Identity Theft and IRS Fraud at Colleges (So Fla Bus Journal)

18 Miami-Dade College students charged with stealing classmates’ identities
Nov 18, 2014, 12:40pm EST Updated Nov 18, 2014, 3:12pm EST

Brian Bandell
Senior Reporter
South Florida Business Journal

Eighteen students at Miami-Dade College were among 21 people charged with stealing the identities of students there to commit $1.9 million in tax refund fraud.
Federal authorities arrested 17 of the defendants on Tuesday, including 14 of the MDC students. More than 644 students at MDC were victimized, according to the complaints.

This brings an epidemic to new proportions. Florida has the highest rate of identity theft in the nation, and Miami has the most complaints by victims, according to the Federal Trade Commission.

"Today's takedown is further evidence of the insidious and widespread nature of stolen identity tax refund fraud," U.S. Attorney General for the Southern District of Florida Wifredo Ferrer said in a news release. "That this crime has infiltrated life at a college is alarming. As a community, we cannot permit this type of crime to negatively affect young people and their prospects while in college."
According to the complaints, most of the defendants ran the scheme through bank accounts with Higher One, a company that provides financial services to college and university students. Multiple fraudulent tax refunds were deposited into Higher One accounts. Some defendants also used these accounts to collect fraudulent social security checks.
Over 1,000 Higher One accounts were implicated in the investigation.

"Those arrested today were part of a Miami-based group who systematically hacked into numerous businesses and government institutions," George L. Piro, the FBI special agent in charge of Miami, said. " Once inside, they stole personally identifiable information from unsuspecting victims to unlawfully file tax returns and redirect Social Security payments."
The defendants are Gary Antoine, Emmanuel Avrilien, Gerrey Cherrelus, Sandy Jean-Louis, Marie Joseph, Andy Lamour, Tamica Smith, Marvin Dubuisson, Ronald Dumond, Bianca Noel, Erving Jaques Etienne, Mitsie Faustin, Caleb Fadet, Laquisa Q. Johnson, Beethoven Nelson, Farah Norelus, Smith Jean, Beatrice Simeon, Glasner Simplice, and Rutherford Willy.
Officials at Miami-Dade College said they were working closely with the U.S. Attorney's Office to resolve the matter.

"The actions of these individuals are in no way a reflection of the vast majority of the hardworking, honest students at Miami Dade College, looking to improve their lives and their families'," Miami-Dade College stated. "In fact, the situation was reportedly orchestrated by individuals not connected to the college, taking advantage of often vulnerable students. It's also important to note that what has reportedly transpired is not a result of a lack of vigilance and proactiveness on the part of the college."

Avoid Tax Return Fraud- Don't E-File (WSJ)

E-Filing and the Explosion in Tax-Return Fraud

Identity-theft cases rocketed to 1.1 million in 2011 from 51,700 in 2008. The IRS has a backlog of 650,000.

 

By JAY STARKMAN

Now that Americans finally know the tax rate they'll be paying, it's time to start thinking about the annual drudgery of filing their returns. It's also the season when identity thieves begin ripping off those returns and stealing billions in false or misdirected refunds. Tax fraud, amazingly, is now the third-largest theft of federal funds after Medicare/Medicaid and unemployment-insurance fraud.
Tax-identity theft exploded to more than 1.1 million cases in 2011 from 51,700 in 2008. The Treasury Inspector General for Tax Administration last summer reported discovering an additional 1.5 million potentially fraudulent 2011 tax refunds totaling in excess of $5.2 billion.

Why has identity theft rocketed through the Internal Revenue Service? Because American taxpayers, urged on by the IRS, have taken to filing their income-tax returns electronically and arranging for refunds to be directly deposited into bank accounts. E-filing is appealing because it provides an electronic postmark confirmation that the return was filed on time. When it is combined with direct deposit, a refund can arrive in as little as seven days. In 2012, 80% of individual returns were e-filed, fulfilling an initial goal Congress set in 1998. The result is an automated system in which the labor burden is transferred to the taxpayer.

E-filing contributes to tax complexity as the IRS demands ever more data for reporting of wage, interest and brokerage income with more tax forms. A discrepancy may result in a rejection code, a letter from the IRS Automated Underreporting Unit, or a computerized audit out of a centralized IRS office in Ogden, Utah. There's no cost to the IRS for requesting extra information when it's received electronically.
Targeting taxpayers for audit is a major factor behind the IRS's push for e-filing. E-filed returns are available for audit several months sooner than paper returns, allowing more time before the three-year statute of limitations expires. The IRS has even boasted that its e-file database is "a rich and fertile field" for selecting audits and has estimated that if its "screeners could be reallocated to performing audits, they could bring an additional $175 million annually."
Fraudulent tax returns can come in the form of tax-identity theft, refund fraud, or return-preparer fraud and are difficult to prosecute. With e-filing, evidence of fraud is difficult to find. There are no signed tax forms, envelopes or fingerprints, and e-filing promises quick refunds.
It's easy for criminals to e-file using a real name and Social Security number combined with a phony Form W-2 (wages) or fabricated Schedule C (business income). The refund can be posted to an anonymous "Green Dot" prepaid Visa or MasterCard  purchased at a drugstore. Such cards have a routing and account number suitable for direct deposit. The IRS may even correct a fraudulent return to refund the estimated taxes that the real taxpayer already remitted, as happened to one of my victimized clients.
Another form of fraud is when an unscrupulous return preparer modifies the bank-routing information on a return so the direct-deposit refund will wind up in his own bank account. He might increase the deductions so a return will show a larger refund due, with only the increase routed to his bank account. The victim will know nothing unless the IRS sends an audit notice.
Other preparers have abused the return information of former clients to file false refund returns in subsequent years. Criminals have established physical offices and websites displaying names of major tax-preparation franchises in order to gain genuine return documents and signatures from unsuspecting victims.
The IRS will replace a lost or stolen refund check. However, a stolen refund using an altered or erroneous routing number on a tax return will generally not be refunded until the bank returns the funds to the IRS. Otherwise, the taxpayer's sole recourse is a lawsuit against the return preparer.
Millions of Americans now pay the IRS via an Electronic Federal Tax Payment System debit. Unlike ordinary creditors paid electronically, the IRS is in the business of sending refunds but it doesn't compare names on bank records against its own files. So, with just the routing information from a personal check, a skilled criminal can use the electronic tax-payment system to transfer funds from a victim's bank account as an estimated-tax payment to another stolen name and Social Security number, then file a refund claim transferring the stolen funds to his own account. (This can be prevented by having your bank place an "ACH debit block" on your account.)
Fraud is a major problem for states, too. Using TurboTax, a 25-year-old woman e-filed a fraudulent 2011 Oregon return reporting wages of $3 million and claiming a $2.1 million refund—and the Oregon Department of Revenue sent her the refund. In October, a hacker stole 3.8 million unencrypted tax records from the South Carolina Department of Revenue. Georgia reports that 4% of its returns are fraudulent.
If you become a tax-identity theft victim, immediately seek a referral to the IRS Identity Protection Specialized Unit or the Taxpayer Advocate Service using Form 911. Keep in mind that it can take over a year to resolve. The IRS has a backlog of 650,000 cases.
The national taxpayer advocate has recommended that taxpayers be allowed to tell the IRS to accept their return only when filed on paper, thus preventing e-file tax-identity theft. So far the IRS has failed to allow this. Less effective methods are to request an "electronic filing PIN," available at www.irs.gov, and file Form 14039, "Identity Theft Affidavit," so that the IRS might apply additional return-screening procedures. Sadly, conventional credit-monitoring services are useless against income-tax identity theft.
In sum, e-filing helps the IRS with audit selection, costs the Treasury billions through fraud, and transfers many costs of tax administration to you.
Mr. Starkman, a practicing certified public accountant, is the author of "The Sex of a Hippopotamus: A Unique History of Taxes and Accounting" (Twinset, 2008).

A version of this article appeared January 14, 2013, on page A15 in the U.S. edition of The Wall Street Journal, with the headline: E-Filing and the Explosion in Tax-Return Fraud.

Copyright 2012 Dow Jones & Company, Inc. All Rights Reserved

 

Stock Scam Alert

South Florida scams busted: Ponzis, pump ‘n’ dumps, Forex

South Florida Business Journal by Paul Brinkmann, Reporter

Date: Monday, June 4, 2012, 5:11pm EDT


A concerted attack on investment fraud in South Florida over the past three years has netted 85 people busted and more than $1.5 billion in restitution ordered.

Federal and state authorities announced the results Monday, along with a list of 12 new cases that included Clean Coal Technologies.

Clean Coal’s president, Douglas Hague, 65, of Boca Raton, was charged Monday along with 15 other new defendants.

The charges allege that Hague paid kickbacks to a third party with the purpose of pumping up the stock price for Clean Coal Technologies (OTC: CCTC). The company purportedly converted low-grade coal to high-grade clean-burning coal. But the charges allege that Hague paid kickbacks to the manager of a pension fund to buy stock at inflated prices.

The federal district for South Florida ranks second in the nation in securities and investment fraud investigations and prosecutions.

According to the news release from the U.S. Attorney’s office, other new cases included:

Cleland Ayison, 32, of Tampa, arrested Monday on charges of possessing a fraudulent $500 million Federal Reserve Note.

Michael Cimino and Joseph Repko: Cimino, 59, of Philadelphia, Penn., the director and chairman of the board for Sure Trace Security Corporation (SSTY), and Repko, 63, of Hobe Sound, SSTY’s chief financial officer and president, were arrested Monday on charges of conspiring to commit mail fraud by paying kickbacks to a pension fund fiduciary for buying stock at inflated prices. SSTY, a Utah corporation, was purportedly involved in the anti-counterfeiting technology business.

Ryan Coblin, 41, of Boca Raton, president of Delivery Technology Solutions, a delivery company. Coblin was charged in September and pleaded guilty March 8 to engaging in a scheme to pay kickbacks to a hedge fund fiduciary in a stock scheme. Sentencing is scheduled for July 13.

Scott Haire, 42, of Coral Springs, was president of Wound Management Technologies, Inc. (WNDM), a Texas corporation that purportedly developed advanced wound care products. Haire was charged with engaging in a scheme to manipulate the publicly quoted share price and trading volume of WNDM common stock. Haire is expected to surrender on June 6.

According to the news release, authorities arrested several other people from other states who held meetings in South Florida to further their stock schemes.

Ponzi Schemes

Juan Carlos Rodriguez, 49, of Miami, indicted March 6 for alleged wire fraud in the execution of a Ponzi scheme. According to the indictment, Rodriguez was the sole officer and director of MDN Financial Group, a Miami company that solicited approximately $5.2 million from investors with promises that the company would invest in stocks, bonds, and precious metals. Rodriguez would recruit colleagues and friends to invest in MDN Financial, promising them 20 to 50 percent returns. He used more than $1 million of the money to pay for personal expenses like credit card bills.

George Elia, 68, formerly of Fort Lauderdale, scheduled to be arraigned June 6 on charges of operating a Ponzi scheme in which he recruited investors by making false claims about the potential returns on investments. Elia was the president of Fort Lauderdale-based International Consultants & Investment Group, LC. The Business Journal previously wrote about the alleged fraud.

Aner Menendez, arrested Monday on charges of mail fraud and wire fraud. As the sole member of Key Biscayne-based De Forcade LLC, he recruited investors claiming he was a skilled foreign currencies trader (foreign exchange or For-ex). He exploited social relationships to convince his victims to invest savings with him, but spent the money on himself and friends.

The SEC also said it filed nine separate civil injunctive actions against 12 individuals and eight microcap companies, charging them with violations of the antifraud provisions of the federal securities laws and seeking, among other relief, permanent injunctions, disgorgement and financial penalties.

Led by U.S. Attorney Wifredo Ferrer, the initiative includes the U.S. Securities and Exchange Commission and the state’s Office of Financial Regulation. Other cooperating agencies include the IRS, FDIC and FTC.

Ferrer said in a news release, “Too often, we hear from victims who have lost their entire lives’ savings or their retirement nest egg to one of these unscrupulous schemers. Today, we hope to educate the public about the need to be alert and to verify before trusting and investing. If something sounds too good to be true, it usually isn’t.”

IDENTIY FRAUD AND YOUR TAX RETURN ( from irs.gov, creditcard.com)

Taxpayer Guide to Identity Theft





What is identity theft?
Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes.

How do you know if your tax records have been affected?
Usually, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund. Generally, the identity thief will use a stolen SSN to file a forged tax return and attempt to get a fraudulent refund early in the filing season.

You may be unaware that this has happened until you file your return later in the filing season and discover that two returns have been filed using the same SSN.

Be alert to possible identity theft if you receive an IRS notice or letter that states that:

More than one tax return for you was filed,
You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return, or
IRS records indicate you received wages from an employer unknown to you.
What to do if your tax records were affected by identity theft?
If you receive a notice from IRS, respond immediately. If you believe someone may have used your SSN fraudulently, please notify IRS immediately by responding to the name and number printed on the notice or letter. You will need to fill out the IRS Identity Theft Affidavit, Form 14039.

For victims of identity theft who have previously been in contact with the IRS and have not achieved a resolution, please contact the IRS Identity Protection Specialized Unit, toll-free, at 1-800-908-4490.

How can you protect your tax records?
If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost/stolen purse or wallet, questionable credit card activity or credit report, etc., contact the IRS Identity Protection Specialized Unit at 1-800-908-4490.

How can you minimize the chance of becoming a victim?
Don’t carry your Social Security card or any document(s) with your SSN on it.


Don’t give a business your SSN just because they ask. Give it only when required.


Protect your financial information.


Check your credit report every 12 months.


Secure personal information in your home.


Protect your personal computers by using firewalls, anti-spam/virus software, update security patches, and change passwords for Internet accounts.


Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with


============


ID Theft Tool Kit
Are you a victim of identity theft?
If you receive a notice from the IRS, please call the number on that notice.

If not, contact the IRS at
800-908-4490


Fill out the IRS Identity Theft Affidavit, Form 14039

(Please write legibly and follow the directions on the back of the form that relate to your specific circumstances.)


--------------------------------------------------------------------------------

Credit Bureaus
Equifax
www.equifax.com
1-800-525-6285

Experian
www.experian.com
1-888-397-3742

TransUnion
www.transunion.com
1-800-680-7289


--------------------------------------------------------------------------------

Other Resources

Visit the Federal Trade Commission or call the FTC toll-free identity theft helpline:
1-877-ID-THEFT
(1-877-438-4338)

Visit the Internet Crime Complaint Center (IC3) to learn more about their internet crime prevention tips


--------------------------------------------------------------------------------

Report Suspicious Emails
Report suspicious online or emailed phishing scams to:
phishing@irs.gov

For phishing scams by phone, fax or mail, call:
1-800-366-4484


--------------------------------------------------------------------------------

For More Information
IRS.gov/identitytheft
IRS.gov/phishing


===============================================================
Tax ID theft skyrockets; thieves feasting on a refund bonanza

They steal your identity and go on a spree with Uncle Sam's debit card

By Susan Ladika
Published: March 26, 2012



If it can happen to a slain police officer, it can happen to anyone.

Taxpayers are having hundreds of millions -- or perhaps billions -- of dollars in tax refunds swiped by crooks who file fraudulent tax returns using the victim's Social Security number, then pocket the refunds. The victim has no idea the fraud has occurred until they try to file their own return and it bounces back.

"Nobody's immune from this crime," says Sal Augeri, a police detective in Tampa, Fla. The Tampa Bay area, along with South Florida, appear to be ground zero for the crime. But Florida is by no means alone. Just in the last week of January, the Internal Revenue Service (IRS), working with various other agencies, cracked down on suspected fraudsters in 23 states from New York to California.

The situation is so bad, Augeri testified March 20 before the U.S. Senate Subcommittee on Fiscal Responsibility and Economic Growth about what he's observed. During the hearing it was revealed one of the tax fraud victims was Tampa police officer David Curtis, who was gunned down in 2010. His widow is still struggling to get the tax refund.

"It's a growing problem that undermines confidence in the tax system," says Mark Steber, chief tax officer at Jackson Hewitt Tax Service and chairman of the IRS Electronic Tax Administration Advisory Committee.

Problem runs into billions
While it's impossible to get a handle on exactly how much money is swiped, in the Tampa Bay area alone Augeri estimates it totals up to $1 billion and could be as high as $10 billion nationwide.



HOW THE SCHEME WORKS

While the methods employed can vary, in Tampa the scheme generally works like this:
• Fraudsters find willing accomplices who have access to Social Security numbers at places such as doctor's offices and insurance companies or from credit card applications. The accomplices may steal 100 names and Social Security numbers, and get paid $1,000.
• The thieves use that information to file a fake tax return in your name -- usually beating you to the punch and filing early in the tax season.
• They take the refund -- which may come in the form of a check or prepaid debit card -- and bring it to a business they're in cahoots with.
•The business cashes the check or cashes out the debit card, gives the fraudster a cut, then keeps the rest, laundering it through the business.


At the IRS, the agency caught 262,000 fraudulent returns in 2011, seeking $1.45 billion in refunds, an agency spokesman says. That's an 81 percent increase since 2010, when the agency identified 49,000 suspicious returns, seeking $247 million in refunds. But if the fraudulent return isn't caught and slips through the system, the burden will fall on you to prove your identity, and the problem can take months to resolve, the IRS representative admits. Ultimately, you'll receive your refund, with the federal government coughing up the cash.

No one can pinpoint precisely why the crime is booming, but Steber says, "identity theft goes hand in hand with tax fraud."

A Federal Trade Commission report says that of the 1.8 million complaints it received in 2011, 15 percent involved identity theft. Of those, almost one-quarter were related to tax or wage fraud.

Criminals also are drawn to it because it's less risky than many other types of crime, Augeri says. Rather than trying to sell a kilo of cocaine for a few thousand dollars, and running the risk of being shot by other bad guys, the crooks can sit in their living room and crank out returns, netting tens of thousands or hundreds of thousands of dollars. "It's more lucrative and the punishment isn't as bad."

The 'TurboTax' scheme
On the street, it's a scheme known as "TurboTax" and evidence of the fraud can be found when police show up at all kinds of cases, Augeri says. In one recent suicide, the dead teen was found with two prepaid tax refund debit cards in his pocket.

The problem started popping up in Tampa in the second half of 2010. Police would pull over vehicles and find ledgers filled with Social Security numbers and stacks of prepaid debit cards.



The U.S. Postal Service also started noticing stacks of IRS mailings going to certain addresses, and the names on the envelopes didn't correspond with the names of the residents, Augeri says. That led postal inspectors to confiscate stacks of refund checks and debit cards.

"Over the past few years, the IRS has seen a significant increase in refund fraud schemes in general and schemes involving identity theft in particular," said Steven T. Miller, deputy commissioner for services and enforcement for the agency, in written testimony to the Senate committee. "Fighting identity theft will be an ongoing battle for the IRS and one where we cannot afford to let up. The identity theft landscape is constantly changing, as identity thieves continue to create new ways of stealing personal information and using it for their gain."

Steps to prevent tax ID fraud
While there's no way to guarantee you won't fall victim to tax return fraud, you can take steps to try to prevent it.

Rather than joining the crush of millions of Americans filing at the last minute, Steber recommends submitting your tax return early. "You effectively lock out people from trying to file your (fraudulent) return."

If you try to e-file your return and it bounces back, you'll have to file a paper return, and the IRS spokesman recommends you immediately fill out an Identity Theft Affidavit and submit it to the agency so it flags your account.

The agency has begun issuing special identification numbers called Identity Protection PINs to taxpayers whose identities are known to have been stolen. That prevents others from using their identities. As of mid-March, the agency had issued more than 250,000 such IP Pins in the 2011 filing season, says Miller.

Don't let your SSN out
If you successfully file your return, it's crucial that you keep the information stored somewhere safe. Steber says he often stops at various tax preparers' offices while traveling, and he'll invariably finds taxpayers have tossed their completed returns in the dumpster. That's like handing fraudsters a treasure trove of personal information.

You also need make sure to keep your Social Security number, as well as those of family members, safe and secure. Often the IRS will give less scrutiny to the Social Security number of a deceased person or a child than to an adult filing a return, and it's not unusual for fraudsters to scour obituaries and birth announcements, trying to obtain information, Steber says. The IRS's Miller says that so far, 66,000 returns for the 2011 filing year have been stopped for review because they appear to come from recently deceased taxpayers who have no filing requirements

Steber cautions consumers to guard their Social Security numbers at all costs. "You should protect that information like you would a valuable piece of jewelry or other asset."


Read more: http://www.creditcards.com/credit-card-news/id-identity-theft-steal-tax-refunds-returns-1282.php#ixzz1qe6786Ie
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Insurance Companies Sued for Knowingly Stiffing Heirs ( from LifeHealthPro )

Prudential, MetLife Sued over Death Master File

By Arthur D. Postal

February 1, 2012

State efforts to collect on unclaimed property held by insurers has mushroomed into private action lawsuits filed in Illinois, Ohio and New York against Prudential and MetLife.

The lawsuits are coming to light against the background of a hearing Thursday on inaccuracies related to the Death Master File mainted by the Social Security Administration.

The DMF is the primary research tool being used to allege that insurers did not follow applicable state law on unclaimed property, either by not being aggressive enough in seeking to find beneficiaries of life insurance policies, or, in the alternative, turn the money over to the state.

In a suit filed in Chicago, Total Asset Recovery Services, based in Auburn Hills, Mich., alleges it discovered a "massive fraud" by Metropolitan Life Insurance and Prudential Financial.

The suit alleges that the two firms kept more than $524 million in unclaimed life insurance money that should have been turned over to Illinois.

And, a class action suit alleging securities fraud was filed in Manhattan Jan. 12 against Metlife by the City of Westland Police and Fire Retirement System, Westland, Mich.

The suit alleges MetLife made “false and misleading statements” regarding its financial statements because it took a charge in the third quarter of 2011 related to a determination that it owed money by either not paying off policies to proper beneficiaries or turned the money over to the appropriate states under escheat laws.

And, an Ohio state court based in Cleveland Tuesday dismissed a complaint against Nationwide Insurance Company in which a life insurance policyholder who is 71 years-old filed suit.

The plaintiff said he filed suit out of concern that his death is imminent and he is fearful that because Nationwide allegedly “has failed and continue to fail to make reasonable attempts to determine when the beneficiaries of a life insurance policy are entitled to death benefits.”

The plaintiffs fear … “that as their deaths are impending they fear that that their life insurance policies will not be honored.”

The suit asked that Nationwide be required to make at least annual DMF searches for insureds with more than a 70% chance of having died.

The court dismissed the suit, on the grounds that (a) plaintiffs lacked standing because their alleged injury was too speculative and (b) the duty plaintiffs sought to impose was foreclosed by the terms of their policies.

The plaintiffs have appealed to the Ohio Court of Appeals.

The Illinois case was filed almost a year ago but only unsealed earlier this month.

It is a so-called “qui tam,” or whistleblower complaint in Cook County Court.

The suit said MetLife and Prudential "filed false records omitting these unclaimed funds."

It says the insurers should be fined more than $1.5 billion under the Illinois False Claims Whistleblower Reward and Protection Act.

Tom Prescott, equity-owner and spokesperson for Total Asset Recovery Services LLC, said that with regard to the suit, the Illinois attorney-general’s office has said that it will soon submit for the court's consideration a motion to intervene and simultaneously dismiss the suit because it is negotiating a settlement with MetLife and Pru.

Prescott complained that it is likely that Illinois will settle “for pennies on the dollar.”

He said that, “We think this is incredulous and unfair to the citizens of Illinois compared with what they should receive given the companies' documented fraudulent activities in this area) after having utilized our data findings and supporting documentation to extract the relevant monetary and policy concessions.”

Where NOT to use a Debit Card (bankrate.com)

4 risky places to swipe your debit card
By Claes Bell • Bankrate.com


Would you give a thief direct access to your checking account?

No? Unfortunately, you may be doing just that by regularly using your debit card. Debit cards may look identical to credit cards, but there's one key difference. With credit cards, users who spot fraudulent charges on their bill can simply decline the charges and not pay the bill. On the other hand, debit cards draw money directly from your checking account, rather than from an intermediary such as a credit card company.

Because of that, even clear-cut cases of fraud where victims are protected from liability by consumer protection laws can cause significant hardship, says Frank Abagnale, a secure-document consultant in Washington, D.C.

He cites the example of the The TJX Companies Inc.'s T.J. Maxx data breach that exposed the payment information of thousands of customers in 2007. The incident resulted in $150 million in fraud losses, and much of it was pulled directly from customers' bank accounts. While credit card users got their accounts straightened out and new cards in the mail within a few days, the case created major problems for debit card holders who waited an average of two to three months to get reimbursed, Abagnale says.

While debit card fraud is always a possibility, being careful where you use it can help keep your checking account balance out of the hands of criminals.

SKIMMING ATMS

The idea that outdoor ATMs are among the most dangerous places to use a debit card seems a little bit absurd. But some ATMs present a perfect opportunity for thieves to skim users' debit cards, says Chris McGoey, a security consultant based in Los Angeles.

Skimming is the practice of capturing a bank customer's card information by running it through a machine that reads the card's magnetic strip. Those machines are often placed over the real card slots at ATMs and other card terminals.

"Any transaction you do outdoors at an open ATM is going to be higher risk exposure," McGoey says. "If the public has access to it, then someone has the ability to add skimming devices to it, position cameras on it and position themselves in a way where they could surveil it."

He says you're better off using an ATM inside a retail outlet or other high-trafficked, well-lit place.

Julie McNelley, senior analyst for Aite Group LLC, a Boston-based financial services research firm, says even the card terminals that card users must swipe to get into ATM vestibules are being used as a skimming site by criminals. You can spot ATM skimmers by checking for ATM components that look beat-up or askew, she says.


GAS STATIONS


Gas stations are another danger zone for debit card use.

"You go to a gas station and you stick your debit card in there, and you swipe it through a machine," Abagnale says. "I'm sitting across the street with a laptop and an antenna. I put a skimmer in there, and I'm picking up all the information. Before you even get home, I've debited your account."

Gas station payment terminals have many of the characteristics card fraudsters love, McNelley says.

"In a gas station where you do have a whole bunch of pay-at-the-pump kinds of things and minimal supervision, it's pretty easy for a bad guy to put a skimming device on and put a little pinpoint camera there and compromise debit cards that way," McNelley says. Thieves often use small cameras to capture footage of debit card users entering their PINs so they can have free access to their money.

She says even if the thief doesn't manage to get your debit card personal identification number, or PIN, from such a device, he still may be able to duplicate the card's magnetic strip and use it for "sign and swipe" Visa or MasterCard transactions.

With the high potential for fraud in pay-at-the-pump debit transactions, it might make sense to use an alternative such as cash or credit cards the next time you fill up.

ON THE WEB



Debit cards are a convenient way to buy products online, especially for those who don't like to use credit cards. Unfortunately, the Web is one of the most dangerous places to make purchases, McNelley says.

"Online is the No. 1 place where consumers should not use their debit cards," she says. "It's susceptible at so many points. The consumer could have malware on their computer, so it could be at their endpoint that the data get compromised. It could be a man-in-the-middle attack where somebody is eavesdropping on their communications via the wireless network. And then at the other end, that data goes into a database at the merchant. As we've seen with some of the higher-profile breach events over the last year or so, that data is going to be vulnerable if (they're) not properly cared for."

Aside from the potential for hacking at many different points in a transaction, Abagnale says a fundamental problem with using debit cards online is it's impossible to know who is handling your information.

"Buying stuff online, you have to be careful because you have to know who you're doing business with. When you buy things online, what always kills me about that is people say, 'This is a safe site,'" Abagnale says. "Who works there?"

RESTAURANTS


"Would you care for a side of debit card fraud with that?"

Restaurant servers don't ask that question, but they might as well with the standard practice of taking customers' debit cards to run them behind closed doors.

"Any place where the card is out of hand" can increase the chances of fraud, says McGoey. "The guy comes to your table, takes your card and disappears for a while, so he or she has privacy," giving the person the opportunity to copy your card information.

Even restaurants without sit-down service can present a threat. McNelley says using debit cards to order delivery can be risky because cashiers tend to keep customer payment information on file. That may make future orders more convenient, but small businesses rarely take the steps necessary to safeguard payment information, she says.

Overall, she says, regardless of whether you use your debit card at a small restaurant or a big-box store, the possibility of fraud is always there. She cites the example of Michaels Stores Inc., which saw its customers' debit card information stolen in May by debit card terminals doctored by thieves.

"Even if you do exercise caution … there are still the Michaels-type incidents that will happen," McNelley says.

Beware those low-priced stocks (South Florida Business Journal)

Task force continues penny stock crackdown

Florida Business Journal - by Kevin Gale
Date: Thursday, June 30, 2011, 4:33pm EDT


Eric Bustillo, the SEC's regional director in Miami, said agencies are combining their limited resources to fight fraud.
Government agencies in South Florida are continuing a crackdown against penny stock promoters with undercover work that resulted in a flurry of conspiracy charges and an SEC action on Thursday.

Those charged live in Coconut Creek, California, Texas and Nevada – an indication of the broad geographic reach of the multi-agency effort.

The investigation is targeting what Eric Bustillo, director of the SEC’s Miami regional office, calls the "securities fraud underworld. Unfortunately, it has many of the players located down here."

In a telephone interview, Bustillo said investigators follow the trail of evidence as it unfolds.

It's not unusual for promoters and consultants to reach out to others for help raising money or fraudulently manipulating the price of stock, he said.

Historically, penny stock cases often involve promoters and telephone sales boiler rooms that make inflated claims. Cases are getting new twists these days through the use of websites and social media.

Most of the schemes listed Thursday involved kickbacks to a purportedly corrupt pension fund trustee in exchange for having the fund buy stock in microcap companies, the SEC said in a news release.

Another scheme involved a bribe that was to be paid to a purportedly corrupt broker who agreed to buy microcap shares on behalf of investors with discretionary accounts, the SEC said.

A final scheme involved a stock promoter who created a website to tout a penny stock company through a volley of e-mail blasts, and who posted phony testimonials from fake investors, the SEC said.

What the insiders and promoters did not know was that the people who were counterparties to the illegal transactions were actually undercover FBI agents or confidential sources participating in an undercover operation, the SEC said.

The latest charges follow a series of cases, filed in October and December 2010, in which the SEC sued more than a dozen companies and penny stock promoters with similar stock manipulation schemes.

On Thursday, Brian Gibson, 63, of Coconut Creek, was charged with one count of conspiracy to commit securities fraud in connection with a scheme to defraud the investing public by engaging in deceptive and manipulative trading practices in connection with Xtreme Motorsports International stock, according to a news release from Wifredo A. Ferrer, U.S. attorney for the Southern District of Florida, and John V. Gillies, special agent in charge for the FBI in Miami.

Gibson was a marketing consultant for Xtreme Motorsports International who conspired with others to create a promotional website that encouraged investor interest in the company, the U.S. attorney’s press release said.

The website contained false and fraudulent statements, including false testimonials, the U.S. attorney said. Gibson faces up to five years in prison, three years of supervised release and substantial monetary fines, as do the others charged, according to the U.S. attorney:

Donald W. Klein, 40, of Frisco, Texas, who faces a count of conspiracy to commit securities fraud by engaging in deceptive and manipulative trading practices in connection with KCM Holdings, of which he was president and CEO. Klein is charged with engaging in a “pay-to-play” scheme to cause a stockbroker to purchase company stock in return for a kickback payment.
Douglas Newton, 66, of Rancho Mirage, Calif., who was charged with one count of conspiracy to commit securities fraud in connection with a scheme to defraud the investing public by engaging in deceptive and manipulative trading practices in connection with Real American Brands, of which he was president. Newton is charged with engaging in a “pay-to-play” scheme to cause a pension fund fiduciary to purchase shares in return for a kickback.
Charles Fuentes, 66, of Dana Point, Calif., and Thomas Schroepfer, 54, of Las Vegas, who were charged with one count of conspiracy to commit securities fraud in connection with a scheme to defraud the investing public by engaging in deceptive and manipulative trading practices in connection with Smoke Free Innotec Inc. stock. Fuentes was a consultant and Schroepfer was the president. Fuentes and Schroepfer are charged with engaging in a “pay-to-play” scheme to cause a pension fund fiduciary to purchase shares in return for a kickback.
Ferrer said the case show the risks associated with thinly traded microcap stocks.

"The defendants charged today abused their knowledge of the capital markets hoping to misappropriate money held in pension fund and brokerage accounts to enrich themselves and their co-conspirators,” he said in a news release.

“Investors deserve better than secret investment strategies based on kickbacks and bribes,” said Robert Khuzami, director of the SEC’s Division of Enforcement, in a news release. “As our charges make clear, these CEOs got more than they bargained for, but exactly what they deserved, for making illicit payments to manipulate microcap stocks.”

Bustillo said the federal agencies are combining their limited resources to bring the microcap cases, and more are likely down the road.

kgale@bizjournals.com | (954) 949-7520 On Twitter: @kevingale

Unregistered Securities & Sellers AKA Scams - just one story from NY Times

March 30, 2008
An Oilman Entices, and Investors Cry Foul
By JULIE CRESWELL

LIKE so many of the over-the-top birthday parties that typically appear on “My Super Sweet 16” on MTV, Ariel’s celebration took the fairy-tale-princess theme to new heights.
Horse-drawn carriages delivered teenage guests to a faux-castle tent where they were met with dancing jesters and disco lights. The birthday girl, wearing a white dress and tiara, flew in via helicopter. And the evening ended with fireworks and the arrival of Ariel’s gift from her father: a brand new BMW 325i.
As viewers learned, Ariel’s dad was a successful oilman. “I love oil. Oil means shoes and cars and purses,” Ariel exclaimed to the camera as she and her father stomped around oil drilling sites in the muddy hills near her home in Campbellsville, Ky. When her father pointed to one of the sites and told viewers that it produced 120 barrels a day, Ariel asked, “How many Louis Vuittons is that?” Her father’s answer was “a bunch.”
The show typically attracts younger viewers, but this particular episode, shown in February 2007, caught the attention of an entirely different demographic: government regulators.
Ariel’s father was Gary M. Milby, a man regulators now say was bilking hundreds of investors across the country out of millions of dollars by offering fraudulent investments in nearly 30 oil and gas limited partnerships with names like “Black Gold Oil No. 6” and “Fort Knox Oil No. 8.”
Last fall, the Securities and Exchange Commission filed a complaint accusing Mr. Milby of raising more than $19 million from 375 investors over about a year and a half, starting in February 2005. At least $12 million was diverted into offshore accounts and family trusts and millions of dollars was spent on Mr. Milby’s lavish lifestyle, the S.E.C. said in its complaint. Mr. Milby denied all of the accusations against him.
“That MTV show really put Milby on the road map,” said Frank Panepinto, a fraud investigator with the Louisiana Office of Financial Institutions. “That really got people aggravated with him.”
These days, with oil prices topping $100 a barrel, investors are scrambling for a piece of the latest gusher, and schemers and con artists seem to be eager to help them out. An association of state securities regulators said there were 260 open investigations into oil and gas scams across the country in early 2007. Updated figures are not available, but regulators say complaints continue to pour in.
“I bet you right now that I have over 20 oil and gas cases that I’m looking at involving unregistered securities and unlicensed people selling this stuff,” said the Colorado securities commissioner, Fred J. Joseph. “A year or two ago, I doubt that I had five cases.”
As suspect energy investments go, Mr. Milby’s offerings are pretty standard. Through private placement offerings, he sold units in limited liability partnerships managed by two companies he owned, Mid-America Energy and Mid-America Oil and Gas, that would use the money for shallow drilling mostly in Kentucky. Investors were told that they would receive monthly checks for as much as $4,800 for 30 to 50 years, according to the S.E.C., which said Mr. Milby bragged to some investors that “no one who has invested with me has ever lost money.”
What Mr. Milby didn’t tell investors also spoke volumes. He had filed for bankruptcy in 2003, and in 2005 and 2006 several states had banned him from selling securities, the S.E.C. said. The agency also said that Mr. Milby was barred from drilling in Texas and that the Kentucky counties where he was drilling had never produced enough oil to support his lofty claims. And, while some individuals received modest dividends from partnerships managed by Mr. Milby and the Mid-America companies, no investors ever recouped their entire investments, the S.E.C. said.
Mr. Milby’s story illustrates the limits of state securities regulators, who cannot keep a suspect operation from seeking investors in other states — and struggle to enforce bans even in their own states. For months, Mr. Milby continued to seek out investors across the country, even though several states had filed cease-and-desist orders against him.
Regulators in Tennessee, where Mid-America Energy was registered, did not issue any public warnings against the company despite numerous complaints from investors. Leslie A. Newman, the state’s commissioner of commerce and insurance, said that issuing a cease-and-desist order would have prevented the state from aiding in other investigations, such as the S.E.C.’s.
“There is still federal activity ongoing in this case,” Ms. Newman said. “Other agencies with criminal authority are still actively pursuing this case.” She declined to say which agencies were involved.
To date, Mr. Milby faces just one criminal charge, a count of felony fraud in a Louisiana parish.
Some federal prosecutors say they lack the resources to chase after every allegation of an oil and gas scheme.
“These are complex cases that take a lot of investigative time, and there’s just not a lot of investigative resources in this area right now,” said David L. Huber, the United States attorney for the Western District of Kentucky.
“The No. 1 federal priority right now, criminally speaking, is terrorism,” said Wynne James, a lawyer at Waller Lansden Dortch & Davis in Nashville, which is representing about 75 investors in multiple lawsuits filed against Mr. Milby. “You ought to feel somewhat comforted that the feds will drop everything to go after terrorism, but other things suffer for that.”
The group has so far won more than $5.1 million in its cases against Mr. Milby, who did not respond or defend himself in them. The investors, however, have not collected any money.
Mr. Milby and one of his lawyers, Hunter Durham, said that all material information was disclosed to investors, that several wells that were drilled did hit oil and that participants received some returns on their investments. Both declined to make any individuals who had made money with Mr. Milby available for interviews.
As for the lavish MTV party, Mr. Milby says that one of his former wives (he has been married five times, twice to the same woman) picked up the bill and that he paid for only the fireworks. As for the BMW, he said he traded in another car and paid the price difference, $4,500, out of his own pocket. Efforts to contact the former wife were unsuccessful.
“If investors think I’m stealing their money, they’re wrong. I’m broker than a church mouse right now,” Mr. Milby said. “We spent and spent and spent, and borrowed and borrowed and borrowed, just to keep these wells going.” Nonetheless, he added, the wells have been shut down and are not currently operating.
WHEN oil is hot, Mr. Milby is an oilman. He said he became involved in the oil business in the late 1970s, drilling for himself or local Kentucky investors.
“When oil went on its tail in the 1980s, I sold cars, sold insurance, sold anything I could to make a living,” he said with a thick drawl.
While the S.E.C.’s complaint involves activities beginning in early 2005, Mr. Milby had returned to the oil patch a year earlier as oil prices started to rise.
In January 2004, he and Terry Goff, whom Mr. Milby describes as a former business partner and friend but whom several former investors and business associates said Mr. Milby often presented as a cousin, were drilling for oil in a remote spot about 25 miles south of Abilene, Tex.
Ronda Hyatt, a local geoscientist hired to monitor the drilling, said: “They had gotten a farmer to lease them a piece of land. But it was really strange. They picked the most difficult location you could on this place. You had to scrape off 20 feet of dirt before you could start drilling.”
Mr. Milby was eager to drill more sites. Eventually, Ms. Hyatt directed him toward a site called Crockett-Owens in Texas, which Ms. Hyatt said had high potential but would require a lot of capital and take years to develop.
Mr. Milby was hooked. He bought the option for the lease in April for $25,000 and immediately began raising money to drill the wells.
In August 2004, Pamela and David Hallin met with Mr. Milby for lunch at a hotel near their home in Memphis. Ms. Hallin had been impressed with a presentation Mr. Milby had made at an asset allocation seminar a month earlier, and the couple were interested in investing. Mr. Milby was hoping to raise $1.4 million for drilling, private placement documents stated.
Mr. Hallin, then a pilot for FedEx, said the couple thought that they had done their homework. “We called all of the references he listed, including his banker, and she said there were no problems with him. That he was in good standing,” Mr. Hallin said. By the time lunch was over, the couple had handed over a check for $84,000.
Soon after, though, investors like the Hallins had cause for concern. Mr. Milby and Mid-America hired Ms. Hyatt and her business partner to oversee the drilling and repair work on the wells at the Texas site. As she became concerned about vendors’ bills that were going unpaid, Ms. Hyatt also began to hear from investors complaining that they had not received their promised checks.
In October, Ms. Hyatt gathered the Crockett-Owens investors, including Mr. Hallin, in Memphis. There, she told them she thought the money was gone. Shocked and in disbelief, the investors decided to wait and see whether Mr. Milby would make good on his promises.
Instead, over the next few weeks, the situation soured further. By mid-November, all of the wells ceased operating. If production did not resume within 60 days, the lease would expire. Faced with losing the drill site itself, which Ms. Hyatt maintained could still be successful, she and the investors decided to try to buy out Mr. Milby and run the site themselves.
On an early December morning, the group, including Ms. Hyatt and Mr. Hallin, met Mr. Milby at the business center at Nashville International Airport. Although Mr. Milby had indicated that it would take $250,000 to buy him out, the group had a check for $50,000.
“We were betting on the fact that we believed he was totally desperate for money,” Ms. Hyatt said.
Mr. Milby reacted angrily to the size of the check and shouted that he had been misled, Ms. Hyatt and Mr. Hallin said, but after two hours of heated debate he signed the necessary documents, pocketed the check and walked out the door.
Now in control of the partnership, the investors had access to the bank records and could see where the money had gone.
What they discovered shocked them. The Crockett-Owens account not only was empty but also appeared to have been pillaged: Mr. Milby had written checks on the account for $68,339.74 to Mercedes-Benz of Memphis and for $800 to the Campbellsville Middle School cheerleading squad, of which his daughter was a member. There also had been wire transfers totaling $49,000 to unknown accounts over two days in September. Copies of the checks were provided by Mr. Hallin.
In a complaint to Nashville securities regulators, Mr. Hallin said Mr. Milby had raised about $868,000 from investors, of which about $408,000 appears to have been used for personal expenses.
Mr. Milby disputes the accusations. He says he was forced out of the venture by Ms. Hyatt and her partner, and he accuses them of running a shoddy operation. (A records search on Ms. Hyatt, her partner and their company, HighGround, turned up some small-claims lawsuits against them, which they say have been settled.)
Mr. Milby also said he had deposited money back into the account for the Mercedes, the cheerleading contribution and any other personal expenses. He said the wire transfers to unknown accounts paid for drilling equipment and expenses. Mr. Hallin said money was deposited into the account for the Mercedes but disputes Mr. Milby’s other contentions.
Lastly, Mr. Milby says investors were paid. “They’re lying. They got the checks, everything we promised to them. But nobody ever gets enough money. Do you? I sent one guy a check for $18,000, and he called up to complain it wasn’t $22,000. That’s just the way people are,” Mr. Milby said.
MR. MILBY may have been out of the Texas partnership, but he was busy selling deals all over the country throughout 2005.
A group of eight wealthy Ohio investors — largely family trusts — invested $504,000 into a number of the private investments in late summer and early fall that year.
Instead of sending the checks that the investors expected, Mr. Milby diverted the money for his personal uses, including child-support payments, the group alleged in an arbitration case it later won.
The investors say Mr. Milby’s lawyer, Bryan S. Coffman, in Lexington, Ky., created an irrevocable trust called Arimor Trust and named himself the trustee, according to a lawsuit the investors later filed against Mr. Coffman and Mr. Milby’s brother Paul. Their investments and other money totaling nearly $6 million were put into this and other trusts, and some of that money was diverted to Paul Milby to buy 17 cars and trucks, five boats, and real estate, the lawsuit said.
Mr. Coffman, who has not been accused by regulators or authorities of any wrongdoing, said in an interview that he did some tax and estate planning for Mr. Milby and Mid-America. As part of the estate planning, Mr. Coffman said, he did set up some trusts, but he declined to speak about any specific trusts, citing client confidentiality.
Mr. Milby said Mr. Coffman did much more. “He’s the one who set up everything with us and the S.E.C.” Mr. Milby said. “He put together the books and did all of the filings that we needed to do to keep us legal. He made sure whenever people invested with us that they were worth so much money and could invest in us. That they were sophisticated investors.”
Mr. Coffman denied writing any of the private-placement offerings. “That is an area of securities law that I don’t have any expertise in,” Mr. Coffman said. “I don’t know who did that service for them, but some attorney was paid for it.”
Mr. Coffman later reached a confidential settlement with the Ohio investors. In court filings, Paul Milby denied all of the accusations against him. A call to his lawyer, Daniel Butler, was not returned.
Undaunted by angry investors, Gary Milby continued to raise money. After hearing ads for Mid-America on XM Satellite Radio in the fall of 2005, Eric Taylor called the company.
“They sounded too good to be true, but you never know,” said Mr. Taylor, who lives in Haymarket, Va., about 45 miles west of Washington. “Oil was trading at $75 a barrel, and I had read about people making decent money from legitimate oil and gas companies, so I called.” At the time, he was a branch manager for a national mortgage company.
After speaking with a Mid-America sales manager and looking at a prospectus he received in the mail, Mr. Taylor spoke with an individual Mr. Milby said was a “satisfied investor.”
And on a rainy day in December 2005, Mr. Taylor visited the Kentucky drilling sites where Mr. Milby told him he had just “uncorked” a well that would be producing in January.
“First there was this noxious smell, like a very, very strong sulfur,” Mr. Taylor recalled. “That smell came out for about 10 minutes and then you hear the sound and oil shot right out of the ground a good 25 to 30 feet in the air.” Excited, he gave Mr. Milby a check for $111,000.
Like the others, instead of getting checks, Mr. Taylor said he was soon getting only excuses. Worse, in the few months since he had looked into Mr. Milby’s background, new information had become available. Mr. Milby’s personal bankruptcy popped onto the radar, and several states, including Pennsylvania, Arizona and California, had filed cease-and-desist orders against Mr. Milby and Mid-America.
Mr. Taylor demanded his money back. He said Mr. Milby refused, maintaining that other investors were making money — lots of it. Mr. Taylor said he doubted that this was true, but he had no way of contacting other investors.
ALL that changed in April 2006 with an e-mail message accidentally sent out by Mid-America to about 20 investors, including Mr. Taylor; it revealed all the recipients’ e-mail addresses.
“Everyone started contacting everyone else,” Mr. Taylor said. “I started to cross-reference the partnerships these people said they were in against the partnerships Milby and his staff were telling me were paying out good money.” It turned out that no one said they were making money, Mr. Taylor said. In addition, he said, he found out that the “satisfied investor” was actually a Mid-America employee.
Now it is Mr. Milby who says he has been swindled; he says Mr. Goff, who was his friend, had “fictitious” liens on the well sites and took them over. Mr. Milby says he has sued Mr. Goff, although no suit could be found on record. Calls to Mr. Goff, Mr. Goff’s lawyer and Mr. Milby’s lawyer were not returned.
“If I could get control of them again, investors could get their money back in six months to a year,” Mr. Milby said, adding that Mr. Goff “robbed me of this whole thing.”
“I would have never thought this could have happened,” Mr. Milby added. “ You know, have you ever gotten to where you just trusted people too much?”