FTC Releases Report on Internet Fraud

(April 20, 1998) The Federal Trade Commission released a report on Friday on its efforts in 1997 to combat fraud on the Internet.  Since 1994 the FTC has brought only 26 law enforcement actions challenging fraud and deception on the Internet.

The 35 page report entitled "Fighting Fraud: New Tools of the Trade" outlines the most common categories of Internet fraud.  These include pyramid schemes, investments, scholarship offers, credit repair, health products, work at home opportunities, and weight loss.  The report also finds that almost all of the types of fraud being perpetrated on the Internet existed long before the Internet.  

The Report describes efforts being undertaken by FTC to decrease Internet fraud.

• Legal Action.  The FTC has brought 26 law enforcement actions since 1994.
• Surf Days.  On specified days FTC personnel, other government employees, and industry representatives surf the internet looking for a specific category of fraud, and send out warning letters to sites which might be in violation of the law.
• Advisory Opinions.  The FTC issued two such legal opinions in 1997.
• Teaser Sites.  The FTC sets up websites that mimic fraudulent sites.  After the third "click", these sites displays the FTC logo and information that the user was being scammed.
• FTC Website.  The FTC maintains a website to educate the public on Internet fraud.  The Report claims that its website had 610,000 "unique visits" in 1997, and 92,000 total "hits" per day!

The FTC brought only one case in 1997 which involved fraudulent use of Internet technology, as opposed to committing a traditional variety of fraud with the Internet as the means of communication.  In FTC v. Audiotex Connection Inc, C-97-0726 (E.D.N.Y., filed 2/12/97), the Commission brought suit against a company ran a website with a bogus download.  The pornographic website used a purported program download to connect users to international telephone calls billed at over $2 per minute.  The site offered a "viewer program" to see images for free.   However, when the user clicked on this, he was instead disconnected from his ISP, and connected to a remote foreign number, with routing through Moldavia.  The call continued until the user's computer was turned off.  There were 38,000 victims.

The Report contains no data on the number of FTC personnel assigned to Internet fraud.   Nor does it have any budgetary information.  The Report does contain a list of case names and numbers of actions brought in 1997.

FTC Press Release
Source: FTC. This document has been edited for html, but not for content.

FOR RELEASE:
APRIL 17, 1998

FTC Reports Second Year Accomplishments of Fraud-Busting Campaigns

The Internet is quickly becoming the marketplace of choice for deceitful telemarketers and a new generation of fraud that uses increasingly sophisticated technology, according to a report issued today by the Federal Trade Commission. The Internet allows fraud promoters to mimic legitimate businesses more convincingly and reaches potential victims more efficiently than ever. The report, "Fighting Consumer Fraud: New Tools of the Trade," highlights the FTC's recent experience with fraud in cyberspace: how it occurs and how the agency has refashioned the "tools" of its trade to fight it.

In 1997, cyberfraud accounted for a relatively small percentage of total consumer complaints, the FTC report stated. But, with electronic commerce increasing and the number of people online skyrocketing, it is taking on increasing importance for consumer protection authorities. The FTC is expanding its enforcement and education efforts to encompass high tech schemes as well as traditional scams.

"The actions taken between the FTC and its partners have been very effective thus far in fighting consumer fraud," said FTC Chairman Robert Pitofsky. "But with increased activity on the Internet, scam artists are coming up with inexpensive and efficient ways to reach vast numbers of consumers. The FTC and its law enforcement partners, using technology for enforcement, detection, deterrence and education, will continue our full-fledged campaign."

The report highlights the efforts led by the agency to continuously fight fraudulent pyramid schemers, bogus work-at-home promoters, spurious health and weight loss claims, investment offerings, would-be inventors, business opportunity and international lottery scams. Alliances between the FTC and its federal and state law enforcement partners resulted in 374 actions against fraudulent operators in 1997. The FTC filed over 50 major lawsuits against fraudulent operators. The Commission's cases alone stopped alleged fraud that cost consumers over $185 million in 1997 and more than $747 million over the lifetime of the scams. In addition, the FTC and its law enforcement partners conducted 11 major "sweeps" that targeted numerous marketers of particular types of fraud, followed up by extended consumer education campaigns. These accomplishments were based on hard work and collaborative efforts between the FTC, other federal agencies, state Attorneys General, foreign governments and civil-criminal cooperation.

In conclusion, according to the report, today's con artists are still pitching sure-fire cures, easy money, and self-improvement. But they are no longer confined to traditional venues to perpetrate their frauds. The Internet, a popular new channel of communication and commerce, poses many challenges beyond the mere control of fraud, not the least of which is the potential for invasion of privacy. The FTC is currently working to meet the challenges that the Internet poses for safe and secure transactions.

The Commission vote to release the Second Annual Fraud Enforcement Report of the Federal Trade Commission was 5-0.

Copies of the report are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

MEDIA CONTACT:
Brenda Mack,
Office of Public Affairs
202-326-2182

STAFF CONTACT:
Dean Graybill,
Bureau of Consumer Protection
202-326-3284

(FTC Matter No. P974903)
(fraud-2.rpt)