FREE WIFI AT AIRPORTS AND HOTELS? MAYBE NOT SO FREE

reprinted as fair use from CNN

By Hilary Whiteman

LONDON, England (CNN) -- You're sitting in an airport lounge and seize the chance to check your e-mails before your flight departs. You log on and are tempted by a wireless Internet provider offering free Internet access. So, do you take it?

Wi-Fi users have been warned to protect their computers against potential hackers at Wi-Fi hotspots.

Security experts warn that hackers may be masquerading as free public Wi-Fi providers to gain access to the laptops of unsuspecting travelers.

All it takes, they say, is a computer program downloaded from the Internet, an open access point and a user who has ignored basic security advice.

"The difficulty for travelers is differentiating between a good Internet access hotspot and a rogue, or somebody trying to actually glean credentials from you. The issue is that you don't necessarily know the difference between a good and a bad one," computer security expert Sean Remnant told CNN.

In 2008, AirTight Networks dispatched a number of so-called "white hat" hackers to 27 airports around the world to test the vulnerability of their Wi-Fi systems. They found that 80 percent of the private Wi-Fi networks tested were open or poorly protected.

The wireless security company also found that basic services at several airports, including baggage handling systems, were vulnerable to hackers. Operators were using Wired Equivalent Privacy, known as WEP, which was found to provide inadequate protection to hackers as early as 2001.

One year after the survey was conducted, CNN Business Traveler met Remnant at London's Heathrow airport, which was not included in the original survey, to test the potential dangers to unprotected Wi-Fi users.

Watch what happened when we took a hacker to Heathrow »

Armed with a laptop, our "white hat" hacker took a seat in the crowded departure lounge at Terminal 3 and proceeded to scan the airwaves with his laptop, using a program he downloaded form the Internet called Airodump.

"It dumps everything in the air," Remnant explained. "So if I execute the command to start Airodump, instantly I'm seeing probably 20 wireless networks with four or five of those having relatively weak server security."

"There are several risks just on this screen," he continued. "One is that we actually don't know whether the public networks are legitimate or not." The original survey conducted by AirTight Networks found the most common name for rogue Wi-Fi points was "Free Public Wi-Fi."

"You'd have no idea if somebody sitting down to a laptop was a casual traveler trying to collect their email from an open port, or actually they were setting up a rogue access point," Remnant said.

"Your security guys in the airport aren't going to spot someone doing this because it's a technical thing," he added. Once connected, the hacker would have access to everything on your screen, from passwords, to bank account details, to the contents of e-mails.

And it's not just happening at airports. The rapid spread of Wi-Fi networks to cafes, hotels and even entire cities is providing hackers with more opportunities to ply their trade.

Last month, Venice rolled out what is believed to be Europe's most extensive Wi-Fi network. According to mobile media company Jiwire, there are now more than 273,000 free and pay Wi-Fi locations in 140 countries. The majority can be found in the United States, China, the United Kingdom and France. And most hotspots are located in hotels, along with cafes and restaurants.

However, the Wi-Fi Alliance, an industry group that tests and certifies Wi-Fi equipment, says the increased availability of Wi-Fi has not led to a rise in hacking cases.

"We certainly haven't seen any kind of sudden epidemic of hackers in open hotspots or anything like that," said the group's marketing director, Kelly Davis-Felner.

She said all Wi-Fi enabled devices have in-built security measures, and all users need to do is to switch them on. Users with older devices are encouraged to download WPA2, the most secure system endorsed by the Wi-Fi Alliance.

"If you're updating Facebook, or checking your personal e-mail or surfing the Web, there's really no reason at all to worry about using an open network," Davis-Felner said. "Any kind of online shopping or banking or anything that would require you to exchange sensitive data over the airwaves, then we advise people to exercise caution."

The best way to protect sensitive information is to use a Virtual Private Network, or VPN, which encrypts the data moving to and from your laptop.

Kiran Deshpande, president of AirTight Networks, had this advice for travelers: "Connect only to the networks that you trust. Make sure that your communication is secure, disconnect the wireless when you stop using it, and maintain the list of wireless connections that you use on your laptop so that you don't accidentally connect to networks that may spring up when you're traveling."

US GETTING SERIOUS ABOUT INTERNET GAMBLING

reprinted from Gaming News
as fair use

By Vin Narayanan


A federal grand jury in New York has indicted a Canadian resident on conspiracy charges for bank fraud, money laundering and operating an illegal gambling business for allegedly processing payments for online casinos.

According to the indictment filed Tuesday, Douglas Rennick has been "in the business of providing payment services for Internet gambling businesses through several companies under his control" and since 2007 has transferred more than $350 million "from a bank account in Cyprus to various United States banks in order to pay funds to gamblers in the United States."

One of the companies that Rennick allegedly used to pay online gambling customers, Account Services, is already embroiled in legal trouble. In June, federal prosecutors for the Southern District of New York (SDNY), which filed the charges in this latest case, ordered the seizure of about $33 million from two payment processors including Account Services. In July, Account Services filed a motion seeking the return of funds that were seized from their bank accounts by the U.S. Attorneys Office. Account Services has been linked to payments made to players by PokerStars, Full Tilt and UltimateBet.

Rennick is a Canadian citizen, according to a source familiar with the investigation. And the charges are the result of a larger investigation into Internet gambling that began in 2006.

If convicted, Rennick faces up to 30 years in prison for the bank fraud charge, 20 years for the money laundering charge and five years for the gambling charge. He could also be fined up to $1.75 million. Prosecutors are also seeking the forfeiture of nearly $565,000 Rennick made for allegedly processing online gambling transactions.

According to prosecutors, Rennick actively hid the fact he was processing online gambling transactions from the banks he was working with.

In opening a bank account at Union Bank of California for Account Services in February, Rennick and two unindicted co-conspirators allegedly said the business would be a "'rebate check processor' for 'large retailers' and 'auto dealerships,'" the indictment says.

Account Services wasn't the only company Rennick used to process payments for online casinos, according to the indictment.

"On or about August 8, 2007, Douglas Rennick, the defendant, opened an account in the name of KJB Financial Corporation at Washington Mutual Bank in California," the indictment reads.

"In opening the Washington Mutual account, Rennick did not disclose to Washington Mutual Bank that KJB Financial Corporation would process payments from Internet gambling companies.

"Instead, Rennick falsely and misleadingly represented to the Washington Mutual Bank 'for the following reasons': affiliate cheques (travel resellers, product resellers, advertising resellers)...rebates (reward cheques, promotional cheques)...refunds on items purchased...sponsorship cheques...(and) minor payroll."

The SDNY has been the U.S. Attorney's office most actively involved in online gambling cases.

In addition to the June seizure of alleged online gambling funds, SDNY prosecutors also ordered the arrests of NETeller co-founders John LeFebvre and Stephen Lawrence and froze $55 million of the company's funds in 2007. Both Lawrence and and LeFebvre ended up filing guilty pleas, and the money was eventually returned to NETeller customers.

Health Care Fraud Widespread

reprinted from
the American Medical Association News
as fair use

By Amy Lynn Sorrel

---

Health care fraud accounts for as much as 10% of overall health spending and is occurring just as frequently among private insurance plans as public programs, according to a recent report.

The June study out of the George Washington University Medical Center in Washington, D.C., emerges as the Obama administration is becoming more vocal about cracking down on health care fraud as a priority in reforming the health care system.

The report's authors called the issue "a systemic problem affecting public and private insurers alike, in the individual market, the employer-sponsored group market and public programs." Researchers cited fraudulent billing, kickbacks, upcoding and bundling services among the most common examples of fraud. They estimated that 80% of health care fraud is committed by health care entities, 10% by consumers, and the balance by others, including private insurers and their employees.

While the public is more aware of Medicare and Medicaid fraud because the government is required to report it to taxpayers, "perhaps the most striking examples of fraud are those that involve the private insurance industry itself," according to the study.

Researchers pointed to a January settlement by UnitedHealth Group, totaling $450 million, over allegations that the insurance firm manipulated out-of-network prices for physician services, resulting in an estimated 10% to 28% increase in costs. The Litigation Center of the American Medical Association and State Medical Societies, along with other physician organizations, had sued United, which denied any wrongdoing.

Researchers also cited several multimillion-dollar settlements by pharmaceutical companies and large hospital systems for alleged false billing of Medicare and Medicaid.

Between 3% and 10% of the nearly $2.3 trillion spent on health care in 2007 was lost to health care fraud -- a figure that, if prevented, "would have been enough to cover the uninsured," the report said. "As the national health reform legislation takes shape, keeping an attentive eye on anti-fraud provisions will be a critical element of reform."

Feds hunt for fraud at National Sports Collectors Convention

from the New York Daily News

reprinted as fair use

BY Michael O'Keeffe

CLEVELAND - Federal agents investigating fraud in the sports memorabilia business roamed the aisles of the National Sports Collectors Convention for the second consecutive year, issuing subpoenas to hobby executives for auction invoices and other records.

Two agents - one from the FBI, the other from the United States Postal Service - also questioned auction house officials, dealers and authenticators on Friday and yesterday at the National, the hobby's largest annual sports memorabilia show, held this year at the International Exposition Center near Cleveland Hopkins International Airport.

The list of executives who received subpoenas or were interviewed by the agents represents some of the biggest names and largest businesses in sports memorabilia, including Grey Flannel, Heritage Auctions, B&E Collectibles, Historic Auctions, Hunt Auctions, SportsCard Guaranty, Lelands, Professional Sports Authenticators and Legendary Auctions.

"They wanted to talk about the show," said Chris Ivy, director of sports auctions for Heritage. "That's all I can say about it."

An industry executive told the Daily News that the agents are gathering information about auction houses, dealers and authenticators who knowingly sell counterfeit jerseys, bogus game-used bats and other tainted memorabilia. The executives who received subpoenas or were questioned by the feds are not necessarily targets of the investigation, he said, but they may have information that will assist the agents in what has been a two-year probe.

The Daily News first reported in July of 2007 that the Chicago division of the FBI, whose "Operation Foul Ball" smashed a multistate autograph forgery ring during the 1990s, initiated an investigation into shill bidding and fraud by Mastro Auctions, once sports memorabilia's largest auction house. Other sports memorabilia businesses may also be targets of the two-year-old probe.

Mastro Auctions folded earlier this year, and several former employees, including president Doug Allen, bought the company's assets and formed Legendary Auctions. Allen was issued a subpoena just before the start of his company's auction Friday night at the House of Blues in downtown Cleveland.

In addition to the Chicago-based investigation, a New York FBI agent is also trying to determine if historic documents pulled from Hunt's All-Star Game auction two weeks ago - letters to baseball pioneer Harry Wright - were stolen from the New York Public Library. As the Daily News reported last week, rapper-turned-baseball historian Peter Nash has tried to link Rob Lifson of Robert Edwards Auctions to the stolen documents in what sources called a revenge campaign after Nash lost a bitter court battle with Lifson. The FBI agent, according to the sources, is investigating whether Nash or Lifson has sold or distributed stolen memorabilia, an allegation Lifson has strongly denied.

Collectors and dealers who attended the 2008 National in Rosemont, Ill., said the presence of the federal investigators at the convention caused consternation among some on hand. Mastro officials abandoned their booth, leaving just one employee to hold down the fort for much of the show.

But the dealers and collectors who recognized the agents seemed downright comfortable with them this year. The feds, young men dressed casually, looked more like sports fans than law-enforcement agents, and they moved easily from booth to booth, examining display cases.

Many dealers said the nation's tough economic times dampened attendance and spending at the National, but the recession did not seem to be an issue for many wealthy collectors.

A restored T206 Honus Wagner card, for example, sold for more than $200,000 at Legendary Auctions' House of Blues event. The winning bidder was a dealer named Chris Galbreath. Galbreath later said he purchased the card on behalf of John Rogers, the Arkansas businessman who spent $1.62 million last year on a T206 Wagner at Mastro's 2008 National auction.

One in Five Consumers Hit by Payment Card Fraud in Past Five Years

reprinted from paymentnews.com as fair use

ACI Worldwide has announced that its recent global card fraud survey found that "18 per cent of consumers questioned have been victims of credit or debit card fraud in the past five years. The research, of more than 2,400 consumers across eight countries, also found that if an individual or someone they knew was hit by card fraud, 22 per cent would change financial institutions, and a further 27 per cent would consider changing financial institutions."

In the light of these findings, and the continued commitment by financial institutions around the world to protect their customers from card fraud, ACI Worldwide has launched its Guide to “Stopping Card Fraud in its Tracks”, with contributions from Nationwide Building Society, to provide advice to fraud managers in banks to help combat card fraud and protect their customers.

The survey highlights some wide variations in fraud trends around the world. In the US and UK, 27 per cent of respondents have been hit by card fraud in the past five years, compared to only seven per cent in Dubai, eight per cent in Germany and 15 per cent in Australia, China and Singapore. When it comes to customer attitudes to card fraud, a fifth of the respondents said they are not confident their financial institution can protect them, with this number rising to over a third in China.

What’s more, almost half of respondents said that they would change banks, or at least consider it, if they or someone they knew was hit by card fraud. The least forgiving consumers are in Dubai, Brazil and Singapore, where a third would change banks, while respondents in the UK and US appear more lenient as half of all respondents suggest that it would depend on the service delivered by their financial institution following the fraud.

Pete Corrie, head of financial crime at Nationwide Building Society, comments: “The number of card payments globally has increased drastically over the past few years and, consequently, the whole industry has seen associated fraud levels go up. The Guide produced by ACI Worldwide not only highlights that fraud detection and reduction is one area where financial institutions are able to take decisive and positive action to reduce losses but also explains how financial institutions will be able to protect their image and retain the trust of their customers.”

David Nussenbaum, vice president and product line manager at ACI Worldwide, adds: “The international research we have conducted shows that although card fraud trends vary around the world, it is still a persistent problem for banks. In order to protect themselves and their customers against potential fraudulent attacks, financial institutions are looking for ways to implement effective anti-fraud strategies, while maintaining efficiency and keeping costs to a minimum. We believe that our Guide will provide some useful and practical advice.”

The ACI Worldwide research on card fraud was conducted during July 2009 in Australia, Brazil, China, Dubai, Germany, Singapore, the UK and the USA surveying a total of 2,408 respondents. To download the ACI Worldwide Guide to ‘Stopping card fraud in its tracks’, go to http://www.aciworldwide.com/stopcardfraud.

Watchdog: SEC Fulfilled Duty in Stanford Case

reprinted from AP as fair use

By MARCY GORDON (AP) –

WASHINGTON — The Securities and Exchange Commission had been actively investigating the banking business of billionaire R. Allen Stanford for more than three years before Bernard Madoff's Ponzi scheme came to light last December and has fulfilled its duty to pursue alleged wrongdoing by the financier, the agency's inspector general has found.

The SEC's decision to halt its investigation of Stanford in April 2008 came in response to a request by the Justice Department, and the agency didn't breach its obligation, according to a report by the office of Inspector General David Kotz.

The office looked into the matter after receiving complaints that the SEC should have acted more quickly and aggressively to detect and shut down Stanford's alleged $7 billion Ponzi scheme — portrayed by authorities as a major swindle in its own right yet eclipsed by Madoff's sprawling fraud estimated to have cost thousands of investors, foundations and banks worldwide at least $13 billion.

Complaints had come from Rep. Dennis Kucinich, D-Ohio, chairman of a House Oversight subcommittee, who voiced concern in February about what he called the "substantial delay" in the SEC's actions. He told SEC Chairman Mary Schapiro in a letter that the agency's handling of the Stanford investigation "raises serious questions about the (SEC's) dedication to its mission of protecting investors."

The inspector general's report did find that the SEC's "urgency" regarding its Stanford probe "increased significantly" after Madoff confessed to his long-running fraud scheme last December, with the agency telling the DOJ it could no longer wait in deference to the criminal authorities' parallel investigation. Federal prosecutors agreed and the SEC brought charges in February.

Starting in June 2005, the SEC's regional office in Fort Worth conducted an investigation into sales of certificates of deposit by Antigua-based Stanford International Bank, which promised outsized returns. The report also found that the agency's inquiry was "hampered by a lack of cooperation" from Stanford and his attorneys as well as by jurisdictional obstacles and obstruction by regulators in Antigua.

The inspector general's office "did not conclude that the SEC breached its obligations to vigorously pursue allegations of wrongdoing in the Stanford matter," the report said. It is dated June 19 — the same day Stanford was indicted and jailed on Justice Department charges that his international banking empire was really a pyramid scheme built on lies, bluster and bribery. In February, the SEC had filed civil fraud charges accusing the brash billionaire, a larger-than-life figure in the Caribbean, of luring investors with promises of improbable high returns on the CDs and other investments.

Stanford is disputing the charges, which in the criminal case could send him to prison for up to 250 years if convicted.

The inspector general's report was made public Tuesday by the SEC, which held it up as vindication of its staff's conduct of the Stanford probe. The agency has been stung by a series of critical assessments by Kotz's office in recent months and blistering congressional criticism over its failure to discover the Madoff fraud despite red flags raised to staff over a decade.

Despite the obstacles of Justice Department precedence and lack of cooperation from Stanford and others, "the SEC ultimately was able to obtain critical evidence that resulted in (its) emergency action in February 2009 to halt the sales of the CDs and seek the return of funds to investors," agency spokesman John Nester said in a statement. "The (SEC) is grateful for the professional expertise and tireless devotion demonstrated by its staff in the Stanford investigation."

Kotz, who has been examining the agency's conduct in the Madoff scandal, is expected to issue a critical report in the coming weeks.

Madoff --- Can't Believe Fraud Lasted So Long

reprinted from Reuters as fair use

Bernard Madoff, the financier convicted for Wall Street's biggest investment fraud, was surprised his $65 billion Ponzi scheme was not uncovered sooner, he said in his first interview since entering prison.

Madoff, the disgraced 71-year-old Wall Streeter who drew 150 years' prison time for the fraud, expressed remorse and talked candidly to a pair of lawyers suing him on behalf of investors, according to news reports of their jailhouse meeting on Tuesday.

San Francisco attorneys Joseph Cotchett and Nancy Fineman met with Madoff at the North Carolina prison where he was taken two weeks ago after pleading guilty, the Associated Press and ABC News reported on Tuesday.

"There were several times that I met with the SEC and thought 'they got me,'" Madoff told Cotchett and Fineman, according to abc news.com.

The Securities and Exchange Commission is now conducting an in-depth review of how they missed the fraud, drawing intense criticism. The results of their investigation are expected to be released in weeks.

Cotchett and Fineman represent about a dozen investors who lost money in Madoff's decades-long scheme, an unprecedented global scam for which Madoff eventually pleaded guilty to laundering, securities fraud and perjury.

"It was an extraordinary visit. He was very candid, very open, and answered every one of our questions," Cotchett said of the 4-1/2-hour meeting.

He was "very remorseful" but looked healthy and appeared to be working out, Cotchett told the news outlets.

"I think he's not too happy to be where he is but he's certainly not complaining," said Cotchett, who set up the interview through Madoff's attorneys.

The visiting attorneys said they planned to use what they learned at the meeting in a lawsuit to be filed this week in Manhattan against Madoff and his brother, Peter Madoff, who acted as chief compliance officer, and potentially officers at some of the feeder funds that worked with Madoff, according to the reports.

Madoff said he believed securities investigators had found all the money that could have been recovered, Cotchett said in the news reports.

"But it might be in many different venues, and by that I mean I don't think that Bernie knows where all the money is" because some was paid out to feeder funds, Cotchett said.

Madoff agreed to speak with Cotchett after the lawyer threatened to sue his wife, Ruth, abc news.com reported.

"He cares about Ruth," Cotchett said.

(Reporting by Gina Keating; Editing by Gary Hill)

5 FRAUDS YOU NEVER HEARD OF

reprinted from CNN as fair use

Most alleged Ponzi schemers don't reach Madoff-like heights, but millions of dollars are still on the line.

By Aaron Smith,CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Bernard Madoff may have made headlines as the biggest Ponzi schemer in history, but there are plenty of other cases to share the limelight.

There is no exact dollar figure on how much Madoff bilked his investors, but it's been estimated in the tens of billions. Most other pyramid-style scams are run by mini-Madoffs, most of whom measure their take in the millions.

A Ponzi schemer masquerades as a legitimate money manager, using fresh cash from unsuspecting investors to make payments to more mature investors, which creates the false appearance of legitimate returns. Some promise annual returns as high as 80%.

"You see a whole range: some of them start small and build over time; some of them have got a good story and they get huge investments," said David Nahmias, U.S. Attorney in the northern district of Georgia, who has prosecuted Ponzi scams. "A lot of these schemes start with trusted people. If you see someone investing their family's money, or their church's money, then it's someone you're more likely to trust."

Here are some of the alleged Ponzi cases currently making their way through federal courtrooms across the country:

Steinger and alleged accomplices, $1.25 billion, Florida

In late 2008, the U.S. attorney for the Southern District of Florida indicted four defendants in one of the largest alleged Ponzi schemes in recent history.

Joel Steinger, a white-collar ex-con and accused ringleader, his brother Steven Steiner and two lawyers, Michael McNerney and Anthony Livoti, are accused of ripping off 30,000 investors in an elaborate life insurance scam through Fort Lauderdale-based Mutual Benefits Corp., which was shut down. All pleaded not guilty, and the case is ongoing.

"The government is simply overreaching in this case," said Jose Quinon, attorney for McNerney. "He's totally innocent of the charges in this case."

Livoti's lawyer, Joel Hirschorn, said there was no Ponzi scheme and that his client committed no crime. Steinger's lawyer Ed Shohat declined to comment. Steiner's lawyer, Richard Lubin, was unavailable.

Nicholas Cosmo, $370 million, New York

Another Ponzi scheme was allegedly perpetrated by Nicholas Cosmo, owner of two funds, Agape World, Inc. and Agape Merchant Advance, LLC, in Hauppauge, New York. Cosmo promised his 1,500 investors annual returns of up to 80%, according to the U.S. Attorney in the Eastern District of New York, who called the offer "too good to be true." Cosmo was charged with stealing -- not investing - hundreds of millions of dollars.

Robert Nardoza, spokesman for the U.S. Attorney's office, said that Cosmo pleaded not guilty and is incarcerated because he has not met bail conditions. Phone messages to Cosmo's lawyer were not returned.

Anthony Demasi, $4.7 million, Illinois

Anthony Demasi of Tsunami Capital LLC, a trader in commodity futures, allegedly told investors that one of his trading pools made a profit of 172% -- an astronomical claim by any standard. In reality, the pool had no profit at all and was part of a multi-million dollar Ponzi scheme, according to the U.S. Attorney's office in the Northern District of Illinois. The feds say that Demasi poured much of the money into his Chicago nightclubs and blew the rest on gambling.

Randall Sanborn, spokesman for the U.S. Attorney in Chicago, said Demasi pleaded not guilty and is free on bail but under home confinement. A court hearing is set for Sept. 9. Messages to Demasi's lawyer were not returned.

Anthony Vassallo, $40 million, California

At the age of 29, Anthony Vassallo is unusually young for a Ponzi defendant. In March, the federal authorities charged him with stealing $40 million from 150 investors -- many of whom he met in church. He allegedly spent his take on a $103,000 Lexus and a $24,000 donation to the Church of Jesus Christ of Latter-Day Saints in Folsom.

But Vassallo pleaded not guilty and is currently out on bail, which was posted by family members, according to the U.S. Attorney's office in Sacramento. He is due back in court on July 17 for a status report. A spokeswoman for Blackmon & Associates, the law firm representing Vassallo, declined to comment.

James Ossie, $25 million, Georgia

The U.S. Attorney's office in Atlanta charged James Ossie, founder of CRE Capital, Inc., in March with running a fast-moving but short-lived Ponzi scheme.

Ossie stole $25 million in nine months, according to the feds, who said he offered high-end investment contracts, starting at $100,000 each, and guaranteed return of the deposit with 10% interest in 30 days. But according to the U.S. Attorney's office, Ossie lost the money almost as quickly, and had only $2 million left when the scam came to an end.

Ossie pleaded guilty on May 21 and is scheduled to be sentenced on July 30, according to the U.S. Attorney's office, which said he had been indicted on 10 counts of wire fraud. According to the firm representing him, Steel Law, he pleaded guilty to one of those counts.

David Nahmias, the U.S. Attorney who indicted Ossie, said the Ponzi scammer's worst enemy is the recession.

"The economic situation kind of exposed a number of them, both because investors are asking for their money back, which tends to make Ponzi schemes fall apart, and I think investors are becoming more skeptical of claims of outrageous returns," he said.

STOLEN ID DATA BASE (CONT)

REPRINTED FROM THE TIMES
AS FAIR USE

The identities of more than four million Britons are being offered for sale on the internet, The Times has learnt.

Highly sensitive financial information, including credit card details, bank account numbers, telephone numbers and even PINs are available to the highest bidder.

At least a quarter of a million British bank and credit card accounts have been hacked into by cybercriminals, exposing consumers to huge financial losses. Most of the personal data has been gathered as a result of “phishing” — a process whereby members of the public are duped into handing over their key details, such as user names, passwords and credit card details.

Unsuspecting victims hand over the information by e-mail to people posing as reputable sources such as banks or online stores. Other data has been stolen after criminals infect a person’s personal computer with viruses and then raid it for information.

They are then sold to the highest bidder on online forums or hacking websites. Individual credit card details have been sold for as little as 30p. The Times has also learnt that the communications and e-mail systems of some of Britain’s biggest public bodies and private companies are open to possible attacks. This is because the corporate e-mails and passwords have been sold to cybercriminals. The details of policemen, doctors and military personnel are also at risk.

The information being traded on the web has been intercepted by a British company and collated into a single database for the first time. The Lucid Intelligence database contains the records of four million Britons, and 40 million people worldwide, mostly Americans. Security experts described the database as the largest of its kind in the world.

The database, which has been seen by The Times, raises important data protection concerns. The Information Commissioner, the data protection watchdog, is monitoring the development of the database. Police in London have also been informed but no action has been taken.

The database is held by Colin Holder, a retired senior Metropolitan police officer, who served on the fraud squad. He has collected the information over the past four years. His sources include law enforcement from around the world, such as British police and the FBI, anti-phishing and hacking campaigners and members of the public. Mr Holder said he had invested £160,000 in the venture so far. He plans to offset the cost by charging members of the public for access to his database to check whether their data security has been breached.

The legality of the database could be put to the test in the coming week. The Information Commissioner’s Office said it could not endorse a commercial service or make a ruling on its validity unless someone made a complaint. But the privacy watchdog said it had “provided advice to help the company comply with the principles of the Data Protection Act”.

A police source, who did not wish to be named, said that he had seen Mr Holder’s information as he passed it on to the relevant authorities, and “it could only have come from phishing or hacking”.

“I’m concerned, but I’m not surprised in the least,” said Mikko Hyppönen, chief research officer at F-Secure, the computer security experts. “We’ve seen this going on for quite a while. There’s a mind-boggling amount of information that’s being sold on the underground forums.”

One man from Clapham whose details are on the database, but who cannot be named for legal reasons, said: “I was appalled to discover personal information about me was being traded. Financial services companies should be more aggressive in pursuing the fraudsters instead of passing on the cost in bank charges.”

Most of the records in the database are considered at “low risk” of identity fraud. However, even big collections of e-mail addresses are useful for those wanting to inundate people with huge amounts of “spam” messages.

Among the places vulnerable to security breaches are banks, financial institutions including the Bank of England and Companies House and multinational defence companies.

All organisations where employees’ e-mails have appeared on the database have been contacted.

DATEBASE OF STOLEN IDs NOW ON LINE

reprinted from boingboing.com

as fair use

British fraud cop quits job, buys huge database of stolen identities, charges fees to people who want to know if their details are in the database

A former British fraud cop has assembled a database of 4,000,000 British identities, including credit card numbers and PINs, seemingly by buying data from hackers and phishers. Now he's selling access to the database to panicked members of the public who want to know if their identities have been stolen.

Highly sensitive financial information, including credit card details, bank account numbers, telephone numbers and even PINs are available to the highest bidder...

The information being traded on the web has been intercepted by a British company and collated into a single database for the first time. The Lucid Intelligence database contains the records of four million Britons, and 40 million people worldwide, mostly Americans. Security experts described the database as the largest of its kind in the world...

The database is held by Colin Holder, a retired senior Metropolitan police officer, who served on the fraud squad. He has collected the information over the past four years. His sources include law enforcement from around the world, such as British police and the FBI, anti-phishing and hacking campaigners and members of the public. Mr Holder said he had invested £160,000 in the venture so far. He plans to offset the cost by charging members of the public for access to his database to check whether their data security has been breached.

CUOMO PURSUES DEBT COLLECTION FIRMS

reprinted as fair use

NEWSDAY REPORTS ---


New York AG Andrew Cuomo is demanding information from dozens of debt collection law firms throughout the state as part of a civil lawsuit to overturn more than 100,000 faulty default judgments, he announced Wednesday. The suit seeks to vacate all default judgments where the sole evidence that a defendant received service notifying him that he was being sued was an affidavit from American Legal Process. That company's owner was arrested and charged with fraud and other felonies in April.

ECONOMIST REPORTS - FRAUD IN US WAY UP

reprinted as fair use

According to Britain's Economist Magazine ---

Over 730,000 counts of suspected financial wrong doing were recorded in America last year, according to recent data from the Treasury Department's Financial Crimes Enforcement Network. Institutions such as banks, insurers and casinos are required by law to report suspicious activities to federal authorities under 20 categories. Financial institutions filed nearly 13% more reports of fraud compared with 2007, accounting for almost half of the increase in total filings. The number of mortgage frauds alone rose by 23% to almost 65,000. But not all categories saw an increase: incidents suspected terrorist financing fell. Just under half of all filings are related to money laundering, a proportion that is little changed in over a decade.

Con Artists Often Prey on the Elderly

reprinted as fair use
from
Louisiana State Department of Insurance

The elderly are the target of a growing number of scams. These scams take a tragic toll on the financial and emotional lives of elderly people with limited means, and many times they involve a drain on insurance resources, for the individual and society.

There are a number of common sense reasons why the elderly are often victimized. They are more likely than others to be at home to answer the phone; they often have health problems that make them vulnerable to false health cures; and they live in older housing.

The con artist preys upon the elderly’s desire to cure their health problems. Money is demanded up front for the miracle cure. The victim is out the money for the cure and may actually have more health problems as a result. In addition to the individual’s loss, the effect of such scams is an additional strain on already overtaxed Medicare and Medicaid health services.

Close to three-fourths of the elderly own their own homes. Many of these homes were built 40 to 50 years ago and have not been well maintained in recent years.

After a hurricane, tornado or other storm has passed through an area, con artists contact the elderly victim, making a convincing argument that the home has storm damage that must be repaired--and paid for--immediately. The victim pays money up front, thinking the claim can be turned in to the insurance company for reimbursement.

The insurance company is then contacted by the victim with a claim for work that is often poorly done, overpriced, and unauthorized by the company. In some cases, the work is never done at all. Meanwhile, the con artist has moved on to victimize others at the scene of the next weather disaster.

The elderly are often distrustful of mass media messages. Individuals they know have the best opportunity to educate them on how to avoid being the victim of the latest telephone or door-to-door scam artist. The insurance agent, the cop on the beat or the local deputy sheriff are just some of the trusted people who can help them understand they are likely targets of fraud.

Below is a list of tips the elderly can be given to help them avoid fraud. The tips will work equally well for the rest of us who often think we are above being conned until it is too late.

Ways to avoid fraud and safeguard your health and home:

1. Don’t be too polite. If a stranger calls you on the telephone or comes to your door with a wonderful offer you must accept right away, don’t believe it. A reputable salesman or contractor will give you time to make a well reasoned decision.

2. Check references. Don’t just ask for identification, which can be faked. Call your Better Business Bureau to check out an unknown person offering a deal on home repairs.

3. Check with the professionals. Don’t assume your insurance company will authorize repairs. Contact your insurance representative as soon as possible.

Even if there has been a terrible storm and the roof is leaking, at least check one more local contractor or other trusted person before allowing strangers to make repairs on your home.

Before agreeing to buy the latest health cure, call your doctor or the local medical society to check out the salesman and the product.

4. Count to 10 and wait. Don’t pay out money or give out any financial information, such as credit card numbers, before checking out the seller and the product.

5. Read before you sign. Even if you are convinced you are dealing with a legitimate person or company, do not sign anything you have not read and understood.

It is a good idea to ask to keep any documents you are asked to sign overnight. This will give you time to read them carefully.

Even when you are dealing with local, established business people, you need to know exactly what you are agreeing to before you sign anything.

SWISS/UBS BLINK - US AGREES POSTPONEMENT

from Bloomberg.Com

reprinted as fair use

By David Voreacos and Mort Lucoff

The U.S. and Swiss governments agreed with UBS AG to postpone a court hearing in Miami and try to resolve a government lawsuit seeking the identities of 52,000 American account holders suspected of possible tax evasion.

UBS AG, the largest Swiss bank by assets, agreed to reschedule tomorrow’s evidentiary hearing in federal court to discuss a possible settlement of the case, according to a court filing today. The Justice Department sued UBS on Feb. 19, a day after the bank paid $780 million to avoid prosecution for helping wealthy Americans evade taxes.

As part of that deferred-prosecution agreement, UBS also handed over data on more than 250 secret accounts. Switzerland, which supports UBS in the civil litigation, had said the case threatens its sovereignty, and that turning over more names would force the bank to violate Swiss laws protecting bank secrecy.

In a statement today, the Justice Department said any settlement “would necessarily include a provision requiring UBS to provide the Internal Revenue Service information on a significant number of individuals with UBS accounts.”

U.S. District Judge Alan Gold had scheduled a hearing for tomorrow. In a joint filing seeking a stay of the case, UBS and the Justice Department asked Gold to set an evidentiary hearing for Aug. 3 and 4 if they cannot reach a settlement. Gold must still rule on that request.

Ongoing Talks

The postponement request is backed by the Swiss Federal Department of Justice and Federal Department for Foreign Affairs, according to a Swiss statement today. The Swiss declined further comment, citing confidential “ongoing settlement negotiations” between the two governments.

Switzerland had hardened its public posture on the case, saying in a July 7 court hearing it “will use its legal authority to ensure that the bank cannot be pressured to transmit the information illegally, including if necessary by issuing an order taking effective control of the data at UBS.”

On July 8, Gold directed the Justice Department to consult the government’s executive branch, including the State Department, before responding by today to the Swiss threat.

Gold directed the government to say by today “how far it intends to proceed,” including the possibility of seizing UBS assets in the U.S. and imposing a receivership.

‘Cannot Comply’

In a July 9 memo, UBS Chief Executive Officer Oswald Gruebel said: “The core of the dispute turns on a conflict between the Swiss banking confidentiality laws, to which we are bound, and the U.S. objective to collect taxes owed by its citizens. Honoring the IRS summons would require UBS to violate Swiss criminal law, and we simply cannot comply.”

“UBS welcomes the announcement that the U.S. and Swiss governments have agreed to negotiations” to resolve the litigation, UBS said today in a statement.

In a court filing today, the Justice Department said it was “premature” to respond to “the question of whether UBS will be able to comply” with any court order.

“To the best of our knowledge the Swiss government has not yet taken such action, nor has it made clear what it means when it suggests that it will issue an order ‘taking effective control’ of the UBS records,” according to the filing.

“The fact that UBS finds itself in a difficult position is completely the result of its own conduct,” according to the filing. It urged Judge Gold to rule on the merits of the case, not on whether “UBS may or may not comply.”

Tax Havens

As part of its deferred-prosecution agreement, UBS admitted Feb. 18 that from 2000 to 2007 its Swiss private bankers helped Americans evade U.S. taxes through sham offshore companies in tax havens including Panama, Hong Kong and the British Virgin Islands. UBS said it created misleading forms saying those companies, not taxpayers, were the beneficial account owners.

UBS also admitted that its private bankers marketed securities and banking services in the U.S., even though it didn’t have the required license from the U.S. Securities and Exchange Commission. Those bankers, UBS admitted, met with clients in the U.S. and communicated with them regularly as they traded securities in their accounts or transferred assets.

The case is U.S. v. UBS AG, 09-cv-20423, U.S. District Court, Southern District of Florida (Miami).

UBS CLIENTS CAUGHT IN BIG GAMBLE

With the US vs UBS case set to go to court in Miami on Monday, all of those 52,000 American clients --- whose names and tax information form the basis of the suit against the bank --- are caught in a big gamble. Those who have already "fessed" up to some tax avoidance/evasion scheme, are most likely taking advantage of the IRS tax amnesty put in place last March. It expires in September.

But those who haven't come forward, those Americans who are banking on Swiss secrecy to protect them from the IRS, may be taking a huge risk.

The tax amnesty provides for taxpayers who have not yet done to to:

File 6 years of back tax returns showing unreported foreign source income;

Calculate interest each year on unpaid tax;

Apply a 20% accuracy-related penalty or a 25% delinquency penalty;

Apply a 20% penalty based upon the highest balance of the account in the past six years.

In return for coming forward now, the IRS agrees to not pursue charges of criminal tax evasion and other fraud and filing penalties, which include fraud penalties (75% of the unpaid tax); and failure to file a TD F 90-22.1 (Report of Foreign Bank and Financial Accounts Report) which carries with it a penalty of $100,000 or 50% of the foreign account balance, whichever is more.

If UBS wins and does not turn over those 52,000 names, then those Americans are safe, at least for the time being. But if UBS settles or loses, the IRS has vowed to pursue everyone on the list, which means that the amnesty will no longer be in play.

It puts the burden on those who have not yet come forward to do so while the amnesty is an option. The upside is a chance to wipe the slate clean. The downside seems to be jailtime.

United States versus UBS

With the US vs UBS case set to go to court in Miami on Monday, reports from Washington say that a deal between the Department of Justice and the Swiss bank --- which would see the bank revealing American account information --- remains elusive. If a deal isn't struck before Monday morning, the Swiss are risking an all out war on their much treausured banking secrecy.

SWISS THREATEN US IN UBS CASE

from Bloomberg

reprinted as fair use

By David Voreacos, Michael McKee and Mort Lucoff

Switzerland said it would seize UBS AG data to prevent the U.S. Justice Department from pursuing a U.S. court order seeking the identities of 52,000 American account holders in a crackdown on tax evaders.

The assertion came in court papers yesterday in federal court in Miami, where the Justice Department sued UBS on Feb. 19, a day after the bank avoided U.S. prosecution for helping wealthy Americans evade taxes. The U.S. effort to enforce a summons seeking the names would force UBS to violate Swiss laws barring disclosure of such data, the filing said.

The Swiss government “will use its legal authority to ensure that the bank cannot be pressured to transmit the information illegally, including if necessary by issuing an order taking effective control of the data at UBS that is the subject of the summons,” according to the filing.

In an order today, U.S. District Judge Alan Gold told the Justice Department to respond by July 12 to the Swiss filing. Gold said the U.S. should explain “how far it intends to proceed by way of request for enforcement, up through and including receivership and/or seizure of UBS’ assets within the United States” if he grants the petition and the Swiss “prevent or otherwise prohibit UBS from complying.”

UBS agreed Feb. 18 to pay $780 million in penalties, admitted it helped taxpayers hide money in Swiss accounts and gave the Internal Revenue Service more than 250 clients’ names. The bank and Switzerland have since argued that the U.S. lawsuit represents a threat to Swiss sovereignty. Gold will hold a July 13 evidentiary hearing on the case.

‘Extraordinary Action’

“It is hoped that it will be unnecessary for the Government of Switzerland to take the extraordinary action of issuing an order to seize the information at issue, but such an action should be expected if the IRS continues to pressure UBS to violate Swiss law,” according to the filing.

Switzerland helped the Justice Department in the prosecution of UBS “in a manner consistent with Swiss law and which avoided a conflict of sovereignty,” according to the filing. “The IRS now inappropriately seeks to provoke international conflict through this civil proceeding.”

The Swiss minister of economic affairs, Doris Leuthard, said her country has not resolved how to act.

“It’s not decided so far that we would enact this blocking order, it’s just an announcement that we would consider this if we don’t find a solution beforehand,” Leuthard told reporters today in New York.

The U.S. seeks to force UBS to violate Swiss law, she said.

‘We Can’t Accept’

“We can’t accept the American authorities coming and saying ‘OK, give me 50,000 names,’” Leuthard said.

“We don’t know how many of these clients have illegally a fortune in Switzerland,” she said. “Maybe it’s 1,000, maybe it’s only 100. I don’t know. The American authorities don’t know it. Therefore the existing laws can be applied in a concrete case, when you have the name of the bank and indicators.”

Leuthard cited the collapse of Lehman Brothers Holdings Inc., which filed the biggest bankruptcy in U.S. history, as a warning not to push UBS to the brink.

“When banks of this size have severe problems, this violates financial stability massively,” she said. “This can’t be in the interests of the United States. We learned in the last year that financial stability is the first priority, and this must be considered.”

Two Guilty Pleas

Two UBS clients in the U.S. have pleaded guilty to tax crimes since the bank entered its deferred-prosecution agreement on Feb. 18. Prosecutors have said criminal charges against more UBS clients are likely. The IRS is encouraging others to avoid charges by disclosing UBS accounts voluntarily.

Judge Gold yesterday denied a UBS motion seeking the number of accounts identified to the IRS through voluntary disclosures. UBS had said such data presents an alternative method to gain the information sought in the lawsuit.

In his order, Gold said that such data is not “an adequate alternative” for the U.S. to seek the information it requests in “a timely and comprehensive fashion.”

As part of its deferred-prosecution agreement, UBS admitted Feb. 18 that from 2000 to 2007 its Swiss private bankers helped Americans evade U.S. taxes through sham offshore companies in tax havens including Panama, Hong Kong and the British Virgin Islands. UBS said it created misleading forms saying those companies, not taxpayers, were the beneficial account owners.

UBS also admitted that its private bankers marketed securities and banking services in the U.S., even though it didn’t have the required license from the U.S. Securities and Exchange Commission. Those bankers, UBS admitted, met with clients in the U.S. and communicated with them regularly as they traded securities in their accounts or transferred assets.

The case is U.S. v. UBS AG, 09-cv-20423, U.S. District Court, Southern District of Florida (Miami).

FBI MORTGAGE FRAUD - SCAMS EXPLAINED

FROM THE FBI ANNUAL MORTGAGE FRAUD REPORT:

Industry experts concur that there is a strong correlation between increased fraud and distressed real estate markets. The 2008 current housing market, suffering from an increase in inventory, lack of sales, and a high foreclosure rate, provided an attractive environment for mortgage fraud perpetrators who discovered methods to circumvent loopholes and gaps in the mortgage lending market. Lenders, builders, sellers, borrowers, and other market participants employed and modified old schemes such as property flipping, builder-bailouts, seller assistance, short sales, air loans, foreclosure rescues, and identity theft; and adopted new schemes, including reverse mortgage fraud, credit enhancements, condo conversion, loan modifications, pump and pay—each of which are surfaced in response to tighter lending practices. Emerging fraud trends are draining lender, law enforcement, regulatory, and consumer resources.

Reverse Mortgage Fraud Schemes

Unscrupulous loan officers, mortgage companies, investors, loan counselors, appraisers, builders, developers, and real estate agents are exploiting Home Equity Conversion Mortgages (HECMs)—also known as reverse mortgages—to defraud senior citizens. They recruit seniors through local churches, investment seminars, television, radio, billboard, and mailer advertisements, to commit the fraud primarily through equity theft, foreclosure rescue, and investment schemes.³³ Equity theft schemes are the most common method used by mortgage fraud perpetrators to exploit HECMs. Perpetrators, often with the aid of straw buyers, execute a scheme designed to withdraw false equity from properties. They typically identify foreclosed, distressed, or abandoned properties (or buyers) using information contained within county deed records. Perpetrators purchase the properties using straw buyers who commit occupancy fraud by fraudulently stating they will be using them as their primary residence. They recruit seniors to "purchase" the properties from the straw buyers. This is generally accomplished by the perpetrator transferring the deed to the property to the senior with no exchange of money. After the senior is living in the home for at least 60 days, the perpetrators arrange for the seniors to obtain HECMs, with the aid of a fraudulently inflated appraisal, and encourage the seniors to request a lump sum disbursement of the equity. The perpetrators, often in collusion with the settlement attorney, abscond with all of the equity at closing. They facilitate appraisal fraud by arranging for minor cosmetic repairs, or falsely documenting repairs, that were never performed to inflate the appraisal. They also fraudulently create fictitious loans and liens that enable them to distribute the loan proceeds to themselves, the straw buyer, and others at closing. As more members of the “baby boomer” generation turn 65, their vast and expanding real estate holdings make reverse mortgage fraud an increasingly attractive scam for perpetrators.

Credit Enhancement Schemes

Credit enhancement schemes may take various forms. In the most basic scheme, a loan officer and home builders are taking measures to encourage borrowers to have their names added to the bank accounts of friends or family members temporarily to circumvent the underwriting process to show that they have sufficient deposits on hand. Additionally, some originators and homebuilders are depositing money into the accounts of loan applicants who are in the process of trying to qualify for a mortgage to be used as an asset. Once the underwriting process qualifies the loan and it closes, the builder withdraws the money and uses it for the next potential borrower. According to Fannie Mae, perpetrators are also filing amended tax returns and paying "back taxes" on unreported income for previous years to aid in the verification of income process for a new loan application.

Perpetrators are also using credit enhancement schemes to circumvent tightened lending practices established by Fair Isaac Credit Organization (FICO) 08. The schemes include purchasing credit privacy numbers (CPNs) and seasoned trade-line accounts, creating fraudulent retailer financial relationships, and staging credit-washing schemes with the intent to strengthen a perpetrator's credit history and ability to apply for new loans. These schemes are facilitating both mortgage fraud activity and illicit credit representation practices.

Builder-Bailout Schemes

Builders are employing builder-bailout schemes to offset losses, and circumvent excessive debt and potential bankruptcy, as home sales suffer from escalating foreclosures, rising inventory, and declining demand. Builder-bailout schemes are common in any distressed real estate market and typically consist of builders offering excessive incentives to buyers, which are not disclosed on the mortgage loan documents. Builder-bailout schemes often occur when a builder or developer experiences difficulty selling their inventory and uses fraudulent means to unload it. In a common scenario, the builder has difficulty selling property and offers an incentive of a mortgage with no down payment. For example, a builder wishes to sell a property for $200,000. He inflates the value of the property to $240,000 and finds a buyer. The lender funds a mortgage loan of $200,000 believing that $40,000 was paid to the builder, thus creating home equity. However, the lender is actually funding 100 percent of the home’s value. The builder acquires $200,000 from the sale of the home, pays off his building costs, forgives the buyer’s $40,000 down payment, and keeps any profits. If the home forecloses, the lender has no equity in the home and must pay foreclosure expenses.

Builder-bailout schemes continue to be problematic in the current distressed market in which builder inventory is increasing while demand is decreasing. These schemes typically consist of builders offering excessive incentives to buyers, which are not disclosed on the mortgage loan documents. Recent modifications to this scheme involve condominium-conversion, and “pump and pay” scheme.

Builder-Bailout - Condominium Conversion

Individuals are participating in builder-bailout and property flipping schemes using apartment complexes that were converted into condominium developments. During the housing boom, many apartment complexes were purchased by developers and contractors and converted into condominiums. When the housing market began to decline, developers had excess inventory of units that they could not sell. They began to offer incentives such as cash-back at closing and paid condominium association dues to encourage investors to purchase units within the newly established developments. Since the buyers purchased the condos as investment properties, they were not owner-occupied. The developers and contractors claimed that they would find people to rent the condos, would oversee the management of the complex, and would collect rent from the tenants. These schemes often target investors interested in low to no-risk investment properties. Perpetrators of these schemes typically inflate the value of the condominium to obtain a larger sales price to offset the cost of the incentives.

Builder-Bailout - Pump and Pay

Builders in Florida, North Carolina, California, Texas, and various other locations throughout the United States are working with co-conspirators to inflate the appraised value of their properties. This false equity is distributed to the perpetrators and disguised as set-asides for future maintenance, insurances, and tax payments on the property.

Foreclosure Rescue Schemes

Foreclosure rescue schemes are often used in association with advance fee/loan modification program schemes. The perpetrators convince homeowners that they can save their homes from foreclosure through deed transfers and the payment of up-front fees. This “foreclosure rescue” often involves a manipulated deed process that results in the preparation of forged deeds. In extreme instances, perpetrators may sell the home or secure a second loan without the homeowners’ knowledge, stripping the property’s equity for personal enrichment.

Foreclosure rescue schemes continue to be problematic, especially in the current distressed market in which more than 2.3 million properties were in foreclosure in 2008. These schemes typically consist of perpetrators soliciting homeowners in foreclosure and offering to “rescue” them from losing their home for a fee. Recent modifications to this scheme involve arson/insurance fraud, bankruptcy schemes, and loan modification program schemes.

Foreclosure Rescue - Arson

Homeowners, property flippers, and investors are committing arson to avoid real estate foreclosure. The insurance policy holder files a false insurance claim following the arson to extract illicit proceeds from the property to avoid foreclosure.

Foreclosure Rescue - Bankruptcy

Perpetrators are exploiting US Bankruptcy courts to defraud homeowners who are facing foreclosure.⁴⁰ They are targeting distressed homeowners through Internet advertisements, newspapers, flyers, and through publicly available county foreclosure notices. They offer to provide the homeowner with assistance designed to prevent them from losing their home. They charge the homeowner an up-front fee, typically ranging from $200 to $1,000. In many instances, the perpetrators convince the homeowner to continue to make their monthly mortgage payment, but to direct the payment to the perpetrator. They also misguide the homeowner to cease any communication with the lender. The perpetrators direct the homeowner to complete the necessary paperwork which includes signing a bankruptcy petition. The perpetrator subsequently files the bankruptcy petition in the homeowner's name with either the signed petition or a forged petition.

The bankruptcy petition invokes the automatic stay, resulting in the imminent foreclosure being postponed, and the homeowner stops receiving collection calls and letters. Frequently, homeowners are unaware of the bankruptcy petition and believe that the perpetrators have fulfilled their obligation to prevent them from losing their home. The perpetrators further misinform the homeowners to ignore any court notices to appear at the bankruptcy hearing. However, when no one appears at the bankruptcy hearing, the foreclosure process begins again.

In a variation of this scheme, the perpetrators convince the homeowner to “quit-claim” the property to the perpetrator or to sell the property for a nominal fee, usually $1. The perpetrators charge the homeowner rent until the mortgage problems are resolved. After which, the homeowner is able to repurchase the property or share the profits if the perpetrator sells the property. In some property transfers, the homeowner is instructed to transfer only a fractional interest in the property to the perpetrator who then transfers that interest to another individual or entity (often fictitious). Often, the fractional interest is transferred numerous times as the automatic stays are lifted, which delays foreclosure for months and generates additional proceeds for the perpetrators. According to the Executive Office of US Trustees, one residential property was linked to 24 different bankruptcy cases.

Foreclosure Rescue - Loan Modification Program Schemes

Loan modification schemes, typically in the form or an advance-fee/foreclosure rescue scheme, are emerging as recent vulnerabilities in HERA and EESA legislation becomes apparent. Lenders are mandated by recent legislation to work with homeowners to assist them in keeping their homes out of foreclosure; however, individuals are perpetrating advance-fee schemes to generate income from victim homeowners. Perpetrators solicit homeowners with mail flyers offering to help them stop the foreclosure process on their homes. Homeowners are falsely told that their mortgages would be renegotiated, their monthly payments would be reduced, and delinquent loan amounts would be renegotiated to the principle. Perpetrators require an up-front fee ranging from $1,500 to $5,000 from homeowners to participate in the loan-modification program. Perpetrators often request that the victim homeowners stop payments and communication with their lender. When victims receive delinquency and foreclosure notices, the perpetrators convince them that the loan was renegotiated, but that the lender needs a good faith payment to secure the new account.

Serial Property Flipping

Illegal property flipping continues to be a significant scam identified by both industry and law enforcement agencies. Perpetrators are taking advantage of the distressed housing market and repeatedly flipping the same property numerous times.

Short-Sale Schemes

Short-sale schemes are desirable to mortgage fraud perpetrators because they do not have to competitively bid on the properties they purchase, as they do for foreclosure sales. Perpetrators also use short sales to recycle properties for future mortgage fraud schemes. Short-sale fraud schemes are difficult to detect since the lender agrees to the transaction, and the incident is not reported to internal bank investigators or the authorities. As such, the extent of short sale fraud nationwide is unknown. A real estate short sale is a type of pre-foreclosure sale in which the lender agrees to sell a property for less than the mortgage owed. In a typical short sale scheme, the perpetrator uses a straw buyer to purchase a home for the purpose of defaulting on the mortgage. The mortgage is secured with fraudulent documentation and information regarding the straw buyer. Payments are not made on the property loan causing the mortgage to default. Prior to the foreclosure sale, the perpetrator offers to purchase the property from the lender in a short-sale agreement. The lender agrees without knowing that the short sale was premeditated. The mortgage owed on the property often equals or exceeds 100 percent of the property’s equity.

Short sale fraud schemes continue to be used in combination with foreclosure rescue schemes in an effort to victimize homeowners and financial institutions. Perpetrators across the country are recruiting real estate agents and paying them referral fees for locating and soliciting homeowners undergoing foreclosure. Homeowners are entering into agreements with perpetrators deeding their property to them in the form of a land trust. The homeowner is listed as the beneficiary of the trust and the real estate agent is listed as the trustor. The perpetrators then negotiate a short sale with the lender. After the short sale, the real estate agent sells the property for a profit to another previously identified buyer, but the lender and the homeowner do not know this. In effect, the perpetrator sells the property for less than the mortgage and re-sells the property, often the next day, for a profit.