Fraudian Slip - Advertising Scam

While the world sings paens about digital advertising and every marketer wants a slice of the pie, Harvard’s Benjamin Edelman says beware

If you thought that the word scam in advertising is only about ‘December advertising’, or the art of creating ads for award fests, Benjamin Edelman will tell you that you are “sadly mistaken”. The assistant professor of business administration at the Harvard Business School has been at the vanguard of exposing advertising frauds in the digital world. In India for a symposium organised by the International Advertising Association, Edelman talks to BE about the big bad side of digital advertising 
    

You say that your task is to ensure that advertisers get what they are promised and what they are paying for. Does it mean that online customers are not getting a fair deal? 
It could certainly be better. There is enough reason to believe that digital advertisers are getting overcharged, that too for work that’s not actually performed. Many advertisers have no idea that these scams are possible and they are certainly not aware that they are affected. 

    

What are some instances that point to the lack of online advertising accountability? 
Here’s a common example of a real advertising scam. Advertisers buy display advertisements or banner ads on websites and it’s very important for viewers to see the ad. Many times the advertiser pays each time the ad is seen (pay per impression). But what if the ad was shown in an invisible window, where the ad is not seen by the viewer? I have come across websites with more than 100 invisible windows downloading invisible ads and charging advertisers as if the user had seen the ad. Think about what that means. The site might actually show three visible ads but charge for showing 103 ads. As a result the site gets paid several times more than they deserve. Think about a scenario where an advertiser pays per impression, and the site actually shows a million impressions. If the advertisers think that their ads were seen by a million people, they’re sadly mistaken. 
    

And what are the not so common forms of scams? 
They load software like spyware on a user’s computer and track what the user is viewing without his/her knowledge. Here is a real example. Go to, say, Dell’s website to buy a laptop. As soon as you are about to click ‘add to basket’ the spyware in your computer covers up the Dell Website completely with a list of ads. One of those ads will say ‘Dell Official Site get 30% off + a laser printer, click here’. Most customers click on that and the customer comes back to the ‘add to basket’ feature. Even as life came back to normal for the customer, what happens to Dell? One of Google’s partners had probably taken the Google ad and put it on the spyware pop-up that gets triggered when the user is already on the verge of making a purchase. That’s a scam. Because when Dell eventually looks at its tracking data, they will think that the user clicked the ad first and then came to make a purchase, when in reality the opposite is what happened. The entire marketing exercise will look great to Dell with probably 20 per cent of their visitors going on to make a purchase. 

Web Of Lies 
Next time, Dell probably makes a higher bid and may send Google a box of chocolates for being excellent. Because Dell does not realise that it could have sold as many laptops without paying Google anything. It’s jumping to the conclusion that it sold those laptops thanks to the ad, when in reality it probably sold them because of its brand repute or thanks to the TV ad. This is real and not hypothetical. And it happens to many big advertisers because big companies get more traffic on their sites and you can steal from them without getting noticed. These tactics are not dependent on location of a company. Anyone who buys ads from Google is potentially at risk. 
    

When users search for a certain brand its competitor ads invariably pop up on the side. What are consequences for both brands? 
When users search for a certain trademark and receive ads from the competitor of that trademark, it’s highly opportunistic. In most countries it’s illegal. In most of Europe, barring the UK, it’s illegal. Google has lost many cases in these countries and has changed its policies. My view is that such ads are bad for both companies and consumers. When consumers type a particular brand there is a reasonable expectation that every link on that page is going to be responsive to what they asked. It’s terrible for the trademark as they have spent a considerable amount of time and money in building their brand, so that consumers go online and ask directly for them. And what happened? Competition sucks away the consumer. Another fall out of this is that more the demand for a certain keyword, prices go up very sharply. 

What are the common mistakes that advertisers make in the digital place? 
The most common mistake made by advertisers is in assuming perfection and honesty. In traditional media, advertisers trusted newspapers when they said they have a circulation of say 100,000 copies. Not that people read every page and every column on all days. But fundamentally, newspapers are honest in telling you what they can offer. Newspapers have a reputation to protect. If they lied about circulation, eventually someone would find out. 
Not so online. If a website lies about the number of hits and cheats, it can change to a new name and do it all over again. Websites have much less skin in the game and less reputation to protect. 

How do advertisers ensure that they are protected? 
Stay away from small sites and unheard of sites. If they cheat, you can’t do much about it. One of my US clients was cheated by a website in Lebanon. You cannot sue to recover $20,000 from Lebanon. Closing yourself to doing business away from home is a closed notion. But if you do business with a partner who’s far away, pay them more slowly, after a 60-90 day delay. If you catch them in that timeframe, you can save that money. The truth is, honest publishers wouldn’t mind waiting for 90 days. 
Advertising networks pay digital publishers too quickly. Some of them even get paid twice every week. Companies don’t even pay employees like that. My analysis is that everyone is getting cheated. The only difference is by how much. For transaction oriented advertisers, where ads are linked to the final transaction, an average of 10-15% of advertising spends is being wasted. That might not look huge, but it’s that kind of money that can straightaway go to your bottomline. It’s reasonable to save 10% on advertising costs without any loss of effectiveness on advertising. 

    

What lessons can Indian advertisers take away from other markets? 
If you look at the US market, what jumps out is that advertising networks are spending advertiser money figuring out where to show the ad and are not careful about spending money in the right place and avoiding fraud. These ad networks play fast and lose. Imagine many ways to fix this problem. For example, the top 20 advertisers should form an association and demand from ad networks that they provide a better guarantee, so they get what they are supposed to get. This almost sounds like a union of advertisers demanding accountability, transparency and itemised billing. In the online space, there is a huge benefit in getting systems like these in place. The time to do it is now, in the early stages. Once things solidify, it will be very difficult to change long established practices. 

Source : The Economic times, " Brand Equity ", By Prasad Sangameshwaran 

Satyam scandal will change global outsourcing rules

Companies may find it difficult to trust the Indian outsourcing community as the allegations of accounting fraud at Satyam Computer Services have raised serious concerns about its operations and survival, according to a new report.

Booz & Company's report indicated that firms working with now troubled Satyam are anxious as to whether or not it will survive and its current customers need to determine how this will affect their operations.

"Customers will no doubt expect much higher standards of financial transparency and due diligence after this; and every company needs to set up a systematic way to analyse current outsourcing relationships and develop workable risk mitigation against short-term service disruptions," said Ramez Shehadi, a partner at Booz & Company.

The Satyam scandal sent shock waves through the global IT community, making top executives worldwide wonder if it was an isolated incident, or a watershed in the globalisation story of Indian business.

"Companies with long-term relationships with Satyam have one primary concern: Satyam's survival," said Shehadi. It will not be in a position to invest significantly in client engagements, staff development or R&D; all critical elements for an IT services company; and it must spend a great deal of time and resources working through its accounting issues and dealing with extensive external regulatory investigations in both India and the US.

Despite most Indian IT and BPO companies stating they will not poach Satyam employees or clients; several firms are trying to wean away Satyam clients. 

On the positive side, most of the outsourcing work in India is done out of centres in Hyderabad, Bangalore, and Chennai – home to many Satyam competitors. Plans for the absorption of staff and clients are expected to be drawn up by competitors within days, and shifting to take place within weeks. For Chief Information Officers, the possibility of this upheaval has caused a concern regarding the operational resilience of these new relationships.

"We recommend Satyam's clients move quickly to assess the damage and put in place contingency plans for service continuity," said Shehadi. They must determine their exposure to, and reliance on Satyam, with a comprehensive inventory of the projects Satyam was working on.

Source: www.business24-7.ae, By a Staff Reporter

Creator of subprime monster 'dismayed'

NEW YORK: As world leaders were putting the finishing touches to their G20 communique in London last week, Michael Osinski was up to his thighs in water on the other side of the Atlantic, retrieving oyster cages at low tide off a misty Long Island.

Nowadays he supplies oysters to some of the best restaurants in Manhattan. But in his previous incarnation, Mr Osinski played a crucial, if inadvertent, role in stirring up the financial whirlwind that has battered the world. As the top computer programmer for the titans of Wall Street, he wrote the complex software that bundled home mortgages into bonds, making possible the subprime loans collapse that sparked the global meltdown.

"I didn't realise I was building a bomb at the time," said Mr Osinski, 55, as he reflected on his part in the worst slump since the Great Depression. "I thought I was building something that was a valuable tool for the industry. And for many years, it was." But, he added, "the software turned out to be more sophisticated than the people using it".

Mr Osinski decided to go public about his contribution to the crisis after two encounters in the same day. "I was in a coffee shop near my home and got talking to a stranger about what I used to do and at the end he said: 'You're the devil'.

"And shortly afterwards, I saw a friend and neighbour and he told me: 'You're the facilitator'."

So how does he feel about being so intimately involved in a process that has devastated the savings of family, friends and strangers? "I feel very bad and certainly somewhat responsible. It nags at me. But ultimately I feel more dismay than guilt that my work was used like this."

Mr Osinski bounced around various Wall Street firms after landing his first job at Salomon Brothers in 1985. In 1995 he ended up with the company that supplied the software for nearly all the big finance houses. It was also around then that a client asked him to enhance his software to include a new ingredient - "subprime" debt. Mr Osinski's reaction was excitement at the prospect of new customers and new challenges.

After he left Wall Street in 2001, the financial institutions developed ever more complex, mysterious and risky financial instruments, but still relied on the industry standard programs Mr Osinski developed.

He has regrets every day, but they are tempered with the belief that others misused his work, sometimes fraudulently.

Source : Sydney Morning Herald, 06.04.09

Chip and pin ‘makes fraud even easier’

The original Catch Me If You Can con man says Britain’s new card system is wide open to abuse. By Jessica Bown

Frank Abagnale, whose life story inspired the Leonardo DiCaprio film Catch Me If You Can, served five years for fraud after posing as an airline pilot, a doctor and a lawyer and cashing $2.5m (£1.3m) of fraudulent cheques between the ages of 16 and 21.

Now 58, he has used his skills to help the FBI fight fraud for the past 30 years and also works with CIMS, which offers identity-fraud protection services.

He does not believe that chip-and-pin technology, which requires transactions to be verified with a four-digit number rather than a signature, will prove much of a challenge for professional fraudsters.

The information sent out by the hand-held card reading devices used in restaurants is not encrypted, for example. Any criminals nearby with an information receiver can therefore capture the data, including the pin entered — actually making it easier for them to commit certain types of fraud.

Abagnale said: “Anyone sitting at another table with a laptop would be able to pick up the messages being sent to and from the card readers.”

His concerns about the vulnerability of chip-and-pin were reinforced last week by news that 600 Shell petrol stations have suspended use of chip-and-pin terminals after more than £1m was stolen from customers’ accounts. Fraudsters masquerading as engineers sent to test the equipment instead fitted the keypads with memory chips that logged customers’ card numbers and pin codes.

They then used the information to plunder accounts by making counterfeit cards and using them to withdraw cash from cash machines. Fraudsters were only able to clone the cards’ magnetic strips, rather than the chips, but many ATMs are not yet fitted with chip readers and therefore still use the strips.

The Association of Payment Clearing Services (Apacs), which masterminded the introduction of chip-and-pin in Britain, admits the technology used by Shell failed in this instance.

Mark Bowerman of Apacs said: “We are confident that this problem is specific to the type of keypad that Shell uses. But chip-and-pin keypads are supposed to shut down when tampered with so that part of the technology has obviously failed in this case. We are working with the manufacturer to ensure that this doesn’t happen again.”

One plus point for proponents of chip-and-pin is that the criminals did not use the fake cards to make purchases from other retailers because they could not clone the chips.

However, Abagnale believes that it will not be long before they find a way to crack the system completely. He said: “There is no foolproof system. Anything devised by a man or a woman can be defeated.”

Criminals are also targeting chip-and-pin users by fitting cash machines with a device that captures card data and positioning a camera nearby to record customers’ pins.

This can be done either by posing as a cash-machine maintenance man, or by bribing bank employees to allow them access to the dispensers. There have also been cases of dishonest shopkeepers installing cameras to record the numbers that customers key in.

Figures do suggest, however, that the introduction of chip-and-pin has initially helped to cut overall card fraud, which fell from £504m in 2004 to £439m last year.

Card-fraud losses also fell in France when a pin-based payments system was introduced in the 1990s. Sceptics say this was because criminals targeted less advanced countries such as Britain instead. Now that option is no longer open to them, they are expected to make use of today’s technology to find ways round the system.

Another unfortunate side effect of chip and pin has been to boost internet and telephone credit-card fraud, known as “card-not-present”, for which criminals do not need to know your pin. The cost of this kind of card crime leapt from £151m in 2004 to £183m last year.

The government claims its controversial plan to introduce identity cards will help to cut fraud losses. A Home Office spokesman said: “Identity cards should help to cut fraud and we have taken other measures, including increasing the penalties for possessing false identification documents.”

Fears are growing, though, that identity cards will simply make life even easier for fraudsters. Abagnale said: “Within six months the new identity card will have been replicated perfectly. And because it condenses all the information on an individual in one place, the fraudster won’t have to find it.”

His approach is to avoid online banking and pay for everything on a cashback credit card that he pays off at the end of each month. Abagnale said: “I don’t use a debit card because that’s putting my own money at risk. Instead, I put the liability for any fraud on to my credit-card company.”

But this may not work for much longer, because he thinks lenders will soon begin putting more liability on customers.

WAYS TO PROTECT YOURSELF FROM FRAUD

• Never give out your pin. Neither your bank nor the police will ever ask for it.

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• Only give out card details over the phone when you have instigated the call.
  
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• Never write down your pin and remember to shield it when keying it in to make a purchase in a shop or restaurant. 
  
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• Check paper and online statements from your credit card company or bank carefully as soon as you get them and query any transactions you do not recognise immediately. You should also check your credit file regularly by contacting a credit reference agency such as Callcredit, Equifax or Experian. 
  
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• When shopping on the internet, only use secure websites that display a locked padlock or an unbroken key icon in the bottom right corner of the screen. Internet shoppers can also sign up to the anti-fraud services Verified by Visa or Mastercard Secure Code. 
  
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• Never use an e-mail link to get to a website where you are going to enter your personal details. Instead, type the site address directly into your internet browser. 
  
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• Buy a criss-cross shredder and use it to destroy any old documents that include your bank or personal details. Sales of document shredders have rocketed in the past 12 months. However, documents cut into vertical strips using a linear shredder are easy for criminals to reassemble. 
  
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• If you are selling an old computer, check that you have wiped all personal details first. Up to 50% of computers sold on Ebay contain bank-account and credit-card numbers.

Source: www.timesonline.co.uk.

Minkow Trades on Inflated Resumes Gross $1.2 Million

(Bloomberg) -- Barry Minkow says he spent as much as $300,000 to develop a system for finding executives who pad their resumes. He says his firm grossed $1.2 million last year from options trades betting against their companies.

Minkow, a convicted felon, founded the San Diego-based company he calls the Fraud Discovery Institute in 2001. He has also made money giving speeches, writing books and selling videos called “Frauds Gone Wild,” and he says he tripled the firm’s annual revenue to $2 million in 2008 by focusing on resume discrepancies.

“We’re not in this to lose,” Minkow said. “What really increased the revenue was the resume shorting.”

The trading profits pay for other less-lucrative investigations or are donated to San Diego-based Community Bible Church, Minkow said. Last year, he paid himself $100,000 plus expenses from the institute. At the church, where he said he hasn’t received a salary for the past two years, Minkow is the senior pastor overseeing six other ministers. He converted to Christianity while he was in prison, he said.

In the past six months, Minkow has reported finding misstatements in at least 15 executives’ resumes that were posted in corporate filings, on Web sites and in press releases. All were independently confirmed by news organizations. After the disclosures, four executives left their companies, one was fined $100,000 and another was reassigned within his company.

Buying Put Options

Minkow profits by buying put options, giving him the right but not the obligation to sell a stock at a specific price by a specified date. A put option increases in value as the price of the underlying security falls. The more a stock declines, the more profitable it becomes for the option holder.

In his push to uncover resume inflation, Minkow has targeted industries in which he says he heard many complaints from investors, such as technology and financial services. Now he’s widening his search to other businesses and, he says, finding fewer instances of resume tampering.

“It’s more work to find them but they are still around,” Minkow, 43, said. “The hit ratio isn’t as high but it’s still high enough to make it a worthwhile endeavor.”

Finding Padded Resumes

Amtek Technologies, a San Diego Web and database designer, built the resume-culling software Minkow uses to his specifications last year, he said. Using one of his three Sony Corp. Vaio notebooks, Minkow imports data listing executives and their degrees from Hoover’s Inc., a provider of company information.

Minkow finds birthdates in databases at Merlin Information Services, in Kalispell, Montana, and LexisNexis, a unit of London-based Reed Elsevier Plc. The names are then sent through the National Student Clearinghouse, a non-profit organization that verifies educational credentials.

If no record is found, he sends faxes to the school requesting proof that a degree was awarded.

If neither method can verify the claim, he sends an investigator to the registrar’s office to confirm it, he said.

“We go out of our way to avoid the big mistake,” Minkow said. “When you areBarry Minkow, it’s one and done.”

Last week, the University of Michigan confirmed a Minkow claim that Concur Technologies Inc. Chief Executive Officer S. Steven Singh didn’t earn a bachelor’s degree reported in company filings from 1998 to 2007. Singh said the degree claim was a mistake. The board of directors issued a statement saying it has “complete confidence” in him.

Concur’s shares dropped 20 percent, to $18.20, March 20 when the news was reported. The stock fell 54 cents, or 2.7 percent, to $19.28, at 4 p.m. New York time today in Nasdaq Stock Market composite trading.

Microsemi Corp.

Microsemi Corp. slumped 38 percent in the two trading sessions after Minkow on Dec. 2 disputed the credentials of Chief Executive Officer James Peterson. The shares rebounded 10 percent on Dec. 5, after the board pledged to support Peterson while it conducted a review. The board said Jan. 29 that Peterson hadn’t been awarded degrees from Brigham Young University.

Microsemi said that Peterson would remain as CEO, though he would pay $100,000 and forgo a bonus. He resigned as a director of Stec Inc., effective March 5, Stec said in a filing.

Intrepid Potash Inc. fell 6.5 percent Feb. 11 after Minkow said PresidentPatrick Avery didn’t receive two degrees he claimed to hold. The stock rebounded 9 percent in the two trading sessions after Avery resigned.

“When I saw Minkow’s report, I sold” Intrepid’s shares, said Stephen Odberg, a Denver-based investor who said he made a profit. “If you lie about something as simple as a degree, how do we know about other things we cannot see, like a warehouse?”

Federal Prison

At age 16, Minkow began a carpet-cleaning company, ZZZZ Best Co., in Southern California. He took it public and the value eventually exceeded $211 million, according to a 1987 Wall Street Journal article.

To make his business appear successful, Minkow prepared fake receipts that fooled auditors and investors. When the scheme fell apart, he was convicted in 1988 of 57 counts of fraud and conspiracy and sentenced to 25 years in federal prison. He served more than seven years before being released in 1995.

A judge in 2002 dismissed a court order that originally required Minkow to pay $26 million in restitution. U.S. District Judge Dickran Tevrizian ended Minkow’s probation and relieved him from obligations for unpaid restitution.

Minkow said investors recouped most of their money and he is still paying off $7 million owed to Union Bank of California, a debt Minkow figures to be repaying “forever.”

Gone are the bright red Ferrari and the 5,000-square-foot mansion. He now drives a leased Acura with child-safety seats in the back. He lives with his wife and two children in a 2,000- square-foot home in Poway, a suburb northeast of San Diego.

Poor Childhood

Minkow said he grew up in a Los Angeles suburb as a poor Jewish boy who accepted handouts from his synagogue. In prison, he earned bachelor’s and master’s degrees in Church Ministries from Liberty University while serving time in prison. He later earned a master’s in Divinity from Liberty. University spokeswoman Tanya Hedrick confirmed the degrees.

For the past 12 years, Minkow has spent Sundays preaching at the Bible Church, a 1,400-member evangelical congregation housed in a suburban office park.

“Barry is one of the smartest people I’ve ever met in my life,” said James Ratley, president of the 50,000-member Association of Certified Fraud Examiners. “As far as being reformed, that’s something only Barry knows.”

Source: www. Bloomgerg.com, By Peter J. Brennan in Los Angeles

Stimulus, bailout will lead to more fraud: FBI

WASHINGTON (Reuters) - The FBI is bracing for a wave of fraud and corruption cases stemming from the government's multitrillion-dollar effort to get the economy moving again, the agency's chief told Congress on Wednesday.

The expected surge in economic crimes will place further strain on an agency already stretched thin as it investigates mortgage fraud, terrorism and corrupt politicians, FBI Director Robert Mueller said.

"Our expectation is that economic crimes will continue to skyrocket," Mueller said.

After the September 11, 2001 hijacking attacks, the FBI moved more than 2,000 investigators out of its criminal division to place greater emphasis on national security.

But that reduced the agency's ability to cope with a subsequent explosion in corruption, fraud and gang-related cases, Mueller said.

Over the past three years the FBI has more than doubled the number of agents investigating mortgage fraud to 254 to keep up with its doubled caseload, he said. Bank data suggest that the pace will continue to increase.

Public corruption cases have increased by more than half since 2003 to 2,500 pending investigations, he said.

Gang-related cases have doubled since 2001 as the agency has had to cope with the emergence of international criminal groups like MS-13 and Mexican drug-smuggling cartels.

The agency's caseload will only increase as federal dollars flow from the $787 billion economic stimulus package and several bank bailouts, he said.

"The unprecedented level of financial resources committed by the federal government to combat the economic downturn will lead to an inevitable increase in economic crime and public corruption cases," Mueller said.

Mueller noted that the FBI had more than 1,000 agents to cope with the last financial crisis, the savings-and-loan debacle of the late 1980s and early 1990s, roughly double the number it has now for economic crimes.

The agency has stepped up its recruiting efforts this year, Muller said, but was set back when the House of Representatives cut out a provision of the stimulus package that would have paid for 165 new FBI agents.

Senate Judiciary Chairman Patrick Leahy said the Senate is expected to take up legislation in April that would give $245 million a year to the FBI and other law enforcement agencies to fight financial fraud.

Mueller said the FBI was working with a number of U.S. attorneys and the Justice Department for what he called fast-track prosecutions in a number of areas. "We're prioritizing our cases to hit the most egregious early and put those persons away," he said.

Source: www.reuter.com, By Andy Sullivan

SEC looking for whistleblowers to help stop fraud

Reeling from the embarrassments of the Madoff and Stanford scandals, new SEC Chairman Mary Schapiro wants to enlist private-sector third parties to help the SEC expose fraud. Not that she has a choice. The SEC has only 400 staff to examine more than 11,000 investment advisers, meaning only about 10 percent of registered advisers get looked at every three years. She also wants to push for a strong whistle-blower law to help expose fraud.

Shapiro told the Financial Times, "We need to find some way to increase staffing, but beyond that, leverage third parties without abdicating our responsibility." She cites self-regulatory agencies as examples worth imitating -- a topic she knows well given she's the first person to have headed both the Commodity Futures Trading Commission and the Financial Industry Regulatory Authority.

While Shapiro is recognized for building consensus through self-regulating agencies, many wonder if she can truly be the top cop the SEC needs. She assured Sen. Schumer during Senate confirmation hearings that, "The first thing I will do is take the handcuffs off, and get investigations started immediately. There will be no sacred cows."

To that point, one of her first moves after assuming the Chairmanship was to speed up investigators' ability to bring cases. The Financial Timesreported that she's considering giving more decision-making power to the new enforcement director, Robert Khuzami, a former federal prosecutor.

Obviously, she's listening to critics who believe she needs tough enforcers to help fix the agency's problems. In addition to the possible change in Khuzami's job description, she wants to strengthen internal training programs and hire employees, including retired FBI agents, with skill sets in forensic accounting, financial analysis and trading.

She also wants to push for a new whistle-blower law. She told FT that, "A well-crafted whistle-blower legislation that allows us to pay people to bring us well-developed fraud cases that ultimately prove successful is another way to leverage third parties without abdicating our responsibility."

While Schapiro sounds as though she's on the right tract, the question remains whether her ideas will be enough to satisfy calls by France, Spain, the Czech Republic and Germany for stricter financial regulation. France is promising to walk out on the G20 submit without promises of stricter financial oversight and Germany is threatening to do the same, according to reports on NPR this morning.

Clearly financial regulation is taking its position at the front and center. Will Mary Schapiro be able to shed her conciliatory nature and be the top cop needed at the SEC who can hold the developed world together? It has all the makings of a good TV cop drama, but with far more than Nielsen ratings at stake.

Source : www.daily finance.com , By Lits Epstein 

Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies and the Complete Idiot's Guide to the Federal Reserve.