LABEL LIES]

It’s hard to know what you’re getting when you buy something today. And I mean anything. Just ask men in India. Indians, particularly those with money, have a fondness for buying foreign goods. They figure the quality far exceeds domestic brands. And so it’s no surprise that there’s been good business in brand-name, supposedly high-quality prophylactics “imported” from the United States and Singapore. Wealthier Indians don’t mind paying the substantial premiums they command.

The trouble is, many of the condoms are actually imported from no farther away than Calcutta and Bombay. They carry foreign labels and colorful packaging, but they’re decidedly inferior counterfeits, far worse than the cheapest Indian brands. Laboratory tests have concluded that 90 percent of them leak or are of such poor quality that they give dubious protection. Thousands of men have bought the fraudulent condoms, possibly bringing on unwanted pregnancies and exposing themselves to HIV.

But don’t think that counterfeit birth control products are an entirely male issue. Fakery is not a sexist industry. In Brazil, counterfeit Microvlar, the country’s most popular birth control pill, has been actively marketed by thieves. The well-disguised fakes, made out of flour rather than active ingredients, have resulted in a number of women becoming pregnant and/or developing unusual bleeding.

IS IT REAL OR IS IT . . . ?

When you buy something at the mall, the supermarket, or the corner deli today, you really don’t know if you’re getting what you paid for. Is it real or is it fake? Often the experts themselves don’t know. Fake products are hitting store shelves by the bushel, tripling in magnitude in the last decade and costing American companies on the order of $350 billion a year. It’s become a sweet business for scam artists. Dozens of counterfeit wholesalers are said to work in New York alone, with some of them making as much as $3 million a year.

Estimates are that at least 5 percent of all products are phony, and in some industries, the percentage runs much higher. Something like 22 percent of all apparel and footwear is estimated to be counterfeit. No brand has been spared: Lacoste, Armani, Calvin Klein, Tommy Hilfiger, Polo, Donna Karan, Nautica, and so on. Counterfeit leather products have long been popular with tourists, who load up on fake Louis Vuitton, Gucci, and Charles Jourdan bags and wallets. The better the brand awareness, the greater the likelihood of counterfeiting. We all love Swiss watches, and so it’s no wonder that an estimated ten million counterfeit Swiss watches are sold each year. More than a quarter of the computer software being run on computers in the United States is said to be fraudulent, and in some countries, 90 percent of it is fake. I’ve heard that the counterfeit golf equipment business is larger than the real golf equipment business. Hours after the Taylor Made Golf Company introduced a new $300 driver at the Professional Golfers’ Merchandise Show in Orlando not long ago, counterfeiters were selling their own fake replicas for half the price—at the same trade show.

Pretty much anything that sells gets counterfeited these days. Counterfeiters deal in mundane items like ball-point pens, correction fluid, socks, perfume, adhesive tape, stereo speakers, as well as more esoteric products like cargo hold covers for ships. I’ve even heard of counterfeit butterscotch candy.

The problem is not merely a cosmetic one, or one of phony denim that doesn’t fit or wear quite as well as the genuine label. Pharmaceuticals consistently lead the list of counterfeited products, because while medicine is expensive to develop, it’s relatively cheap to reproduce. There is also widespread counterfeiting of automotive and aircraft parts—there are actually decent odds that when you board any commercial plane it contains a few counterfeit parts. These can result in lethal consequences. It’s one thing to be stuck with counterfeit shampoo, deodorant, or talcum powder. It’s quite another to be ingesting fake prescription drugs: fake anti-malarial tablets, fake decongestants, fake aspirin. It’s one thing to be fooled into buying fake athletic socks. It’s quite another to have counterfeit brake pads installed in your new car.

There’s a lot of shoddy counterfeiting of products, and simple side-by-side comparisons generally will separate the genuine from the fraudulent. But, as with other areas of fraud, counterfeiting has improved enormously. Again, technology has been a tremendous boon to the scofflaw. With the work of the best counterfeiters, not only are the products perfect replicas, but so are the labels and the packaging. Even people who work in the industry can’t tell that they’re fakes.

A few years ago, Alfred Dunhill, the British luxury goods and tobacco company, was experiencing highly sophisticated counterfeiting of its purses and billfolds. A seizure of the products took place in Oregon, and a chain of counterfeiters was brought to trial. Naturally, the prosecution needed to demonstrate in court that the seized goods were in fact fake, or else there was no case. But the goods were so precisely counterfeited that prosecutors had to trot out an entire team of experts to testify. The fakes, which were being made in Asia, were so good that it took forensic analysis to identify them. Despite this, the result was a hung jury. The jury may have been sending any number of messages, including that it was utterly confused, but I suspect that one of them was that they weren’t entirely convinced that the counterfeits were truly counterfeits.

These days, the counterfeiter often uses the same machinery that the genuine manufacturers do, as well as the same packaging. Unilever came across a group of thieves in Chicago who were counterfeiting brands of their liquid detergent. They were ordering bottles from the same place Unilever got them in Canada. Then they filled them with cheaper soap and sold them to bodegas. Counterfeiting liquid detergent hardly seems worth the effort, but they were doing it with gusto.

Allied Domecq, a big wine and spirits distributor, found that a large proportion of its Fundador Brandy sold in the Philippines was counterfeit. It had been going on for so long, in fact, that local residents had come to believe there was a Philippine version of the product. The counterfeit bottles were perfect imitations, and in fact, were often empty Fundador bottles that were refilled. The only way you could tell the difference was when you tasted the brandy. There were actually different levels of the counterfeit brandy, some better tasting than others. Counterfeiters pretty much put anything in the bottle, as long as it had the same color and general flavor of brandy, but a few were more artful. But none of it truly tasted like brandy, since the thieves used sugar cane and flavors like rum.

Determined to put a stop to the counterfeiting, Allied Domecq changed the look of its bottles. It designed a new, hard-to-counterfeit label and it added a plastic cap and a guala, which is a plastic ball inside the neck that prevents the bottle from being refilled. The counterfeiting declined significantly.

IT’S NOT JUST FAKE FUR

To a large extent, counterfeiting is ruled by organized crime syndicates. Like other forms of fraud, it is growing so rapidly because penalties are inadequate and rarely enforced. There are extremely high profits and low risk, a combination that will always attract criminals. A number of years ago, the former head of the Born to Kill gang in New York said he made $13 million a year selling counterfeit Rolex and Cartier watches. Think about it. Low-grade quartz watches were shipped in from Hong Kong that cost $3.00. Fake trade names and logos were slapped on for an additional 50 cents. Then the watches were sold on the street for thirty dollars.

Dunhill pens sell for one hundred twenty dollars or so. Counterfeiters sell them for half that. And they look great, pretty much indistinguishable from the real thing. How do they do it? Well, they’re selling you virtually the real thing. Counterfeiters go to the same factory in Korea that makes the plastic barrel for Dunhill and buy the same barrel. Then the crooks go to the company that makes the cap for Dunhill and buy that. Well, then isn’t it the same pen? Just about. Dunhill’s clip that allows you to attach the pen to your pocket is 18-karat gold. The counterfeit pen has a gold-plated clip. And since the counterfeiters don’t have anything like the overhead and marketing budget that Dunhill has, they can settle for much less markup.

With organized crime involved, there’s enough money available that counterfeiters establish factories that rival those of legitimate manufacturers. I heard about a counterfeit coffee facility in Dagestan, a Russian republic, that can churn out 1.2 million units of coffee a month. An Asian facility making counterfeit athletic shoes is said to employ more than a thousand workers.

Counterfeiting often plays a significant role in money laundering, because laundering always works best when there’s a product involved. Authorities believe that the reason inexpensive items like correction fluid and trash bags are counterfeited is to wash money from other criminal activities like weapons smuggling and loan-sharking. Police using trained drug dogs have found heroin stuffed inside counterfeit Chanel and Louis Vuitton handbags. Criminals were doubling up, importing counterfeit products and drugs all at once. You have to realize, crime syndicates are business operations, and their executives sit around and make strategic decisions just like executives in Fortune 500 companies. One day, at the weekly marketing meeting, some guy probably spoke up and said, “Look, we’re bringing in these counterfeit purses and we’re bringing in drugs, why not combine the two? It’ll be more cost-effective.” The idea probably got him employee of the month.

The money is so good in counterfeit products, that terrorists are believed to often fund their activities by trafficking in fake goods. Terrorists in Northern Ireland are thought to have supported their violence by selling counterfeit veterinary products, perfume, video games, and computer software. The FBI believes the bombing of the World Trade Center was financed by the sale of counterfeit T-shirts and sportswear.

“MADE IN CHINA” MORE THAN YOU KNOW

Counterfeiters live all over, but a great deal of the merchandise originates in places like China, Korea, and Vietnam. China may well be the leading supplier of counterfeit products to the world, and just about anything the Chinese consumer buys is quite likely not real. You go to the store in China and there’s fake Skippy peanut butter, fake Gillette razor blades, fake Knorr chicken soup, fake Hellmann’s mayonnaise, fake Kellogg’s Corn Flakes, fake Lux soap, fake Rejoice shampoo, fake Huggies diapers, fake fertilizer, fake liquor, fake motor oil, fake chewing gum, fake cell phone batteries, even fake toilet paper. The goods are probably rung up on a counterfeit cash register and packed in counterfeit grocery bags.

Procter & Gamble began selling its products in China in 1991, and that same year counterfeits were already on shelves. The soap company says counterfeiters make fraudulent copies of their shampoo bottles and fill them up with the cheapest blend of raw ingredients. Then they’ll top off the product with a touch of the real shampoo to make it look and smell authentic. Each year, the problem worsens.

Royal Philips Electronics has said 40 percent of counterfeit Philips light bulbs in the Philippines come from China. Volkswagen said two-thirds of the car parts sold in China under its brand name are fakes. Hitachi has the same problem with counterfeit electronic products. The Chinese press wrote up some thieves who put together an entire car from used and counterfeit parts that they tried to sell as a new Audi.

China has begun cracking down on the problem, under pressure from foreign companies. But some pretty major cultural shifts have to take place. Local governments have been famous for protecting factories churning out counterfeit goods. Philips said that the prime counterfeiter in Zhangzhou in the Fujian province was even given an “outstanding youth” award by the local government.

All these cheap Asian fakes serve as fodder for all types of little scams. You know when you take transatlantic flights and the airline crews come around with little trolleys of duty-free items you can buy? Some dishonest crew members on British Airways figured out a way to augment their income. They bought counterfeit products like Raymond Weil watches, Chanel perfume, and Gucci sunglasses while on layovers in Hong Kong and Singapore. Then they substituted the fakes for the genuine products on the trolleys they wheeled around, and passengers unwittingly bought them. The crew members then sold the legitimate goods back in England to stores or on the black market. They would take watches to jewelers and tell them they had gotten them as unwanted gifts, and the jewelers would gladly buy them.

A big part of the problem is that most consumers don’t care if something is fake, as long as it looks like the real thing and it costs less. And it’s not just penny-pinchers who buy phony Gucci and Fendi bags. One counterfeiter said he had a steady client who was a neurosurgeon’s wife. Some rich people, he said, buy fake handbags and luggage from him for trips, so they don’t have to worry if they get stolen in hotels. Then they had the real thing for dinner parties and local use. The business has become very open. Counterfeit items are easily obtained on the streets of all large American cities. In Italy, they’re sold by street peddlers known as “Vu cumpra,” which means “wanna buy.” They even take out ads in the local papers. In Sweden, there was a mail order catalogue that sold all manner of counterfeit merchandise. It was called, “Fake.”

SALTING TALES

In few areas of fraud have technological advances been more welcome than among counterfeiters. “Cyberfakes” is the name that the garment industry has given to computer-generated logos and designs. The counterfeiter scans a real logo into his computer. Then he transfers it to a computerized embroidery machine. Using the image as a master, it recreates the design on just about any garment he chooses. Counterfeiters can buy an embroidery machine small enough to fit inside a suitcase for just three thousand dollars. Label-making machinery can be acquired in the same way, but it is much more expensive. More commonly, counterfeiters will farm out the work of counterfeit labels to factories in developing countries.

As U.S. Customs has gotten sharper at detecting illegal apparel imports, counterfeiters have introduced new tricks. They import what they call “blanks,” perfectly legal unlabeled apparel. The clothes will then be taken to factories, usually around New York or Los Angeles, and low-wage laborers will attach the counterfeit brand-name labels and logos to them.

Another nettlesome issue is what are known as “overmakes,” “backdoor,” or “cabbage.” A factory making legitimate clothing for a brand will deliberately make extra garments and then sell these “overmakes” to criminals.

A related concern is diversion and the gray market. For instance, products merchandised in the United States are also sold in Africa, but at a lower price to meet the local market. So, a legitimate company will ship goods to a wholesaler in Africa, who will divert them to someone in Milwaukee, where he can get a bigger return, because while there might be a 40 percent discount off the list price in Africa, there’s only a 15 percent discount in the United States. This is often a fraud against the sales contract, but it’s difficult to enforce because it’s so hard to trace where shipments wind up. In the 1990s, for instance, Unilever sent a lot of soaps, shampoos, salves, and creams to Russia. Most of it ended up back in Brooklyn.

Like many other companies, Unilever has attacked the diversion problem by conducting a little contest. It’s called “Lucky Bonus.” When it sends out a pallet of goods, it will tuck three $25 coupons inside. When the pallet is unloaded and the product removed to put on store shelves, the handlers will find the coupons. The instructions tell them that if they fill them out with their name and address and return them to Unilever, they’ll get a check for $25. The key is having that name and address. That tells Unilever whether the pallet got to its intended destination. The concept is known as “salting,” and was developed by American Cyanamid for its Old Spice cologne, which was being diverted. It’s neither a high-cost solution nor a high-tech solution, but it works.

BUYER BEWARE

I do occasional work for Microsoft, which, given its dominant market presence, has been a principal target of counterfeiters for years. It’s gotten so bad that Microsoft can barely get a new piece of software out before counterfeit versions make their own debut. In some instances, counterfeit versions of Microsoft products have beaten the real thing to market. You can go to various Internet auction sites and bid on fraudulent Microsoft programs that sell for a fraction of their retail price.

In early 2000, a guy was busted in the state of Washington, Microsoft’s home state, for making counterfeit Microsoft products, including Office 97, Office 2000 Professional, and Office 2000 Premium. He was turning out tens of thousands of copies in his apartment. When they raided it, the FBI found several computers, a sixteen-tray replicator, a color copier, a shrink-wrapping machine, and packaging materials.

A few years ago, an Asian ring was busted in South El Monte, California. The ring had two locations, one to manufacture fake Microsoft CD ROMs and disks, and another to make counterfeit manuals, certificates of authenticity, boxes, and even contest entry forms for free trips. Nothing was omitted. The products seized were estimated to have a market value of more than $10 million.

In Digital Park, a high-tech business center just outside Cambridge, England, a young Texan opened a company several years ago called PolyMould that made counterfeit versions of the most popular software products, including Microsoft Office and Windows NT. Down the road from the facility was one of Microsoft’s own research and development centers.

An Asian gang took a different approach to scamming Microsoft. They established a fake school they called West Hill College. Then they ordered software from Microsoft at the education discount of one-third the retail price. They repackaged the CDs in counterfeit boxes, and sold them at full price through a phony computer wholesaler they created.

Microsoft puts a ton of security features in their products, everything from edge-to-edge holographic images to watermarked security paper with an embedded thread and a heat-sensitive strip that reveals “Genuine” when rubbed for a few seconds, but they face an ongoing struggle. I’ve worked on the Microsoft warranty that’s contained in all of the company’s software. It has to be changed every couple of years because it keeps getting counterfeited. For instance, within days of the Windows 98 OEM security manual cover being introduced, a counterfeit product was already identified and confiscated in several cities. The knock-offs imitated both the manual cover and the security devices.

The problem is that software counterfeiting keeps getting easier. CD recordable drives that allow anyone to make copies of software cost a few hundred dollars. With desktop publishing programs and document scanners, it’s simple to duplicate manuals and warranties. But even though counterfeit software closely resembles the real thing, it doesn’t always work as well. Often, counterfeiters sell untested software. It may have been copied hundreds or thousands of times from a real version and is defective. The result can be viruses that corrupt your hard drive or cause system failure.

KA-CHING!

I’ve always figured that security at casinos is as tight as it gets, and there was no reasonable hope of replicating the chips and tokens in casinos. That was before I spoke to a guy from Rhode Island, who had recently been released from prison for perpetuating a massive slot machine token fraud. He had scammed virtually every major casino in the country with counterfeit five-dollar to hundred-dollar slot machine tokens.

Originally, the man had been a tool and die maker who made custom jewelry for dealers, but he got tired of the business and retired at an early age. He had been a real workaholic, and had too much time on his hands. He broke up with his fiancée. He was at loose ends. The Foxwoods Resort Casino in Connecticut had recently opened, and a friend dragged him there to cheer him up. He wasn’t really into gambling, but he was mesmerized by the hundred-dollar slot machine token. He admired the intricate detail of it. It reminded him of a piece of jewelry that he might manufacture. That set wheels turning in his head, and he found himself drawn to the challenge of making a counterfeit token.

He found out it was no simple project. Slot machines are equipped with sophisticated electronic coin comparators. These measure everything about any coin that gets deposited, to make sure it’s a legitimate token. The comparators confirm the outside and inside diameter of the coin, the center of the coin, the magnetic image the coin throws, the number of serrations on the outside of the coin, the weight, and so on. A coin has something known as a “closed collar,” the raised outside border of the coin. For a counterfeit coin to pass muster, it has to have a closed collar that is just the right height. Hence, a counterfeit coin has to be exact. There are a lot of difficult-to-duplicate features.

So this guy got to work, acquiring equipment, and then modifying it for his precise needs. He made coins, tested them at Foxwoods, found they wouldn’t work, made changes, tested the new coins, and on and on. It took him more than a year before he had a counterfeit token that beat the machine. At that point, he became addicted. He made tens of thousands of tokens. To keep from arousing suspicion, he began playing at casinos in Atlantic City and Las Vegas. Different casinos had different tokens, and he had to replicate theirs. But he had become an expert. When he was caught at Caesar’s in Atlantic City in late 1996, he had 750 pounds of coins in the trunk of his car, one of the biggest cases on record of gambling token counterfeiting.

To prevent further counterfeiting, token manufacturers have been offering security alloys, which are metals with very limited availability and unique properties. The latest protection is a code engraved in the token. Slot machines are programmed to read the code, and if it’s not there, the token is rejected.

STICKER SHOCK

Underwriters Labs (UL) has faced one of the more unusual counterfeiting problems. UL, a non-profit organization founded in 1894, doesn’t make any products, a fact which by itself, one would think, would make the company impervious to counterfeiting. What it does do is test and certify the safety of more than 14 billion electrical products a year, things like power supply cords, ceiling fans, night lights, transformers, switches, and surge suppressers. Its testing engineers simulate power surges. They bend wire to see if it breaks. They dunk products in water. If something survives a UL testing, it’s good. Once a product has been certified by the organization, it is allowed to display the UL provided tag. It’s often referred to as the “American Mark of Safety.”

Starting in the early 1990s, UL became aware of untested products bearing counterfeit UL tags that were coming into the United States, primarily from China. It first learned of the counterfeiting when it caught phony seals of approval on Christmas lights. Then they began showing up on other electrical goods. The products were not only inferior, but also dangerous. There were lights, fans, electric surge protectors, and other products that were improperly grounded or wired with incorrect polarity. There were dummy surge protectors that would overload if you turned on a computer, printer, and TV simultaneously. Plugs were so inferior that chunks of them would fall off when you pulled them out of a socket. Extension cords were liable to give a user a shock. Fans were at risk of catching fire. In one tragic case, a young girl was electrocuted by sucking on an incorrectly wired and falsely labeled Christmas candle.

Disturbed by the implications of this counterfeiting, UL in 1994 began using silver, tamper-evident holographic labels for all of its certified Christmas products, and has since required them on an array of electrical products coming out of China. In addition, it’s trained U.S. Customs inspectors to identify counterfeit labels and has put retailers on alert as well. One of the problems for U.S. Customs officials is that there is no legal requirement for electrical equipment to carry the UL labels, though if they do have the labels, it’s a crime for them to be counterfeit. The new label has been doing a good job in controlling the threat, though it hasn’t stopped altogether.

A DIFFERENT KIND OF DRUG PROBLEM

Remember that classic film The Third Man based on the haunting Graham Greene thriller? The movie is set in post-World War II Vienna, where Holly Martins, an American, goes in search of his old college buddy, Harry Lime. He discovers that Lime is dead, and hears disturbing stories of how he made a fortune trafficking in fraudulent drugs. One of his schemes was selling counterfeit penicillin. Martins has a hard time accepting some of the bad things he hears about him, until he visits a hospital and sees all the children whose health has been threatened by injections of Lime’s penicillin.

That’s fiction, but there’s plenty of fact in it. It takes at least a decade and upward of $150 to $200 million to bring a new pharmaceutical to market. Counterfeiters, with the assistance of a chemist, can copy it in a matter of days, using equipment that costs a few thousand dollars. But they don’t trouble themselves worrying too much about the safety of their product. Counterfeits that hurt and kill are the dark side of fraud, and it’s the part that really disturbs me. Counterfeit drugs are a threat to public health. They’re very difficult to detect and control, and they’ve led to illnesses and death. In 1997, the World Health Organization estimated that more than five hundred people had died from fake medicines.

In the United States, dozens of deaths and hundreds of adverse reactions have been connected to a counterfeit intravenous antibiotic from China that is used to treat serious blood infections. There were 3,000 deaths in Nigeria in 1995 attributed to fake meningitis vaccines. Counterfeit antibiotics made from talcum powder and counterfeit eye drops made from contaminated water were discovered in Africa. Brazil has suffered deaths from bogus antibiotics and cancer treatments. In southern Vietnam, police raided a gang and found a thousand fake Viagra tablets.

Some counterfeiters ply their trade without even making a product. Criminals regularly go to wholesalers and buy expired aspirin and other ordinary over-the-counter medications that were going to be junked. They pay twenty cents on the bottle, and the wholesalers are happy to get it. The criminals then change the dates on the boxes and resell them to drugstores.

Crooks root through Dumpsters outside of hospitals and look for syringe bottles that have been discarded in hazardous materials bags. The thieves take them, refill them with sugar water, and sell them as medicine. The only way to tell is to turn the bottle over and look for two pinholes. A fraudulent one has to have a second pinhole in it made by the criminal when he inserted a needle to refill it.

DIFFICULT TO DIGEST

It’s not just drugs that can cause harm. So can foods and food supplements, drinks, vitamins, literally anything that you digest. A number of individuals were caught in 1999 for selling expired baby formula and nutritional products for invalids. They had obtained them under the false pretense that the products would be used for animal food. In 1995, two California men intended to distribute a half million cans of counterfeit Similac baby formula. Fortunately, the illegal operation was busted before most of the products were distributed, and there were only a few reports of illnesses. But there have been other instances where counterfeit formula has caused rashes and seizures. In Mexico, fake Tequila and other alcoholic beverages have caused illness and some deaths. “Collectors” pay for empty bottles outside stadiums, and then refill them with other liquids and pass them off as the real thing.

Anything you apply to your skin, if it’s counterfeit, puts you at risk. A phony version of a popular shampoo was found to contain bacteria that could cause infections. Another counterfeit brand has led to hair loss. Counterfeit cosmetics have been found to contain residue of industrial solvents and carcinogens. When you use them, you can suffer severe allergic reactions.

Counterfeit pesticides and fertilizers have decimated crops in developing countries, contributing to famine and death. A counterfeit chemical fungicide containing chalk was said to have been responsible for destroying two-thirds of the coffee crop in Kenya and Zaire. In Kenya, criminals were caught with counterfeit “Super Doom” insecticide. They diluted the weed product with kerosene and other ingredients and resold it, considerably diminishing its effectiveness.

NUTS AND BOLTS—AND EVERYTHING IN BETWEEN

Counterfeiters are without scruples. They’ll put anyone at risk for profit (law enforcement agents once came across a shipment of counterfeit Cabbage Patch dolls that had been doused with kerosene to keep rats away while they were transported from overseas). Industrial valves have a long life cycle and are easy to recondition, and so they’ve been targets of counterfeiters for years. The FDA recalled $7 million of intra-aortic pumps used during open-heart surgery, after it discovered malfunctioning counterfeit parts in the devices. Sometimes, genuine used valves are improperly reconditioned so they can be resold as new. In one case, graphite seals that made the valves fire-safe were removed and not replaced.

Counterfeit nuts and bolts caused parts of a building to collapse during an earthquake. In the early 1980s, a contractor building a Saturn plant in Tennessee died because a counterfeit bolt snapped. It looked like the real thing but was made of cheap metal, not the specified high-quality carbon steel. In 1992, a fire erupted on a Navy destroyer, killing two sailors, after a counterfeit bolt connecting a steam line broke in the ship’s engine room. One of the problems with small parts is that to determine if a bolt is inferior, you need to subject it to metallurgical tests, and analyzing a simple 40-cent bolt can cost two hundred dollars.

Every type of car and machine part is counterfeited—brakes, horns, oil filters, radiators, suspensions. Counterfeit brakes were found in Nigeria that were made from compressed grass that burst into flames when they were tested. In 1991, a woman and her child were killed in an auto accident in the United States that was precipitated by a counterfeit brake pad. The pad was made out of wood chips. The U.S. Department of Commerce estimates that 210,000 American workers could be added to the work rolls if the parts were made legally.

THE FRIGHTENING SKIES

Equally frightening is the number of counterfeit parts flooding the airline industry, a full 75 percent of which are used in critical applications. According to the Federal Aviation Authority (FAA), between 1973 and 1993 bogus parts played a role in at least 166 U.S.-based aircraft accidents or less serious incidents. The worst accident of all occurred in September 1989. The tail section of a turboprop plane tore loose, causing the plane to crash into the North Sea. All fifty-five people on board were killed. The cause was eventually traced to counterfeit bolts in the tail. It was never determined where they came from, because the repair station that installed them didn’t have a parts and supplier registration system.

In 1990, Bruce Rice, the president of Rice Aircraft, a Long Island airplane parts distributor, was jailed for four years for stripping and replacing used parts and falsifying documents to suggest that they were new. Between 1977 and 1988, Rice sold counterfeit rivets and fasteners to Grumman, Air France, the Israeli Government, United Airlines, and American Airlines, among others, posing a serious safety threat to thousands of aircraft. Fortunately, no accidents were known to have resulted from the phony parts.

A few years ago, a company in Southern California was caught selling counterfeit parts to McDonnell Douglas. They were small devices that keep an airplane’s landing gear from shaking, and were used on Douglas’s DC-9 commercial airplanes. In 1995, in a separate incident, six hundred light planes were grounded after a supply of parts for Textron’s Lycoming engines were discovered to be fake.

But there have been crashes involving Bell Helicopters in which the only thing truly Bell about the craft was the nameplate. The rest of it was rebuilt with scrap or counterfeit parts. In 1987, a traffic reporter riding in a helicopter was killed when the helicopter crashed while he was broadcasting live. It was determined that the accident was caused by a clutch made of counterfeit parts.

Who’s to blame? A lot of people. And it’s not enough just to make sure there’s good paperwork on a part. Forgers can forge the paperwork. One of the best safeguards is to know your supplier.

A few years ago, undercover Congressional investigators paid a visit to a Miami scrap yard. They came across some jet engine blades marked with a red tag saying they were “unserviceable.” But when the dealer saw they were interested in the blades, he removed the tag. He told them: “I know some of you boys rework these things, but that’s not my concern.” The blades sell for around $1,500 new. The investigators bought them for $1.30.

WHAT’S BEING DONE

Because of the sophistication and growth of counterfeit products, far more attention is being paid to preventing them, but a lot more needs to be done. Packaging is an essential ingredient in deterring counterfeiters, particularly in the pharmaceutical industry, where bottles are reused by counterfeiters. I do a fair amount of work with drug companies, and I find that the best security is to combine overt with covert security features, features you can see with features you can’t see.

The most common overt technique is the tamper seals common on over-the-counter medications. These days, that technology is being combined more and more with holograms. They’re a very strong tool, and are widely used on closure seals and hang tags. They’re even increasingly put on packaging to make a product more visibly vibrant. If you go to the toothpaste aisle at the supermarket, you’ll notice that all the premium toothpastes have holographic packaging.

I like holograms, but the problem is that they’re normally not registered. Anyone can go to a company in Taiwan and get a hologram duplicated. Often, they’re silver foil with white screen printing on them. Counterfeit holograms are easy to slip through Customs. You can stuff enough fake holograms in a matchbox to put on ten thousand dollars or twenty thousand dollars worth of counterfeit packages.

So a hologram is fine if it’s in conjunction with another feature that you can’t see. For instance, you could use a hologram combined with a covert feature like machine-readable information encrypted on the hologram. Other covert features include putting a fluorescent dot on the label of the packaging that’s invisible to the naked eye and which can’t be removed even by washing—you use a reader light to pick it up. There are also special coatings like microthin metals that change when slit or punctured. There is reactive invisible ink or visible coloring-changing inks. There are reactive threads that are woven into fabrics and emit a fluorescent color when put under a hand-held ultraviolet reader. There are scratch and view labels that reveal the words “original.” And there is chemical tagging, for fuels, drugs, and pesticides. There’s even a “biocode technology” where marker chemicals can be added to capsules of drugs that can then be authenticated with test strips.

Another new technique is DNA (deoxyribonucleic acid) marking. Joe Barbera, the creator of “The Flintstones,” and “The Jetsons,” used to employ a DNA pen with ink that contained fragments of his own genetic code to authenticate his drawings. And now a company called DNA Technologies has come up with a means of mass-marking items with an ink containing DNA. The company marked millions of items of official merchandise at the Sydney Olympics, using an ink that contained DNA strands from an Australian athlete and a chemical that can be identified with an optical scanner. The company gets the DNA either from a blood sample or a swab of the mouth, and then makes copies of it that it mixes into the ink. The ink was put right on the souvenirs or on a tag attached to them. Among other things, DNA Technologies put a DNA tag on Mark McGuire’s seventieth homerun ball.

Holograms can be copied, but DNA is pretty much counterfeit-proof. The company estimates that there’s about one chance in a trillion that a counterfeiter could duplicate the DNA sample. Those aren’t the kind of odds that any sane criminal would take.

One shortcoming is there’s no hand-held device that can test for the DNA. Vendors can scan a shirt and pick up the chemical in the ink, but not the DNA. If something seems fishy, the product has to be sent to the company for further testing.

EVERYONE HAS TO GET INVOLVED

Fighting counterfeit goods is going to take a lot more dedication, and I don’t mean simply on the part of manufacturers. Stores have to do a better job of training their employees to discriminate the real from the fake. Packaging with blurry lettering or misspellings—“certifidate” instead of “certificate” of authenticity—is a giveaway. Sometimes, counterfeiters will try to protect themselves by slightly altering a product name—for instance, “Yeal” locks that resemble and are packaged to look like “Yale” locks.

If the problem is ever going to be contained, the general public has to start to care. You can’t perpetuate a scam unless there’s an honest person willing to go along. Years ago, I was visiting New York with my family. My boys were young then. We had eaten lunch at Wolf’s Delicatessen, and while I was paying the check, my kids asked if they could wait outside. I said, fine, as long as they were close enough so I could see them through the windows. Almost immediately, some guy came up to them with a satchel. He swung it open and it was filled with watches. By the time I hurried out to them, they were already picking out famous designer watches at ludicrously low prices. I shooed the guy away, and I had to explain to my kids that the watches were counterfeit and the guy was a crook.

Adults know better, and ought to behave better. Do you really want to keep buying those fakes on the street corner and putting money in the pockets of criminals, or do you want to support legitimate business?

10

[EMPTY PROMISES]

Uniprime Capital Acceptance was a small automobile dealer based in Las Vegas. Its shares were publicly traded, but it hadn’t made much earth-shattering news in awhile, and its stock price reflected that. You could buy a share for less than a buck, and normal volume was a meager 20,000 shares a day. Then one day in the summer of 1999, it made a stunning announcement for any company, but particularly for a car dealer: it had come up with a cure for AIDS.

Not surprisingly, the news was the talk of Internet stock chat rooms. There was, of course, patter about the considerable medical and humanistic ramifications of this development, but the chat room talk was more focused on monetary impact. One message called Uniprime “the greatest stock ever.” Another spoke of it as “a once in a lifetime opportunity!!!” and was like “buying Microsoft now at a nickel.”

The day of the announcement, Uniprime’s stock rocketed from $1.75 to $5.00, and 5 million shares changed hands. Just like that, the company had a market value of $100 million. One bulletin board message said: “Hallah! Hallah! Hallah! Shout it from the rooftops of the banks.” Thousands of messages were posted about the stock.

The AIDS cure was reported as the work of a new Uniprime subsidiary, New Technologies and Concepts, which was headed by a man named Alfred Flores, who described himself as a doctor. According to the news the company put out, New Technologies had developed an intravenous treatment called Plasma Plus that Flores had been testing for fifteen years at General Hospital in Madrid. It said the treatment reversed infections from HIV in five patients treated at the hospital.

It seemed too amazing to be true—and it was. The Securities and Exchange Commission (SEC) determined there was no cure for AIDS. It said Alfred Flores was a con man. In fact, during much of the time he was supposedly testing the AIDS treatment, he was in a Colorado prison serving time for a conviction for conspiracy to commit murder. But he had been in the vicinity of the medical profession. He had apparently spent some time as a janitor in a nursing home.

Alfred Flores was arrested and trading in Uniprime stock was halted. When trading resumed, the stock settled down at a quarter a share. Investors who bought in the heat of the frenzy collectively lost millions of dollars.

Unfortunately, securities and investment opportunities are a particularly ripe focus for crooks, because there have been so many real rags-to-riches tales brought about by the stock market. And, as we’ve seen again and again, there’s a slender line between what’s real and what isn’t. A band of criminals posted an actual SEC warning about online scans on a website of theirs that was itself promoting an online securities scam.

The money funneled into investment scams is breathtaking, even to me. One well-executed scheme can attract $100 million in ill-gotten gains. And if you’re one of the hapless victims, the chances of getting your money back are abysmal, even if the swindler is caught. USA Today did an analysis of how well the SEC has performed in recovering illegal gains that convicted financial scam artists have been ordered to hand over. The newspaper found that between 1995 and 2000, the agency collected less than 17 percent. A decade earlier, the recovery rate was more like 50 percent. In a number of large cases, the SEC had recovered nothing.

PUMP AND DUMP

One easy way callous con artists make money in the market is with “pump and dump” cons. Popular as far back as the 1920s, they are now going stronger than ever. These days, stocks are hyped with fictitious positive news on Internet message boards and in chat rooms by scam artists posing as experts. But all they know is how to take your money. Then the scam artists dump their shares, sending the price down before investors can get out.

A man who worked for a company called PairGain Technologies set up a website to resemble the Bloomberg business news site that many investors turn to for the latest business and financial news. He then posted an article on the site saying that PairGain was about to be bought by an Israeli company. To create further buzz, he wrote messages on bulletin boards with links to the fake Bloomberg site. The day he concocted the fraudulent story, PairGain stock rose about 30 percent before the company put out a release disavowing the report.

In another case, several criminals bought a hundred and thirty thousand shares in NEI Webworld, a bankrupt company whose assets had been liquidated several months before. Then they posted fake e-mail messages on hundreds of Internet bulletin boards, suggesting that NEI Webworld was going to be acquired by a wireless telecommunications company. Before the postings, the stock was trading at between nine and thirteen cents a share. On the morning of the postings, the stock rocketed to $15 5/16, before plunging back to a quarter a share. The criminals realized a gain of $362,625.

A twenty-three-year-old California man sent out a fake news release to Internet Wire, a company that distributes business news releases, saying that the chief executive officer of Emulex Corporation had resigned. He hadn’t, but within an hour of the release’s posting, the stock of the communications equipment maker plunged from $113 to $45. The actual value of the company declined by a staggering $2.5 billion. The hoax was quickly revealed, and the stock recovered. But investors who sold during the selling spree lost more than $100 million. In this case, the scam artist had sold shares short, betting on their decrease in price, and thus profited from the sharp fall.

The explosion in online trading has allowed mere kids, between their math and social studies classes, to dabble in securities fraud. We saw that when a fifteen-year-old New Jersey boy was caught by securities regulators in 2000, after he racked up profits of hundreds of thousands of dollars in a pump and dump scheme. The kid, who became the envy of a lot of other teenagers for his prowess, bought shares of lightly traded companies and then promoted them with hundreds of messages on Internet bulletin boards. When they soared, he bailed out. He was the youngest stock swindler the government has ever come across, but I fear he won’t be the last. When asked why he did it, he said, “Everybody does it.”

Part of the problem is that greed obscures judgment. Even though it makes no sense to risk your savings on unknown people who call you up or post messages on online bulletin boards, otherwise intelligent people seem to do just that with outright fervor. Here’s my favorite illustration of how ridiculous it can get. In 1994, the Motley Fool, a popular personal finance website, concocted a fictitious stock as an April Fool’s joke. They mentioned a company, Zeigletics, in their newsletter, and said it developed technology that connected sewage disposal systems in Chad and traded on the Halifax Exchange. Almost at once, messages turned up on financial bulletin boards discussing the merits of the company, and people actually tried to buy shares in it.

CAPER CRUSADERS

It’s astounding how far a con artist can take a securities scam. No matter how outlandish the pitch, there are investors who swallow it. Two New Jersey scam artists collected nearly $2 million by promising safe, high yields investing in wishing wells that solicited money for charity. In another case, a bunch of people saw no reason not to invest in an eel farm. If this seems far-fetched, it isn’t. The animal kingdom is actually quite well represented in the scam world. There are schemes centered on snail ranches and ostrich stud farms. There was an ostrich farm in Australia where the ads claimed, “The birds just won’t stop laying.” A coconut production business in Costa Rica was promoted on a website. The promoter said he had agreements with A&P for coconut chips.

A popular fraud has to do with selling “U.S. Dollar Bonds.” Scamsters who market them spin colorful tales of how they were issued in the 1930s and 1940s by the Central Intelligence Agency (CIA) to assist Chiang Kai-shek in fighting the communists. The way they tell it, the bonds were buried in caves by his generals and their descendants, and then lay there untouched until they were recently discovered; now you can buy them for just a fraction of their face value. The con artists print up official-looking Treasury bonds that they sell, and people do buy them, often clients in China, Taiwan, and Singapore.

No such Treasury securities were ever issued, and they don’t even look like anything the Treasury ever issued, as they often list the Ministry of Finance of the United States and the Washington Bank of America as their place of origin. Neither ever existed. Confront the con artists with this information, and they’ll say, “Well that’s the CIA for you, you know how they are.”

There are many instances of criminals essentially creating a shell company simply to attract investors. One of the most ambitious was the infamous ZZZZ Best carpet-cleaner caper. This was the one where a teenage swindler named Barry Minkow truly constructed a house of cards. In 1982, when he was sixteen and living in Reseda, California, he began a rug-cleaning business in the garage of his parents’ house. He called it ZZZZ Best. Friends admired his drive and lofty aspirations. The business always seemed prosperous, although in fact it lost money. But Minkow had thievery in his blood, and he raised capital to fund the business in ways that most corporations rarely consider. He orchestrated burglaries to collect insurance money. He forged money orders from a local liquor store. When customers paid with credit cards, he would add fraudulent charges to the accounts.

Feeling the need for a bigger arena, he created a fake appraisal company that purportedly arranged restoration work for insurance companies. A bizarre friend of his became the company’s head. The fake appraisal company created fictitious paperwork indicating that Minkow’s company had received contracts from insurers to restore fire-damaged buildings. Minkow used this fictitious business, confirmed by the appraisal company, to persuade bankers and investors to give him money. Out of thin air, he concocted endless contracts from insurance companies to tackle office buildings that had been devastated by fire and water. He had an associate draw up forged documents representing the contracts, but there were no actual carpets to restore. Investors looking into the business would be referred to the fake appraisal company, which confirmed the deals. One time, when an auditor wanted to look at a restoration, the company hurriedly leased a building and dressed it up to look like a work site. It fooled the auditor.

In 1986, Minkow took his ruse of a carpet-cleaning company public, and the market capitalization swelled to more than $200 million. His young age captivated the press, and he gained wide publicity, which served to further stimulate investor interest. The fraud began to unravel when word got out about Minkow’s credit card overcharges. Once investigators began probing the company, the end was near. In 1988, Minkow was convicted of fifty-seven counts of fraud and sentenced to twenty-five years in jail. Investors lost more than $100 million.

THE FORECAST? STORMY

Many of the most successful investment scams work their prey slowly, reeling them in like a trout. That’s how the forecaster scam works. A man who identifies himself as a broker calls or writes you and, insisting no obligation on your part, offers you an investment tip. He tells you about a stock to watch that he thinks is going to do very well in the near term. “I don’t want you to buy the stock, or even think of investing any money with me,” he insists. “After all, you don’t even know me. Just keep an eye on this stock and see how it does.” Ostensibly, his point is to demonstrate his market savvy, and the sort of market intelligence he’s privy to. His real point is to set a trap.

So, out of curiosity, you watch the stock and, sure enough, it goes up. A couple of weeks later, he contacts you again and offers a second tip, a stock he dislikes that he predicts will take a beating. “I don’t want you to short it or anything,” he says. “Just notice how it does.” Sure enough, that stock goes down. Now you’re hooked. He calls again, and this time he has an investment opportunity for you, a sure-thing stock that he strongly urges you to buy. You’ve been mightily impressed by his uncanny feel for the market, so not only are you willing to invest, but also invest heavily. You send him $10,000 or $25,000 to buy the stock he suggests. He doesn’t buy it. He vanishes with your money.

How was he so insightful about those two predictions? He really wasn’t. He starts with a base of potential dupes. Say he identifies a hundred people. With his first call, he tells half of them that the stock he chooses will rise, and the other half that it will fall. It has to do one of the two, and so fifty people are going to be impressed with his prediction. Those are the fifty he calls back with his second prediction; again, he tells half a stock will go up and half that it will decline. He’s left with twenty-five who have seen him be right two out of two times, more than enough to fleece.

PONZI SCHEMES—TRIED AND TRUE

One of the oldest investment tricks of scam artists is the notorious Ponzi scheme, a persistent type of securities fraud where money is never invested in anything, but instead the cash that comes in from new recruits is used to pay obligations to earlier investors. And the scam artist, of course, always keeps a healthy apportionment for himself. The fraud is named for Charles Ponzi, who defrauded Italian-Americans in Boston in 1920 with a scheme purportedly involving postal reply coupons, which were prepaid return postage used in foreign correspondence.

Ponzi schemes come in every imaginable variety. You read about a new one almost every week, and they always promise enormous returns for short periods of time. I have to laugh at how absurd the pitches are. Some years ago, a group of companies in Kansas touted a get-rich-quick investment involving fungus. They sold investors “Activator Kits” that would grow fungus cultures. Most people wouldn’t imagine that much of a market for fungus exists, but these promoters convinced people that these cultures would be bought by a cosmetic manufacturer they were connected to for a hefty profit. To remove any worries, the promoters “guaranteed” the profit. Something like twelve thousand people in thirty states sent in their money. As in any Ponzi scheme, the promoter strung investors along by paying early ones with money from subsequent recruits, always keeping some for himself. Eventually, the pool of investors is exhausted and most people end up getting nothing back from their investment.

In another case, a young busboy in Ohio offered what seemed like an enterprising idea. He advertised for investors to pool their money with him so he could buy rock concert tickets in bulk. Then, as he explained it, he would scalp the tickets at substantial markups. Everyone had read about rock concerts selling out in one hour and people camping out in line for days, so why not? He rounded up more than $7 million from almost three thousand people. But he never bought any tickets. His Ponzi bubble burst like all the others, when he ran out of new investors to pay off the earlier ones.

A ONE-WAY TICKET TO MELCHIZEDEK

If there were a country where only scam artists lived, it would have to be the Dominion of Melchizedek. It’s a gorgeous, postcard-perfect tropical island in the South Seas. It’s got a heavenly climate. There are no taxes. There’s little banking legislation. The government is very much hands-off. Dozens of banks operate on the island, and you can open your own for a few thousand dollars. Or that’s how it’s billed.

Only don’t go looking for Melchizedek on a map. It doesn’t exist. It’s a fictitious country created for the purpose of perpetuating investment scams. A convicted con artist apparently thought it up in 1990, naming it after the “righteous king of peace” in the Old Testament, and it’s been at the center of a web of conspiracy for scam artists and their swindles ever since.

Law enforcement authorities have warned of innumerable scams connected to Melchizedek. In one typical scheme, investors were told that they would get a return of more than 300 percent in a matter of months, by investing in financial certificates arranged by a Melchizedek bank. Hundreds of investors in the United States contributed more than $1 million. But it was nothing more than a Ponzi scheme. So were other scams involving Melchizedek government bonds, Melchizedek certificates of deposit, and bonds of St. Charles University, a fictitious college that supposedly existed in the fictitious country. Frauds involving the mythical country have sprouted up in cities throughout the United States, as well as England, Australia, Hong Kong, and China.

The men behind the scams are often ex-convicts, including a guy who went to jail for trying to fix a horse race in Australia by dyeing a horse. After his release from jail, he was appointed “governor” of Melchizedek territories in the Pacific.

PYRAMIDS OF DENIAL

One of the oldest forms of securities fraud is the pyramid scheme, an overture laced with promise that is never fulfilled. It’s been around so long, I would think that everyone is aware of it and no one would dare fall for one. Nonetheless, people do every day. Pyramid schemes are similar to Ponzi schemes, but they are hierarchical and promise profits based on investors recruiting others to join the program, not from any product or investment. The variations are endless, but the principle is identical. They typically start with a chain letter or e-mail inviting you to make a small investment in order to reap immense rewards. Chain letters themselves aren’t illegal, but they’re a nuisance and I wouldn’t advise anyone to bother with one. When a chain letter asks you to send money, it crosses the border of illegality and becomes a pyramid scheme.

Many conventional pyramid scams ask you to send a small amount of money, five dollars or ten dollars, to five other people who have already signed on. You’re provided with a list of participants, and instructed to eliminate the top person and add your name to the bottom. Everyone in between moves up a spot. Then you’re advised to send copies of the letter to everyone you can think of. When new people join, each of them will send you money. Since the chain grows at an exponential rate, the money coming to you should grow to a staggering level.

“Gifting clubs” or “giving” programs seem to be the pyramid scam of choice in recent years. Here, the money you’re asked to send is termed a “gift”. And it’s often strongly pointed out by promoters of these gifting clubs that whatever money you subsequently receive is tax-free, because the Internal Revenue Service (IRS) doesn’t tax gifts under $10,000. In actuality, the IRS defines a gift as something given without expectation of getting anything in return, which is not the hook in these scams.

The way many gifting clubs work, participants, typically women, are invited to join a club of some sort. One club was called “Ya Ya Sisterhood” and another was the “Businesswoman’s Networking Club.” Some of them promote a charitable connection, and they usually claim they have the approval of the state Attorney General. To join, you have to make a cash gift to the highest-ranking members, those at the top of the pyramid.

In one gifting scam, participants gave cash gifts of $100 in order to move up through levels named freshman, sophomore, junior, and senior. There were ultimately six steps to the program, and the required investment ranged from $100 to $4,000. Once you completed the six levels, you needed to make a gift of $7,850 and you would receive a tax-free payment of $62,800.

Another gifting tree went by the name, “The Dinner Club.” This group was organized according to the four courses of a dinner party. Eight people known as appetizers filled the bottom row of the tree. They had to pay five thousand dollars apiece to the dessert person at the top of the tree, in order to be seated at the dinner party. As new people joined, the bottom rung advanced to the “soup and salad” level and on to the “entrée” rung before themselves becoming a “dessert”. If you became a “dessert”, meaning if enough people were suckered in to elevate you to that level, you were expected to receive $5,000 apiece from the latest crop of eight participants: $40,000. That’s a $35,000 profit on their original gift. Most people, though, never get to the top and lose all their money. The crooks, though, always arrange themselves in the tree so they ensure that they get their gifts.

When you examine the mathematics, a pyramid scheme looks awfully tantalizing. If you’re asked to send $10 to ten people, that’s $100 you’re out. But you add your name to the list of participants and get ten new people to join. They each send you $10, and you’re back to even. If each of those ten recruits ten additional people, then the next level of the pyramid has a hundred people. You collect $1,000. Another round produces a level of a thousand people. You get paid $10,000. The next level grows to ten thousand people. You collect $100,000. One more round brings you $1 million.

The trouble is that in order to perpetuate these pyramids, more and more people must be recruited to feed those at the upper levels. Once the supply runs out, the pyramid collapses and the people at the bottom are out their money.

And that’s why pyramids have to fail. The supply of people is not infinite. By the time one pyramid scheme reaches its eleventh level, assuming each new participant recruits ten new people, it will have exhausted the entire population of the planet. Plus, no new wealth is being created. Any money that one participant earns, another participant loses.

HANDICAPPING DEATH

The way a criminal thinks is, whenever something becomes popular as a legitimate investment is when it becomes a perfect candidate for an illegitimate investment. A case in point is what are known as viatical investments. The word viatical comes from the Latin viaticum, referring to the money and supplies given as traveling expenses to a Roman official when he departs on a journey. Viatical investments are, in essence, death futures.

A couple of decades ago, the idea was hatched of allowing terminally ill people a way to get money from their life insurance policies while they were still alive, to pay for needed medical expenses or to take one final vacation with loved ones. The way they work is that brokers arrange for investors to buy a certain percentage of the death benefits of the policies of the terminally ill, always leaving 20 percent or so for the estate. Someone given a year or two to live might have a $200,000 policy. For an investment of $100,000, investors might buy $150,000 of the face value. The ill person would get immediate cash and if he died soon, the investors would get a handsome return. How good a return, of course, depended on how well they managed to handicap death.

Policies that get viaticated are generally those of people diagnosed with AIDS, fatal cancers, and other catastrophic illnesses. It’s something of a ghoulish business, but investors look on it as helping a sick person. And, of course, there’s money to be made.

As recently as 1990, this was a small, arcane business, amounting to less than $100 million of viaticated policies. But it has grown to more than $1 billion. Consequently, criminals have taken notice and moved in, so much so that law enforcement authorities say viatical investment scams have become rampant, and rank among the top-ten investment frauds being perpetuated.

Viatical scams take different forms. Some are as blatant and straightforward as selling policies to investors on fictitious patients, or else selling legitimate policies over and over again. One viatical investment firm collected $115 million in investor money, but only $6 million was used to buy life insurance policies. The promoters found various other uses for the balance of the money. They bought twenty-five homes, thirty-four luxury cars, two helicopters, three motorcycles, and several boats.

Other viatical scams are more elaborate and cheat both the insurers and the investors. In these cases, scam artists recruit terminally ill people and help them obtain life insurance by lying on the applications about their condition. This process is known as “clean sheeting.” It doesn’t work with large policies, because medical exams and blood tests are required, but insurance companies skip those details with small policies.

These clean-sheeted policies are then immediately sold to investors. They’re also called “wet ink policies,” because the ink on the contract is barely dry when the policy is sold. Once the policyholders die, these policies are often contested as being fraudulently obtained, then canceled. Crooks in California obtained clean-sheeted policies amounting to more than $11 million before being caught.

Investors have been snapping up these policies. Thieves pitch them as a safe, high-return investment. And they add that the investor is engaging in a humanitarian act, providing desperately-needed funds to the terminally ill.

The truth of the matter is, even legitimate viatical investments are risky. Chronically ill people may live a lot longer than was estimated, cutting down on the yield to investors. New AIDS drugs and other medical breakthroughs work against your investment. In addition, many of these policies are term policies, and if the person outlives the term, there is no death benefit at all. An eighty-four-year-old California woman invested $85,000 in the hope of receiving $139,000 when a policyholder died. The expectation was that he would die within a year. Years later, he was still alive. He might outlive the woman.

WHAT TO CHECK

Given that you can lose money on these investments if they’re legitimate, imagine what it’s like to invest in a scam. There are some telltale signs to be aware of, though none are guarantees. Many legitimate viatical investments are themselves insured, but no viatical scam is, at least not with any real insurer. A legitimate investment will allow you to pay your money to a reputable escrow agent; a scam artist won’t. If it’s on the up and up, the purchase agreement should state that the insurance policy you’re investing in is past the period of contestability, generally two years from when it was issued. The best protection of all, though, is only to deal with a reputable and large viatical broker. And realize that you’re making a speculative investment no matter what.

THE MYTH OF THE INNER CIRCLE

There’s a natural inclination by people who don’t have a lot of money, to think that people who do have a lot are privy to investment opportunities that are closed to them. It wouldn’t surprise them to learn about clandestine securities peddled only to the rich, for suspicions about the government and financial institutions are widespread. Criminals are well aware of such suspicions, and exploit them with appalling consequences for investors.

In the little town of Mattoon, Illinois, population 18,500, a sixty-six-year-old retired electrician started an investment fund called the Omega Trust and Trading, which promised a fifty-to-one return. According to the fund’s literature, its head was an international banker who had worked for Fortune 500 companies (when investigators interviewed him, he couldn’t quite remember their names) and was one of a handful of people in the world who had the know-all and ability to conduct secret multimillion-dollar trades.

It was not an original thought. Many investment schemes tell people there’s a secret banking system in which “prime banks” and the wealthy participate. The returns are well beyond what ordinary people can realize, as much as 70 percent a week. Ordinary people can share in the bounty if they pool their money and allow someone connected to this system to invest it for them.

A common pitch is, you’re asked to put money into a trust account backed by a guarantee (often fake) from a “prime bank,” “top-100 world bank,” or “top-25 European bank.” You’re told that your money will be leveraged to buy prime bank instruments, which can generate enormous returns. In fact, your money goes offshore, never to return. Another pitch: You pay the promoter a fee in return for a promise that you will be “leased” a much larger sum of money to invest in prime bank instruments at great interest rates.

In the Omega trust, investors were told their capital would be invested in foreign bank debentures. Money was invested from all over the country, as well as from Australia and China. The mastermind of the scheme laundered the money by handing out interest-free loans to local residents and by starting businesses.

There is no such thing as bank debentures. No secret banking system exists, at least not on this planet.

One of the giveaways in Mattoon was when residents began buying new trucks and cars and opening businesses, even though some of them had jobs that paid minimum wage. In the fall of 2000, law enforcement authorities charged a group of Mattoon residents and others with perpetrating an investment scheme that duped more than ten thousand people throughout the world of more than $12.5 million.

RED FLAGS

Obviously, you just can’t be too careful with your money. Before you part with it, look at all investments on the SEC database to be sure they’re registered. All American companies with more than five hundred investors and $10 million in assets must be registered with the SEC. Smaller companies have to file information with the SEC, or with the state securities regulators where they’re based. To check if a broker is licensed, go to the website of the National Association of Securities Dealers Regulation. One thing the Internet has done is made it easier to do research on a company, so go to reliable sites and check analyst reports. There’s no need to rush into something.

I would never invest in anything described as “risk-free” or “guaranteed,” particularly offshore investments. It’s an automatic red flag if the promoters say the state Attorney General has approved it. Check with the Attorney General’s office and find out for yourself. Take note of how you’re asked to pay. If a broker wants your bank account number to speed things along, forget it. If you’re told to send money to a P.O. Box or someplace offshore, forget that, too.

The bigger the promised return on an investment, the higher the likelihood that it’s a scam. But just because a return is reasonable, don’t assume the investment is real. One of the biggest scams in recent years is fraudulent promissory notes sold to the elderly. Promissory notes are a short-term debt companies use to borrow cash. Con artists exploit a loophole in securities laws that exempt some nine-month promissory notes from regulatory scrutiny. The con artist starts a marketing firm and recruits unwitting insurance agents to sell the notes. Unlike so many investment schemes with their 100-percent-plus returns, these typically promise 9 to 12 percent interest, enough to attract a conservative investor without arousing suspicion. They’re touted as risk free and bonded by foreign insurance companies, which usually are fake. The local agents are often known and trusted by the investors, and are fooled as well by the con artists. Eventually, investors get notices that the company behind the notes has gone bankrupt and that’s the end of their investment.

A good rule of thumb is, the more exclusive something is positioned to be, the more likely it’s trouble. Once-in-a-lifetime opportunities are usually once-in-a-lifetime chances to lose all your savings. If something is billed as getting “imminent” regulatory approval, that means it will never get regulatory approval. When I see ads on television promoting some new elixir or wonderful product, the words that always tell me it’s a scam are “not sold in stores.” Think about it, if someone has a great product, why wouldn’t he sell it in stores? The reason is because there’s something fishy about it.

It’s the same with investments. When I hear about an investment opportunity and am told it’s not available through brokerage houses, then that’s criminal-speak for “only available through con artists.” If you really could make 100 percent on your money in a week, you wouldn’t need to find out about it in an e-mail from a total stranger. You can bet Merrill Lynch and Paine Webber would be selling it, too.

11

[STEALING YOUR SOUL]

For Michelle Brown, there was life before identity theft and then there was life after identity theft. Life after was a torment.

Brown, the young California woman I began this book with, couldn’t understand why someone had stolen her identity. Why her, of all people? And how did it happen? One day she told her property manager about how someone was going around using her name and her credit, and that the police and credit bureaus had mentioned that identity thieves are sometimes a relative or someone you know. Did she have sisters who might have something against her, a close friend with a grudge? She had been offended. She had two sisters, but she knew neither of them was the one, and no friend was that malevolent.

Her property manager listened to her carefully, and then he said, “I know who’s doing it.”

Or he thought he did. A woman he knew vaguely, Heddi Ille, had a history of committing credit fraud. He figured it might well be she.

The police looked into it, and they concluded that it was indeed she. Heddi Ille was a woman in her early thirties, about five-foot-seven and weighing 200 pounds. She looked nothing like Michelle Brown. And she was mixed up with drugs. For months, the police pursued her, but it wasn’t until more than a year after she had stolen Michelle Brown’s identity that she was caught, and then it was only because someone had turned her in. To add to the insult, Ille was arrested under the name Michelle Brown. On her record, that name was listed as an alias.

Heddi Ille had never met Michelle Brown, and knew virtually nothing about her. Like most crooks, she had wanted one thing: a vehicle that allowed her to steal. One day, she had happened to sneak a look at the rental applications at the apartment complex where Michelle Brown was living, and had chosen her information to work with. She was a similar age, and that may have been all that mattered. That one document was all it took.

In their arrogance, thieves rarely consider the consequences for the victim. They’re in it strictly for the money. For a long time, Michelle Brown wondered if she would ever become whole again. It required a massive effort for her to get her credit straightened out. “Identity theft leaves a very dark and filthy cloud around the victim,” she said. Even now, she is extremely circumspect. She has eliminated all but one credit card. She refuses to write checks when she buys something in a store. She worries that her name will be on a list of delinquents and she’ll be hustled off by security guards. Her mail comes to a private mailbox. For her birthday, a friend gave her a shredder, and she now shreds all credit card solicitations and any other material containing personal information.

She carries around official papers that confirm who she is, though she’s afraid to travel overseas, particularly to any third-world country, out of fear she’ll be mistaken for the jailed Ille and be imprisoned. Even in this country, she shudders every time she sees a police car. She drives safely under the speed limit and never forgets to signal if she’s making a turn. The last thing she wants is to be stopped and somehow mistaken for the other Michelle Brown, the one who ought to be in prison.

Two years after she started, Heddi Ille was convicted of perjury, grand theft, and possession of stolen property, though, as so often happens, not of identity theft. Not only was she initially booked as Michelle Brown, but also when she sent letters to friends from federal prison she wrote that name on the return address, until the real Michelle Brown objected. She felt Heddi Ille had stolen quite enough from her for long enough.

THE CRIME OF THE FUTURE

I’ve saved identity theft for last, because I’m convinced it’s the crime we have the most to fear going forward. To my mind, identity theft is the crime of the future. And I think of it as the mother of all scams, because it steals everything, a person’s very being.

In so many ways, it’s the scariest and most seductive white-collar crime of all, and we’ve barely scratched the surface. It’ll probably be ten years from now before identity theft is in full swing, but we’ve already seen its striking escalation. At the beginning, someone stole your identity because he wanted to get a credit card in your name. These days, he’ll say, wait a minute, I’ll get a car loan in your name, wait a minute, I’ll get a mortgage in your name, wait a minute, I’ll assume your entire identity and get a job in your name and you’ll have to pay the taxes.

Physical attributes like DNA are unassailable and unique to you. No criminal can steal them. But we have become the various numbers that have been assigned us, and, with modern technology, that makes us increasingly vulnerable. All a thief has to do is get hold of a single set of digits—your bank account, your credit card number, or especially your Social Security number—and he can take up residence in your life. If you have great credit, he suddenly has great credit.

Anyone with a Social Security number can become a victim—even a newborn baby or someone who’s dead. Some identity thieves can pick your pocket for months and even years before they’re detected. They know just how to keep a victim’s suspicions at bay.

A Virginia couple was puzzled when a friend said he couldn’t reach them because their number was unlisted. They knew they were in the book, but figured it was a lame excuse for not inviting them to a party. When they heard the same thing from another friend, they checked with the phone company. It said the husband had asked that the number be unlisted. They shrugged that off as some mix-up, until they got a call to verify that they wanted their new Visa card mailed to a different address. They had ordered no card and had no new address. They quickly got a credit report and found that someone had already obtained another card in their name and a cash advance against it. Then they got it. The identity thief had requested that their number be unlisted so creditors couldn’t reach the couple.

Back in my criminal days, I engaged in identity theft of sorts. To be precise, I guess you could say that I engaged in profession theft. Although I never took on the identity of a living person—I never believed in crimes against the individual—I became a generic copilot and a lawyer and a doctor, among my guises. To pull this off took cleverness and perhaps a bit of a diabolical mind. You needed to be able to turn on the sweet grease and charm. I had to learn about airplanes and pilot lingo. I had to learn the law. I had to learn a suitable amount of medicine. I had to create believable IDs and acquire uniforms. I had to be able to stay cool under pressure.

Today, the identity thief can do what I did, and so much more, hiding behind numbers. No one tests his knowledge.

Identity theft is so new that it wasn’t even formally recognized as a specific federal offense until 1998, when, prompted by growing evidence of the crime, Congress passed a law, the Identity Theft and Assumption Deterrence Act. And though I speak of it as the crime of the future, because of its potential, it already is an enormous problem. I’ve heard estimates that half a million Americans a year are victims.

Identity theft is a chilling crime because the perpetrator is innocent until proven guilty, while the victim is guilty until he proves himself innocent. Until you’ve been caught up in this crime, you can’t imagine how hard it is to prove that innocence. It can be a nightmare of unimaginable proportions to get your credit and your identity back, if you ever fully do.

A HORSE OF MANY COLORS

The approaches taken by identity thieves vary a great deal. Most often, the thief is a total stranger, someone you’ve never seen and who has never seen you. But not always. A woman living alone in her own house took on a roommate for some added income and companionship. The roommate lived with her for nine months. She was amiable enough, and always paid her rent on time. One day she told the woman she had gotten a job offer out West, and so she would be moving. The woman was happy for her, and thought nothing of it.

A few weeks after the roommate left, the woman got a call from a bank officer. The officer said the bank had received her most recent mortgage payment, the same as always, but it hadn’t received the payment for her second mortgage. “Second mortgage?” the woman said. “What second mortgage?” It seems that the roommate, by rummaging through the woman’s utility bills and other mail, had acquired enough information to pose as her and take out a second mortgage, the money that got her out West.

One identity thief managed to accumulate more than one hundred thousand dollars in credit card debt, take out a federal home loan, buy several homes, motorcycles, and handguns, all in the victim’s name. But that still wasn’t enough for him. He would also call the victim and hector him, taunting him that he could buy all he wanted for as long as he wanted, and he would never be caught. Finally, the thief filed for bankruptcy—naturally in the victim’s name. At the time, identity theft wasn’t a federal crime, so when he was finally caught the criminal served a brief sentence for making a false statement to purchase a gun. There were no other repercussions. He made no restitution to the victim. Meanwhile, it took the victim and his wife four years and fifteen thousand dollars to restore their credit and reputation.

A Milwaukee man used a stolen Social Security number to obtain additional identity documents and set up an array of fraudulent accounts. Under his new identity, he got a job at the Wisconsin Supreme Court then stole eighty thousand dollars of computer equipment from the court. While he worked there, he also collected Social Security benefits because he claimed he was disabled and unemployed.

Con artists will steal the identities of the prominent as well as the unknown. The FBI came across two Memphis thieves that said they stole the identities of six leading executives, including the chief executive officers of Lehman Brothers, Coca-Cola Enterprises, and Hilton Hotels. Two of the impersonated executives had recently died.

Before they were caught, the hucksters managed to order $730,000 worth of diamonds and Rolex watches over the Internet. They did this by having the credit card companies and banks change the billing addresses of the executives to hotels in the Memphis area, then ordering the merchandise to be shipped to the hotels. The attraction of using the names of wealthy executives was their credit was so good. When the jewelers that sold the goods contacted American Express about putting purchases of $40,000 on cards purportedly belonging to the executives, there was no hesitation. They got immediate approval.

IT’S AS EASY AS . . .

How does someone steal your identity? With the sharp erosion of privacy, the variants are endless. A thief doesn’t have to break into your home or hold you up. It all gets done on the sly.

One straightforward method is “shoulder surfing,” which I told you about earlier with ATM fraud. A thief watches you as you punch in your credit card or calling card number at a pay phone. Or he eavesdrops on your conversation as you give your number to a hotel or merchant. From that one number, he gathers other information about you and is on his way.

Another popular approach is “Dumpster diving.” Crooks root through your garbage cans, trash bins outside stores, or on street corners, or communal Dumpsters. They toss away the chicken bones and old newspapers, and collect credit card statements, bank statements, phone bills, copies of checks, or anything that shows your name and address. These records are gold to an identity thief.

How many times have you gotten a stack of “preapproved” credit cards in the mail and, already being flush with cards, simply tossed the envelopes in the garbage without ripping them up? The identity thief thanks you very much. He goes ahead and attempts to activate the cards, often with success. Some credit card companies require that you activate a new card only from your home phone number, but this precaution hasn’t been universally adopted. A few years ago, federal authorities broke up the Trash Ring, a group that stole more than $10 million in dozens of states, largely by recovering cards and account information from Dumpsters and trash cans.

If you’ve been divorced, the transcript of your case, bulging with financial and credit information that you had to reveal, as well as your Social Security number, is public record. A thief need only stop in at the courthouse and scribble down what he needs.

One recently-arrested identity thief, a low-level employee at a drug company, happened to come across a box of personnel records for three dozen former employees. The box was lying in a storage closet of the company. When you’ve got a criminal mind, a box like that is a bonanza. The thief, along with several accomplices, used the records to get credit cards, buy more than one hundred thousand dollars of goods, and rent three apartments in other people’s names. For a time, they lived a joyous life that was way beyond their own means.

Employees at a New Jersey car dealer used the company access to the three leading credit bureaus—Equifax, TransUnion, and Experian—to find strangers with good credit histories, some of them living as far away as Alaska, and then opened up credit card accounts in their names.

A group of Nigerians established themselves in the industrial cleaning business. They had trucks. They had uniforms. They had cleaning supplies. In due course, they had customers. They would come into the company offices at night and clean the place. And they did a beautiful job. But they cleaned the offices of more than grime. They knew how to get at personnel records and would copy Social Security numbers and whatever other useful information they found and steal identities.

And there are endless come-ons that thieves use to sucker people into unwittingly divulging personal information. Not long ago, some fairly provocative flyers suddenly popped up in scores of black communities throughout the South and Midwest. They were stacked on tables in churches, stuck in windshield wipers of parked cars, and tacked to the bulletin boards of senior citizen centers and nursing homes. The headline on them read: “Apply for Newly Approved Slave Reparations! Claim $5,000 in Social Security Reimbursements!” The body of the flyers said that blacks born before 1928 could be eligible for slave reparations under the “Slave Reparation Act.” Those born between 1917 and 1926 could apply for Social Security disbursements because of a “fix” made in the Social Security system.

Obviously, a burst of good fortune like this was something that would pique a person’s interest, and it seemed plausible. There had been a lot of talk and press about proposed legislation that would pay reparations to black people. But the whole thing was nothing more than a trap set by a ring of identity thieves.

In the Atlanta metropolitan area, a man posing as a jury administrator from the local court system would call people, mostly the wealthy and business owners, and say, “You’ve forgotten to respond to a summons for jury duty and face a penalty. I can straighten it out right now for you, if you just give me some basic information.” Assuming they had overlooked the summons, or it had gotten lost in the mail, the victims would unquestioningly provide their birth dates, mother’s maiden name, and Social Security numbers.

Thieves are not at all squeamish about stealing the identity of someone that recently died and resurrecting him for the purpose of spending money. This works because credit bureaus usually don’t learn about someone’s death for six to twelve months. A common place to locate the personal information necessary here is an obituary. People fail to realize the abundance of material contained in an obituary, particularly that all-important mother’s maiden name so universally used for identification means.

One pair of identity thieves stole hundreds of thousands of dollars from some two-dozen victims in seven states. Most of them were selected out of “Who’s Who in America,” which in its biographies of prominent Americans gives birth date, place of birth, mother’s maiden name, and home address, sufficient information for them to request birth certificates and establish credit.

Recently, there was a run of identity thefts involving admirals of the U.S. Navy. One admiral complained that he had been a victim, then another admiral and another—ultimately seven in all. It happens that the thieves were digging out personal information on them from the Congressional Record. It routinely lists all the data a criminal needs to become a military officer.

One woman had her identity stolen by her boss. She was hired by the owner of a magazine publisher, and, in filling out her employment application, divulged the usual supply of personal information. Little did she know that her employer had ruined her own credit in the past and couldn’t even get a credit card. Within months of the woman being hired, her boss took out a card in her name and began using it. Who would suspect their boss? But literally anyone can be after your identity.

Years ago, I predicted that once there was a shake-out among all the dot-com startups, criminals would step in and offer to buy up the assets of failed e-commerce companies. Why would they? To get their databases, rich with personal information on customers, including credit card numbers. I bet it’s already happened. When it was functioning, the retailer Toysmart.com assured its customers that their personal information would never be shared with anyone. When it went bankrupt in May 2000, that promise went out the window. It took out ads offering to sell its database. Fortunately, a subsidiary of Walt Disney agreed to pay it fifty-thousand dollars to destroy the information before it got into the wrong hands.

NUMBERS FOR SALE

The Internet has become the equivalent of an electronic shopping mall for identity thieves. Endless websites have sprung up that sell personal information. One site, docusearch.com, will retrieve a person’s Social Security number for a mere forty-nine dollars. How long will it take? One day.

It’s all perfectly legal. They buy this information from the nineteen states that use the Social Security number for the driver’s license number. They’ll go to a driver’s license bureau and ask, how many Social Security numbers do you have? They’re told, 1.3 million. Okay, can we buy them for $8 a number? They’ll approach one of the major health insurers, with millions of numbers, and again buy them for $8 apiece. They buy numbers from collection agencies and credit bureaus, and they resell the information for $49 a number. The only thing you have to type in is the person’s name and the last-known state you believe he or she lived in, and within seconds, up comes the Social Security number. I’ve gone online a number of times to test it out and they’ve never not had the number. Try it yourself.

Another website, netdetective2000, brags that it will find out “everything you ever wanted to know about your friends, family, neighbors, employees, and even your boss!” All you do is take your mouse and click on the information you want. It’s a complete dossier: the person’s name, date of birth, Social Security number, address, bank, bank account number, what stocks he owns, who his stock broker is, where he works, what he does at his job, what he makes, if he has children, his children’s names, their ages, and their Social Security numbers.

If you’re wondering who’s telling them all this information, you are. When you bought a camera, there was a warranty card, and attached to that warranty card was a consumer questionnaire. Are you married, divorced, single, separated? Are you a doctor, a lawyer, a professional, a technician, or other? Do you earn between $20,000 and $50,000, $50,000 and $100,000? Do you bank at a bank, credit union, savings bank, or mutual fund house? You went right down the list answering all their questions and all of that information went into a data base. Then they turned around and sold it, and the next thing you know, it was being used against you.

There’s another website that advertises on TV called 1-800–SEARCH. They say they can find out if someone has a criminal record. Then, in a lower tone of voice, they say, “or fifty other things.” And the fifty other things are just about anything you would want to know about someone. It’s unbelievable what they know about people—practically everything down to their favorite doughnut and how they did in third-grade social studies—and I’m talking about ordinary people who think they live a private life.

Everything is for sale. A Social Security number is $49. A birth certificate is $79. A driver’s license is $90. Or if you want an entire package of documents just for the purpose of assuming someone’s identity, it goes for $2,000.

I went to the doctor the other day. It wasn’t my regular doctor, but an oral surgeon I hadn’t seen before. The receptionist had me fill out a new patient questionnaire, then she needed my Blue Cross card, which contains my Social Security number, and my driver’s license. She made copies of both, and all this was deposited in the doctor’s file. That receptionist, or the next receptionist, could easily sell that information.

In a number of instances, low-paid hospital orderlies have stolen and sold patient information. Medical records are especially attractive to identity thieves, as they contain your Social Security number, date of birth, and even a physical description. Some criminals, to help their fraud, have actually undergone plastic surgery to look more like their victim. Imagine that—someone who not only says he’s you but looks like your twin!

A twenty-three-year-old New Jersey man was surfing the Internet at the public library one day, when he happened across the site of the Securities and Exchange Commission (SEC). There, he discovered a database of disclosure forms that public companies must file with the regulatory body. These forms contained the names of company officials and their Social Security numbers. Using the name of an official of a company who was thirty-four years older than he, he managed to gain approval for a $44,000 car loan from a major bank. He got a quote for car insurance from an online broker, then used a fraudulent MasterCard to pay for the policy. To actually buy the car, he needed proof he was the executive, so he picked up a fake birth certificate and W-2 form from a website that sold fake credentials. Then he went and bought a new Prelude. Because the executive had such excellent credit, the thief actually negotiated better financing from the car dealer than he had from the bank.

SHADOW OF YOURSELF

Once your identity has been stolen, everything doesn’t just return to normal. You’ll find yourself inconvenienced long after the culprit is caught. After she had been victimized, one woman put an alert with the credit agencies that if anyone applied for credit in her name, she had to be called and told about it. Months afterward, she was shopping for Christmas gifts and decided to buy her son a TV at an electronics store. Since you got a discount if you opened a credit account with the store, she tried to do so. The salesperson went to process it, only to come back and tell her, he was sorry, he couldn’t extend her credit because there was nobody at her home when he called. Of course not, she said, I’m here talking to you. Well, he said, your credit bureau says I have to speak to you at your home before I can issue credit. So she had to drive home, take his call, then drive back.

A highly placed corporate executive had his identity stolen by a major drug dealer. These days, when the executive travels overseas, he has to carry an official letter with him that states that he is not the drug dealer. He’ll always have to carry that letter with him. His life has been irrevocably changed.

I read about a woman writer who had her Social Security number stolen while she was living overseas. Using her name and number, the thief ordered telephone service in California, ran up thousands of dollars in bills, and then vanished without paying them. When the writer returned to the United States and applied to rent an apartment in New York, the landlord found she had a negative credit rating and wouldn’t rent her the apartment. She had to take a sublet while she tried to get to the bottom of things.

She filed a police report. The cop who handled the case said he got an average of four complaints of identity theft a day. Not until she threatened to sue the collection agency charged with her case, did the agency relent and agree to correct her rating. It told her, however, that it might take as many as ninety days before her credit was restored at the national credit agencies. Four years later, the unpaid bills remained on her rating. She was still unable to rent an apartment.

An elderly woman went into the hospital for cancer surgery. While she was there, her daughter hired some cleaners because she wanted her mother to come home to a perfectly clean house. Not long afterward, the mother got a succession of calls from collection agencies. The cleaners had found enough personal information in the house to steal her identity. During the long ordeal of trying to straighten the mess out, the woman lost her house.

There was a man who worked as a salesman in a department store in California. One day he had his wallet stolen, which contained his driver’s license, Social Security card, and military ID. Seven months after his wallet was stolen, he was called into the firm’s main security office and told he had been caught shoplifting at one of the chain’s other stores. He had done no such thing. In fact, he had been working in his usual store at the time. He even produced a letter from his boss confirming that. Still, he was fired. The man who had stolen his wallet had assumed his identity and done the shoplifting.

He got other jobs, but was dogged by the crimes of the thief. He’d apply for a job, a check would be done on him, and he’d be told, sorry, his services weren’t needed. He later found out from the police that the rap sheet in his name included arrests for shoplifting, burglary, and arson. He went bankrupt. He lost his home. Finally, he legally changed his name to distance himself from the identity theft, but his life is only a shadow of what it once was.

As you can see, the financial losses are only part of what the victim suffers. Often, it’s the emotional toll that’s most debilitating. For even if the thief is caught and prosecuted, it can take months and even years of painstaking effort to recover the good credit standing that was so quickly destroyed. At a Congressional hearing on identity theft, one victim recounted her ordeal after being victimized for $110,000: “We had to submit handwriting samples to twenty different merchants; we had to submit notarized documents and affidavits. It was like filling out our tax return twenty times with twenty different sets of instructions.”

AN IDENTITY THEFT QUIZ

As with all fraud, prevention is the most valuable step you can take against identity theft. Police are not sufficiently trained to investigate this crime and jurisdiction is often a problem, since you may live in Maine and the person who stole your identity may be in Idaho. I understand the FBI has been speaking to local police departments and asking them what they want from the FBI. The police tell them that they can handle local drug problems really well. What they can’t handle is if someone walks in and says he or she is a victim of identity theft. So they want the FBI to get more involved in white-collar crime, and I think you’ll see that start to happen in the years to come. Right now, though, it’s hard to get the attention of the FBI, because it usually requires a threshold of $250,000 before it tackles a fraud case. There are 13,500 FBI agents in the world, and only 3,000 are assigned to financial crimes.

The best thing you can do is to count on yourself. I devised a little identity theft quiz to give yourself to determine how susceptible you are. Each of the following statements represents a possible avenue for ID theft. If any of them describes you, add the points to your score.