By John Teakell, Attorney-at-Law – Dallas, Texas
I. WHAT IS REFUND FRAUD?
United States Attorney’s Offices and the U.S. Department of Justice actively investigate and prosecute refund fraud schemes, which are designed to fraudulently obtain refunds from retail businesses. The people involved in these refund schemes make false claims to the businesses that products purchased were not received, and then make their claims of refunds based on the supposed no product received.
In reality, the schemers actually receive products as ordered and then process claims for refunds, falsely stating that they never received the product. Refunds are then processed and paid to the people claiming no products received.
Additionally, those involved in these refund conspiracies eventually sell the products that they actually received, making monies both ways. The groups within the schemers often include management, operations, and recruiters.
II. COMMON SCHEMES
A. Claim No Product Received
People involved in these schemes, and those who were recruited, will tell the product sellers that they never received the merchandise and ask for a refund of the purchase. Due to the online presence and quicker online responses and processing times, refunds will often be sent before the product selling company ever realizes that there is a pattern of repeated refund requests.
B. Claim Damaged Products
Schemers will also claim that they received damaged or broken merchandise after paying for their orders, and they request refunds for the damaged product. The selling company requires the person claiming the refund to send the damaged merchandise back to the company. The schemers will then send an empty box to the company, ostensibly showing that they sent the damaged product back for the refund.
Due to quicker response and refund times due to the use of computers and online purchasing systems, the company often sends the refund based on seeing or scanning a returned box. Companies often only later realize that the box that they received as a supposed returned product, is actually empty, and that the company has already paid the refund.
C. Refund Assist Service
Refund fraud people also offer a service to persons who want to pay them to help get a refund. The assistance offered involves making the same type of misrepresentations to obtain a refund, and the refund fraud schemers add to their income by charging others to help them obtain a fraudulent refund.
III. OTHER PERSONS’ IDENTITIES AND CREDIT CARD NUMBERS
Persons in refund fraud operations will use other names and stolen credit cards so the selling companies do not see a pattern of the same people making many refund claims. Also, obviously, using a stolen credit card number will not result in a real charge to the schemer.
Refund schemers also recruit people to actually make refund requests for the company, with the agreement to pay the recruited persons for doing so. In doing so, the refund schemers add to the total number of refund claims made across the company, plus the additional credit card names and numbers further reduce the chances that selling companies can detect a fraudulent pattern of refunds from a group of refund schemers.
IV. SELLING PRODUCTS RECEIVED
Refund schemers will sell the products that they received from their initial orders, even though they have requested and received refunds. The purpose of ordering products was not to receive products to use, but to use the orders as a method to fraudulently make refund claims and receive refunds plus income from the product sales.
A. Warehouse / Stored Products
Schemers will accumulate products that they ordered and received, while making and receiving fraudulent refunds. Then, they will sell the products to wholesalers or others who will buy them.
B. Sell to Those in “Gray Area”
Schemers will sell their accumulated products to wholesalers, persons who effectively wholesale but operate in a “gray area,” and even to the public online.
V. VOLUME BUSINESS
Due to continued fraudulent refund claims by their core group and by those that they recruit, the business of refunds becomes a large volume of business. Because of the volumes of refunds claimed and received, the losses of the product selling companies often totals in the millions of dollars.
VI. SCHEME EFFORTS TO STOP VERIFICATION BY PRODUCT SELLERS
Companies have implanted measures within their operations to stop fraudulent refunds, and these measures include: 1) looking for patterns of refunds from the same name, address, and/or credit card numbers; and 2) looking for numerous refunds in the same area.
Refund schemers have countered these company efforts to stop refund fraud. Schemers will recruit others to use those persons’ information and credit cards, as mentioned above, and they also purposely spread the refund claims to sellers around the country to not show patterns of same names, addresses, and credit card numbers. Schemers will also use stolen credit card numbers and identities.
VII. FEDERAL CHARGES
Charges commonly brought against fraudulent refund schemers in federal court include Conspiracy to Commit Fraud, Wire Fraud, and Mail Fraud. The wire fraud jurisdiction is usually based on electronic mail (email) transmissions, online orders and communications, and ACH or wired payments and refunds.
Mail fraud jurisdiction can be based on mailings sent via the U.S. Postal Service or common carriers, such as Fed Ex, UPS, and DHL.
VIII. CONTACT ATTORNEY JOHN TEAKELL
If you have been contacted by law enforcement, or if you are under investigation for an involvement in refund schemes or any federal offense, contact former federal prosecutor John Teakell. Mr. Teakell will use his experience to defend against any potential charges of fraud, conspiracy, or related allegations.
