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Internet scams 101
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June 6, 2001: 9:38 a.m. ET
How you can protect yourself against the big bad wolves of the Internet
By Bettina Teodoro
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NEW YORK (CNNfn) - The Internet has made life a lot easier for consumers. You can buy anything – from your groceries to a DVD player – or pay your bills or tuition, without ever leaving the computer in front of you.
The benefits of the Internet, however, do not come without risks. The same tools that make it easier for you to shop or bank online have also made it easier for unscrupulous predators to take advantage of bargain hunters or those looking to get-rich-quick.
Indeed, dealing with the wrong e-commerce Web site can lead to significant financial loss.
Many are familiar with the woeful tales of investors taken in by companies such as World Interactive Gaming Corp. The New York-based company relied on the popularity of the Internet and false claims by Wall Street brokers to recruit investors to buy units, consisting of 2,000 shares of the company, at a cost of $10,000 per unit.
The Federal Trade Commission (FTC), the chief consumer protection agency in the United States, filed charges against World Interactive in 2000 for using deceptive claims to sell stock in its business, which resulted in, among other things, the company agreeing to return more than $500,000 to jilted investors.
As the number of e-commerce Web sites explodes, so does the number of reports of Internet-related fraud. The FTC says it received more than 25,000 Internet fraud-related complaints last year, significantly higher than the approximately 1,000 received in 1997.
Agencies such as the FTC are well aware of the dangers that lurk on the Internet. "Unfortunately, but not surprisingly, the boom in e-commerce has created fertile ground for fraud," said the FTC in a recent statement before Congress.
"The Commission's experience is that fraud operators are always among the first to appreciate the potential of a new technology to exploit and deceive consumers ... Internet technology is the latest draw for opportunistic predators who specialize in fraud," the FTC added.
For the average consumer not looking to invest tens of thousands of dollars in speculative business ventures, the Internet can still be dangerous territory.
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The boom in e-commerce has created fertile ground for fraud.
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Online shopping is a booming industry, with commerce in North America expected to hit $908.6 billion in 2001 and $3.45 trillion by 2004, according to Forrester Research.
In such an active marketplace, the importance of dealing with reputable e-merchants is immense. The trouble is, with millions upon millions of sites in existence, how can consumers tell which ones are legitimate and which are not?
This is not always easy to do, but following these precautionary measures can help consumers protect themselves from disreputable e-merchants:
Read the consumer information on the site. Study the site's privacy or safe shopping policy for details about safeguarding your personal information and guarantees against unauthorized charges to your credit card. Make sure the site accepts and transmits personal data, such as credit card information, over a secure server that will encrypt the data.
Keep tabs on delivery. Check the site's delivery timetable or ask its customer service department when you should expect to receive your product. Always get a telephone number so you can follow up if you do not receive your product by the stipulated date. Be wary of sites that cannot deliver for an extended period of time, as you won't be able to dispute a charge to your credit card after 60 days from the date of the first bill that stated the charge.
Check for contact information. Never deal with a Web site that does not provide customer service by a live person. If the site only offers an e-mail address (or worse, nothing at all), you should be suspicious.
Find out who is behind the Web site. Unless you are dealing with an established merchant, chances are you won't know who owns or operates the site. Network Solutions, the domain name registrar, offers a service called Whois where you can type in a domain name and view the name and address of the registrant, an administrative contact and a technical contact. This information may be useful if you ever need to track down the operator of a site.
Find out if anyone has filed a complaint against the site. Certain consumer organizations – such as the Better Business Bureau and the Fraud Bureau – provide complaint reports over the Internet. The FTC will only advise if they have taken a law enforcement action against a particular company.
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A little research can help prevent transacting with a sketchy e-commerce Web site. | |
Always pay with a major credit card. Under the Fair Credit Billing Act (click here for summary), you will not be liable for more than $50 for unauthorized or incorrect charges to your credit card, so long as you inform the credit card issuer in writing of the error within 60 days of your receipt of the first bill containing the error.
And if the worst happens and you still get fleeced by a fraudulent operation, file a complaint report. The following agencies all accept complaints filed over the Internet:
-- The FTC. Complaints will be filed in Consumer Sentinel, a database that shares information about suspicious operations with law enforcement agencies in the U.S., Canada and Australia
-- The Better Business Bureau
-- The Internet Fraud Complaint Center, a partnership between the Federal Bureau of Investigation and the National White Collar Crime Center
-- The Fraud Bureau
-- The National Fraud Information Center
And for complaints about foreign companies:
-- Econsumer.gov, a joint effort among 13 countries and the Organization for Economic Cooperation and Development (OECD)
Finally, perhaps the best thing to remember is the old adage, "If it's too good to be true, it probably is."
Most common types of Internet fraud
According to the Department of Justice, the following are the most common types of Internet fraud:
1. Auction and retail schemes – These claim to offer high-end products and, once payment is received, don't deliver the product or deliver counterfeit or altered goods.
2. Business opportunities – These advertise opportunities to earn thousands of dollars a month in "work-at-home" ventures. They usually require customers to pay a fee for starting materials or information, which never arrive.
3. Identity theft and fraud – These involve the wrongful appropriation and use of another individual's personal data for economic gain.
4. Investment fraud – Most common is the "pump-and-dump," where the price of a thinly traded or penny stock is pumped up through the dissemination of false information, after which the fraudster dumps his or her holdings in that stock to realize a substantial profit before the price returns to its usual low level.
5. Credit card schemes – These involve the use of unlawfully obtained credit card numbers to order goods or services online.
6. Other – These include sites that claim to facilitate quickie divorces in foreign countries without having to leave the United States. 
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