Anatomy of a scam

Nov. 29, 2006
By JOSEPH M. DELEON News-Post Staff
jdeleon@fredericknewspost.com

     FREDERICK — A trio of U.S. Secret Service agents gathered around two envelopes addressed to Frederick resident Charles Dwyer last month. One envelope held a congratulatory letter and a check, the other a twopage form with a perforated bank draft.
     Mr. Dwyer knew the checks were a ploy because he never entered a lottery and agreed to turn over the documents to the Secret Service.
     The checks were sent by scammers, con artists who make a growing number of attempts each year to defraud people of their money. Last year, more than 686,000 people filed fraud and identity theft complaints with the Federal Trade Commission reporting more than $680 million in losses.
     The agent in charge, Edwin Lugo, put on black latex gloves to examine one of Mr. Dwyer's checks under a magnifying lens. Behind him, a panorama of Baltimore's Inner Harbor wrapped around the 11th floor corner office.
     The agent looked for clues on how the checks were printed by examining the security features, such as water marks and microprinting — a line of text too small to duplicate clearly.
     “I can see there is an effort at microprinting,” he said. “Somebody sat down and took a long time with an original check to reproduce it in similitude like this.”
     Marylanders filed 8,413 reports of fraud and 4,848 cases of identity theft with the FTC last year, accounting for more than $10 million in losses.
     The Washington area has the highest per capita rates of consumer fraud reported, followed by Tampa, Fla. and Seattle, according to the FTC.
     Phony prize sweepstakes, such as the two Mr. Dwyer received in the mail, account for only 7 percent of frauds reported, and mail is used in only 18 percent.
     While Internet-related complaints accounted for 46 percent of all reported frauds nationwide, mail operations are complex and usually target people older than 50.
     More than 99,000 people older than 50 filed fraud-related complaints with the FTC last year.

Dissecting a scam
     While examining the documents, Mr. Lugo pulled a five dollar bill from his wallet. Next to the banner under Lincoln's portrait, what appears to be a fine line forms the inner edge of the oval around the president's head.
     Under magnification, the end of the line forms the words “THE UNITED STATES OF AMERICA.” Such microprinting is almost impossible to reproduce, he said.
     He placed the check sent to Mr. Dwyer under the lens again. The check's border seemed to be made of letters, but was illegible.
     “When the bad guy tries to counterfeit (a check), this microprint is difficult to reproduce,” Mr. Lugo said.
     A scam starts long before a fake check arrives in the mail, Mr. Lugo said. Until the computer age, scammers had to hand-etch printing plates to make counterfeit checks, money orders and cash. Few still do, preferring the latest in computer technology.
     As forgers and computer technology got better, microprinting, watermarks and special inks were adopted to deter counterfeiting, he said. Now, most criminals use a high-end scanner and digital printer.
     No matter how much time a criminal takes to make a fake document, an error will stand out, Mr. Lugo said. Sometimes it's awkward language or misspelled words on the congratulatory letter. Often, the wrong address is listed for a bank on the check.
     The letters addressed to Mr. Dwyer had these clues plus an unusual page header that didn't match the rest of the letter — the company logo, date and salutation were poorly rendered.
     “You don't just look at one thing to know it's a scam — you have to find several inconsistencies, and as you find these items, it should strengthen your belief that it's not legitimate,” Mr. Lugo said.
     Preparing the fraudulent documents might be the most technical part of the scam, but the most important element is social engineering — deceiving people with something tempting, gaining their trust and then closing the deal with an offer that's too good to miss.
     “Forget about all the technical irregularities — the effort that someone takes to understand social engineering can save them a lot of anguish later.”

Engineering a scam
     After examining the documents, Mr. Lugo folded them back into the their envelopes then walked to his desk. He crossed his arms and sighed. A deep furrow dug its way into his brow.
     “I remember a reverend who fell for one of these scams years ago. He stood there and just bawled, I mean, here was a grown man in absolute tears,” he said. “He spent money from the church and from the congregation, got them excited about money that was supposed to take care of them all, but it never happened — they lost it all.”
     One way con artists lure their targets is to use phantom fixation or promising something of value that doesn't exist, Mr. Lugo said. It works because the targets stop thinking logically when they become fixated on getting the money.
     Many scam artists get to know their targets, Mr. Lugo said. They'll ask about their family problems, medical history and financial situation.
     “They'll find a vulnerability and they'll exploit that,” Mr. Lugo said. “They'll tell you these winnings will help you realize your dreams and solve all your prob lems. And people want it to be true.”
     To gain the mark's trust, a scammer might make a request for help, Mr. Lugo said. The plea is used to manipulate the targets' conscience, but it also gives them the false impression of being in control.
     That's the premise behind the so-called Nigerian scam where a former government official asks for help transferring money out of the country using the target's bank account. It's a ploy to get the information scammers need to withdraw money, leaving the victim's bank account empty.
     “All of this printing, mailing and planning, all of it, is for just $50,” Mr. Lugo said as he motioned to one of the letters addressed to Mr. Dwyer. “If you're ripped off for $50, are you going to commit your assets to investigate a fraud for that amount? But, that's where the floodgate starts.”
     Many scam artists rely on mailing lists they can buy online from a list broker, often a direct marketing business that sells addresses based on specific demographic information, such as age, ZIP code and reported income.
     “There is a legitimate use for these lists, but when it gets into the wrong hands, it can get ugly,” Mr. Lugo said. “If someone sends in a check for $50, and imagine that multiplied by hundreds of victims — now they have you.”
     People who respond to a lottery they don't remember entering give the con artist several things: an address to continue to target, bank account information and a signature — the perfect recipe for identity theft. Most importantly, the scammer has learned the target is gullible, Mr. Lugo said.
     “Now that they know you'll bite, why not take it to $5,000 in the next letter?” he said. “That's the social engineering aspect of it; the bad guys are counting on you to want to believe it, but you wind up just chasing a dream.”
     To close the deal and draw the target in deeper, scam artists sometimes send another, larger check disguised as the first installment of many to come. Once the check clears, the target is convinced payday is near.
     “Once someone is caught up in this scam, they'll be in denial,” he said. “They will only accept what they want to be true — they will never accept it's a fraud.”
Is there justice?
     Many scam artists operate outside the United States, where the Secret Service has little if any power. Most use technology that makes it difficult for agents to track their movements.
     Electronic transfers are the preferred method of moving money between accounts. Scam artists use anonymous e-mail accounts and pre-paid cell phones, called burners, which they discard often.
     Mr. Lugo would not reveal how the Secret Service catches scammers, but expressed frustration over the light sentences many receive.
     “If they do get caught, it's usually just a slap on the wrist,” he said. “We're talking no jail time and just a small fine — it's profitable for them to continue.”
     Catching a criminal in another country is hard enough, but dealing with another country's legal system can be worse. Foreign governments often hold the victim of the scam partly responsible.
     Law enforcement agents from the United States are usually not allowed to operate undercover in other countries. Many governments believe the crime would not have been committed had the agent not provoked it.
     “Many foreign judicial systems treat these crimes differently than we do,” Mr. Lugo said. “The person who was scammed participated in the crime and should be held accountable — The other county wants to know why they should give this (person) their money back.”