Feb. 6, 2013 at 1:56 PM ET
In an indictment that reads like an instruction manual for nearly every type of identity theft and credit card fraud yet invented, prosecutors alleged on Tuesday that more than a dozen crooks ran roughshod over America's credit system for six years, stealing hundreds of millions of dollars and living like kings.
The techniques deployed by the crime ring ran the gamut, from child ID theft to setting up fake stores to process credit card payments, says the indictment, which was unsealed on Tuesday. It alleges that suspects created so-called “synthetic identities,” in which invented Social Security numbers were used to create fake credit reports that enabled them to borrow huge sums; faked utility payment histories to fool credit bureaus; designated themselves as "authorized users" of real victim's identities; and minted real and fake merchant credit card processing accounts to trick banks into depositing large sums of cash into bank accounts they controlled. In one case, they even used a 6-year-old's Social Security number to get credit, it said.
With the proceeds of the scheme, they bought luxury cars, electronics, spa treatments, and millions of dollars in gold, the indictment said. Authorities found $68,000 in cash hidden inside the kitchen oven of one suspect, it said.
“This elaborate network utilized thousands of false identities, fraudulent bank accounts, fake companies and collusive merchants to defraud financial institutions of hundreds of millions of dollars in order to facilitate extravagant lifestyles they could otherwise not afford,” David Velazquez, FBI acting special agent in charge, said in a statement.
A set of jewelry stores in Jersey City, N.J., just across the Hudson River from New York City, was at the center of the fraud, according to the indictment. False charges were run through the stores’ merchant credit card processing accounts, allowing the criminals to turn fake IDs and fraudulent credit cards into cash. Jewelry stores, which routinely process high-priced transactions, are perfect for such a fraud.
According to the indictment, the extent of the brazen operation and its support network was staggering. There were 7,000 fake identities created in all, and 25,000 fake credit cards, it said. To fool banks and credit bureaus, 1,800 fake "drop box" snail mail addresses were used, so criminals could accept real mail -- such as utility bills -- and make them part of the scheme, it said.
The FBI estimates the fraud netted a total of $200 million, but because some conspirators have not yet been arrested and the investigation is ongoing, it expects that figure to rise. Money was sent around the world, to Canada, Pakistan, India, China and Japan. While the operations centered on the New York metropolitan area, with 13 individuals arrested in New York, New Jersey, and Pennsylvania, the scam actually touched 28 U.S. states, according to the indictment.
Babar Qureshi, who is the accused ringleader, made a single wire transfer of $500,000 recently, the indictment alleges, and a total of $1 million flowed through his accounts during the operation. The FBI says it has identified 169 bank accounts through which $60 million in proceeds flowed -- most ultimately withdrawn in cash.
The general technique the criminals allegedly used is not new, or novel, and is sometimes called a "bust-out" scheme. In the indictment, the U.S. Attorney's Office calls it "make up, pump up and run up." Here’s how it works: Criminals gain control of a real or invented credit identity, but don't use it for fraud right away. Instead, they patiently pay bills or otherwise build up the creditworthiness over time. Then, when the account is "primed" so that potential creditors are convinced it is legit and their fraud-fighting software lets its guard down, a large fraud is committed.
There’s a lesson in these allegations for victims of credit card account number theft -- smart criminals don't commit fraud immediately after stealing account numbers. If your account number is compromised, don't believe you are in the clear just because there's no fraud in the first few months.
Merchant accounts -- credit card transaction processing accounts that businesses use to accept credit cards and get paid -- are particularly valuable to criminals. The biggest barrier credit fraudsters have is turning data into cash. It's risky to purchase items with stolen credit cards, or to attempt ATM cash withdrawals, as that creates a paper trail and perhaps a surveillance video record. But by working with a merchant account, criminals can pretend they are processing legitimate transactions and automatically have the payments deposited directly into their checking accounts. The criminals can go from stolen account numbers to cash in a fully electronic transaction. There's still a paper trail, but that's why these criminals maintained an extensive network of fake IDs, the government alleges – so they could hide behind layers of false identities when setting up the merchant accounts. Jewelry store accounts, with their high-ticket purchases, would be particularly useful in this kind of crime.
The 18 defendants charged in the indictment -- including five who are still at large -- range in age from 31 to 74. Four of the suspects live in Iselin, N.J., about 45 minutes south of New York City. One is in Philadelphia. The rest are scattered among New York City and nearby suburbs..
Attorney Angelo Servidio, representing defendant Tarsem Lal, said his client was free on bail, and wanted to remind people that his client is innocent until proven guilty.
"They are all presumed innocent. There are a lot of people involved in or alleged to be involved in this case," he said. "From what I can see, this case (may have) been under investigation since 2008, so there are going to be a lot of documents to sift through."
Servidio said he hadn't seen any of the evidence against his client yet.
"Other than his connection with a jewelry store, I don't know what evidence they have," he said.
NBC News was unable to immediately Qureshi's lawyer.
The bank fraud count with which the defendants are charged is punishable by a maximum of 30 years in prison and a fine of $1 million.
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