Identity Theft Continues to Top White Collar Crimes

We look at the ongoing incidence of securities scams and see an endless plague. Year after year, stock schemes bilk the public out of tens of millions of dollars.

But stock schemes - prevalent as they are - do not constitute the only threat to the public pocketbook. For the sixth year in a row, Identity Theft tops the list of white collar crimes reported to the Federal Trade Commission - representing 37% of all complaints filed. For years, ID theft has been the fastest growing white collar crime. And while the overall rate of increase has started to slow, the incidence of child ID theft has almost doubled over the past two years - from 6,512 reports in 2003 to 11,601 reports in 2005.

Not surprisingly, about half of the consumer frauds cited by the FTC use the internet to snare victims; internet auction fraud ranked second on the FTC's annual list. The most common consumer complaints represent a potpourri of traditional scams that, despite repeated warnings from regulators, continues to ensnare victims. According to the FTC, the prevalent schemes rank as follows (with some thoughts on the more common scams):

1. Identity theft. The continued growth of identity theft seems particularly remarkable in light of the amount of media attention this crime has garnered in recent years. Individuals need to present a first line of defense - refusing to give out personal information online, shredding mail and mailing labels, and limiting access to their personal documents. Consumers should review their credit reports at least twice a year to identify any fraudulent or unauthorized activity.

2. Internet Auctions. While auction frauds have hung on to their number two ranking, they have diminished significantly in the past year. This could signal that consumers have grown wary of internet offers - or that the perpetrators have moved on to more lucrative and novel schemes. The Internet makes it possible for anyone to set up a site, conduct a scam, and disappear. Consumers should only deal with reliable, established auction sites that can show a proven track record. Look for consumer feedback from other people who have used the auction services - but be sure that the feedback is legitimate and not just part of the scam. Legitimate sites will attempt to resolve common disputes over delayed shipments, product quality, or missing payments.

3. Foreign Money Offers. They arrive almost every day - emails begging a stranger to help transfer tens of millions of dollars from an account in some third-world nation - and promising a piece of the action to anyone who facilitates the process. These e-mails - purportedly from foreign officials, deposed government workers, or heirs of deceased government leaders - are bogus on their face. Rest assured, no one is about to divide their fortune with a lucky stranger.

4. Shop-at-home/Catalog Sales. Get all of the details before making any purchase online or via catalog. Do not buy from strangers or make any purchases where the price and all costs (including shipping) have been defined in writing.

5. Prizes/Sweepstakes and Lotteries. Beware of sweepstakes that ask you to pay an advance fee. In all likelihood, they will get your money but you will never get theirs.

6. Internet Services and Computer Complaints.

7. Business Opportunities and work-at-home plans. Here again, be wary of home business "opportunities" that require the consumer to pay an up-front fee.

8. Advance Fee Loans and Credit Protection.

9. Telephone Services.

10. Sundry scams.

Consumers reported losses of $680 million in 2005 from the various schemes. And that does not include securities scams - not the province of the FTC - which result in hundreds of millions in additional losses each year.

The categories have remained relatively constant in recent years, but fraudulent techniques have evolved. Over the past year, the number of consumers victimized by con artists employing wire transfer scams has tripled. As regulators point out, victims who wire funds in payment to white collar crooks have no time to cancel the transaction and little chance of recovering their money.

In 2003, the FTC noted that only 6% of fraud victims reported wire fraud payments. In 2005, that number had increased to 15%. Indeed, according to the National Fraud Information Center/Internet Fraud Watch - run by the non-profit National Consumers League - wire fraud has become the number one method of payment used by victims of white collar frauds.

The watchdog group warns that any request for wire fund payment is a red flag that consumers should heed. Legitimate transactions rarely demand wire fund transfers.

According to the FTC, the major metropolitan areas with the highest per capita rates of consumer fraud reported were Washington, DC; Tampa/St. Petersburg/Clearwater, FL. The major metropolitan areas with the highest per capita rates of reported identity theft were Phoenix/Mesa/Scottsdale, AZ; Las Vegas/Paradise, NV; and Riverside/San Bernardino/Ontario, CA Seattle, WA.

Bernstein Cherney LLP provides legal services to companies in a wide variety of fields, including the financial services industry, advertising/marketing, internet publishing, real estate development and management, strategic research and planning, information dissemination, consumer products, and sports and entertainment services.