at-home deals, psychic hotlines,and deceptive promises related to contests, awards,sweepstakes and free gifts.
Pyramid or Ponzi SchemesPyramid or Ponzi schemes and chain letters arewell suited to the Internet because they enticeinvestors with the promise of quick profits using ahome computer. Investors make money byrecruiting new investors. The problem is that soonthe program runs out of new investors and mostplayers lose the money they invested. Chain letterschemes ask participants to send money to thenames at the top of a list with the promise that theywill eventually receive thousands of dollars whentheir names come to the top. Unsuspecting personslose money every day on this illegal practice.
Investment OpportunitiesRisk-free investment opportunities on theInternet offer fraudulent technological andexotic investments such as wireless cable,bogus securities, or worthless land. Theseinvestments promise to yield far greater returnsthan do commonly available investmentproducts. The term "risk-free" is highlymisleading. Few consumers get their moneyback, much less make a profit.
Stock ManipulationsPump and Dump stock manipulations on theInternet encourage investors to buy a particularstock, which is usually little known and low cost.The promoters may even advertise that they haveinside information. They make their profit whenconsumers buy the stock, or pump up the priceand the promoters then promptly sell, or dumptheir shares and the stock prices immediatelyfall. This scheme can also work in reverse; ashort seller makes a profit when the price of thestock goes down.
Problems With Internet TransactionsTwo problems with Internet sales transactions arepersonal data privacy and verification that bothbuyers and sellers are authentic. Many consumersare concerned about the confidentiality of theirpersonal financial information on the Web. Whenyou make a purchase on the Internet, your creditcard number could fall into the wrong hands.Personal data can be collected and organized intodatabase files. When you become a part of an on-line service, your personal data can be available toeveryone in that system. Reputable merchants’database may be tempting targets for hackers.
Encryption softwareVerification that consumers are who they say theyare can be solved by an electronic equivalent of asignature or a drivers license. A software productcurrently used by merchants, banks, and brokeragehouses tells who the user is and what privileges heor she has. There is a growing interest in creditcard payment systems that would safeguard creditcard purchases on the Net. Encryption software canscramble your personal information so that it canbe read only by the sender and the receiver. Theproblem remains that personal data might still beavailable to certain employees or hackers.
Risky BusinessExperts urge consumers to avoid dealing withInternet sites they are not familiar with, and evenwhen dealing with a well-known business, to callthe business directly to verify that the site exists.It continues to be a risky business to givepersonal information, including their address andphone number, credit card numbers, socialsecurity numbers, and bank account numbers onthe Internet.
PROTECTION AGAINST INTERNET FRAUDMost people find it hard to believe that they couldbecome victims of fraud, but one should neverunderestimate the ingenuity of swindlers whomake money by misleading others. State andfederal laws and agencies have limited capacity toprotect consumers from fraud on the Internet. Thesavvy consumer must stay alert to the possibilityof fraud. The National Fraud Information Centeroffers the following suggestions for side-steppingfraud on the Internet:
Side-stepping Fraud• Never reveal checking account numbers, credit card numbers, or other personal financial data at any Web site or online service location unless you are sure you know where this information will be directed.• When you subscribe to an on-line service you may be asked for credit card information. When you enter any interactive service site however, beware of con artists who may ask you to "confirm" your enrollment in the service by disclosing passwords or the credit card account number used to subscribe.
More Facts• Use the same common sense you would exercise with any direct or telephone credit card purchase. A flashy professional Internet Web Site does not guarantee that the sponsor is legitimate. Know the company with which you plan to do business.• Report anything you see on the Internet that you suspect might be fraudulent. The National Fraud Information Center toll-free number is 1-800-876-7060. Their mailing address is P.O. Box 65868, Washington, D.C. 20035. Their Web address is http://www.fraud.org.
ComplaintsYour state Office of the Attorney General isempowered to investigate consumer complaints,including Internet complaints, and can give youinformation about any problems or concerns theyhave encountered with the business.The Better Business Bureau can tell you if therehave been any complaints or inquiries about abusiness and how it was resolved. Some onlineadvertisements will have a blue-seal that you canclick on to connect to the Better Business Bureaufor a report on the advertisers track record.
Federal Trade CommissionThe Federal Trade Commission enforces severalconsumer protection laws that are relevant tocomputer transactions, such as false advertisingand consumer credit. Suspicious actions on theWEB, when reported to the National FraudInformation Center, are shared with the FederalTrade Commission and the National Associationof Attorneys General. In this way, consumersjoin with state and federal agencies in actions tocurtail fraud on the Internet.
Buyer BewareAlthough many regulations and agencies have beenestablished to protect consumers from fraud, theprinciple of caveat emptor, let the buyer beware,remains the consumers best protection. Legalprotections are limited, fraudulent activitiesflourish, and once money is lost in a fraudulentscheme, the chances of getting it back areextremely small. Awareness of the possibility offraud is your first line of defense.
ActivityAfter compiling your list of individuals andcompanies that may be involved in fraudulentactivity, you will write a letter and submit it for agrade. Refer to the writing rubric for thisassignment.