Bilking the Elderly with a Corporate Assist
Excellent New York Times Report by Charles Duhigg - 05/07
The thieves operated from small offices in Toronto and hangar-size
rooms in India. Every night, working from lists of names and phone
numbers, they called World War II veterans, retired schoolteachers
and thousands of other elderly Americans and posed as government
and insurance workers updating their files.
Then, the criminals emptied their victims’ bank accounts.
Richard Guthrie, a 92-year-old Army veteran, was one of those victims.
He ended up on scam artists’ lists because his name, like millions
of others, was sold by large companies to telemarketing criminals,
who then turned to major banks to steal his life’s savings.
Mr. Guthrie, who lives in Iowa, had entered a few sweepstakes that
caused his name to appear in a database advertised by infoUSA, one
of the largest compilers of consumer information. InfoUSA sold his
name, and data on scores of other elderly Americans, to known lawbreakers,
regulators say.
InfoUSA advertised lists of “Elderly Opportunity Seekers,” 3.3
million older people “looking for ways to make money,” and “Suffering
Seniors,” 4.7 million people with cancer or Alzheimer’s
disease. “Oldies but Goodies” contained 500,000 gamblers
over 55 years old, for 8.5 cents apiece. One list said: “These
people are gullible. They want to believe that their luck can change.”
As Mr. Guthrie sat home alone — surrounded by his Purple Heart
medal, photos of eight children and mementos of a wife who was buried
nine years earlier — the telephone rang day and night. After
criminals tricked him into revealing his banking information, they
went to Wachovia, the nation’s fourth-largest bank, and raided
his account, according to banking records.
“I loved getting those calls," Mr. Guthrie said in an interview. “Since
my wife passed away, I don't have many people to talk with. I didn't
even know they were stealing from me until everything was gone."
Telemarketing fraud, once limited to small-time thieves, has become
a global criminal enterprise preying upon millions of elderly and
other Americans every year, authorities say. Vast databases of names
and personal information, sold to thieves by large publicly traded
companies, have put almost anyone within reach of fraudulent telemarketers.
And major banks have made it possible for criminals to dip into victims’ accounts
without their authorization, according to court records.
The banks and companies that sell such services often confront evidence
that they are used for fraud, according to thousands of banking documents,
court filings and e-mail messages reviewed by The New York Times.
Although some companies, including Wachovia, have made refunds to
victims who have complained, neither that bank nor infoUSA stopped
working with criminals even after executives were warned that they
were aiding continuing crimes, according to government investigators.
Instead, those companies collected millions of dollars in fees from
scam artists. (Neither company has been formally accused of wrongdoing
by the authorities.)
“Only one kind of customer wants to buy lists of seniors interested
in lotteries and sweepstakes: criminals," said Sgt. Yves Leblanc
of the Royal Canadian Mounted Police. “If someone advertises a list
by saying it contains gullible or elderly people, it's like putting
out a sign saying 'Thieves welcome here.' "
In recent years, despite the creation of a national “do not
call” registry, the legitimate telemarketing industry has grown,
according to the Direct Marketing Association. Callers pitching insurance
plans, subscriptions and precooked meals collected more than $177
billion in 2006, an increase of $4.5 billion since the federal do-not-call
restrictions were put in place three years ago.
That growth can be partly attributed to the industry’s renewed
focus on the elderly. Older Americans are perfect telemarketing customers,
analysts say, because they are often at home, rely on delivery services,
and are lonely for the companionship that telephone callers provide.
Some researchers estimate that the elderly account for 30 percent
of telemarketing sales — another example of how companies and
investors are profiting from the growing numbers of Americans in
their final years.
While many telemarketing pitches are for legitimate products, the
number of scams aimed at older Americans is on the rise, the authorities
say. In 2003, the Federal Trade Commission estimated that 11 percent
of Americans over age 55 had been victims of consumer fraud. The
following year, the Federal Bureau of Investigation shut down one
telemarketing ring that stole more than $1 billion, spanned seven
countries and resulted in 565 arrests. Since the start of last year,
federal agencies have filed lawsuits or injunctions against at least
68 telemarketing companies and individuals accused of stealing more
than $622 million.
“Most people have no idea how widespread and sophisticated telemarketing
fraud has become," said James Davis, a Federal Trade Commission lawyer. “It
shocks even us."
Many of the victims are people like Mr. Guthrie, whose name was
among the millions that infoUSA sold to companies under investigation
for fraud, according to regulators. Scam artists stole more than
$100,000 from Mr. Guthrie, his family says. How they took much of
it is unclear, because Mr. Guthrie’s memory is faulty and many
financial records are incomplete.
What is certain is that a large sum was withdrawn from his account
by thieves relying on Wachovia and other banks, according to banking
and court records. Though 20 percent of the total amount stolen was
recovered, investigators say the rest has gone to schemes too complicated
to untangle.
Senior executives at infoUSA were contacted by telephone and e-mail
messages at least 30 times. They did not respond.
Wachovia, in a statement, said that it had honored all requests
for refunds and that it was cooperating with authorities.
Mr. Guthrie, however, says that thieves should have been prevented
from getting access to his funds in the first place.
“I can't understand why they were allowed inside my account," said
Mr. Guthrie, who lives near Des Moines. “I just chatted with this
woman for a few minutes, and the next thing I knew, they took everything
I had."
Sweepstakes a Common Tactic
Investigators suspect that Mr. Guthrie’s name first appeared
on a list used by scam artists around 2002, after he filled out a
few contest entries that asked about his buying habits and other
personal information.
He had lived alone since his wife died. Five of his eight children
had moved away from the farm. Mr. Guthrie survived on roughly $800
that he received from Social Security each month. Because painful
arthritis kept him home, he spent many mornings organizing the mail,
filling out sweepstakes entries and listening to big-band albums
as he chatted with telemarketers.
“I really enjoyed those calls," Mr. Guthrie said. “One gal in particular
loved to hear stories about when I was younger."
Some of those entries and calls, however, were intended solely to
create databases of information on millions of elderly Americans.
Many sweepstakes were fakes, investigators say, and existed only
to ask entrants about shopping habits, religion or other personal
details. Databases of such responses can be profitably sold, often
via electronic download, through list brokers like Walter Karl Inc.,
a division of infoUSA.
The list brokering industry has existed for decades, primarily serving
legitimate customers like magazine and catalog companies. InfoUSA,
one of the nation’s largest list brokers and a publicly held
company, matches buyers and sellers of data. The company maintains
records on 210 million Americans, according to its Web site. In 2006,
it collected more than $430 million from clients like Reader’s
Digest, Publishers Clearinghouse and Condé Nast.
But infoUSA has also helped sell lists to companies that were under
investigation or had been prosecuted for fraud, according to records
collected by the Iowa attorney general. Those records stemmed from
a now completed investigation of a suspected telemarketing criminal.
By 2004, Mr. Guthrie’s name was part of a list titled “Astroluck,” which
included 19,000 other sweepstakes players, Iowa’s records show.
InfoUSA sold the Astroluck list dozens of times, to companies including
HMS Direct, which Canadian authorities had sued the previous year
for deceptive mailings; Westport Enterprises, the subject of consumer
complaints in Kansas, Connecticut and Missouri; and Arlimbow, a European
company that Swiss authorities were prosecuting at the time for a
lottery scam.
(In 2005, HMS’s director was found not guilty on a technicality.
Arlimbow was shut down in 2004. Those companies did not return phone
calls. Westport Enterprises said it has resolved all complaints,
complies with all laws and engages only in direct-mail solicitations.)
Records also indicate that infoUSA sold thousands of other elderly
Americans’ names to Windfall Investments after the F.B.I. had
accused the company in 2002 of stealing $600,000 from a California
woman.
Between 2001 and 2004, infoUSA also sold lists to World Marketing
Service, a company that a judge shut down in 2003 for running a lottery
scam; to Atlas Marketing, which a court closed in 2006 for selling
$86 million of bogus business opportunities; and to Emerald Marketing
Enterprises, a Canadian firm that was investigated multiple times
but never charged with wrongdoing.
The investigation of Windfall Investments was closed after its owners
could not be located. Representatives of Windfall Investments, World
Marketing Services, Atlas Marketing and Emerald Marketing Enterprises
could not be located or did not return calls.
The Federal Trade Commission’s rules prohibit list brokers
from selling to companies engaged in obvious frauds. In 2004, the
agency fined three brokers accused of knowingly, or purposely ignoring,
that clients were breaking the law. The Direct Marketing Association,
which infoUSA belongs to, requires brokers to screen buyers for suspicious
activity.
But internal infoUSA e-mail messages indicate that employees did
not abide by those standards. In 2003, two infoUSA employees traded
e-mail messages discussing the fact that Nevada authorities were
seeking Richard Panas, a frequent infoUSA client, in connection with
a lottery scam.
“This kind of behavior does not surprise me, but it adds to my concerns
about doing business with these people," an infoUSA executive wrote
to colleagues. Yet, over the next 10 months, infoUSA sold Mr. Panas
an additional 155,000 names, even after he pleaded guilty to criminal
charges in Nevada and was barred from operating in Iowa.
Mr. Panas did not return calls.
“Red flags should have been waving," said Steve St. Clair, an Iowa
assistant attorney general who oversaw the infoUSA investigation. “But
the attitude of these list brokers is that it's not their responsibility
if someone else breaks the law."
Millions of Americans Are Called
Within months of the sale of the Astroluck list, groups of scam
artists in Canada, the Caribbean and elsewhere had the names of Mr.
Guthrie and millions of other Americans, authorities say. Such countries
are popular among con artists because they are outside the jurisdiction
of the United States.
The thieves would call and pose as government workers or pharmacy
employees. They would contend that the Social Security Administration’s
computers had crashed, or prescription records were incomplete. Payments
and pills would be delayed, they warned, unless the older Americans
provided their banking information.
Many people hung up. But Mr. Guthrie and hundreds of others gave
the callers whatever they asked.
“I was afraid if I didn't give her my bank information, I wouldn't
have money for my heart medicine," Mr. Guthrie said.
Criminals can use such banking data to create unsigned checks that
withdraw funds from victims’ accounts. Such checks, once widely
used by gyms and other businesses that collect monthly fees, are
allowed under a provision of the banking code. The difficult part
is finding a bank willing to accept them.
In the case of Mr. Guthrie, criminals turned to Wachovia.
Between 2003 and 2005, scam artists submitted at least seven unsigned
checks to Wachovia that withdrew funds from Mr. Guthrie’s account,
according to banking records. Wachovia accepted those checks and
forwarded them to Mr. Guthrie’s bank in Iowa, which in turn
sent back $1,603 for distribution to the checks’ creators that
submitted them.
Within days, however, Mr. Guthrie’s bank, a branch of Wells
Fargo, became concerned and told Wachovia that the checks had not
been authorized. At Wells Fargo’s request, Wachovia returned
the funds. But it failed to investigate whether Wachovia’s
accounts were being used by criminals, according to prosecutors who
studied the transactions.
In all, Wachovia accepted $142 million of unsigned checks from companies
that made unauthorized withdrawals from thousands of accounts, federal
prosecutors say. Wachovia collected millions of dollars in fees from
those companies, even as it failed to act on warnings, according
to records.
In 2006, after account holders at Citizens Bank were victimized
by the same thieves that singled out Mr. Guthrie, an executive wrote
to Wachovia that “the purpose of this message is to put your
bank on notice of this situation and to ask for your assistance in
trying to shut down this scam.”
But Wachovia, which declined to comment on that communication, did
not shut down the accounts.
Banking rules required Wachovia to periodically screen companies
submitting unsigned checks. Yet there is little evidence Wachovia
screened most of the firms that profited from the withdrawals.
In a lawsuit filed last year, the United States attorney in Philadelphia
said Wachovia received thousands of warnings that it was processing
fraudulent checks, but ignored them. That suit, against the company
that printed those unsigned checks, Payment Processing Center, or
P.P.C., did not name Wachovia as a defendant, though at least one
victim has filed a pending lawsuit against the bank.
During 2005, according to the United States attorney’s lawsuit,
59 percent of the unsigned checks that Wachovia accepted from P.P.C.
and forwarded to other banks were ultimately refused by other financial
institutions. Wachovia was informed each time a check was returned.
“When between 50 and 60 percent of transactions are returned, that
tells you at gut level that something's not right," said the United
States attorney in Philadelphia, Patrick L. Meehan.
Other banks, when confronted with similar evidence, have closed
questionable accounts. But Wachovia continued accepting unsigned
checks printed by P.P.C. until the government filed suit in 2006.
Wachovia declined to respond to the accusations in the lawsuit,
citing the continuing civil litigation.
Although Wachovia is the largest bank that processed transactions
that stole from Mr. Guthrie, at least five other banks accepted 31
unsigned checks that withdrew $9,228 from his account. Nearly every
time, Mr. Guthrie’s bank told those financial institutions
the checks were fraudulent, and his money was refunded. But few investigated
further.
The suit against P.P.C. ended in February. A court-appointed receiver
will liquidate the firm and make refunds to consumers. P.P.C.’s
owners admitted no wrongdoing.
Wachovia was asked in detail about its relationship with P.P.C.,
the withdrawals from Mr. Guthrie’s account and the accusations
in the United States attorney’s lawsuit. The company declined
to comment, except to say: “Wachovia works diligently to detect
and end fraudulent use of its accounts. During the time P.P.C. was
a customer, Wachovia honored all requests for returns related to
the P.P.C. accounts, which in turn protected consumers from loss.”
Prosecutors argue that many elderly accountholders never realized
Wachovia had processed checks that withdrew from their accounts,
and so never requested refunds. Wachovia declined to respond.
The bank’s statement continued: “Wachovia is cooperating
fully with authorities on this matter.”
Some Afraid to Seek Help
By 2005, Mr. Guthrie was in dire straits. When tellers at his bank
noticed suspicious transactions, they helped him request refunds.
But dozens of unauthorized withdrawals slipped through. Sometimes,
he went to the grocery store and discovered that he could not buy
food because his account was empty. He didn’t know why. And
he was afraid to seek help.
“I didn't want to say anything that would cause my kids to take
over my accounts," he said. Such concerns play into thieves' plans,
investigators say.
“Criminals focus on the elderly because they know authorities will
blame the victims or seniors will worry about their kids throwing
them into nursing homes," said C. Steven Baker, a lawyer with the
Federal Trade Commission. “Frequently, the victims are too distracted
from dementia or Alzheimer's to figure out something's wrong."
Within a few months, Mr. Guthrie’s children noticed that he
was skipping meals and was behind on bills. By then, all of his savings — including
the proceeds of selling his farm and money set aside to send great-grandchildren
to college — was gone.
State regulators have tried to protect victims like Mr. Guthrie.
In 2005, attorneys general of 35 states urged the Federal Reserve
to end the unsigned check system.
“Such drafts should be eliminated in favor of electronic funds transfers
that can serve the same payment function" but are less susceptible
to manipulation, they wrote.
But the Federal Reserve disagreed. It changed its rules to place
greater responsibility on banks that first accept unsigned checks,
but has permitted their continued use.
Today, just as he feared, Mr. Guthrie’s financial freedom
is gone. He gets a weekly $50 allowance to buy food and gasoline.
His children now own his home, and his grandson controls his bank
account. He must ask permission for large or unusual purchases.
And because he can’t buy anything, many telemarketers have
stopped calling.
“It's lonelier now," he said at his kitchen table, which is crowded
with mail. “I really enjoy when those salespeople call. But when
I tell them I can't buy anything now, they hang up. I miss the good
chats we used to have."
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