SWINDLERS HAVE COMPUTERS TOO

Cyberspace is a vast new territory for unscrupulous

marketers. The National Fraud Information Center reports
that while fraudulent commercial activity on the Internet is not
yet a major problem, as use expands, there is sure to be a
major increase in deceptive and misleading promotions.
Swindlers are attracted to the Internet because they can
reach thousands of consumers inexpensively, quickly and
anonymously. Few restrictions exist on the Internet, making it
easy to place deceptive or misleading information online.
Judging the accuracy and reliability of online information is a
major challenge for consumers. False or misleading
information related to personal finance or health issues, for
example, could lead to serious consequences for
unsuspecting consumers.

FRAUD ON THE NET

The Federal Trade Commission began investigating fraud on
the Internet in 1994. They found that the same kinds of fraud
that occur in other places also surface on the Net. Electronic
bulletin boards, chat groups, and e-mail networks are fertile
grounds for old-fashioned scams that apply false advertising
claims and deceptive marketing practices.
Electronic Bulletin Boards provide new sources of
information to Internet users telling about products, services,
and investment opportunities. At the same time these
electronic bulletin boards can carry false and misleading ads
for products that promise quick solutions to desirable goals
such as weight loss or easy business success. The plan is to
have you use your PC to make plenty of money in a short
period of time.
Discussion groups or chat forums often form on the
Internet where interested parties can exchange information
on specific topic areas. These chat rooms sometimes appear
to be open discussion when they are sales pitches in
disguise. In some cases, people involved in the discussion
may have financial ties to businesses that sell products or
services related to the topic area. This disguised advertising
may not be obvious to the consumer.
E-mail scams involve individuals or companies intentionally
misleading consumers or using deceptive marketing
practices to gain the consumer's interest in their product. For
example, the use of a particular product is advertised to cure

a specific medical condition. These are the same health, diet,

and fitness schemes that occur in other marketplace venues,
such as mail-order and telemarketing schemes. Other types
of e-mail scams involve the sale of worthless products, phony
credit repair companies, term paper peddlers, expensive
work-at-home deals, psychic hotlines, and deceptive
promises related to contests, awards, sweepstakes, and free
gifts.
Pyramid or Ponzi schemes and chain letters are well
suited to the Internet because they entice investors with the
promise of quick profits using a home computer. Investors
make money by recruiting new investors. The problem is that
soon the program runs out of new investors and most players
lose the money they invested. Chain letter schemes ask
participants to send money to the names at the top of a list
with the promise that they will eventually receive thousands
of dollars when their names come to the top. Unsuspecting
persons lose money every day on this illegal practice.
Risk-free investment opportunities on the Internet offer
fraudulent technological and exotic investments such as
wireless cable, bogus securities, or worthless land. These
investments promise to yield far greater returns than do
commonly available investment products. The term "risk-free"
is highly misleading. Few consumers get their money back,
much less make a profit.
Pump and Dump stock manipulations on the Internet
encourage investors to buy a particular stock, which is
usually little known and low cost. The promoters may even
advertise that they have inside information. They make their
profit when consumers buy the stock, or pump up the price
and the promoters then promptly sell, or dump their shares
and the stock prices immediately fall. This scheme can also
work in reverse; a short seller makes a profit when the price
of the stock goes down.

PROBLEMS WITH INTERNET TRANSACTIONS

Two problems with Internet sales transactions are personal
data privacy and verification that both buyers and sellers are
authentic. Many consumers are concerned about the
confidentiality of their personal financial information on the
Web, with good reason. When you make a purchase on the
Internet, your credit card number could fall into the wrong
hands. Personal data can be collected and organized into
database files. When you become a part of an on-line
service, your personal data can be available to everyone in
that system. While it is unlikely that reputable merchants

would deliberately sell your data to others, their database

may be tempting targets for hackers.
Verification that consumers are who they say they are can be
solved by an electronic equivalent of a signature or a driver's
license. A software product currently used by merchants,
banks, and brokerage houses tells who the user is and what
privileges he or she has. There is a growing interest in credit
card payment systems that would safeguard credit card
purchases on the Net. Encryption software can scramble
your personal information so that it can be read only by the
sender and the receiver. The problem remains that personal
data might still be available to certain employees or hackers.
Experts urge consumers to avoid dealing with Internet sites
they are not familiar with. Even when dealing with a wellknown business, call the business directly to verify that the
site exists. It continues to be a risky business to give
personal information, including address and phone number,
credit card numbers, social security numbers, and bank
account numbers on the Internet.

PROTECTION AGAINST INTERNET FRAUD

Most people find it hard to believe that they could become
victims of fraud, but one should never underestimate the
ingenuity of swindlers who make money by misleading
others. State and federal laws and agencies have limited
capacity to protect consumers from fraud on the Internet. The
savvy consumer must stay alert to the possibility of fraud.
The National Fraud Information Center offers the following
suggestions for side-stepping fraud on the Internet:
Never reveal checking account numbers, credit card
numbers, or other personal financial data at any Web site or
online service location -- unless you are sure you know
where this information will be directed.
When you subscribe to an on-line service you may be asked
for credit card information. When you enter any interactive
service site however, beware of con artists who may ask you
to "confirm" your enrollment in the service by disclosing
passwords or the credit card account number used to
subscribe.
Use the same common sense you would exercise with any
direct or telephone credit card purchase. A flashy
professional Internet Web site does not guarantee that the

sponsor is legitimate. Know the company with which you plan

to do business.
Report anything you see on the Internet that you suspect
might be fraudulent. The National Fraud Information Center's
toll-free number is 1-800-876-7060. Their mailing address is
P.O. Box 65868, Washington, D.C. 20035. Their Web
address is http://www.fraud.org
Your state Office of the
investigate consumer
complaints. They can
problems or concerns
business.

Attorney General is empowered to

complaints, including Internet
give you information about any
they have encountered with the

FRAUD
ON THE
INTERNET

The Better Business Bureau can tell you if there have been
any complaints or inquiries about a business and how it was
resolved. Some online advertisements will have a blue-seal
that you can click on to connect to the Better Business
Bureau for a report on the advertiser's track record. The
online Web site for the BBB is http://www.bbbonline.org
The Federal Trade Commission enforces several consumer
protection laws that are relevant to computer transactions,
such as false advertising and consumer credit. Suspicious
actions on the Web, when reported to the National Fraud
Information Center, are shared with the Federal Trade
Commission and the National Association of Attorneys
General. In this way, consumers join with state and federal
agencies in actions to curtail fraud on the Internet.
Although many regulations and agencies have been
established to protect consumers from fraud, the principle of
let the buyer beware remains the consumer's best protection.
Legal protections are limited, fraudulent activities flourish,
and once money is lost in a fraudulent scheme the chances
of getting it back are extremely small. Awareness of the
possibility of fraud is your first line of defense.
The Indiana Department of Financial Institutions, Division of
Consumer Credit has many other credit related brochures
available. Call our toll-free number or write to the address on
the cover for a copy of any of our listed or for further consumer
credit information. You can also access information at our web
site on the Internet: http://www.dfi.state.in.us, then click on
Consumer Credit.

DEPARTMENT OF FINANCIAL INSTITUTIONS

Consumer Credit Division
402 West Washington Street, Room W066
Indianapolis, Indiana 46204
317-232-3955
1-800-382-4880
Web Site http://www.dfi.state.in.us