Credit Scams: On The Trail With A Fraud Investigator

Gary Bares, founder and director of Verifraud, a fraud risk management unit of Direct Alliance, which is a subsidiary of Teletech, has spent the last five years chasing down individuals suspected of committing fraud against distributors and solution providers.

CMP Channel last week joined Bares in Southern California for visits to several locations where Bares said a group that had been running an active "bustout" scam, in which four companies that recently earned new credit lines with distributors and solution providers disappeared after the products were delivered.

In the five years he's been tracking bustouts, Bares said this was the biggest operation he's seen in terms of the number of companies being run at once. As is often the case, credit applications that the companies submitted to distributors and solution providers show many of the same names and references to link them together. CMP Channel is withholding the names of the companies and the individuals because it is an active investigation and because no one has been charged with a crime.

Our first stop was to a small suite in an office complex in Orange, Calif. According to previous company claims, it was paying $60,000 a year in rent, indicative of a sizeable business. Interestingly, a sign outside the complex advertises suite rentals for as little as $199 a month and the suite attributed to the solution provider was no bigger than a bedroom.

We walked up to the second floor and down a small narrow hallway. At the where the solution provider purported to operate, the blinds were closedand the lights were out. The space adorned by company names in neighboring suites was blank. Three FedEx tags for attempted deliveries hung from the door, reflecting dates from Sept. 4-6. It appears as if the suite had been deserted, which did not surprise Bares. Typically, the fraudsters stay around to get the bulk of their deliveries, then split before the bills become overdue.

Our next stop was a couple of miles down the road. At this location, a FedEx tag hung with a Sept. 10 attempted delivery date. Also taped to the door was a notice of abandonment and an overdue rent bill. Again, it looks like anybody who was here wasn't coming back anytime soon.

Based on his experience, the bustout perpetrators make their quick strike, then disappear for a couple of years while they're building up an new portfolio of companies to use for their credit scams.

NEXT: Nobody Home

Despite distributors' best efforts to clamp down on credit fraud, the criminals are too often one step ahead. Several distributors have hired Verifraud to investigate suspicious credit applications. He said he had saved his clients from accepting orders from this group, but the plethora of delivery tags makes it evident that some channel companies still supplied credit lines.

"And these were solid companies," said Bares, who explained that company we'd just visited had been incorporated for three years. "I'm guessing 90 percent of distributors were approached by these guys. And this is just one group. We see this all the time. A new fraud comes along. One of my client sees 40 to 50 [bustout attempts] a year and they used to get burned 70 percent to 80 percent of the time."

Our third stop, also in Anaheim, resembled the first two with a UPS delivery tag hung on the door. But this time, startlingly enough, it was from the date of our visit, Sept. 25. Delivery must have been attempted that morning. Like the previous sites linked to this group, there was a notice of abandonment and non-payment notice from the landlord.

Bares has seen enough bustouts through the years to predict their life cycle. Based upon the timing of their credit applications, Bares said he accurately predicted the demise of the first three locations.

Our final stop associated with this ring was the fourth, and largest office, believed to have been occupied by the group in the current bustout. Bares thought this site might still be live because bustouts traditionally vacate the largest facility last, he said. That may be true historically, but there was no sign of activity during our visit. Like the other sites, this front door was littered with UPS, USPS and DHL delivery tags -- more than a dozen of them, all from the week of Sept. 17.

Bares notes that the number has increased dramatically from a visit he made a few weeks earlier. In addition, there was also a notice of abandonment and even business cards from a distributor and a business security firm, perhaps seeking restitution.

"Did you notice they all had abandonment notices? All these companies have been incorporated for at least three years. For them to all go [vacant] within a week of each other, that's pretty phenomenal," Bares said. The abandonment of the largest office surprised even him.

"I've never seen all four companies go at the same time. It looks like they took off with packages on the way. It's like they're leaving money on the table. Maybe they got spooked, or maybe they think they got enough money already," Bares said.

Bares expects the ring to have walked away with more than $3 million in products, basing the claim both on evidence and similar characteristics to previous bustouts he's investigated.

"Not bad for a couple of months work," he said.