How Does Identity Theft Cause Fraudulent Losses?

Identity theft is a subject that is raised and discussed at many fraud forums and similarly reported in an increasing number of news articles. It is not just the cloning of identities followed by fraudulently obtaining goods or services on credit cards that results from identity thefts. Some very complex frauds are built on false identities and credibility stolen from others.

A report in this week’s Financial Mail in the Mail on Sunday illustrates how such fraud might be working. It involves a potential boiler room fraud which involves the selling of bogus or worthless shares in business ventures by high pressure salesmen. Credibility to their product is provided by details of another real and likely more successful venture whose details can be checked in the public domain.

In this case it appears that an oil company is touting for investment in its two “proven” oilfields. Its web site gives details of a director that are the same as those of another company Petroneft Resources who also has oil fields in Lineyoye and Tungolskye, names that are curiously similar to those quoted for the other bogus oil company. The bogus oil company cannot be contacted and its address details given are false. Petroneft, which is based in Ireland and is clearly a bone fide company, was astounded to find that there is another company that appears to be advertising the same assets as it owns.

Petroneft has reported this instance of credibility hijacking to the Irish Financial Regulator, Financial Services Authority and City of London Police. The FSA say that incidents of identity theft and associated unauthorised sale of investments in typical “boiler room frauds” has increased dramatically over recent months. In the last three months alone it has received 29 such reports.

It does seem that even with the current economic climate that there is plenty of money that investors are seeking to find homes for. This may be a case of moving funds around in an increasingly competitive market or there being more money available for investment. Whatever the case, people with money and those responsible for others’ are still investing in bogus schemes at an alarming rates. Ponzi frauds and other advance fee scams are still being reported and the current flavour it seems is the boiler room threat.

Financially astute persons (i.e. those with money or investing it for others) should not be easily caught by these scams. There is a level of fraud prevention due diliegence that can be carried out that does not involve much effort but will uncover, or at least throw up some red flags, most of the bogus investment opportunities. It is no good relying on company searches in a climate where identities are so easily hijacked. Drilling down into an individual’s or organisation’s identity is essential, to uncover all of the public information available and checking or cross referencing this wherever possible. When investing several £100,000 or millions, surely it is worth checking to see if a director is who he says he is and lives at his stated registered address? For a few pounds this, and many other details, can be so easily verified.

Mark Jenner is a forensic accountant specialising in fraud investigation and fraud prevention.

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