Saturday, December 19, 2009

Great article on counterfeit cashier's checks

I wanted to share an article I found on the dangers of counterfeit cashier's checks with you. Not only does this article contain a lot of great information, but it mentions our site, Scam Victims United.

This article was originally published by MSN Money, on Friday, Dec. 11, 2009.

Did you get conned into joining a check-cashing scam? Even if authorities decide you're an innocent victim, you could find yourself owing a bank thousands of dollars.

By Katherine Reynolds Lewis

Cash a check, go to jail. Or at the very least, empty your own savings account and ruin your credit.

It's happened to hundreds of thousands of Americans who believed that banks don't make funds available unless the checks they've deposited are genuine.

It happened to Calvin Barnett, who could face 11 years in prison for doing what he said he thought was his work-at-home job.

As unemployment reaches its worst levels in generations, scammers are finding a growing pool of victims all too willing to deposit strangers' checks, then return part of the money by wire transfers.

"There's a knowledge gap that these scammers are clearly taking advantage of," said Susan Grant, the director of consumer protection for the Consumer Federation of America. "Under federal law here in the U.S., financial institutions have to give consumers access to the money from checks and money orders they deposit pretty quickly, usually within one to five business days. It can take much longer for counterfeits to be discovered, by which time the consumer has already sent the money."

"The problem is the con men are very persuasive," said Nessa Feddis, a vice president and senior counsel at the American Bankers Association, which is working with the Consumer Federation to educate consumers about check fraud. "People are desperate. They want to work. They want a job."

How the scams operate

Fake-check scams lurk under a number of disguises, but they share a common framework that depends on:

  • A U.S. law that requires banks to make funds available to depositors in five business days or less -- more quickly than the bank typically can verify the check is genuine.
  • Willing victims.

A fake check -- often drawn on a real account but printed in some scammer's basement -- may arrive as part of a work-at-home job offer or a sales transaction that feels like the answer to a desperate prayer. The scam artist will instruct you to cash the check, keep a percentage and wire the balance to a designated account.

A Consumer Federation study found that 1.3 million Americans have fallen for fake-check scams, losing an average of $3,000 to $4,000 per victim. Fake-check scams are the No. 1 fraud reported to the National Consumers League. The American Bankers Association estimates that bank losses from counterfeit checks totaled $307 million in 2008, up from $252 million in 2006. More than half of the banks surveyed this year expect losses due to phony checks to rise in the next 12 months, Feddis said.

Why you're on the hook

When the counterfeit is discovered, you -- the person who deposited it -- are responsible for paying back the money. After all, the bank gave you the cash, and you chose to wire it to the scam artists. It's illegal for the bank to deny you access to the funds, even if a teller suspects the check may be phony.

"It's a balance between giving people access to their money and preventing fraud," Feddis said. "The consumer is in the best position to know that they should be suspicious. . . . The bottom line is, why are they asking you to wire money when they're sending you a check?"

In the Consumer Federation survey, 59% of people wrongly believed that the financial institution confirms a check is good before allowing you access to the money.

The most common consequences

If you fall for a check-fraud scam, when the bank discovers the counterfeit checks it will deduct that amount from your account or freeze your account if there aren't sufficient funds.

That's what happened to Harry Smith, 25, of Union City, N.J. Smith answered a Craigslist ad for a paper company purportedly based in England that claimed to need a U.S.-based worker to expedite order processing. He cashed three checks totaling $6,000, kept 10% and wired the balance to the "production managers."

"I figured if whatever check I did have wasn't good, it wouldn't go through at the bank," Smith said. "I had constant communication with this other person, so I felt there wasn't anything wrong."

But when he called the return phone number on the FedEx package containing the checks, the person who answered had no knowledge of Smith's supposed employer. He went to the bank and had to wait more than a week to confirm they were counterfeits. If he didn't repay the bank the $6,000, he would be reported to ChexSystems and wouldn't be able to open a U.S. bank account for at least five years.

"Luckily I opened another one before it got reported," he said. Now the $6,000 has been turned over to a collection agency, and "I pay about $250 a month for two years to pay it off."

When you become a criminal

Cashing a fake check becomes a criminal act when you are aware of the counterfeit. Typically, banks won't press charges unless it's clear you knew about the scam, Feddis said.

But just because you know you're innocent doesn't mean that law enforcement will see it the same way.

Earl Walls of Huntington, W.Va., 68, had never been in trouble with the law before he deposited phony checks and wired $3,000 to scam artists. After his arrest, the bank froze his account; he couldn't even pay a retainer to a lawyer. According to county rules, his income from Social Security was high enough that he didn't qualify for a public defender, but the bank wouldn't let him withdraw from his account.

"I had no money," said Walls, retired from a job as a supervisor in a corrugated-box factory. "I had to get out and borrow money from friends and relations to make a house payment."

Fortunately, his neighbor contacted the West Virginia Attorney General's Office, which recognized that Walls was a victim rather than a criminal, said Derek Walker, the chief investigator for the attorney general.

"He received instructions from this 'employer,' and he followed the instructions to the letter," Walker said. "His story checked out."

After state officials talked to the county prosecutors, Walls received a pro bono public defender, and all charges were dropped. But to this day he feels anxious when he sees a police car or even a FedEx truck -- like the one that brought the counterfeit checks to his door -- in his neighborhood.

Innocent or guilty?

Calvin Barnett wasn't as lucky. For two years he's been awaiting trial for cashing a $3,000 counterfeit check he received after answering a Craigslist ad for a payment processor job.

"I haven't told my family," said Barnett, 30, who had moved to New York City from Alabama in 2007 to seek work. "I was just embarrassed that I could be so stupid."

The police were suspicious because he received the check at a post office box and cashed it at a bank where he wasn't a customer, said his attorney, Damien Brown. A spokeswoman for the New York District Attorney's Office declined to comment on Barnett's case.

Barnett is free on bail but has had trouble finding work due to the criminal indictment against him. "My life is in abeyance," he said.

How to spot the scam

The best way to avoid being scammed is never to wire money to someone you haven't known for a long time, Walker said. Even then, confirm that the person you're sending money to actually is the relative or friend you want to help.

One West Virginia resident received an urgent call asking "Grandma" for help. She blurted out her grandson's name, and the caller said, yes, that was him. But after she wired the money, it turned out that her grandson was fine. She'd just been scammed, Walker said. (See "Beware fake grandkids calling for cash.")

Other tips include:
  • Never pay money in order to claim a prize. No legitimate lottery or sweepstakes will ask you to send money in advance before receiving your winnings. If you were actually a winner, you'd pay any taxes directly to the government after getting your prize.
  • Never pay for grants from foundations or the government. Genuine grants -- which mostly go to organizations -- don't charge for money and have lengthy application processes.
  • Never send money to anyone who asks you to cash a check or money order, whether in connection with the sale of an item, a work-from-home job or an Internet romance.
  • Never wire money to someone unless you have met him or her in person and have known each other for a long time.

To learn more about scams, contact the Consumer Federation of America, the Federal Trade Commission, and of the National Consumers League, Scam Victims United and Fraud Aid.

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