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September 17th, 2009

Update1 Experts Warn of Massive Stimulus Fraud

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Update1: The Federal Trade Commission (FTC) has announced that they have launched “389 law enforcement actions” in an effort to prevent, stop, and/or prosecute stimulus fraud:

“To con artists, today’s challenging economy presents a golden opportunity — sadly, an opportunity to play on the economic distress of American consumers,” [FTC Chairman Jon] Leibowitz said.

Personal finance expert Clark Howard posted this on his website:

More than 270,000 businesses and individuals are believed to have already fallen prey to offers of “free government grant money” that can allegedly be used for bills, travel, education, health care and more.

It seems a popular and seemingly successful scam so far has had to deal with false grant money. For instance, non-profit organizations rely heavily on state and federally-funded grant money to complete projects and pay salaries. Non-profits are just one of the many sectors of the economy which are quick to struggle in an financial downturn. The opportunity to obtain this [false] grant money can create several eager targets for scammers:

For example, in “Operation Short Change,” the FTC, the Department of Justice, and 14 states filed more than 120 law enforcement actions challenging government grant scams, employment and work-at-home scams, advance-fee credit card scams, bogus debt relief services, and get-rich-quick schemes such as buying and selling foreclosed real estate.

The testimony highlighted recent FTC cases involving government grant-related schemes. The Commission charged Grant Connect, LLC, and related entities with misrepresenting their expertise and the availability of grants, and making unauthorized withdrawals from consumers’ bank accounts. Also, the FTC and three states obtained a federal court order halting Grant Writers Institute and its telemarketers, who allegedly charged hundreds of dollars for grant-related services and falsely claimed a 70 percent success rate in securing grant money. The Commission alleged that Web site operators using names like “Grants for You Now” enrolled consumers in a negative-option program with recurring charges of nearly $100 per month. An individual operating as “Cash Grant Institute” allegedly advertised “free grant money” in prerecorded robocalls and operated a fraudulent Web site with images of President Obama and the U.S. Capitol.

The FTC has launched a website to help consumers avoid stimulus scams and has also created a video to do the same. We’ll be sure to keep you posted on any further updates and resources on stimulus scams and how you can prevent yourself from becoming a victim.

(Original post published on 6/19/2009): Technology opens the doors to new opportunities that never would have existed without it. Unfortunately, those opportunities are just as accessible to criminals as to those looking to do some good. Where there’s honey, there are flies, and where there’s hundreds of billions of dollars, there are criminals just waiting for their piece of the action.

Fraud prevention expert David Williams says the country should expect about $50 billion to be siphoned off the stimulus package thanks to fraud — and technology may be partially to blame:

Williams said this week that the money flowing from the current stimulus package is particularly vulnerable to fraud because almost all movement of money is now done electronically.

That means keeping an eye out for the traditional scams such as billing for services not performed. But it also means firms must become even more diligent about electronic records and network security.

Earlier this month, FBI Director Robert Mueller warned the nation to brace for a potential crime wave involving fraud and corruption related to the economic stimulus package. “These funds are inherently vulnerable to bribery, fraud, conflicts of interest, and collusion. There is an old adage, that where there is money to be made, fraud is not far behind, like bees to honey,” Mueller said. See full story.

Considering the financial strains that have taken over many American households, even if the country lost a quarter of the fraud Mr. Williams is predicting, the impact could be devastating.

When we wrote about the potential for TARP fraud back in April, HSH VP Keith Gumbinger made an interesting point about the beneficial impact the money lost to fraud could have on this country.

“Even a 1% loss-to-fraud rate equates to $7 billion,” said Gumbinger. “You could pay off 70,000 failing mortgages of $100,000 each with that money, so tighter conditions need to be put in place.”

One of the reasons why the government says financial crimes have increased in the past few years is that after September 11 much of the FBI’s resources were dedicated to fighting terrorism. The FBI said that 2,000 agents were transferred from investigating white-collar crimes to counterterrorism. Washington says the bureau has since stepped up and refocused much of their attention to fighting financial fraud.

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6 Responses to “Update1 Experts Warn of Massive Stimulus Fraud”

  1. Paul Havemann Says: June 19th, 2009 at 9:40 pm

    We already have it on good authority that much of the stimulus money, paid for with our tax dollars, will be wasted:

    Vice President Joe Biden acknowledged on Tuesday that some waste is inevitable in the spending of a $787 billion economic stimulus package, in a characteristically blunt assessment.

    “We know some of this money is going to be wasted,” Biden said during a roundtable discussion in New York with business leaders aimed at promoting the two-year stimulus plan. …

    “There are going to be mistakes made,” said Biden. “Some people are being scammed already.”

    It doesn’t exactly fill you with confidence, does it?

  2. Tim Manni Says: June 22nd, 2009 at 10:43 am

    Paul,

    Hopefully the individual states will really take a hard line in supervising the money they get — monitoring waste, potential fraud, etc. I thinks talks of a second large stimulus really take away from the size and impact of this one.

    -Tim

  3. Rebecca Wilder Says: September 17th, 2009 at 10:30 pm

    I wonder what are the social costs (fore example, the scams) of the stimulus plan versus the benefits. It seems to me that innovative crooks are going to take advantage of this plan – hello, predatory mortgages in 2004-2007. I would love to know what each major political player wishes he/she knew in “hindsight” of it all.

    Thanks, Tim. Rebecca

  4. Tim Manni Says: September 18th, 2009 at 11:51 am

    Hey Rebecca,

    Great hearing from you again. Do you really think any political player that supported the stimulus will even comment on the fraud? I’m sure its critics will say “I told you so.” Again, I’m sure they had to expect the fraud, but I doubt that alone will have made them regret the stimulus (the supporters that is).

    Hope to hear from you again soon,
    Tim

  5. Rebecca Wilder Says: September 18th, 2009 at 12:11 pm

    Hi Tim,

    Fraud was a foregone conclusion. But it is likewise problematic that people just don’t learn. The Fed’s countless attempts at bringing about “consumer awareness” are just not working. Obviously, the unaware are always going to be unaware. I have seen the infomercials – you know, the ones where they are sitting around the table talking about “free” government money?

    Stimulus was still a good idea, though – even with the repercussions.

    Rebecca

  6. Tim Manni Says: September 18th, 2009 at 12:22 pm

    Rebecca,

    Agreed — I don’t think you could vote against stimulus on the fear of fraud alone. “But it is likewise problematic that people just don’t learn” — Think about, the stimulus is there to fulfill a need. The people who need something (usually $) to satisfy that need are those who are likely to be duped — it seems as though it’s almost a law of nature. Hence, “the unaware are always going to be unaware.”

    Perhaps the Fed should mandate that commercials that advertise this “free” govt money should be required to state at the end of the commercial whether or not they are sponsored by the Fed govt? Then again, I’m sure that wouldn’t solve the problem either.

    Great discussion,
    Tim

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