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Identity Theft

IDENTITY THEFT is the assumption of a person's identity in order, for instance, to obtain credit; to obtain credit cards from banks and retailers; to steal money from existing accounts; to rent apartments or storage units; to apply for loans; or to establish accounts using another's name. An identity thief can steal thousands of dollars in a victim's name without the victim even knowing about it for months or years. Identity thieves are able to accomplish their crimes by doing things such as opening a new credit card account with a false address, or using the victims's name, date of birth, and SOCIAL SECURITY number. When the thief uses the credit card and does not pay the resulting bills, the delinquent account is reported on the victim's credit report.

As increasing numbers of businesses and consumers rely on the INTERNET and other forms of electronic communication to conduct transactions, so too is illegal activity using the very same media on the rise. Fraudulent schemes conducted via the Internet are generally difficult to trace and to prosecute, and they cost individuals and businesses millions of dollars each year.

According to a JUSTICE DEPARTMENT web site devoted to the topic, INTERNET FRAUD refers to any type of scheme in which one or more Internet elements are employed in order to put forth "fraudulent solicitations to prospective victims, to conduct fraudulent transactions, or to transmit the proceeds of FRAUD to financial institutions or to others connected with the scheme." As pointed out in a report prepared by the National White Collar Crime Center and the FEDERAL BUREAU OF INVESTIGATION (FBI), "The Internet Fraud Complaint Center (IFCC) 2001 Internet Fraud Report: January 1, 2001– December 31, 2001," major categories of Inter-net fraud include, but are not limited to, auction or retail fraud, SECURITIES fraud, and identity theft.

Securities fraud, also called investment fraud, involves the offer of bogus stocks or high-return investment opportunities, market manipulation schemes, pyramid and Ponzi schemes, or other "get rich quick" offerings.

In its May 2002 issue, Internet Scambusters cited a study by Gartner G2 showing that online merchants lost $700 million to Internet fraud in 2001. By comparison, the report showed that "online fraud losses were 19 times as high as offline fraud." In fact, the study pointed out that in the same year more than 5 percent of those who made purchases via the Internet became victims of credit card fraud.

The IFCC, in its 2001 Internet fraud report, released statistics of complaints that had been received and then referred to law enforcement or regulatory agencies for action. For the 12-month period covered by the report, the IFCC received over 17 million inquiries to its web site, with nearly 50,000 formal complaints lodged. It must be noted, however, that the number of complaints included reports of computer intrusions and unsolicited CHILD PORNOGRAPHY.

Significant findings in the report revealed that Internet auction fraud was the most reported offense, comprising 42.8 percent of referred complaints. Besides those mentioned above, top fraud complaints also involved non-delivery of merchandise or payment, credit/debit card fraud, and confidence fraud. While it may seem easy to dismiss these concerns as obvious, the schemes to defraud customers of money or valuable information have become increasingly sophisticated and less discernible to the unsuspecting consumer.

The "IFCC 2001 Internet Report" revealed that 81 percent of those committing acts of fraud were believed to be male, and that nearly 76 percent of those allegedly involved in acts of fraud were individuals. According to the report, California, Texas, Florida, New York, and Illinois were the states in which half of the perpetrators resided. The report also provided a shocking example of just how difficult a task tracking down those involved in Internet fraud can be. According to the report, out of the more than 1,800 investigations initiated from complaints during 2001, only three arrests were made.

One example of the growing sophistication of Internet fraud cases can be seen in a 1997 case brought by the FEDERAL TRADE COMMISSION (FTC). FTC v. Audiotex Connection, Inc., CV-97 0726 (E.D.N.Y.), specifically concerned a scam in which Internet consumers were invited to view or to access free computer images. As reported in a February 10, 1998, FTC statement made before a Senate Subcommittee on Investigations of the Governmental Affairs Committee, when viewers attempted to access the images, their computer modems were surreptitiously disconnected from their local Internet Service Providers (ISPs) and were reconnected to the Internet through defendants' expensive international modem connections. Exorbitantly priced long-distance telephone charges continued to ACCRUE until the consumer turned off the computer, even if he or she had exited the defendants' web site and moved elsewhere on the Internet. Approximately 38,000 consumers fell for this scam, losing a collective $2.74 million

A U.S. Department of Justice web site that addresses the major types of Internet fraud reported the following examples of illegal activity carried out using the medium.

Two separate Los Angeles cases demonstrate the intricacies of securities fraud and market manipulation. In the first case, defendants bought 130,000 shares of bogus stock in NEI Webworld, Inc., a bankrupt company whose assets had been liquidated. Defendants in the case then posted E-MAIL messages on various Internet bulletin boards, claiming that NEI was being acquired by a wireless TELECOMMUNICATIONS company. Within 45 minutes of the posting, shares increased from $8 to $15 each, during which time defendants "cashed out." The remaining stock was worth 25 cents per share within a 30-minute period. The second example involves a case in which an employee of Pair-Gain Technologies set up a fraudulent Bloomberg News web site and reported false information regarding the company's purchase by a foreign company. The employee then posted bogus E-mail messages on financial news bulletin boards that caused a 30 percent manipulation of PairGain stock prices within hours.

In another example of investment fraud, perpetrators used the Internet, along with telemarketing techniques, to mislead more than 3,000 victims into investing almost $50 million in fraudulent "'general partnerships' involving purported 'high-tech' investments, such as an Internet shopping mall and Internet access providers."

More than 100 U.S. military officers were involved in a case of identity theft. Defendants in the case illegally acquired the names and social security numbers of the military personnel from a web site, then used the Internet to apply for credit cards issued by a Delaware bank. In another case of identity theft and fraud, a defendant stole personal information from the web site of a federal agency, and then used the information to make applications for an online auto loan through a Florida bank.

Finally, the Department of Justice web site gives an example of a widely reported version of credit card fraud. In the elaborate scheme, a perpetrator offers Internet consumers expensive electronics items, such as video cameras, at extremely low prices. As an incentive, they tell consumers that the item will ship before payment is finalized. When terms are agreed to, the perpetrator uses the consumer's name and address, but another party's illegally obtained credit card number, to purchase the item through a legitimate online vendor. Once the consumer has received the item, he or she authorizes credit card payment to the perpetrator. In the meantime, when the credit card holder, whose card number was used to purchase the item, stops payment on the unauthorized order, the vendor attempts to reclaim the merchandise from the consumer. The defrauded consumer, the victim of the credit card theft, and the merchant usually have no simple means of redress, because by the time they catch on, the perpetrator has usually transferred funds into untraceable accounts.

In October 1998, Congress passed the Identity Theft and Assumption Deterrence Act of 1998 (Identity Theft Act) 18 U.S.C. § 1028 to address the problem of identity theft. Specifically, the Act amended 18 U.S.C. § 1028 to make it a federal crime when anyone: knowingly transfers or uses, without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet, any unlawful activity that constitutes a violation of federal law, or that constitutes a felony under any applicable State or local law. Violations of the act are investigated by federal investigative agencies such as the U.S. SECRET SERVICE, the FBI, and the U.S. Postal Inspection Service and are prosecuted by the Department of Justice.

The Federal Trade Commission (FTC) is the federal clearinghouse for complaints by victims of identity theft. Although the FTC does not have the authority to bring criminal cases, it assists victims of identity theft by providing them with information to help them to resolve the financial and other problems that can result from identity theft. The FTC also may refer victim complaints to other appropriate government agencies and private organizations for further action.

Consumers can protect themselves from this type of crime by protecting information such as credit card and social security numbers and by shredding mailed offers to obtain credit. They also can check their credit reports for unknown accounts. In the event of identify theft, an alert

can be placed on a credit bureau that notifies consumers of potential fraudulent activity. Consumers who are victims can also write a statement that will appear on their credit reports explaining the criminal activity. Most banks and major credit card companies have fraud departments with staff who are trained to address these situations, but often the consumer feels that the onus is on him or her to prove lack of wrongdoing, and many victims report frustration at having their credit and lives destroyed by identity theft. A number of states have taken action to make identity theft a state crime.


Collins, Judith M., and and Sandra K. Hoffman. 2003. Identity Theft Victims' Assistance Guide. Flushing, N.Y.: Looseleaf Law Publications.

Newman, John Q. 1999. Identity Theft: the Cybercrime of the New Millenium. Port Townsend, Wash.: Loompanics Unlimited.

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