The Federal Trade Commission is planning to build a special Internet lab to support its efforts to curb the increase of fraud and deception on the 'Net, according to an FTC official from the Bureau of Consumer Protection.
The lab will monitor Web advertisements 24 hours a day by using technology such as search robots, which automatically comb the Internet for dubious material, says Dean C. Forbes, an attorney at the Division of Advertising Practices.
"We see increased fraud and deception, because it proliferates quickly on the Internet at low cost and ignores national borders," says Forbes.
Besides tracing ads, the lab will also capture and preserve evidence, solving another problem for prosecutors. "Some material is not up for long before it is moved. And some of the content cannot be printed," Forbes says.
So far the work at the Division of Advertising Practices on Internet-specific problems has resulted in 80 federal actions involving more than 200 defendants.
Forbes characterized Internet fraud as "mostly old wine in new bottles." Familiar ploys such as pyramid schemes that recruit victims though the Internet are in the "old wine" category. Failure to deliver what has been paid for, such as Beanie Baby auctions on eBay and false health statements for drugs and investments schemes like "Invest in Internet, get a 300% return" are also in this category.
There is some "new wine," however - schemes unique to the Internet, such as modem hijacking.
In 1997, the first big case, nicknamed the sexygirls.com case, concerned the hijacking of PCs' modems. Several sites offered the visitor a better viewer. However, downloading the viewer enabled software to disconnect the PC's speaker, which disconnected the PC from the local Internet provider and dialed up a high-price international modem connection. This connection would stay open even when the user left the special site.
The scam was detected by the appearance of long-distance calls on the phone bill. Assisted by computer experts at AT&T, the FTC solved this case in 31 days.
"A fast response team is imperative in these cases," Forbes says.
Forbes also mentioned Internet "cramming," which is bogus charges on phone bills that are the result of online activity.
In the so-called John Doe case thousands of people got e-mails with the message "If you don't cancel your order, you will be billed." The message contained a phone number with an area code that looked like it was in the U.S., but was not. Those who phoned it got a sex line, and then a long-distance charge showed up on their phone bills.
Cramming goes far beyond the sex scams. "Thousands of small businesses have been ambushed by Internet scammers, and it has cost that community millions of dollars in less than two years," says Jodie Bernstein, director of the FTC's Bureau of Consumer Protection.
According to the FTC, the defendants hired telemarketers who targeted small businesses. The telemarketers touted the business benefits of having an Internet presence, and offered to design and host an Internet Web site for the business for a "free" 30-day trial period.
However, the businesses were billed for the trial period. In some cases, even those who just requested material on the offer were billed, according to the FTC. Charges have been filed against Wazza of Fountain Valley, Calif., Shared Network Services of Lodi, Calif., Web Viper of Montgomer, Ala. and Yellow Web Services of Chalk Lake, Texas.
The Internet-based fraud and deception raises concerns on privacy issues and the use of credit cards on the 'Net, which can potentially undermine the confidence in the 'Net and endanger its commercial growth. This is one of the reasons the FTC is intensifying its efforts by establishing the Internet Lab.
Foster also mentioned another technology-based effort, the Consumer Sentinel, a database established by law-enforcement agencies in the U.S. and Canada.
The database contains 170,000 consumer complaints over telemarketing, direct mail and Internet. The complaints are categorized, thereby making it easier to see patterns of schemes. Consumer Sentinel has 180 members who can search the database.
The FTC hopes to set an example by bringing the cases to court.
"The fact is that there are a lot of bad actors out there," Forbes says. He has hopes that cheaper encryption and more experienced users will make many of the scams a thing of the past.
"But we all have to be Internet-savvy now. And if we at the FTC stumble over criminal cases, we immediately forward the material to the FBI," Forbes says.
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