You've Got Fraud! The scams aren't new, but con artists are using technology to find fresh victims among the greedy and the gullible.
By Peter Lewis

(FORTUNE Magazine) – Have you been warned about the 908-area-code scam? It goes like this: You get a pager message (or an e-mail message, or a message on your answering machine) asking you to call a telephone number beginning with the area code 908. It may be just a phone number on the pager display, or it could come with a story: Your relative is desperately sick, or you just won a big prize in a contest you can't remember entering, or some company you've never heard of is threatening to sue you over a past-due debt. So you call the number, thinking it has just another one of those confusing new area codes in North Carolina or someplace. Your call is placed on hold until you hang up in frustration. When your phone bill comes, it's for $22,100! It turns out the 908 area code is in the Caribbean. Your phone company says, Sorry, we don't have any control over the rates charged by foreign companies.

Actually, the warning itself is a fraud. According to consumer watchdog agencies, some people did lose a few hundred dollars--certainly not thousands--to a very real 908 telephone scam about five years ago, but since then, thanks to the endless recycling abilities of e-mail, the warning message has taken on an inflated life of its own, much to the dismay of legitimate businesses in the 908 (British Virgin Islands) area code.

On another level, however, the fact that so many people have been suckered by the area-code warning simply underscores how modern technology has created new opportunities for grifters, swindlers, and flimflammers. In simpler times these confidence men (and women) had to have charisma; now any socially retarded dork with access to the Internet can cast a global electronic net for unsuspecting consumers, using e-mail, mobile telephones, Web-hosting services, fax machines, digital pagers, instant messaging, and other modern communications tools.

Following are some of the more popular scams making the rounds, along with advice on how to avoid becoming a digital dupe. The scams haven't changed much over the years--with the exception of the modem-rerouting scam that preys mainly on sex-starved teenagers--but they've definitely accelerated and broadened their reach along with the rise of the Internet and other communications technology.

Take the Nigerian Bank scam, for example, which recently intrigued our FORTUNE colleague Stanley Bing. It's merely the Internet-era version of the decades-old Congo Oil scam. Tens of millions of dollars are being held in a secret Nigerian bank account, and 15% or more of the fortune awaits the first person to facilitate its transfer to an American bank. Naturally, some good-faith fees must be paid up front. According to the Missouri Attorney General's office, this scam has tricked greedy but gullible Americans out of an estimated $100 million in the past year. The Missouri authorities arranged recently to bring felony fraud charges against two Canadian men who allegedly used the ploy to take two Missouri residents for $90,000. Computer records seized from the accused swindlers indicated that another victim was scammed out of $3 million.

A much less interesting but similar e-mail scam is the Make $1,000 a Day Working at Home pitch, which sounds great but requires a payment for supplies or mailing lists or something. Or, You've Won a New Car! in some contest and all you have to do to claim it is pay the taxes and fees first.

Then there's the Dangerous Download scam that entices teenage boys (and apparently some older men, as well) to download free dirty pictures ("No credit card required!") from a Website. Teenagers typically don't have the credit cards needed to gain access to most commercial porn sites. Unfortunately, in the heat of the moment, few downloaders take time to read the legal agreement explaining that by clicking on the button they agree to pay international phone tariffs and extra fees. Clicking on the FREE DOWNLOAD button causes the computer's modem to hang up and redial a long-distance call to Chad, Africa. It takes quite a while to download a dirty picture over a dial-up modem to Chad, but some youths devote hours a day to the effort. At the end of the month, Mom and Dad get a four-digit phone bill. (Although the phone companies occasionally show mercy and forgive the charges, in most cases they say if the call was made, the bill must be paid.)

Serves the perverts right, eh? Not so fast. The majority of Internet-related consumer complaints come from online auctions, according to the National Fraud Information Center, a project of the National Consumers League. Auction companies like eBay, Amazon, and Yahoo assert that more than 99% of their transactions end happily, but if fraud touches even 1% of the estimated 1.3 million items sold on any given day, it's a huge consumer problem.

Would you buy a product sight-unseen from someone you know only as an e-mail address, or whose address is a post office box? Millions of people do, and abuses seem inevitable. Some people pay for merchandise but never receive it. Some items are misrepresented, fake, or damaged. Some auction bidders fall prey to shills who, working for the seller, drive up the bids to wring more money from legitimate buyers.

In some circumstances, eBay will indemnify a buyer for up to $175 in losses due to fraud. For purchases greater than $500 or so, it makes sense to use an escrow service like Tradenable, but fees can be as high as 4% of the purchase price. Play it simple but safe: Buy only from sellers who have good feedback ratings from other buyers.

Some of the most sophisticated scams, at least from a technology standpoint, are aimed at America Online (the flagship Internet service of AOL Time Warner, parent of FORTUNE's publisher). In many cases the user receives an e-mail message purporting to be from AOL customer service and offering some sort of attractive deal, or notifying the user of a problem with his or her credit card. The link takes the user to an official-looking Website with AOL's logo and perhaps even AOL's name in the address. There, visitors are asked for their user names and passwords, or asked to download a special file (which turns out to be a Trojan horse), or asked for credit card information. The sites are bogus, of course. An AOL spokesman repeated several times that no AOL employee will ever ask for the user's password.

In the end, the authorities say, almost all cases of high-tech fraud can be prevented. It doesn't take a computer genius, just some plain old common sense.