14.G 74/9:S. HRG. 105-453 S. Hrg. 105-453 FRAUD ON THE INTERNET: SCAMS AFFECTING CONSUMERS HEARING BEFORE THE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS ONE HUNDRED FIFTH CONGRESS SECOND SESSION FEBRUARY 10, 1998 Printed for the use of the Committee on Governmental Affairs For sale by the U.S. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 ISBN 0-16-056508-1 SAM BROWNBACK, Kansas PETE V. DOMENICI, New Mexico DON NICKLES, Oklahoma ARLEN SPECTER, Pennsylvania JOHN GLENN, Ohio CARL LEVIN, Michigan JOSEPH I. LIEBERMAN, Connecticut DANIEL K. AKAKA, Hawaii RICHARD J. DURBIN, Illinois ROBERT G. TORRICELLI, New Jersey TIMOTHY J. SHEA, Chief Counsel and Staff Director (II) CONTENTS TUESDAY, FEBRUARY 10, 1998 Susan Grant, Director, National Fraud Information Center, Vice President, Public Policy, National Consumers League Tatiana Gau, Vice President of Integrity Assurance, America Online, Inc. Barry D. Wise, Certified Public Accountant, Victim of Fortuna Alliance Internet Pyramid Scheme, Matthews, North Carolina Hon. Robert Pitofsky, Chairman, Federal Trade Commission, accompanied * May Be Found In The Files of the Subcommittee 1. Slide presentation of Tatiana Gau, Vice President of Integrity Assurance, 2. Background material regarding Fortuna Alliance, including printout of Fortuna Alliance Web Site as of January 1998, miscellaneous news releases on Fortuna Alliance, and copy of FTC v. Fortuna_Alliance, et al., FTC Complaint, Temporary Restraining Order and Stipulated 3. Slide presentation of the Honorable Robert Pitofsky, Chairman, Federal 4. Memoranda prepared by Rena M. Johnson, Counsel, and Dennis McCar- thy, Investigator, Permanent Subcommittee on Investigations, dated February 5, 1998, to Permanent Subcommittee on Investigations' Mem- 7. Supplemental Questions for the Record of Tatiana Gau, Vice President of Integrity Assurance, America Online, Inc. 8. Federal Trade Commission, Bureau of Consumer Protection-Fighting Crime on the Internet (Material on law enforcement and consumer and business education.) 9. National Fraud Information Center (NFIC) informational sheet 10. "Statistics Show Internet Fraud Rising," NCL Bulletin, May/June 1997 .. 11. Selected news articles on America Online, Inc. 12. Selected news articles on Federal Trade Commission (FTC) 13. Selected news articles on Internet fraud issues Page 358 360 361 FRAUD ON THE INTERNET: SCAMS TUESDAY, FEBRUARY 10, 1998 U.S. SENATE, PERMANENT SUBCOMMITTEE ON INVESTIGATIONS, Washington, DC. The Subcommittee met, pursuant to notice, at 9:35 a.m., in room SD-342, Dirksen Senate Office Building, Hon. Susan Collins, Chairman of the Subcommittee, presiding. Present: Senators Collins and Glenn. Staff Present: Timothy J. Shea, Chief Counsel/Staff Director; Mary D. Robertson, Chief Clerk; Rena M. Johnson, Counsel; Dennis M. McCarthy, Investigator; Lindsey E. Ledwin, Staff Assistant; Kirk E. Walder, Investigator; Bob Roach, Counsel to the Minority; Leonard Weiss; Nanci Langley; Marianne Upton; Lynn Kimmerly; Myla Edwards; Jeff Gabriel; Michael Loesch; Steve Abbott and Felicia Knight. OPENING STATEMENT OF SENATOR COLLINS Senator COLLINS. The Subcommittee will please come to order. This morning the Subcommittee begins its hearings on fraudulent schemes on the Internet. The Internet is emerging as a phenomenal tool of commerce and communication. One hundred seventy five countries are connected to the Internet, and approximately 50 million Americans use the Internet. By the year 2000, it is projected that there will be half-a-billion Internet users worldwide. There is no question that the Internet has been a boon to business. The remarkable ease and speed with which transactions can be conducted over the Internet provide businesses of all sizes with access to millions of customers. For example, I am familiar with a small, family-owned business in northern Maine that uses the Internet to market its delicious lobster stew. Without the Internet, this small business would never be able to afford the marketing costs in reaching millions of customers. For their part, consumers have the ability to engage in a variety of commercial activities across State and national borders, including shopping, banking and investing, all from the comfort, privacy and safety of their own homes. Unfortunately, those who would use the Internet to defraud can also work from the comfort, privacy and safety of their own homes or anywhere else, for that matter. Because it can be used to transfer text, pictures, and sounds, as well as money, credit card numbers, and personal information, the potential for criminal use of the Internet is infinite. Corresponding |