Money & You – November 2010
by Brett Newberry
Both the savvy and naïve are eligible prey to new business con schemes. Consumer education is the greatest weapon in the war against the pervasive scammers. Businesses, religious groups, and non-profit groups of all sizes and types are the targets of a number of special schemes.
Fraudsters, posing as “domain name monitoring” firms, send warning faxes or e-mails labeled “URGENT NOTICE OF IDENTICAL DOMAIN NAME APPLICATION BY A THIRD PARTY.” The warnings claim that third parties, acting in bad faith, have applied for domain names almost identical to theirs and have already submitted the names to the National Domain Name Registry. The scammers tell the businesses that they can stop the registry applications by immediately purchasing all the variations of their domain names from the monitoring firms.
The Federal Trade Commission (FTC) asked a U.S. district court judge to halt a domain-name poaching scam that duped, at a minimum 27,000 consumers into needlessly registering variations of their existing domain names. At the FTC’s request, the court issued a restraining order, froze the defendants’ assets, and shut down their websites. The FTC asked the court to bar the scheme permanently and order consumer redress.
Businesses, particularly small businesses, have increasingly become the targets of “paper-pirate” or “toner-phoner” fraudsters who use their knowledge of small business practices to fraudulently induce these businesses to pay for over-priced products and/or products that were never ordered. Because some small businesses do not use numbered purchase orders, it may be difficult to determine if they actually ordered the supplies or, if they did order them, whether they received the correct ones. These scams usually begin with a telephone call or the fraudster may appear in person at the business site.
Businesses are vulnerable to phony invoice schemes if they lack effective internal control procedures in the purchasing department. These schemes prey on a business’s inefficiencies. They usually begin with telephone calls to obtain key contact information and other specific details about equipment and supplies. Once they obtain this information, the fraudsters send phony invoices. The invoices may be solicitations in disguise and include the following disclaimer in microscopic print: “This is a solicitation. You are under no obligation to pay unless you accept this offer.” If businesses pay the phony invoices, the fraudsters place them on a “reload list” and they will repeatedly send the unsuspecting businesses phony invoices. The scammers also send phony past due or renewal invoices.
Fraudsters prey on company executives by offering to include their names and accomplishments in a “Who’s Who” type publication with other successful executives. The executives later discover that substantial subscription fees are required or they have to purchase the directory at an exorbitant price.
Scammers know that the term “Yellow Pages” is not protected by trademark or copyright and can be used by anyone. Fraudsters will send apparent invoices to businesses for what appears to be inclusion of ads in yellow pages directories. The invoices, which are actually disguised solicitations, are misleading because they include the words “Yellow Pages” and a “walking fingers” logo; they use language such as “present listing information,” implying that the businesses had previously given the information to them and “directory listing renewal invoice” or “renewal payment stub,” implying that the businesses once purchased ads for the publication; and, they do not say that the directory in which the ads will appear may not be distributed to the public and/or provide the intended benefits.
Remedies for victims of fraudulent investment swindles and con schemes require a team effort on the part of the consumer, law enforcement officials, and agencies by increased and continued consumer awareness and education on the red flags of fraudulent schemes; consumers reporting fraudulent schemes to appropriate authorities and organizations; increased communication among government authorities, organizations, and consumers; fraud detection by federal authorities, other agencies, organizations, and individuals; fraud deterrence through the prosecution of the perpetrators; and, the establishment of federal laws, statutes, acts and rules for restitution and prevention measures.
Until next time,
The Business Doctor
