Getting Started on the Internet, 10/20/97: Protecting Yourself on the Net, Part I

A few months ago, a very professional-looking type of Internet scam was happening to thousands of subscribers of America Online. Members of AOL received an innocuous e-mail message from someone claiming to be with the company's financial department. Because of a computer error, some members' credit card accounts had accidentally been erased. Users were asked to resubmit their credit card numbers (and their expiration dates) to AOL for "billing purposes."

The message, of course, was a fake. But the threat of fraud on the Internet is very real. From websites that offer everything from a cure for AIDS and cancer to get rich quick schemes that promise you can work from home in your bathrobe, there are thousands of con artists using the Internet for their own deceptive purposes.

Regulating Fraudulent Activities: A Big Problem

When businesses on the Internet first began offering their services online, there was no new legislation created to regulate the type and content of advertisements shown to consumers. The Federal Trade Commission (FTC) considered it just another type of medium for advertising. As such, the laws that cover other types of media are the same as those used for the Internet. This means that the majority of fraud cases that are committed -- whether by mail, telephone, in the newspaper, on over a computer network -- are considered false advertising.

The problem is that false advertising cases aren't covered by a single jurisdiction. Each state has various business, civil, and criminal codes that may apply. Most states don't even have criminal penalties associated with consumer fraud statutes. On the federal level, the FTC, the Securities and Exchange Commission, and the Justice Department all have their own sets of regulations. And since most crimes that occur on the Internet happen over state lines and national boundaries, they become particularly hard to prosecute.

"It's clearly the wave of the future ..."

The FTC and other consumer protection agencies think it's very important to detect and stop suspicious business operations on the Internet as early as possible. With the sheer size of the Internet (there are more than 60 million registered web pages in the U.S. alone), however, this becomes a near-Herculean task. Add in the huge numbers of people who have signed up for Internet access in recent years, and con artists are able to reach a much larger audience than they could just a few years ago. Says Bill McDonald, the chief of enforcement for the California Department of Corporations, "It's clearly the wave of the future in terms of fraud."

Figuring out good, honest marketing from deceptive advertising is never easy. It's even more difficult on the Internet. People still expect at least some degree of truth in advertising, and that naturally carries over to the Internet. Because it as a newer form of media, some consumers may be willing to believe an online advertisement more readily than one on television or in the newspaper. And publishing a relatively inexpensive, eye-catching website can be accomplished in a matter of minutes. A well-produced web page that looks like it belongs to a legitimate corporation can easily snare unsuspecting customers.

And there are plenty of people out there who fall prey to false advertising. Although no data about Internet fraud is currently available, a Harris Poll which was commissioned by the National Consumer League in 1992 found that 9 out of 10 Americans had been approached by a fraudulent operator at some point in their lives, and that 29 percent of those people had expressed interest in the scheme or operation.

The Art of the Online Con

There are currently about a half dozen different types of scams currently operating on the Internet. Most, like pyramid schemes or ponzis, are just a computerized version of an old con game. However, the Internet had opened up global variations of some scams and created new traps for consumers altogether.

One of the more popular types of fraud circulating on the Internet is a variation on selling security investments, offering shares in a company or product that doesn't exist. The SEC has broken up Internet scams selling fake shares in everything from Costa Rican coconut chips to a nonexistent ethanol plant in the Dominican Republic. The SEC reports that it gets about 40 complaints a day related to such fraudulent Internet projects.

Other companies prey on the sick, offering miracle cures for everything from obesity and hair loss to AIDS and cancer. For example, the Illinois attorney general recently filed suit against Westar Nutrition and its marketing branch, Viva America. On its website, the company was selling a product known as germanium sesquioxide, claiming that it could lower cholesterol, reduce arthritic joint pain, and help treat AIDS and cancer. In reality, the FDA banned the import of germanium after it was linked to irreversible kidney damage, coma, and death. Westar has since stopped running ads for the product online.

Don't Be a Victim

So how do you protect yourself from the ads that say, "Generate a guaranteed 100% return on your investment" or "make $5000 a week from the comfort of your living room?" Here are a few quick tips that can help you avoid the hazards of Internet fraud:

1. Be suspicious of any "miracle" or "wonder" products that are offered online. The rule of thumb is that if it sounds too good to be true, that's because it probably is.

2. If you are interested in a product or service, make sure that the retailer has a number you can call as an alternative. And yes, call the company to make sure the telephone number is legitimate.

3. Don't buy a product or jump into a business venture solely on what you read online or hear in a chat room. Research the business through the Better Business Bureau. If it's a stock, call the SEC or your stockbroker to find out if it the stock or product is authentic.

4. Don't send money to any enterprise that doesn't have a street address or verifiable business history. If you are victimized by such a scam, it becomes that much harder for you to track down the crook and recover your money.

5. If you are going to buy something over the Internet, don't use cash. Credit card companies keep a record of every transaction your account makes. In the event of a fraud, your credit card company may be your only hope for financial or legal recourse.

6. Never, ever give out personal information, such as your social security number, credit card account number, or online account passwords, to people or websites you don't trust. It could cost you in the end.

In addition to the tips listed above, there are numerous sites on the Internet that provide free information on prospective investments, products, companies and personalities. A couple of interest are:

Consumer World. This site offers more than 1400 links to the web pages of various consumer protection and regulatory agencies and other informational sites. The site provides you with a variety of current fraud and scam alerts, as well as a search engine that lets you look up certain types of fraud. Consumer World's web address is www.consumerworld.org.

The National Fraud Information Center (NFIC). This is a large consortium of antifraud resources compiled from government and private consumer agencies. The NFIC issues daily alerts on new scams and the status of past and ongoing fraud investigations. The website also contains links to other consumer protection agencies. NFIC can be reached at www.fraud.org, or you can call them at (800) 876-7060.

In our next issue, we'll provide readers with a list of 100 free products and services available over the Internet. Later issues will cover topics such as online auto repairs and movie sites.

As always, we welcome your comments. If you have any questions or suggestions about this article, or if there is a particular website or subject you'd like to see reviewed, please contact me by e-mail or at the number listed below.

References

Cyberscams. PC World, May 1997;170,175,180.

Michael Devitt
Huntington Beach, California

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