A small cottage industry of online criminal entrepreneurs have been making bank abusing Amazon’s super customer-friendly return and merchandise replacement policy, according to court documents in two recent federal cases and conversations with cyber crime experts. The company has of course been subject to plenty of fraud in the past, but the latest swindles suggest its increasingly spectacular wealth has made it all the more inviting as a target—if only because the losses represent a drop in a veritable ocean of unreal corporate profit.
Last week in Tallahassee, Florida, Joseph Sides was arraigned on federal charges of wire fraud, mail fraud, and conspiracy to commit mail fraud. The 24-year-old from Boca Raton, who pleaded not guilty, was accused of masterminding a scheme to obtain compensation for items he falsely claimed were either damaged, defective, or not delivered.
Specifically, the feds alleged Sides scammed Amazon out of about $230,000 worth of electronics—including gaming consoles, accessories and a GoPro camera—by using false names with corresponding email addresses, altered street addresses for the deliveries, and unnamed co-conspirators. He created some 501 fake Amazon accounts that were used to make 821 successful requests for replacement merchandise, refunds, or other concessions on a total of over 1,200 orders between March 1, 2016, and June 15, according to the indictment.
The prosecution against Sides came on the heels of another case involving Erin and Leah Finan, a couple from Indiana. Last year, the pair pleaded guilty to scamming $1.2 million from Amazon by fraudulently obtaining 2,700 replacement items, mostly electronic goods. On May 29, Erin was sentenced to 71 months in prison and Leah was sentenced to 68 months in prison. Meanwhile, Sides was facing up to 20 years behind bars for each charge.
To some extent, experts said, Amazon scammers were just honing a steadily-evolving grift of modern retail.
“In the old days, you would shoplift something from a department store and then go to a different department store belonging to the same company and return the item,” Michael Benza, a criminal law professor with Case Western Reserve University, told me. “It’s the same type of scam—criminals are just doing it digitally instead of physically going to a store.”
Benza added that these kinds of crimes usually fall under the radar until the returns start to pile up.
“To most people $230,000 is a lot of money, but for Amazon it probably doesn’t do anything to hurt its stock price,” he noted. “However, if a very large number of customers do this to Amazon, the company will see a lot of money going out the door. I imagine in this case, Amazon got involved to send a message to cyber criminals.”
Benza went on to argue Amazon likely provided investigators with data mined from transactions it was able to link to Sides. (An Amazon spokesperson declined comment for this story, but the feds noted "assistance from Amazon.com" when announcing the charges.) “Even if he has fake email addresses and multiple addresses for delivery, Amazon has developed ways to collect data to still find him,” Benza explained. “Something he was doing triggered an investigation by Amazon and they tracked him down.”
According to the indictment, various email addresses were set up under Sides’s name and he used gift cards and prepaid credit cards and debit cards to pay for merchandise in attempt to conceal his identity. (His attorney declined to comment for this story.) Sides also allegedly used the US Postal Service and services like UPS to ship the items to addresses with altered street names where he and his unnamed co-conspirators would pick up the packages, as well as directly to UPS stores.
According the feds, his haul included Xbox One and PlayStation 4 gaming consoles, wireless controllers and a GoPro HERO5 camera. Sides then sold the products on eBay, Craigslist and Gameflip, a gamers’ online marketplace, the feds said.
Rod Soto, director of security research for cybersecurity firm Jask, said the online returns racket had become one of the fastest growing scams on the Internet. “Some involve sophisticated groups that purchase programming scripts on the dark web that allows them to automate the creation of fake profiles and follow certain items to purchase,” Soto said. “It’s a lot easier to catch one person, but when you have 30 people placing orders at different times and sending items to different addresses [and] foreign countries, it is a lot harder to track down.”
Tom Kellerman, the lead at another cybersecurity firm, Carbon Black, said because cyber thieves use fake email addresses and other, more sophisticated methods to cloak their true identities, building a successful case isn’t always easy. “Less than five percent of cyber crimes are prosecuted,” he estimated. “We are starting to see criminal organizations using artificial intelligence to bypass analytics and algorithms set up by Amazon to detect fraudulent activities.”
Still, schemes involving requesting refunds or replacement merchandise barely cause a ripple for Amazon, which reported in July that it had pulled in $2.5 billion in profits for the second quarter of 2018—by far the best showing in company history.
“Regarding impact on Amazon’s bottom line, the retail side of the business is not the real profit center, it’s the Amazon Web Services side,” Soto said. “The company expects some minimal level of losses from fraud or abuse of the liberal return policy and they largely mitigate that from the enormous volume of sales there.”
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