FRIDAY, MAY 16, 2002
TDD (202) 514-1888
OPERATION E-CON: CRACKING DOWN ON INTERNET CRIME
48,000 Internet-Related Fraud Complaints to Law Enforcement. The Internet Fraud Complaint Center (IFCC) – a joint project of the Federal Bureau of Investigation (FBI) and the National White-Collar Crime Center – reported in 2002 that it referred more than 48,000 Internet-related fraud complaints to law enforcement.
263,000 Internet-Related Fraud Complaints to the Federal Trade Commission’s (FTC) Consumer Sentinel Database. In 2002, Internet-related fraud complaints made up nearly half the fraud complaints received by the Federal Trade Commission.
Operation E-Con Is a Truly Coordinated Operation. This initiative involves the collective participation of 43 United States Attorneys’ Offices, the FBI, the FTC, the Postal Inspection Service, the Secret Service, and the Bureau of Immigration and Customs Enforcement to root out and take action against some of the leading forms of online economic crime.
Since its inception, Operation E-Con has conducted over 90 investigations involving 89,000 victims and estimated losses of more than $176 million.
Those Who Participate in Internet Fraud and Abuse Have Learned Their Illegal Activities Have Real-World Consequences. To date Operation E-Con has executed over 70 search and seizure warrants that have led to 130 arrests and convictions and over $17 million in seizures and recoveries.
This week alone, federal agents have arrested 50 persons and executed 55 search and seizure warrants, and United States Attorney’s Offices have charged 48 persons by indictment, information, or criminal complaint, and have obtained 12 guilty pleas.
The Cases in Operation E-Con Illustrate the Different Types of Online Fraud That Law Enforcement, Both Domestically and Internationally, Are Fighting
California - Central District
United States v. Costa, No. 03-0810M (C.D. Cal., criminal complaint filed Apr. 24, 2003). This defendant allegedly established various false identities and also used identities, including Social Security numbers, supplied by unknown accomplices to commit credit card fraud and Social Security Program fraud in an amount over $240,000. The defendant also is charged with identity theft for his alleged conduct in collecting Social Security benefits in other people’s names.
United States v. Dean, No. CR 03-1005M (C.D. Cal., criminal complaint filed May 9, 2003). Two defendants have been charged relating to an alleged ongoing online credit card fraud scheme with losses in excess of $38,000. One defendant allegedly received Six Flags California customer information from the other defendant, a billing department employee connected with Six Flags California. The defendant who received this information allegedly used it to make online purchases of expensive tickets for concerts and Los Angeles Lakers basketball games which are advertised on the Internet and resold below market value.
United States v. Johnny Ray Gasca, No. CR 03-419 (C.D. Cal., indictment filed May 6, 2003). This defendant was indicted on four counts of criminal infringement of a copyright, interstate communication of a threat, possession of a false identification document of the United States, and witness retaliation, for allegedly using a camcorder to covertly film theatrical movies that were being shown at preview screenings, then making them available for sale on the Internet.
Arrest - http://www.fbi.gov/fieldnews/april/la042203.htm
Indictment - http://www.usdoj.gov/usao/cac/pr2003/072.html
United States v. Serebryany, No. CR 03-42-LGB (C.D. Cal., indictment filed Jan. 16, 2003; guilty plea Apr. 28, 2003). This defendant, a 19-year-old college student, pleaded guilty to charges involving theft of trade secrets for stealing sensitive information belonging to satellite provider DirecTV.
Arrest - http://www.usdoj.gov/criminal/cybercrime/serebryanyArrest.htm
Indictment - http://www.usdoj.gov/criminal/cybercrime/serebryanyIndict.htm
Guilty Plea - http://www.usdoj.gov/usao/cac/pr2003/068.html
United States v. Tinney, No. 03-141-MMM (C.D. Cal., indictment filed Feb. 13, 2003). This defendant is charged with six counts of wire fraud, relating to an alleged scheme to steal nearly $600,000 of computer equipment from businesses in Wenham, Massachusetts and Santa Barbara, California. According to the indictment, the defendant set up a fictitious corporation named Data Systems International, ostensibly located in Las Vegas, Nevada, complete with a fully featured web site. In addition, he allegedly set up a sham escrow company identified as American Escrow Corporation, also equipped with an elaborate web site which he claimed was located in San Francisco, California.
The fraudulent escrow company representative allegedly would report to the intended victims that the required funds had been deposited into escrow for payment of the computer equipment the defendant had negotiated to buy from victim companies. These victim companies allegedly would ship computer equipment to Data Systems at an address in Las Vegas with the expectation that once the computer equipment was received by Data Systems, the funds held in escrow for payment would be released. The defendant, using an alias and false identification, planned to receive the computer equipment at Data Systems' Las Vegas address (nothing more than a mail drop) and planned to sell the equipment on the black market without ever paying the victims for their property, according to the indictment.
Press Release: http://www.usdoj.gov/criminal/cybercrime/tinneyIndict.htm
Operation Decrypt. In this FBI undercover investigation that targeted the software writers and manufacturers behind equipment that allows the theft of satellite television signals, a total of 17 people have been charged in Los Angeles with allegedly causing millions of dollars of losses to companies that have spent tens of millions of dollars creating some of the world’s most sophisticated conditional access technology. Six of the charged defendants are accused of violating the criminal anti-decryption provisions of the Digital Millennium Copyright Act.
Press Release: http://www.usdoj.gov/usao/cac/pr2003/026.html
Operation Fast and Furious. In this U.S. Secret Service investigation, a total of thirteen individuals are charged with conspiracy and fraud-related charges for their roles in a San Fernando Valley-based credit card skimming ring that stole credit card numbers from restaurant patrons and used the fraudulently obtained numbers to purchase computers and other expensive electronics. To date, at least 12 defendants have pleaded guilty to charges relating to this operation.
Press Release: http://www.usdoj.gov/usao/cac/pr2003/029.html
California - Eastern District
United States v. Waage (E.D. Cal., indictment filed Jan. 2, 2003, guilty plea May 5, 2003). Two defendants have been indicted on fraud- and money laundering-related charges relating to one of the largest Internet investment fraud cases in the country. The Tri-West Investment Club was an Internet-based investment fraud scheme that allegedly netted more than $60 million from 15,000 investors worldwide. Tri-West solicited investments in what the Web site termed a "Bank Debenture Trading Program" or "Prime Bank" note program. The Web site allegedly guaranteed investors a 120 percent annual rate of return with "no risk of losing the investor’s principal investment," as well as substantial referral fees for directing others to the Web site. The case alleged that these investment instruments were nonexistent. According to the indictment, Tri-West never actually invested any of the investors’ money in any "prime bank note" program, but instead used new investor funds to make "dividend" payments to earlier investors to give the false impression of profitability. The balance of the funds were allegedly used by the two defendants and others to purchase millions of dollars of real properties in Mexico and Costa Rica, as well as a yacht and helicopter, and to funnel money to dozens of shell companies created in Costa Rica to conceal the defendants’ ill-gotten gains.
The indictment also seeks the forfeiture of millions of dollars worth of real properties in Costa Rica and Mexico, a yacht, a helicopter, over a dozen cars, and millions of dollars in bank accounts in Latvia, Mexico and Costa Rica. The two defendants, who were extradited from Costa Rica to Sacramento in December 2002 to face federal charges, remain in custody pending trial. One of these defendants, Alyn Waage, pleaded guilty on May 5, 2003 to mail and wire fraud charges as well as conspiracy to commit money laundering. A third defendant, Cary Waage, had pleaded guilty in 2002 to separate charges relating to Tri-West. Three other individuals allegedly connected with the operations of Tri-West remain fugitives.
Press Release: http://www.usdoj.gov/criminal/cybercrime/triwest2.htm
California - Northern District
United States v. Barth, No. CR 02 0385 CRB (N.D. Cal., pleaded guilty Apr. 23, 2003). This defendant pleaded guilty to five counts of mail fraud, relating to a fraud scheme in which he purported to "auction" off iMac computers and Sony Playstations on an online auction website, but never sent anything to winning bidders.
California - Southern District
United States v. Fontanini, No. 03cr0208-IEG (S.D. Cal., indicted Jan. 23, 2003). Nine defendants (three of them fugitives) are charged in an indictment containing one count of conspiracy to traffic in counterfeit goods, five counts of trafficking in counterfeit goods and copyright infringement, eight counts of money laundering, and 24 counts of tax evasion. This case involves the alleged sale of counterfeit Microsoft software. The lead defendant, John Fontanini, allegedly originally placed advertisements in magazines and newspapers around the country offering Microsoft Corporation computer software for sale at approximately 13 percent to 18 percent off the retail cost. The cases alleges that software was then sent cash-on-delivery (COD) to the purchaser, or the buyers would send payment to various post office boxes or mail drops throughout San Diego County. The buyers would then allegedly receive a compact disk (CD) with the Microsoft logo on it, in a jewel case, usually by Federal Express or by U.S. Mail. According to the charges, Fontanini eventually became a wholesaler providing the counterfeit software in bulk to others for re-sale. During the course of the conspiracy, the defendants allegedly sold software valued at more than $6 million for more than $1.5 million.
United States v. McCoy, No. 03cr1316R (S.D. Cal., indictment filed May 7, 2003). On May 7, 2003, two defendants were indicted for one count of conspiracy to commit wire fraud and 41 counts of wire fraud. Robert L. McCoy and his Russian-speaking wife, Anna V. Grountovaia, allegedly operated a fraudulent Russian dating scheme preying on lonely men worldwide. By either contacting male victims through various on-line personal ads, or posting their own on-line personal ads posing as Russian or Ukrainian women desiring a romantic relationship, McCoy and Grountovaia allegedly bilked upwards of 400 victims of at least $600,000 over a period of approximately three years.
United States v. Weare, Crim. No. 03-CR-121-N (D. Colo., indictment filed Mar. 25, 2003). The defendant is charged with 15 fraud-related counts pertaining to his alleged operation of an Internet-based Ponzi scheme that took in more than $8 million from 23,000 investors. The defendant allegedly used a website to offer investors an opportunity to become “members” of an offshore investment program run by a company called J&K Global Marketing Corporation. He allegedly promised that if an investor paid a yearly “membership fee” of $375 and waited six months, he or she would receive payments of $375 per month. He also allegedly told investors that he was investing in “high-yield programs,” which would return between 200 percent and 1200 percent per month. As a result, investors allegedly transmitted membership fees to bank accounts in the United States, Canada, Luxembourg, and the West Indies.
Illinois - Southern District
United States v. Barrero, Crim. No. 03-30102-01 (S.D. Ill., information filed May 12, 2003; guilty plea May 12, 2003). The defendant pleaded guilty to a two-count information charging him with mail fraud and wire fraud in connection with a business-opportunity scheme that raised approximately $2 million. The defendant, who operated in the Miami, Florida area under the names “Stuffing for Cash” and “Cash for Stuffing,” engaged in mass-marketing fraud over the Internet and through direct mail. The defendant persuaded approximately 50,000 victims throughout the United States to pay a registration fee of $30 or $45 for a supposed business opportunity involving stuffing envelopes at home for $2 per envelope. In fact, no such legitimate opportunity existed and the business was a total sham.
United States v. Iakoubtchik, No. L-03-0229 (D. Md., indictment filed May 8, 2003). Two defendants are charged with devising and executing a scheme to lure unsuspecting bank customers to "spoofed" bank web sites where they would enter confidential account data that would be transmitted to the defendants, who would use the data to produce and fraudulently use ATM and credit cards.
United States v. Parris, Crim. No. 03-40 (ADM/AJB) (D. Minn., indictment filed Feb. 4, 2003; superseding indictment filed Mar. 4, 2003; guilty plea May 9, 2003). From August 17, 2000 through December 31, 2001, the defendant engaged in a scheme to obtain over $120,000 in money from approximately 1,000 consumers in the United States, Canada, and Great Britain. He solicited consumers via email and online auctions to purchase brand-name North Face parkas and jackets and rare or “retired” Beanie Babies. He represented that he was selling authentic items, but upon receiving payment from consumers, he failed to send any product at all, or he sent counterfeit products that he had imported from China. The defendant pled guilty to one count of mail fraud (18 U.S.C. § 1341) and one count of trafficking in counterfeit goods (18 U.S.C. § 2320(a)).
United States v. Susel, No. CR 03-179 (ADM/AJB) (D. Minn., indictment filed May 13, 2003). Two defendants are charged with 30 counts of mail fraud-related allegations that from October 10, 2001 through December 30, 2002, they aided and abetted each other in devising a scheme to defraud businesses and approximately 1,395 consumers in the United States, Canada, Great Britain, Australia, Germany, and elsewhere of more than $265,000. Defendants allegedly obtained more than $700,000 in stolen goods from a software manufacturer. They then allegedly solicited consumers to buy popular software or computer games, claiming they were "new" and "retail" and failing to disclose the items were stolen.
United States v. Lawler, Crim. No.03-54M-01 (D.N.H., criminal complaint filed Apr. 29, 2003). The defendant is charged relating to his alleged involvement in using two websites to sell approximately $1 million worth of counterfeit Rolex, Omega, Movado, Cartier, and Tag Heuer watches.
United States v. Mullaney, Crim. No. 03-15-01-M (D.N.H., information filed Jan. 15, 2003; guilty plea March 24, 2003). The defendant pleaded guilty to charges relating to her and her former husband’s allegedly selling numerous items, via the eBay auction website, that had been stolen during home burglaries in New Hampshire and elsewhere.
North Carolina - Western District
United States v. Short, No. 1:03M66 (W.D.N.C., criminal complaint filed May 13, 2003). The defendants, one individual and three companies, are charged with mail and wire fraud, relating to allegedly fraudulent offerings of electronic products (primarily laptop computers) through the use of Internet auction sites such as eBay and through Yahoo! store sites. Federal authorities reportedly received complaints from more than 190 victims in states outside of North Carolina and in foreign countries who did not receive the products offered or did not receive a refund from the defendant's companies.
Pennsylvania - Western District
United States v. Blair, Crim. No. 03-93 (W.D. Pa., indictment filed March 12, 2003). Five defendants are indicted on a charge of conspiracy, relating to their allegedly obtaining identification information of residents of Mount Lebanon from the Mount Lebanon Municipal Tax Office, where they were employed as cleaning service personnel. The defendants then allegedly used that information to apply for credit cards over the Internet, which they then used to make purchases, all without the knowledge or consent of the victims.
United States v. Condon, Crim. No. [to be assigned] (indictment filed May 14, 2003). The defendant is charged with wire fraud and mail fraud, relating to his allegedly placing items for sale at various Internet auction sites knowing that he did not have those items for sale and had no intention of delivering said items. The defendant allegedly accepted payments for the items that he purportedly had for sale, but failed to deliver those items to the individuals that had won the on-line auctions.
United States v. Honse, Crim. No. 02-262 (W.D. Pa., guilty plea March 21, 2003) and United States v. Cain, Crim. No. 02-260 (W.D. Pa., guilty plea March 28, 2003). Two defendants in related cases have pleaded to conspiracy charges relating to a scheme to defraud computer and software wholesaler, Ingram Micro. The scheme consisted of co-conspirators making fraudulent orders for computer hardware over the Internet using the ordering accounts of legitimate Ingram Micro customers. The merchandise was shipped to various "drop" locations provided by participants in the scheme. The defendants and others would then pick up the hardware and take it to Indiana, Pennsylvania, where it was shipped overseas. The defendants were involved in fraudulently obtaining approximately $96,000 worth of computer equipment from Ingram Micro.
United States v. Kruhlou, Crim. No. 02-266 (W.D. Pa., guilty plea Apr. 10, 2003). The defendant pleaded guilty in federal court to a charge of conspiracy to commit mail fraud and wire fraud. The defendant, who was originally from Belarus, participated in a mail and wire fraud scheme that had two interconnecting parts. The first part of the scheme was that members of the conspiracy hacked into eBay's computer system and logged onto the system as if they were someone who had previously sold items and received favorable ratings from purchasers of those items. Once a seller received a favorable rating, it was much easier to sell items because there was a proven track record of delivering what was promised.
Members of the scheme then put items up for auction pretending that they were sellers with the proven track records. The successful bidder in the auction was directed to send certified checks or money orders to an address in Pennsylvania, but no items were delivered. The second part of the scheme involved the unauthorized use of credit card numbers to purchase items online that were then shipped to addresses in Pennsylvania. These items were then repackaged and sent to addresses in California. The addresses in Pennsylvania were set up by two co-conspirators, also originally from Belarus, who used false identifications. These two individuals, who worked under the direction of Kruhlou, would stay in apartments for approximately two weeks at a time and receive products and checks at those locations. They would then move to a different apartment and, again, receive checks and products. They moved to a total of four different apartments during the course of the conspiracy until they were arrested by the Pennsylvania State Police.
United States v. Patterson, Crim. No. 03-86 (W.D. Pa., indictment filed Feb. 26, 2003). The defendant is charged with password trafficking and computer damage. According to the indictment presented to the court, the defendant, a former employee of American Eagle Outfitters, was charged with trafficking in passwords and similar information that would have permitted others to gain unauthorized access to the American Eagle Outfitters computer network. The defendant allegedly posted and maintained at a Yahoo hacker group posting board the username and password combinations of certain legitimate American Eagle Outfitters users, together with detailed instructions on how to hack into the wide area network of American Eagle Outfitters using those passwords.
The defendant was also charged with a series of computer intrusions into the American Eagle Outfitters computer network from November 27, 2002 through December 1, 2002. These intrusions allegedly were attempts to deny computer services to American Eagle Outfitters stores and customers in the United States and Canada during the beginning of the Christmas shopping season. These denial of service attempts were quickly identified by American Eagle personnel and corrective actions were implemented that limited their intended economic impact.
United States v. Thornhill, Crim. No. 02-84 (W.D. Pa., indictment filed Apr. 23, 2002). Two defendants were indicted by a federal grand jury in Pittsburgh on charges of conspiracy, bank fraud, and access device fraud. According to the indictment, the defendants fraudulently used the names, Social Security numbers, and other identifying information from two individuals to apply over the Internet to obtain bank loans and credit cards in the other people's names. They also allegedly made fraudulent online purchases.
Washington - Western District
United States v. Noia, No. 03-205M (W.D. Wash., criminal complaint filed Apr. 22, 2003). The defendant is charged with five counts of wire fraud relating to her allegedly posting of video and digital cameras for auction on eBay, accepting payment for goods, and failing to deliver the promised goods. The alleged loss amount is more than $30,000.
Wisconsin - Eastern District
United States v. Fibiger, No. 03-Cr-66 (E.D. Wisc., indictment filed Apr. 1, 2003). The defendant is charged with wire fraud relating to his alleged solicitation of purchasers over the Internet and failure to deliver any of the merchandise promised. Reported losses in this case total approximately $40,000.