Internet Fraud: Federal Trade Commission Prosecutions of Online Conduct
Loza, Emile, Communications and the Law
I. THE SCOPE AND IMPACT OF INTERNET FRAUD
Online business is booming. That business in the United States is slated to reach some $3.2 trillion by 2004.(1) In fact, consumers are making online purchases of around $3.5 billion each month, with these purchases pegging a stunning $6.2 billion in December 2000.(2) Internet fraud operators are pursuing these online dollars with vigor. While the costs attributable to Internet fraud in the United States are difficult to pinpoint, estimates run in to the billions of dollars.(3) Online payment fraud losses alone, for example, were estimated to be $1.5 billion in late 1999 and are projected to be some $30 billion by 2005.(4) Furthermore, losses from all types of Internet fraud that were reported by consumers to the National Consumers League Internet Fraud Watch during 2000 increased nearly 38% from 1999 figures.(5)
As a result, the Internet fraud business also is booming at the Federal Trade Commission (FTC),(6) where the agency receives an estimated 6000 complaints each month from individual and business consumers (collectively "consumers") defrauded by online operators.(7) As one of the most active prosecutors of online conduct, the FTC already has taken action to prosecute 182 Internet fraud cases against some 593 defendants since its first such case in September 1994 to May 2001.(8) More telling of the rapid growth in these prosecutions, however, is the fact that more than 90% of these cases have been filed only since May 1996.(9) Furthermore, the FTC's vigorous prosecution of Internet fraud shows few signs of abating, with new cases announced almost every day.(10)
Several qualities render the Internet a tremendous boon to the global economy and to people everywhere. Many of these same useful qualities also make the Internet a near-perfect implement for fraud, with such qualities including: (1) the constant and ubiquitous availability of the Internet and its vast content; (2) the broad distribution of Internet access, and the ease with which such access can be established; (3) the rapidity with which content can be published and delivered online; and, finally, (4) the almost complete physical disconnection between Internet content and the individual or entity purveying that content.
To online fraud operators, these qualities have the effect of eliminating the physical and time barriers that exist for fraudulent schemes that are promoted and distributed solely through more traditional means, e.g. personal selling and hard copy promotional materials. Additionally, these qualities of the Internet significantly boost the market potential for fraud by increasing the size of the audience exposed to the fraud operator's message. Thus, where broad access to and rapid delivery of the schemer's promotional message explode by placing that message online, so too does the number of consumers available for the shearing.
Finally, the only brick-and-mortar connection between online fraud and its purveyor may be as finite as a data file stored on a server computer located on the premises of some third-party Web site hosting company. Add a phone line into a telemarketing boiler room located in some obscure part of the Florida panhandle; a commercially rented postal drop box; and a checking or merchant account with one of several more disreputable financial institutions, often located off-shore, and the picture is complete. Given these tactics by scammers, defrauded consumers stand little to no chance of obtaining redress through self-help measures, even when aided by the excellent efforts of Better Business Bureaus.
Likewise, law enforcement against online fraud is difficult. Not only is it difficult to detect, and therefore prosecute, any but the most egregious frauds, but great challenges exist in other aspects as well. First, investigations are hampered by the difficulties associated with identifying and locating the individuals and entities responsible for the online frauds. …