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|The deal sounded sketchy to Axel Halvarson of Providence, Rhode Island. But coaching cheerleading part-time for a college wasn’t quite paying the bills, so he buried his doubts about a job opportunity sent by email.
He was told he could get paid for checking out the quality of retail operations at an Apple Store.
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Halvarson was sent a check for $3,000, deposited it and, as instructed, bought $2,600 worth of gift cards at an Apple Store using his debit card. The remaining $400 was to be his wages — except the check bounced.
Before he realized it was all a ruse, Halvarson had sent scammers the card and PIN for two $1,300 gift cards. So instead of landing a second job, he lost $2,600. “I’m still freshly out of school and getting by,” says Halvarson, 24. “That’s a good chunk of change.”
Halvarson has plenty of company — and his misfortune is a cautionary tale as the busy holiday shopping season kicks off.
Three-quarters of the way into 2020, $79.9 million has been reported as lost in scams involving gift cards and reload cards, according to the Federal Trade Commission (FTC), up from $75.6 million for the same period in 2019. Reported losses for all of 2019 were $102.9 million, a big increase from the $78 million in losses in 2018 and $39.7 million in 2017.
Gift cards are a leading payment method for scammers. As carrels of cards grew like weeds in stores, criminals realized they were an easy way to rake in money that’s untraceable. The FTC has cracked down on wire-transfer fraud, and consumers have gotten smart about not giving out their credit card numbers to strangers, contributing to the rise of cards as a favorite for rip-off artists.
Gift cards now are being used in many scams: to make amends with the “Internal Revenue Service” for back taxes, to send funds to “grandchildren” who assert they’ve been in an accident and need help, to purchase “tech support” for imaginary computer problems and to pay “Social Security” to remedy supposed identity-theft problems. Except the purported recipients aren’t real — they’re all crooks, with some part of criminal networks.
“If someone is asking you to put money on a gift card to pay them, it’s a scam,” says the FTC’s Patti Poss, a senior attorney in its Division of Marketing Practices.
It’s easy to second-guess how someone can fall for these ruses, but criminals are very persuasive, says Amy Nofziger, AARP’s director of fraud victim support. They can keep victims on the phone to prevent them from getting an objective view from a trusted friend. Some even convince victims that they are about to be arrested for unpaid taxes and tell them exactly what cards to buy, usually iTunes, Google Play, Amazon or Steam.
“Your blood pressure goes up, your adrenaline starts rushing and you think, I have to do whatever it takes to get out of this situation,” Nofziger says. “It doesn’t matter your educational level or your financial level. We all can be put under that emotional ether to be victimized.”
Once a victim reads a gift card number and PIN over the phone — or sends a digital photo of the numbers — a criminal can immediately spend the funds online or sell the data on the dark web. Some crooks don’t wait for a photo; they keep the victim on the phone until the numbers are read to them.
Many retailers are training clerks to help customers avoid traps. At CVS, for instance, a message pops up on credit card payment screens warning people that prepaid cards are used in scams.
Target spokeswoman Danielle Schumann says the retail giant works with law enforcement and has a website to educate consumers about common scams. “We are aware of the prevalence of scams like these and take them very seriously,” Schumann says. “We have signage in our stores and share general safety tips with our team members through training, so they can stay alert and help guests as best as they can at our registers.”
FTC officials urge people who are defrauded to tell the agency by visiting ReportFraud.ftc.gov. Victims should also contact law enforcement and the gift card company, and the FTC lists phone numbers for major companies here: consumer.ftc.gov/articles/paying-scammers-gift-cards.
Even if a scammer is long gone with the proceeds of a crime, reporting helps officials understand what ploys are being used so they can educate people and prevent future losses.
Nofziger says that too often, victims don’t report the crime. “They are embarrassed and ashamed, and they don’t think it does any good. But that’s how we know how big the problem is.”
Examining fraud reports from people 60 and older during 2019, the FTC says the age demographic lost $43 million by turning over gift cards or reload cards, such as Green Dot’s MoneyPak, up from $29 million the year before. Such cards were the top method of payment for people age 60-plus who lost funds to fraudsters in 2019, a trend that emerged during the second half of 2018.
A woman in suburban Atlanta bought about $35,500 in gift cards redeemable at well-known merchants — Nordstrom, Target, Sephora and the video game retailer GameStop — and fraudsters took every last nickel, authorities say.
The woman’s 11-hour ordeal began one day in November 2019 after she was inundated with phone calls from people posing as federal agents, according to a federal indictment in Atlanta. She was told that her that Social Security number had been compromised, that there was a warrant for her arrest in Texas and that “she should tell no one about the purported investigation,” the indictment says.
Warned that her assets would be frozen and told she needed to “protect” them, she was directed to buy multiple gift cards. Fraudsters kept her on the phone the entire time, authorities said, and she gave fraudsters the cards’ serial numbers and PINs but got “nothing in return,” the indictment says.
The woman, from Marietta, Georgia, is not alone. The defendants allegedly passed tens of millions of scam calls from India to residents in the U.S., leading to more than $20 million in victim losses during a five-year period that ended in June 2020, the indictment says.
The scam callers purported to be with government agencies or businesses. They left U.S. victims voicemail and robocall messages with callback numbers that connected them to foreign fraudsters. Then, scammers in India would try to extort the potential victims, the indictment says.
Sometimes the scammers purported to be from the Internal Revenue Service and said victims owed back taxes. Or they touted fictitious loans and demanded upfront fees. Or they threatened victims with foreclosure of their homes.
The defendants are Gaurav Gupta and a business called E Sampark, which is in Gujarat, India, and provides Voice over Internet Protocol (VoIP) calls. Gupta is a director of the firm. If he is convicted and travels to the U.S., Gupta would face immediate arrest, according to a prosecutor, who noted the U.S. has an extradition treaty with India, so convicted defendants also may be subject to extradition.
In a related action, a company in Florida that provided computer servers to the operation has been ordered by a judge to stop helping perpetuate the scheme, authorities said. “The defendants bombarded American consumers with scam calls, causing emotional and financial devastation, including to vulnerable and elderly individuals,” says Byung J. “BJay” Pak, U.S. attorney for the Northern District of Georgia, where the case was brought. Pak said such bad actors would be probed and “brought to justice.”
Editor's note: This article was originally published on November 7, 2019 and has been updated with new information.