From: ichudov@algebra.com (Igor Chudov @ home)
Date: Mon, 30 Mar 1998 05:16:29 -0800 (PST)
To: cypherpunks@toad.com (Cypherpunks)
Subject: Someone IS falling for these scams!
Message-ID: <199803301313.HAA13146@manifold.algebra.com>
MIME-Version: 1.0
Content-Type: text


Web Investment Con Artists Prove
              Elusive, Insufferable to Regulators

              By RIVKA TADJER 
              Special to THE WALL STREET JOURNAL INTERACTIVE EDITION

              When it comes to con artists who target individual investors,
              none are proving to be more elusive -- or more infuriating
              -- to federal regulators than Internet scammers.

              The explosion of Internet investment fraud has prompted
              the Federal Trade Commission, in cooperation with the
              Securities and Exchange Commission, the Department of
              Justice, and Federal Bureau of Investigation, to coordinate
              elaborate surveillance tactics to combat these on-line con
              artists, says Paul Luehr, attorney and chairman of the FTC
              Internet Coordinating committee, which oversees law
              enforcement.

              Although many investors are becoming more savvy about
              dubious investment claims posted on the Web, fraud still
              abounds. Investors who use the Internet for research and
              discussion need a healthy dose of skepticism when visiting
              any investment Web site.

              Barry White, a 40-year-old CPA in Charlotte, N.C., and,
              ironically, now a fraud examiner, says he learned this lesson
              the hard way. Last year, he became the victim of what the
              FTC called "an elaborate, electronic version of a chain
              letter" called Fortuna Alliance. But he thought his
              nightmare was finally over when the FTC in the spring of
              1997 nabbed the operators of Fortuna Alliance and shut
              down its Web site.

              Customers of Fortuna Alliance, the Bellingham, Wash.,
              company charged with conducting the operation, were told
              that if they "invested" between $250 and $1,750 a month,
              they could get back $5,250 monthly. Fortuna Alliance took
              in at least $5 million from people like Mr. White, according
              to the FTC.

              Mr. White had been optimistic that with the FTC on the
              case, he might actually get back some of the $5,000 he sunk
              into Fortuna Alliance's pyramid scheme. But now he's
              losing hope. And he has discovered that the operators of the
              on-line scam are back in business.

              The principals of Fortuna are now living offshore in Antigua
              and have set up a new Web site (www.fa2.com), says Susan
              Grant, director of the National Consumers League Internet
              Fraud Watch in Washington, whose mission is to use
              collective consumer opinion to influence business practices.
              The Fortuna site's operators are so brazen that they haven't
              even bothered to change the name, she says. Fortuna
              officials would not return phone calls.

                             "One thing is true about Web
                             scammers -- they are so arrogant.
                             Fortuna just put up a new Web site
                             recently and went back in business,"
                             she says, lamenting that "there will
                             always be plenty of people who don't
                             check with us or the FTC to see
                             whether there are law suits against an
                             investment site."

                             "I think it's pretty poor that the FTC
                             can't get them," says Mr. White, who
                             says he testified before a Senate
                             committee hearing on the matter of
                             Internet fraud last month "more for
                             community service at this point than
                             to actually get my money back. I don't
                             want other people to get screwed."

                             Indeed, law enforcement in
              cyberspace may be one of the toughest challenges
              government agencies face. "We're out there and making
              headway, but a global community where scams can pop up
              today and disappear tomorrow is a big job," says Mr. Luehr.

              The Fortuna Alliance Web site is a classic example. It's
              cheap to set up a new Web site under a slightly different
              name, and since there is no legal recourse for Internet
              service providers to judge what sort of sites they are hosting,
              the Fortuna principals could theoretically continue to
              operate indefinitely.

              One of the most frustrating problems for regulators is that
              individual investors often overlook important warning
              signals that are universal in scam Web sites. Mr. White, the
              investor, says he wasn't uncomfortable at all with sending
              his money order for $5,000 to Fortuna Alliance, even
              though he'd never once spoken to a Fortuna official about
              the details.

              "There were very detailed on-line documents that promised
              a 90-day money-back guarantee," he said. "They said they
              were launching a huge ad campaign ... and my return on
              investment would be quick."

              Two months later, Mr. White quite unexpectedly discovered
              he'd been scammed. "I just happened to put in the keyword
              'fraud' on one of the [Internet] search engines ... and news
              that the FTC had just shut them down popped up."

              Looking back, Mr. White says, he should have been tipped
              off that it was an Internet scam by one red flag: After many
              attempts he was never able to get a Fortuna representative
              on the phone after he made his initial investment.

              The good news for consumers, however, is that conducting
              due diligence on investment sites is extremely easy using the
              Internet. The National Consumers League, and the FTC,
              SEC, and FBI Web sites all have fraud watch updates that
              allow consumers to e-mail questions and file complaints
              on-line. This kind of interaction is crucial, experts say, to
              detecting Web fraud. "We follow leads and need as many tips
              ads we can get," says Mr. Luehr.

              The bad news, however, is that on-line cons can go
              undetected for years and new mutations of old cons that take
              advantage of the Internet technology are popping up all the
              time.

              "One way we see the investment scams mutating is the
              combination of loan fraud and pyramid schemes," says the
              National Consumers League's Ms. Grant. "The con artists
              make use of spam to get investors."

              She cites a recent Las Vegas pyramid scheme that promised
              a $59,000 loan for those who mail in $20. It works like this:
              An e-mail arrives offering a chance to apply for a loan that
              you'll never have to pay back. All you have to do is mail in a
              $20 "processing fee."

              Mr. Luehr of the FTC says investors who have already fallen
              for one on-line scam should be especially cautious. "These
              scammers sell lists of names -- like any marketers -- and
              the ones that have already been suckered are considered
              prime targets," Mr. Luehr says.

              Mr. White will vouch for that. "I get phone calls all the time
              now for new 'get-rich' investment opportunities," he says.
              He says other red flags for investment fraud are sites that
              demand money upfront, and those touting "money-making
              opportunities" that promise a quick return with minimal
              risk. Ms. Grant agrees these are the two top signs of an
              investment scam.

              But it is not always so simple. Con artists understand all too
              well the appeal of high-tech investments to investors
              world-wide as scammers capitalize on investors' desire to be
              in on the ground floor of the next Netscape. So many are
              turning to cloaking pyramid schemes in high-tech language,
              Mr. Luehr says.

              "FutureNet was a perfect example," he says. "They used
              buzzwords like WebTV to lure investors and give the
              products a legitimate-sounding air." Similar sounding
              technology names add to the confusion. For example, the
              name "WebTV" is so familiar to the average consumer that
              many fraud schemes involve giving products or companies
              names such as NetTV.

              "This is such a problem we have set up 'Operation Net Opp',
              which is a surveillance task force to watch out for precisely
              this sort of high-tech fraud," says Mr. Luehr.

	- Igor.