Dec. 17, 2002 — In July, MSNBC.com warned Internet users that fake escrow Web sites were the latest scam. Six months later, the scam has widened considerably, and it now appears to be among the most successful Internet cons ever. By taking advantage of Net auction winners’ inherent trust of escrow sites, the con artists are stealing as much as $40,000 at a time from big-ticket auction winners. Their total take may well reach into millions of dollars so far. And while federal authorities, including the Department of Commerce and FBI, are investigating, there seems to be no way to slow down the con artists.
Worried about getting scammed in an Internet auction? “Just use an escrow service,” is the customary advice. Escrow companies act as a third-party referee, taking payment from buyers but not releasing the money to sellers until the goods are delivered. Escrow companies are supposed to be the safest way to avoid fraud on the Internet, particularly when dealing with Internet auction sales of big-ticket items such as jewelry or cars.
But earlier this year, scam artists stumbled onto a successful formula for tricking Net users into wiring thousands of dollars to fraudulent bank accounts. The criminals build elaborate fake escrow Web sites, with convincing names like Simple-Escrow.net and WhyEscrow.com. Often, the Web sites are set up to imitate legitimate escrow services; to an untrained eye, it can be impossible to tell the difference.
The criminals then set up a trap auction on a popular auction site like eBay. When a winner asks how to make payment, the seller feigns fanatic interest in security, insisting on the use of an escrow service. Then, the winner is steered to the fake service — and, defenses lowered, makes the mistake of wiring money to the con artists’ bank account.
Success breeds imitators
The scam sounds simple, but the results are apparently remarkable. One legitimate escrow service which was mimicked by the con artists told MSNBC.com that it had heard from over 50 victims during the past two months. A company employee, who requested anonymity, said the average victim had lost over $10,000, with some having sent as much as $30,000 thinking they were buying items like gold watches, jewelry, or cars.
“The total? It’s over $1 million, I’m sure,” the source said. “And that’s just the people who have called us.”
And that’s just one fake escrow site. It’s impossible to really tell how successful the con artists are, but the continued increase in the appearance of the scam sites, which now number well over 150, suggests they are.
Calls to the FBI agent who is investigating the situation were not returned.
Paul Moreau started tracking the fake escrow phenomenon in March as an avid eBay user. He now maintains a Web site called SOS4auctions.com that’s devoted to tracking the phenomenon. While authorities scramble to shut down fake escrow sites as soon as they pop up, many operate for a month or two. At any given time, 20 or so are operating, Moreau says, and there’s a more disturbing trend. Back in May and June, fewer than 10 fake escrow sites popped up each month. In October, 25 new sites appeared. In other words, the scam has become more intense, and it’s so successful that imitators are catching on.
SOS4auctions.com contains a detailed list of suspected fraudulent sites. But the fake escrow scam is so elaborate that someone even created a fake version of Moreau’s site, just to confuse would-be readers who might otherwise be warned off the scam.
“It’s so bad that it’s very difficult to know what’s a real escrow service and what’s a fake,” said Moreau, who is known by the pseudonym Fenton Smith on his Web site.
Moreau wouldn’t guess how much money has been lost to the scam, but said he regularly hears from victims who’ve lost $20,000 or more — one even sent $40,000 after believing he had purchased a car. Moreau said he thought the $1 million in losses described by MSNBC.com’s anonymous source was “probably typical.”
Since the money was sent via wire transfer, there is often no recourse for victims.
“I just tell them to contact the Internet Fraud Complaint Center and pray,” Moreau said.
Auction watchdog Rosalinda Baldwin, who runs TheAuctionGuild.com, says fake escrow sites are a particularly successful scam because they catch Internet users when their defenses are low.
“People don’t even realize there is such a thing as fake escrow,” she said. “It doesn’t enter their mind there might be companies fraudulently setting these things up.”
The fraud can work both ways, Baldwin said. A fraudulent seller can point a buyer toward an escrow site he or she controls, then simply grab the buyer’s cash without ever sending the merchandise. Or, a fraudulent buyer can trick a seller into shipping items that haven’t been paid for, simply by sending an official-looking e-mail from a fake escrow service which says “We have received payment; go ahead and ship the items.”
Making matters worse, the fraud artists are getting better at what they do. Six months ago, many fake auction sites were riddled with typographical errors and poor graphics. Today, the sites are slick, and often include legitimate information intermingled with fake addresses and phone numbers. Because many of the sites have similar characteristics, Moreau thinks there are four of five groups of individuals doing most of the fraud. And because the money is often destined for overseas accounts, Moreau isn’t optimistic the criminals will be stopped any time soon.
“It looks like a growing business,” he said.
Adrienne Cole, general manager of eBay partner Internet Escrow Services Inc., says it’s true that more criminals seem to be jumping on the fake escrow bandwagon. The firm operates legitimate site Escrow.com.
Cole said she thought the rise in the fake sites was in part due to the growing popularity of legitimate escrow services. She declined to reveal actual revenues, but said transactions are up 30 percent at her site since the summer.
“We’re sorry people are scammed, of course. But we see heightened awareness ... of the need to ask questions before the use an escrow service,” she said.
How to spot fake site
But many other tricks used by the fraudsters make the con hard to spot. Once a customer has been lured into a transaction, the con artists use a variety of names and bank accounts, making it difficult to spot the scam in progress. In one typical exchange observed by MSNBC.com, a fake escrow purveyor identifying himself as Michael Comer asked that $1,700 be wired to American National Bank in Rockwall, Texas.
The real Michael Comer, who operates an electronic money firm, is a victim of impersonation, as the scam artists were using his legitimate American National Bank account to move money out of the country.
Another payment was directed to “Aspen Consulting Inc.,” attached to an account at HansasBanka, in Riga, Latvia.
But there are some obvious signs of trouble. Consumers should never buy or sell items to a consumer who insists on using a specific escrow service. Propose an alternative — if that disturbs the other party, they are almost certainly con artists.
If the escrow service and the seller appear to be working closely together, that’s also a bad sign. One victim MSNBC spoke to got instructions on how to send money to the escrow company from the seller’s e-mail address, for example.
And wiring money to a bank outside the country is always a bad idea, experts say.
© 2013 msnbc.com Reprints