Internet Fraud

• Author: Jeffrey Lehman, Shirelle Phelps

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A crime in which the perpetrator develops a scheme using one or more elements of the INTERNET to deprive a person of property or any interest, estate, or right by a false representation of a matter of fact, whether by providing misleading information or by concealment of information.

As increasing numbers of businesses and consumers rely on the Internet and other forms of electronic communication to conduct transactions; illegal activity using the very same media is similarly on the rise. Fraudulent schemes conducted via the Internet are generally difficult to trace and prosecute, and they cost individuals and businesses millions of dollars each year.

From computer viruses to Web site hacking and financial FRAUD, Internet crime became a larger concern than ever in the 1990s and early 2000s. In one sense, this situation was less a measure of growing pains than of the increasing importance of the Internet in daily life. More users surfing the Web, greater business reliance upon E-MAIL, and the tremendous upsurge in electronic commerce have raised financial stakes. A single virus outbreak in 1999 was blamed for more than $80 million in damage, while Web site hacking in early 2000 purportedly cost hundreds of millions more. Adding new wrinkles were complaints about rampant fraud on popular online auction sites. Together, the problems drew tough rhetoric from U.S. officials, who announced new initiatives, deployed cyber-crime units, made numerous arrests, and even pursued international manhunts.

According to a U.S. JUSTICE DEPARTMENT Web site devoted to the topic, Internet fraud refers to any type of scheme in which one or more Internet elements are employed in order to put forth "fraudulent solicitations to prospective victims, to conduct fraudulent transactions, or to transmit the proceeds of fraud to financial institutions or to others connected with the scheme." As pointed out in a report prepared by the National White Collar Crime Center and the FEDERAL BUREAU OF INVESTIGATION (FBI) in 2001, major categories of Internet fraud include, but are not limited to, auction or retail fraud, SECURITIES fraud, and IDENTITY THEFT.

Securities fraud, also called investment fraud, involves the offer of bogus stocks or high-return investment opportunities, market manipulation schemes, pyramid and Ponzi schemes, or other "get rich quick" offerings. Identity theft, or identity fraud, is the wrongful obtaining and use of another person' personal data for one's own benefit; it usually involves economic or financial gain for the perpetrator.

In its May 2002 issue, Internet Scambusters cited a study by Gartner G2 that demonstrated online merchants lost $700 million to Internet fraud in 2001. By comparison, the report showed that "online fraud losses were 19 times as high as offline fraud." In fact, the study

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pointed out that in the same year more than five percent of those making purchases via the Internet became victims of credit card fraud.

The IFCC, in its 2001 Internet fraud report, released statistics of complaints that had been received and then referred to law enforcement or regulatory agencies for action. For the 12-month period covered by the report, the IFCC received more than 17 million inquiries to its Web site, with nearly 50,000 formal complaints lodged. It must be noted, however, that the number of complaints included reports of computer intrusions and unsolicited CHILD PORNOGRAPHY.

Significant findings in the report revealed that Internet auction fraud was the most reported offense, comprising 42.8 percent of referred complaints...