Franchisee Associations

According to a March 2007 press release by the Florida State Police, "Gainesville WAL-MART stores notified the GPD of a gift card scheme being conducted at their stores. Several suspects were identified as using stolen credit cards to purchase large quantities of gift cards. Subsequent investigation revealed these suspects and others had been traveling throughout Florida purchasing large quantities of gift cards with stolen credit card accounts and then redeeming the cards at WAL-MART Stores and Sam’s Clubs. Items purchased included computers, gaming devices and big screen televisions. Losses experienced by WAL-MART and the banks issuing the credit cards currently total more than $8 million in Florida and are still being calculated."

This is somewhat ironic, given the move from paper based coupon loyalty to programs to electronic gift cards was motivated by security and fraud concerns. Interesting that the suspects first stole credit card accounts, and rather than using them to purchase items, they immediately purchased gift cards. I am surprised that they didn't try to auction off the cards on eBay instead of buying retail.

What we are going to find is that the introduction of gift cards, primarily designed to appease men shopping at Christmas, has introduced a whole new dimension of fraud.

Skimming fraud is going to expand, while technical solutions will be offered up -largely as a pancea. The possibility of large scale fraud is an important factor to consider when introducing any stored value card.

Court Orders Three Individuals to Stop Illegal
The FTC's Complaint: According to the FTC's complaint, filed in September 2005, since at least 2004, the defendants used outbound telemarketing to contact consumers in the United States, falsely offering major credit cards, such as MasterCard and Visa, to people who agreed to have the defendants electronically debit their bank accounts for an advance fee of $249. The defendants typically claimed that the credit cards would have a $2,000 credit limit, zero percent interest, and no annual fees, and often targeted their offers at consumers with poor credit histories. Consumers who provided their bank account information did not receive a major credit card, but instead were sent an application for either a "stored value card" or "cash card" that had no line of credit associated with it and could be used only if the consumer first loaded funds onto the card. The complaint also alleged that the defendants violated the law by calling consumers on the FTC's National Do Not Call Registry.

The complaint named the following entities as defendants, both individually and as corporate officers: Sean Somma aka Sean Soma, individually and as an officer of corporate defendants Centurion Financial Benefits LLC and 1629936 Ontario Ltd, also dba Spectra Financial Benefits; Antonio Marchese aka Tony Marchese, individually and as an officer of corporate defendant 1644738 Ontario Ltd., also dba Sureway Beneficial, Simple Choice Benefits, and Oxford Financial Benefits; Tony Andreopoulos, individually and as an officer of corporate defendants American Getaway Vacations Inc., Credence Travel Processing Inc., and Topstar Media Inc., also dba Integra Financial Benefits; and Dennis Andreopoulos, individually and as an officer of corporate defendants American Getaway Vacations Inc. and Topstar Media Inc., also dba Integra Financial Benefits.

The complaint also charged the following corporations: Centurion Financial Benefits LLC; 1629936 Ontario Ltd., also dba Centurion Financial Benefits; 1644738 Ontario Ltd, dba Integra Financial Benefits; American Getaway Vacations Inc., also dba Integra Financial Benefits; Credence Travel Processing Inc., dba Integra Financial Benefits; and Topstar Media Inc., also dba Integra Financial Benefits. The FTC filed an amended complaint in December 2006, adding several corporate and individual defendants. Litigation continues against all defendants other than Somma, Cholette, Marchese, and Dennis Andreopoulos, whom the Commission voluntarily dismissed as a defendant.

The Stipulated Final Orders: The court orders announced today against defendants Soma, Cholette, and Marchese include strong injunctive relief that will help ensure that they do not engage in similar illegal conduct in the future. Specifically, the orders prohibit the defendants from making misrepresentations regarding credit cards or any other product, program, or service offered to consumers. They prohibit the defendants from violating the Do Not Call provisions of the Telemarketing Sales Rule and from selling, leasing, or transferring the information in their customer lists to anyone. In addition, the orders subject them to strict monitoring and compliance requirements.

Finally, the orders contain an avalanche clause that would require the defendants to pay more than $9.8 million, the total amount of consumer injury caused by the scam, if they are found to have misrepresented their financial condition. The orders also require them to cooperate with the FTC in its ongoing litigation against the remaining Centurion defendants.

According to a press release by Department of Justice, Indicted corporation agrees to cooperate in investigation and prosecution of executives and other individuals in $250 million coupon fraud scheme.

'United States Attorney Steven M. Biskupic announced today that the United States has agreed to dismiss without prejudice pending wire-fraud charges against International Outsourcing Services ('IOS'), a privately-held corporation. The dismissal comes as a result of an offer by the new management at the company to assist the government in the ongoing investigation and current prosecution of 11 individuals, including multiple former IOS executives, who were indicted with the company on March 6, 2007.

United States Attorney Biskupic said, 'This dismissal is the result of the company's change in its upper management and recent commitment to provide complete and total cooperation in the further investigation and prosecution of the coupon fraud scheme that others allegedly committed by using the company. The dismissal helps company employees and provides new information to assist the government in determining who may have been responsible for the alleged fraud.

This resolution also benefits the victims of the alleged fraud scheme by requiring the company to place any future distributions to its shareholders in escrow for use if individual defendants are convicted and ordered to pay restitution.

According to the government's motion to dismiss the case against IOS, the company has agreed to take several steps, including:

Cooperating completely in the ongoing prosecution of individuals concerning the charged fraud scheme as well as in the investigation and prosecution of IOS's executives for possible obstruction of justice both before and after the indictment;

Installing a new management team and removing the indicted individuals from their roles with the company;

Placing all putative distributions to shareholders, including any potential proceeds available for shareholders if the company were ever sold, in escrow pending resolution of the criminal cases;

Making IOS employees and representatives available for interview and testimony as necessary;

Making its files available to the United States for unrestricted inspection and use in the criminal cases and voluntarily waiving any privileges that might otherwise apply to its documents;

Designating a management-level employee to assist the United States to facilitate admissibility of any IOS records at the trial of any indicted individual; and

Maintaining an independent, on-site monitor to oversee company operations and finances.

United States Attorney Biskupic further explained that charges could be re-filed if IOS fails to live up to its cooperation agreement and that IOS has agreed that if charges were to be re-filed, the company has waived the statute of limitations for the charged offenses.

On March 6, 2007, a federal grand jury had returned a 25-count indictment charging IOS and 11 individuals with carrying out a wire-fraud scheme to defraud manufacturers that use coupons to market their products to consumers. The indictment alleged that as a result of the scheme, the defendants caused over $250,000,000 in loss to manufacturers nationwide and over $15,000,000 to Wisconsin-based companies.

No trial date has been set for the case against the 11 indicted individuals. If convicted, individual defendants would face (per count): up to 20 years' imprisonment, up to $250,000 in fines, up to 3 years of supervised release, and a restitution order covering the amount of established loss. The public is cautioned that an indictment is merely the formal method of returning charges against an individual and does not constitute inference of his guilt. An individual is presumed innocent until such time, if ever, that the government establishes his or her guilt beyond a reasonable doubt.

The FBI is the lead agency in this investigation. Anyone who may wish to provide additional information pertaining to this investigation should contact the Milwaukee Office of the FBI at 414-276-4684. This case has been assigned to AUSAs Stephen A. Ingraham, Richard G. Frohling, Matthew L. Jacobs, and Kelly B. Watzka for prosecution.

For more information contact: Michelle L. Jacobs, First Assistant United States Attorney Richard G. Frohling, Deputy Criminal Chief Stephen A. Ingraham, Assistant United States Attorney 414-297-1700

Good article from Brian Kreps at Washington Post on Internet Coupon Fraud

Hacking Groceries: Internet Coupon Fraud - Security Fix

"Over the weekend, my wife and I were shopping at Magruder's, a local grocery chain to which we're fiercely loyal, and we noticed a handwritten sign attached to the credit-card reader in the checkout line:

"Attn customers: Due to coupon fraud, we are unable to take Internet coupons."

A store manager, who asked me to kindly leave his name out of this post, said the store-wide policy went into effect last year, after it became apparent that there was "a lot of cheating going on. People were gang-printing these things by the reamfuls."

I've written about teenage hackers creating wholesale counterfeit coupons to get free pizza and other stuff at popular fast food joints, but the type of coupon fraud that's going on these days makes that type of activity seem like amateur hour.

Curious as to just how bad the coupon fraud problem really is, I checked out the Web site for the Coupon Information Center, a non-profit group based here in Alexandria, Va., which represents the manufacturers that issue 70 percent of the coupons in the United States today. Turns out that the Internet is helping to facilitate coupon fraud on a unprecedented scale."