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Feds bust sophisticated credit card ring that stole $200 million

International con allegedly created 7,000 false IDs, 25,000 bogus cards

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Editor's note: Several of the people accused of running the credit card fraud ring described in this article published in February 2013 have pleaded guilty, including one of those  identified as a ringleader of the group, prosecutors said in August 2013. Muhammad Shafiq pleaded guilty to one count of bank fraud, New Jersey U.S. Attorney Paul Fishman announced Aug. 7. Vernina Adams, Raghbir Singh and Mohammad Khan also entered guilty pleas to fraud charges within the two weeks prior to Shafiq's plea. Shafiq, Singh and Khan admitted obtaining bogus cards for associates to use in the fraud, with Khan admitting he also used some cards, according to the announcement. Adams admitted advertising on Craigslist for people willing to add someone to their cards, and selling fraudulent credit histories to back up the false identities used on the cards. Prosecutors had charged 18 people in the scheme, identifying Shafiq and another man, Babar Qureshi, as ringleaders.

In a massive manipulation of the credit card system, a New Jersey-based fraud ring stole more than $200 million by creating 7,000 false identities to ring up fraudulent charges over a span of years, federal prosecutors have charged.

"We believe it is one of the biggest [bank frauds] the Department of Justice has ever uncovered," said Matthew Reilly, a spokesman in the New Jersey U.S. Attorney's Office.

Thirteen defendants appeared in federal court in Newark Tuesday after being arrested Monday on conspiracy to commit bank fraud, he said. The charge carries up to 30 years in jail plus maximum fines of $1 million.

They and five other defendants are charged with duping credit bureaus, along with card-issuing banks, as part of a sophisticated scheme that exploited holes in the credit system with a factory-scale con that churned out 25,000 bogus credit cards in a scheme that crossed 28 states and at least eight countries.

Make up, pump up, run up
The group was able to find unused Social Security numbers to make up mostly fictitious identities. Then they pumped up the credit of the bogus cardholders by creating false lines of credit with the help of a fraudulent lender called "One Stop Credit Shop," according to the Justice Department's criminal complaint. Other bogus companies -- 80 in all -- furnished false work histories for the made-up cardholders.

"The credit bureaus would unwittingly incorporate this material into the false identity's credit report, making it appear that the false identity had excellent credit," court papers said.

Scammers then monitored the bogus accounts' credit reports.  After credit card charges went unpaid, some fraudulent identities even sought to have their good credit restored by claiming that they were victims of identity theft, the federal complaint said.

Members of the ring then would run up the bills on the bogus cards. They bought luxury cars, electronics and millions of dollars' worth of gold with their gains, both from direct card purchases and money obtained from cash advances, Reilly said. One of the defendants had $68,000 in cash stashed in his oven when he was arrested.

"We'll go after what they took," Reilly said, although some of the money has been wired out of the country and withdrawn in cash. Babar Qureshi and Muhammad Shafiq were identified by authorities as the alleged ringleaders. Reilly said that attorneys for the defendants had not yet been established.

Large-scale scam
How could banks and credit bureaus be hoodwinked so thoroughly?

"I haven't heard of anything that extensive, where you have all that in place," said Norman Magnuson, spokesman for the Consumer Data Industry Association, which represents credit bureaus.  The credit bureaus hit by the scam were not identified in court papers, nor were card issuers, other than USAA and First Premier Bank.

We believe it is one of the biggest [bank frauds] the Department of Justice has ever uncovered.

-- Matthew Reilly
New Jersey U.S. Attorney's Office

"There are 220 million credit-active Americans," Magnuson said. "Seven thousand (false identities) sounds like a lot, but you're dealing with 4.5 billion updates to data a month."

The scheme went beyond typical cases of fraud and identity theft, according to the federal complaint, and exploited the credit system with a determined, long-term approach. For example, some false identities obtained low-balance cards that were maintained and paid off, in order to boost their credit score and qualify for more debt. Scammers also burnished the credit of made-up identities by designating them as authorized users of false credit lines.

Instead of blowing their loot, scammers invested heavily in the scheme to keep it going, with the help of numerous conspirators who weren't charged, federal prosecutors said. "[M]illions of dollars were spent on sustaining the elaborate network of drop addresses and running credit reports on the thousands of false entities," according to court papers.

Reilly wouldn't comment on how the ring was uncovered, but the complaint indicates that the conspiracy started to unravel in 2011, when investigators searched three jewelry stores. The stores, which had been conduits for many sales to fraudulent customers, turned out to be participants in the scheme.

US cards less secure
Critics have decried relatively low security of U.S. card transactions for years. However, it is unclear that more sophisticated cards with chip-and-PIN technology, such as those in use in Europe, would have deterred the scheme, as the scam didn't rely on stolen cards or identity theft.

"I question whether (chip-and-PIN) would stop this kind of fraud," said Doug Johnson, vice president of risk management policy at the American Bankers Association. 

Lenders are working with state governments to make driver's licenses more secure, which would help block "synthetic identity" frauds such as the New Jersey ring carried out, Johnson said.

However, Johnson added, such frauds are less common and more difficult to carry out than identity theft, and they do not risk trashing bank customers' credit and all the hassle that straightening out a case of identity theft involves.

More difficult but, with proceeds of $200 million, are such scams worth the trouble for copycats to duplicate?  "Not," he said, "if you wind up incarcerated."

Updated: August 12, 2013


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