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Meet the real victims of Internet fraud

Industry Standard

March 2, 2000
Web posted at: 8:28 a.m. EST (1328 GMT)

(IDG) -- You'd think Audri and Jim Lanford would know a thing or two about online credit card fraud. Founders of Internet retailer, they also publish ScamBusters, an online newsletter about Internet fraud that is read by everyone from merchants to state attorneys general. But in February 1998, Netrageous, which sells e-commerce marketing information and services, fell prey to a credit card scam by an unlikely fraudster: an employee of a ski and sports equipment shop in California.

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The scam artist gathered names and credit card numbers from the ski shop patrons, then used a free e-mail service to open accounts under the names on the credit cards. Next he placed orders with Netrageous, using the stolen card numbers and billing addresses, neatly bypassing the traditional security checks put in by credit card processors. Because the billing and shipping addresses didn't match, Netrageous did further checks, in accordance with ScamBusters' own security guidelines, but when the e-mail accounts appeared to match the credit card information, the company approved the orders and shipped the items.

Soon the owners of the credit cards complained that they had never placed the orders. Stephanie Sebeck, Netrageous' VP of operations, did some detective work and pieced together how the scam went down. In conversations with the card owners she found that they all lived in California, they all enjoyed skiing and they all had shopped at the same ski shop. Sebeck says even after Netrageous pinpointed the person responsible for the scam, there was little the banks, the police or the free e-mail provider would do. The amount of the theft was not big enough for the police to get involved. And the free e-mail provider said it could do nothing without a search warrant.

It's not just small-business owners who suffer from Internet fraud. Shortly after setting up an e-commerce site in December 1998, Casio discovered that some large orders of the company's most popular products" handheld computers and digital cameras" had been placed with stolen or forged credit cards. The company never recovered the merchandise and was forced to pick up the bill, says Robert Shapiro, Casio's manager of legal affairs. The company was no retailing neophyte: It operates seven stores in the U.S. and had been successfully taking catalog orders by phone and fax for years. But the experience was a rude awakening to some of the pitfalls that face merchants online.

Credit card fraud on the Internet is a serious, largely unacknowledged problem. Much has been made of threats to consumer security and vulnerability to online fraud, but the fact is that U.S. consumers face little risk: Federal law caps their liability for unauthorized charges on their cards at $50 " though this has not stopped many credit card companies from exploiting fear of fraud by promoting protection schemes that afford little, if any, extra protection.

The real risk belongs to merchants, which can find themselves "as Casio and Netrageous did" stuck with the tab, with no one to turn to for help. Merchants bear the brunt of the responsibility for fraudulent credit card transactions online. Not only can credit card companies do little to help them, the merchants say, but the firms also deny that e-commerce fraud is a problem at all.

"The lesson in all this is there is not a whole lot of protection for the merchant," says Netrageous' Sebeck. "The Internet has gotten a bad rap. It has been portrayed as a place where anyone can take your credit card numbers. The reality is, the merchants are the ones who end up eating the costs of the fraud."

Click here for a complete, unabridged version of this story from

Meet the FTC's unlikely enforcer
February 18, 2000
FTC issues warning on fraudulent cyberauctions
February 16, 2000
How the e-shopping experience could be better
February 14, 2000
Paranoia strikes deep at Web's top spots
February 14, 2000
Commerce secretary details e-commerce plans
January 19, 2000

Despite fraud, consumer comfort with e-commerce rises
North Carolina man pleads guilty in Internet hoax
(PC World Online)
Medicare contractors using IT to defraud gov't
Cellular/PCS carriers lose nearly a half million dollars a day to fraud
Internet scam complaints up 39%
FreeDotNet founders resign on fraud charges
(The Industry Standard)
Italian police identify Internet fraud gang


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