90 Charged in Web Fraud Crackdown

The FBI’s biggest crackdown yet on Internet fraud has generated criminal charges against 90 people nationwide in connection with bogus auctions, pyramid schemes and other high-tech con games to rob consumers of millions of dollars, authorities said Wednesday.

The biggest hot spot has been San Diego, where authorities have charged a total of 39 suspects--including 20 on Wednesday--in connection with a variety of get-rich-quick schemes fueled by the wide reach of the Internet.

Assistant U.S. Atty. Steven Peak, the lead prosecutor in San Diego, said members of a Los Angeles-affiliated ring known as The Enterprise were so brazen that they continued to operate their schemes even after state and federal authorities took action to shut down their operation.

“The victims told us amazing stories of cashing in their retirement accounts, their certificates of deposit, taking out long mortgages on their homes to invest and ending up wiped out,” Peak said. “Despite the number of people you tell about these schemes, there are people out there who haven’t heard and can be victimized.”

Nationwide, federal and local authorities working together on “Operation Cyber Loss” executed dozens of searches and arrest warrants over the last 10 days, many of them on Tuesday and Wednesday, against Internet fraud suspects.

About 60 of the 90 people charged have been arrested in connection with several dozen Internet scams, with more arrests expected, authorities said.

The operations allegedly generated more than $117 million in criminal profits from 56,000 victims--a sign of how popular a weapon the Internet has become for the tech-savvy criminal. What were once low-tech “boiler room” telemarketing operations now are being conducted via high-speed computers with increasing frequency, authorities said.

Many of the suspects arrested in Wednesday’s sweep allegedly used Internet auction and Web sites to market everything from classic cars to Beanie Babies and then collected millions for goods they never intended to deliver, authorities said.

Other outfits allegedly used Web sites to publicize bogus investment plans, set up Ponzi schemes or promote “revolutionary technology” that sent their stock spiraling upward 600%, FBI officials said.

Some schemes involved the theft of personal identifying information online to get credit cards under a false name. And one Eastern European suspect was accused of hacking into a computer-ordering system to mail out computer merchandise worth $1.5 million.

Though the vast majority of e-commerce transactions are considered legitimate, Deputy Atty. Gen. Larry Thompson said, consumers should be aware that “many criminals have sought to exploit the popularity of the World Wide Web and to turn it into a hotbed of fraud.”

Internet auction scams represent 64% of all Internet fraud, authorities said.

The FBI said the typical scam artist is a man auctioning off video games, consoles, tapes, laptop computers or Beanie Babies. Most often, only a post office box is given as an address--often in California, Colorado, Florida or New York--and the buyer is asked to pay by money order or check.

In the San Diego arrests, the suspects--including 19 who already have pleaded guilty to fraud-related charges--allegedly used computer and telephone solicitations to offer phony partnerships in a variety of businesses, including Internet start-up companies and 900-number phone services.

Targets were offered the opportunity to invest in ventures called Touch Tone One, Touch Tone Two, Bureau Net, Link 900 and Teleserve Partners.

Others were promised a chance to get in on the “ground floor” of Internet shopping malls called Future Net Emporium, Central Plaza Net and Home Net Shopping.

Others that supposedly would provide quick Internet access for businesses were called I-Net Providers in Atlanta, Houston and Philadelphia; Enternet in Chicago, Detroit and Indianapolis; ConnectKom in Seattle; and Intellicom in New York.

One technique used to cheat investors, San Diego district U.S. Atty. Gregory Vega said, was to lure them into investments in which The Enterprise retained rights as the managing partner and then received a management fee of up to 85% of the funds involved.

Authorities said many of The Enterprise’s lower-level operatives worked out of “boiler room” offices in San Diego under the direction of financial bosses in Los Angeles.

Conspirators also used banks in the Cayman Islands, Hong Kong and other foreign locations to keep the Securities and Exchange Commission and the Internal Revenue Service from inspecting or seizing their records and funds.

Most of the cases in Wednesday’s sweep were generated by tips to the Internet Fraud Complaint Center (https://www.ifccfbi.gov), a federal initiative started last year that receives up to 300 complaints a day.

After years of reports of Internet abuse, federal authorities “were really a little slow to get into the game,” said Brian Smith, a Washington attorney who specializes in electronic commerce security. “The fact that there’s now a coordinated effort should really have a deterrent effect, but the key test will be in seeing whether they can sustain it or not.”

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Lichtblau reported from Washington and Perry from San Diego.