Since February 1999, when the Department of Justice established its Internet Fraud Initiative, the federal government has been expanding its efforts to combine criminal prosecution with coordinated analysis and investigation as part of a comprehensive approach to combating Internet fraud.
Prosecution
The Justice Department has begun to bring a number of criminal prosecutions throughout the country against individuals and groups engaging in various types of Internet fraud. Here are some examples of federal criminal prosecutions directed at Internet fraud:
- Auction and Retail Schemes Online
1. Oxford, Mississippi On August 27, 1998, a woman was sentenced in the Northern District of Mississippi to 15 months' imprisonment and $9,432 restitution on fraud charges relating to her conduct of a fraudulent scheme. The scheme involved her use of Web pages and interactive computer locations on the Internet for falsely advertising various computer hardware and software and computer accessories.
2. Philadelphia On March 2, 2000, three men were criminally charged in the Eastern District of Pennsylvania for their alleged roles in falsely offering the sale of Beanie Babies® on the Internet, and then failing to deliver the orders or sending stolen Beanie Babies® that generally were of substantially less value than the items ordered.
3. San Diego On March 6, 2000, a man pleaded guilty in the Southern District of California to mail and wire fraud in connection with his conduct of a fraudulent scheme involving Internet sales of Beanie Babies® that he never delivered.
4. Santa Ana, California On November 1, 1999, a man was sentenced in the Central District of California on mail and credit-card fraud charges to 14 months' imprisonment and $36,000 restitution, for his conduct of an Internet auction fraud that falsely offered digital cameras and laptop computers to consumers.
5. Seattle On August 6, 1999, a man pleaded guilty in the Western District of Washington to wire fraud in connection with his role in placing on various Web sites false advertisements for computer systems, for which he accepted victims' payments but which he never delivered.
6. West Palm Beach, Florida On February 12, 1999, a man was sentenced in the Southern District of Florida on wire fraud charges to six months home detention and more than $22,000 restitution, for his conduct of a fraudulent scheme in which he falsely advertised on Internet auction and retail sale Web sites computer components that he purported to have for sale, but did not have or obtain most of the merchandise he advertised.
- Business-Opportunity Schemes Online
1. Los Angeles In November, 1999, four individuals were criminally charged in the Central District of California for their roles in conducting a fraudulent scheme, in which they sent out approximately 50 million e-mails that falsely advertised work-at-home opportunities for people but provided few actual opportunities for people who paid the $35 advance fee.
- Investment Schemes Online "Pump-and-dump" schemes, short-selling schemes, Ponzi schemes, and other fraudulent investment schemes have all been subjects of federal prosecution throughout the country.
1. Alexandria, Virginia In September 1997, a man was sentenced in the Eastern District of Virginia to one year's imprisonment and fined $20,000 on securities fraud conspiracy charges relating to his touting of a stock involved in a "pump and dump" scheme.
2. Brooklyn, New York In August, 1999, four individuals were indicted in the Eastern District of New York on securities fraud charges for their alleged roles in the fraudulent promotion of eight stocks through misleading Internet Web site and e-mail newsletter profiles.
3. Charlotte, North Carolina In 1999, two individuals pleaded guilty in the Western District of North Carolina to securities fraud charges for their roles in offering securities in a nonexistent investment bank that purportedly offered, among other things, a "guaranteed" 20 percent return on savings.
4. Cleveland On March 22, 2000, four people were indicted in the Northern District of Ohio, on charges including conspiracy to commit and committing mail and wire fraud. The defendants allegedly devised and carried out a scheme to defraud "investors" in a "Ponzi" pyramid scheme. A company with which the defendants were affiliated allegedly collected more than $26 million from "investors" without selling any product or service, and paid older investors with the proceeds of the money collected from the newer investors.
5. Los Angeles On January 4, 2000, two men were indicted in the Central District of California on securities fraud charges for their alleged roles in the NEI Webworld scheme described earlier. In addition, on August 30, 1999, the individual who conducted the PairGain Technologies scheme mentioned earlier was sentenced in the Central District of California to five months' home detention and $93,000 restitution.
6. New York On August 9, 1999, a man was criminally charged in the Southern District of New York with securities fraud. The man allegedly conducted a scheme to unlawfully inflate the price of stock of a company involved in acquiring retail auto dealerships, by making various false claims that another company (located in the same office suite as the auto dealership company) had developed a cure for HIV infection and AIDS.
Credit Card Fraud
1. Ft. Lauderdale In November, 1997, a former graduate student was sentenced in the Southern District of Florida on wire fraud charges to four months' home detention, for a scheme in which he obtained the names of multiple students from a local university and fraudulently applied for 174 credit cards via the Internet. Because of the quick investigative work by the Postal Inspection Service, no losses were incurred.
2. Wilmington, Delaware In 2000, three individuals were indicted in the District of Delaware on charges of conspiracy, bank fraud, identity theft, Social Security fraud, and wire fraud, for their alleged roles in the military officers' Social Security number/credit-card fraud scheme described earlier.
Other Types of Internet Fraud
1. Los Angeles On February 7, 2000, a man was sentenced to 87 months' imprisonment for his role in a scheme that purported to provide immigration assistance to aliens seeking to become residents or citizens of the United States. Using Web sites, newspaper advertisements, recruiters, and word of mouth to offer their services to aliens, the leaders of the scheme typically charged more than $10,000 per client and promised that the client would receive particular immigration documents. In some cases, however, the leaders of the scheme provided their clients with counterfeit or false immigration documents; in other cases, they provided no documents at all, and blamed the government and the legal system for the delay in providing the promised documents.
2. Los Angeles In November, 1999, four men were criminally charged in the Central District of California for their alleged roles in conducting the "work-at-home" scheme described earlier.
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