Fraud on the internet

Subject: Fraud on the internet
From: David Oberstadt <daveo -at- VNET -dot- IBM -dot- COM>
Date: Tue, 26 Jul 1994 12:57:38 PDT

Dear TECHWR-Lers--

Sorry for an off-topic message, but I think this
is important for people to understand. This is
forwarded with permission from the author. Feel
free to forward it to others who may benefit from
it. (He says the wider the distribution, the better.)
He's not a writer, but he did a pretty darn good job.

------------------------------- Referenced Note ---------------------------
From: rah -at- netcom -dot- com (Richard Hyde)
Date: Tue, 26 Jul 1994 03:04:50 GMT

---------<little snip>------------

I've recently allowed myself to become annoyed at the rip-off artists
who inhabit the net and was inspired to type a few paragraphs as
a defense measure.

Comments, Critiques, and Contributions are all welcome :-)




Crime on the Information Highway or,
How to avoid being taken for the Ride of your Life.

"!!!Make Money Fast!!!"

"Earn $Thousands$ at Home using Your Computer"

"We can Help You Win The Lottery"

These are just a few of the scams posted to the net in recent
months. All aimed at relieving the unwary of their money. All
giving little or nothing in return.

These schemes have been around for so long that they have
their own vocabulary: "Swindle", "Con", "Pyramid Scheme",
"Ponzi Scheme", "Bait and Switch", "Pig in a Poke"...
The list is as long as civilization.

"Not all can discern the fraud beneath the specious lure..."

As the popularity of the Internet grows, and millions flock
to the new Global Village, it is inevitable that others with
criminal intent will follow, in fact HAVE followed, to
fleece the innocent, the hopeful, the naive, the greedy, and
the poor.

On July 1, 1994, the San Francisco Chronicle headlined:
"Crooks Swindle On-Line Investors"

"... With only a few keystrokes, these scamsters can reach
thousands of people each day, making this technology far
more effective than the boiler room cold-calling techniques
so widely used until now..."

How can you detect and avoid these schemes?

1) If it sounds too good to be true, it probably is.

Sure there are opportunities out there, but if you knew
of one, would YOU post it to the net for MILLIONS of
strangers to read?

2) Never be the first to respond.

None of these schemes can stand the light of day. If
you feel the post is legit, wait a while before responding.
Other posters on the net will be sure to have their opinions
on the subject and will not be shy about voicing them.
We all know the value of net.advice :-), but the responses
of others will at least provide you with different viewpoints
to evaluate.

3) Look for the details.

Any legitimate offer will provide details of the program
BEFORE you invest any money. Remember "Make $Thousands$
in your spare time stuffing envelopes at home?", or the
"Surefire cockroach killer" that turns out to be two
blocks of wood?"? The promises were great, the details
poor, the results zero. If you don't know exactly what
you are getting for your money, don't invest.

4) Ask questions - Publicly!

If you are not satisfied with the information provided, ask
for more detail, and ask publicly! Post a follow-up! If the
poster is legitimate, he or she will be happy to post a public

If there is no public response, well, there is your answer.

5) Forward the ad to the postmaster of the poster's site.

All of the major on-line services are extremely sensitive
about their systems being used to promote fraud. Legitimate
business are extremely sensitive about employees using
company equipment to promote fraud. If the ad is legitimate
no harm will be done. If the ad was a fraud, you will
have done a public service by removing the poster, at least
temporarily, from the net.

Unfortunately, it is possible to own your own facilities for
posting to the net - the postmaster may be one and the same as
the poster! You cannot count on a reply from the postmaster
to validate the legitimacy of a post. You are not absolved
from using your own judgment in evaluating an offer.

6) Post this FAQ as a response.

Sure, it might waste a little bandwidth, but perhaps we can
preserve a bit of the people-helping-people aspect of the
net that has made this forum so wonderful for so long.

Actively campaign against fraud! There will always be new
scamsters arriving here - perhaps we can keep them from
making our net their home.

"It was a base fraud - a snare to trap the unwary".

Common Frauds:

Work at Home Schemes:

For many, especially those who need a part time job or have
to stay at home for health reasons, the "earn money at home"
ad sounds like the answer to a prayer.

WITHOUT EXCEPTION, it has been found that you must buy
something before you can begin work!

A nationwide investigation into the work-at home business
revealed that ads offering hundreds of dollars for a few
hours work (like addressing and stuffing envelopes) were
simply lures to sell information on how to set up your
own business or conduct the same scheme as the advertisers.

No actual employment existed.

In most similar promotions, the would-be home-worker is
required to spend several hundred dollars for advertising,
postage, envelopes, and printing to set themselves up in
this kind of "business".

The US. Postal Service Investigation Service concluded
that, from its investigation, it knows of NO work-at-home
promotion that ever produced income as claimed by
the advertisers.

Ask yourself why, if you knew of a way to make thousands of
dollars a month at home with a computer, you wouldn't just
pay someone a salary of mere hundreds of dollars to do it for
you. Eh?

Ask yourself further, if it WERE true, what would the influx
of tens of thousands of netters into this wonderful market do
for the profit margin? Remember supply and demand?
Competition? Review Rule #1 above.

So glister'd the dire Snake, and into fraud Led Eve


As everyone knows, lotteries are a method of selecting prize
winners by random chance. Great care is taken to assure that
the selection process IS random and fair. That's not to
say that lotteries cannot be rigged, but if they are, you lose

The government, state and federal agencies often use a lottery
method to distribute limited resources fairly and impartially.

The government, for example, "owns" the airwaves. This
preserves some order in the broadcast system with TV neatly
separated from radio and cellular phones. Imagine the chaos
if broadcasters where allowed to use any frequency they

When it is deemed appropriate to release some of the unassigned
radio frequencies for a new purpose, as was done recently for
wireless networking, the government establishes a lottery to
randomly award the frequencies to potential developers of the
new system.

Another example of a lottery is the distribution of "green cards"
to non-US citizens who wish to work in the USA. Since the
government, in it's wisdom, has decided not to issue green cards
to all applicants, a lottery system was designed to fairly
distribute the limited number of green cards among all of the

Now the rules for entering the lottery are simple, clear, and
available to anyone who asks. If you don't speak the
language, there are many government and private agencies that
are more than happy to assist you at NO CHARGE.

The lottery con-artists post ads, make phone calls, or send
letters implying that they can HELP YOU BEAT THE ODDS.

This is NONSENSE. The only "service" that these rip-off
artists provide is to make sure that you have properly
filled out the form. In the case of the green card lottery,
you only had to enter your name and address. Do you really
need to pay a lawyer a hundred bucks to fill in your NAME

Ask a friend, ask a librarian, ask the net! Don't send

I receive a mailing about every six months from some
company that wants me to pay them $35.00. For this sum of
money they will check with the State of California to see
if I have any unclaimed inheritances, unclaimed tax refunds
(ha!), or unclaimed securities. The state is holding
MILLIONS of dollars in unclaimed moneys. The letter
than goes on to provide the names of satisfied customers
who have received hundreds or thousands of dollars in
return for their $35.00.

Well, the state IS holding millions of dollars in unclaimed
moneys and some of it may well be yours! What the
letter does NOT say is that I can get the same information
myself by calling a toll free number. total cost - Zero.

Review Rule #4 above.

I need more quotes

Pyramid Schemes:

How to quickly involve the entire population of the planet in a
Get Rich Quick scheme.

A Pyramid Scheme is the dishonest counterpart of a Multi-level
marketing program. (see the multi-level marketing FAQ).

The Pyramid Scheme, in it's simplest form a chain letter, is
best recognized by its "recruitment program". The emphasis is
placed on quickly recruiting others to invest in the product or
chain letter who will in turn recruit still others.

The resulting awesome cash flow is guaranteed to make you a
wealthy person in a very few days or months.

There are two clear indications that you are being used as
slave labor to build a pyramid:

a) recruiting other participants quickly is the key to wealth

b) the mathematics of the wealth building process are clearly,
but falsely, laid out.

Let's look at that math a bit. To make it clearer we won't
look at the money aspect at all - just what the scam artist
hopes you WON'T do. Money makes a powerful blindfold.

Say you are asked to recruit six other participants in a
chain letter. Each of these six, then, are to recruit six
others, right? Then each of these six will recruit six

I'll put in a table with you at the top (where you won't be
unless you are the scam artist and the one targeted for the
most jail time).

1 (you)
6 (your direct recruits)
36 (and their recruits - takes about a week,
216 (my, they are busy...)
1296 (that's a big jump - I hope some are in the
next county)
7776 (end of week two?)
46656 (yow!)
279936 (crossing state lines for sure)
1679616 (end of week three - do you suppose some
folks have been asked twice by now?)
10077696 (10 million already? Wow!)
60466176 (What is the population of the USA again?)
362797056 (end of week four - suppose the cops are
interested yet?)
2176782336 (two Billion players in a shade over a month!
just THINK of those profits!)
13060694020 (I'm glad the Martians decided to play too.
unfortunately, they only pay in fresh animal
dung - delivered to your door.)

This has been fun, but tragically, those most at risk for this
scheme are those who do not understand the fallacy of
exponential growth in a marketing situation. These same
people are those who cannot afford to lose the "small"
investment the scheme requires. Review Rule #2 above.

"They look upon fraud as a greater crime than theft".

Credit Repair:

Let's start this section with a blanket statement:


So, how does this scam work?

The credit reporting agencies are not perfect. Sometimes they do
have erroneous data on their books. They recognize this fact
and have put procedures in place for consumers to review
and correct the information on file.

Well, to be fair, the federal government forced them to
do this, but the result is the same...

You can call any agency and request a re-evaluation form. This
form will be provided to you AT NO CHARGE.

You can find the phone numbers for the credit agencies by looking
in the Yellow Pages of your local phone book under "Credit
Reporting Agencies".

The "Credit Repair" artist simply sells you these SAME forms
for tens or hundreds of dollars. They provide no other service.
If you think this is a good deal, you might consider letting
someone else manage your money.

Under Federal law you have a right to examine your credit
report FREE OF CHARGE if you have been denied credit in
the last 30 days. If you have not been denied credit, you can
still request your credit report from the agencies. You
will be charged, at most, a few dollars for this service.

Again, call the agencies and request the FREE forms.

There are legitimate credit counseling services and lawyers
who will help you resolve problem you have managing credit.
These groups provide help with credit consolidation, money
management, and bankruptcy services.

+ They will provide you with a detailed description of their
services and charges.
+ They will provide you with references.
+ They will be listed with your local Better Business Bureau.

Even here, you may be better served by a non-profit Credit
Counseling Service if you have one in your area. They
typically provide credit counseling, advice on debt consolidation,
money management, and budget design. They may also be able
to arrange with your creditors to take smaller monthly

To find such a service, look in the Yellow Pages under "Credit
Counseling" or call your local Health and Human Services
agency for a referral.

Review Rule #4 above.

Ponzi Schemes:
(using later investors' contributions to pay earlier investors)

A "Ponzi Scheme" is similar to the "Chain Letter" mentioned above
but is somewhat more daring in execution. A chain letter is
pretty much left to its own devices and rewards of any kind are

A Ponzi Scheme, on the other hand, is more insidious.

Named after the con man Charles Ponzi in the 1920s, a Ponzi
scheme involves using the funds from later investors to
pay off earlier ones. The delighted first investors, receiving
large returns for their minimal initial investments,
enthusiastically recruit new members and often re-invest in the
scheme hemselves.

All the investments are channeled through a central agency or
broker. As you can imagine, as more and more people catch wind
of the deal, the total cash flow can become enormous.

The perpetrators of the scheme sit back in their office and
play a guessing game. Each day more and more cash flows
through their hands. Each day the police get closer and closer...

When they can stand the tension no longer, they take all of
the cash they have collected and vanish.

That's when the "inventors" finally know for sure they have
been duped.

They have suspected it was a scheme all along
of course - what would YOU think if someone took one hundred
dollars from you and a week later gave you a thousand?

Greed wins in the end... for a few. And those few ride on
the backs of thousands of losers who THOUGHT they would be

As you so often see on the net

... BZZZZZZZT!!! Wrong guess! but thank you for playing.
Review Rule #1 above.
| Richard Hyde | RaH -at- netcom -dot- com | This space intentionally left blank |

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