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What is email fraud, and what should I do about it?

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General information on email fraud

Many types of fraud exist, and email is an inexpensive and popular method for distributing fraudulent messages to potential victims. According to the US Secret Service, hundreds of millions of dollars are lost annually and the losses continue to escalate. Most fraud is carried out by people obtaining access to account numbers and passwords. Never respond to any message that asks you to send cash or personal information. You won't receive any riches, and in fact you could get into legal trouble if you become involved with one of these scams.

Some of the most common fraudulent messages are non-monetary hoaxes or non-monetary chain mail. Treat these as you would spam; for more information, see What should I do when I get spam email? However, if you receive an email message that appears to involve money, or asks for personal information, do not respond.

Below you'll find information about various types of email fraud. If you receive any of these types of messages, you can report them to the Federal Trade Commission. To do so, forward the message with full headers to  spam@uce.gov . If a message of this type appears to come from a valid Indiana University address, forward it with full headers to the University Information Policy Office (UIPO) at  it-incident@iu.edu .

The FBI and the US Postal Inspection Service, along with other partners, have launched a web site to educate the public about Internet schemes and to provide a central place for consumers to file complaints. The site offers a novel interactive online fraud risk test that lets users measure online safety habits relating to identity theft, financial fraud, Internet auctions, counterfeiting, lottery scams, and computer privacy. It also provides prevention tips, details on current cyber scams, consumer alerts, victim stories, and an opportunity to share stories of cyber fraud. See Looks Too Good To Be True.

Personal information scams (phishing)

"Phishing" scams are currently the most popular and thus dangerous form of email fraud. They use email messages that appear to come from a legitimate company or institution, such as your bank or university, and ask you to "update" or "verify" your personal information; the scammers then use this information to commit identity theft. Indiana University and other reputable organizations will never use email to request that you reply with your password, social security number, or confidential personal information.

For more information about identifying and avoiding phishing scams, see What are phishing scams and how can I avoid them?

Nigerian bank scams

A very common type of email fraud is advance fee fraud schemes. The perpetrators of advance fee fraud (sometimes referred to as Nigerian or foreign bank scams) are often very creative and innovative. This fraud is also called 4-1-9 fraud after the section of the Nigerian penal code that addresses fraud schemes. Nigerian nationals, purporting to be officials of government or banking institutions, will fax or email letters to individuals and businesses in the US and other countries. The correspondence states that a reputable foreign company or individual is needed for the deposit of an overpayment on a procurement contract. Some variations of this scheme have the son or daughter of a murdered official plead for your assistance in depositing an inheritance in a US bank. Individuals are asked to provide funds to cover various fees, and also are asked for personal identifiers such as Social Security numbers, bank account numbers, and other similar data. Once this information is received, the victims often find that their bank accounts are emptied. It is hard to pinpoint how much has been lost in these scams since many victims do not report their losses to authorities for fear of embarrassment.

You can report these types of messages to the Internet Crime Complaint Center, which provides a central referral mechanism for complaints involving Internet related crimes at the federal, state, local, and international level.

Sweepstakes, lottery, and prize scams

Similar to the Nigerian bank scam, these scams trick you into thinking you've won large amounts of money. You sometimes have to send personal information that is then used to rob you, or you are asked for processing fees for your fictitious winnings. Be suspicious if:

  • You know you didn't enter the competition or promotion that you've won.
  • You're asked for any sort of processing fee.
  • You're asked to buy "low-risk" shares in a fund for purchasing "high-stakes" tickets.
  • You are offered bait prizes that are substandard or you're asked to purchase "exclusive items".
  • Receipt of your prize requires travel or other arrangements at your own expense.

Do not reply to these types of messages. Instead, forward them with full headers to postmaster at the address where the message originated.

Pyramid schemes

This is a scheme in which a hierarchy is created by people joining under others who joined previously, and in which those who join make payments to those above them in the hierarchy, with the expectation of being able to collect payments from those who join below. Pyramid schemes are prohibited by US law, by the laws of each of the fifty individual states, and by the laws of most other nations. Pyramid schemes are variously defined under these laws either as a form of gambling or as outright fraud.

Ponzi schemes

These are named after Charles Ponzi, who ran such a scheme in 1919-1920. A Ponzi scheme is an investment scheme in which returns are paid to earlier investors entirely out of money paid into the scheme by newer investors. Ponzi schemes are similar to pyramid schemes, but differ in that Ponzi schemes are operated by a central company or person, who may or may not be making other false claims about how the money is being invested and about the source of the returns. Ponzi schemes don't necessarily involve a hierarchal structure, as in a pyramid scheme; there is merely one person or company collecting money from new participants and using this money to pay off promised returns to earlier participants. Ponzi schemes are not necessarily illegal, but they are difficult to distinguish from illegal pyramid schemes. In almost every case, only a very few early investors actually benefit from them.

Multilevel marketing (MLM) schemes

Multilevel marketing plans, also known as network or matrix marketing, are a way of selling goods or services through distributors. These plans typically promise that if you sign up as a distributor, you will receive commissions for both your own sales and those of other people you recruit to join the distributors. Multilevel marketing plans usually promise to pay commissions through two or more levels of recruits, known as the distributor's downline. While some MLM schemes are supposedly legitimate, if a plan offers to pay commissions for recruiting new distributors, it likely is illegal. Most states outlaw this practice, which is known as pyramiding. State laws against pyramiding say that a multilevel marketing plan should pay commissions only for retail sales of goods or services, not for recruiting new distributors. Pyramiding is prohibited because plans that pay commissions for recruiting new distributors inevitably collapse when no new distributors can be recruited. When a plan collapses, most people, except perhaps those at the very top of the pyramid, lose their money.

Chain mail

Chain mail is a form of junk mail. A chain mail message is generally sent to several people and includes instructions that each person should forward the letter to several others. These messages waste system resources and often grow quite large as senders append their own additions. Do not forward such messages.

Email fraud and hoaxes often occur in chain mail. Never send money or personal information to people on lists via chain mail, or from whom you've received chain mail. For more information, see About chain mail.

More resources

The information in this document is based on the following resources:

  • United States Secret Service. Public Awareness Advisory Regarding "4-1-9" or "Advance Fee Fraud" Schemes. Check the Advance Fee Fraud section of the United States Secret Service Criminal Investigations web page.
  • Federal Trade Commission. Multilevel Marketing Plans. You can find this publication online at the FTC's Facts for Consumers web site.
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Last modified on August 17, 2012.

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