A $55,000 net scam warning

Jan. 23 - He's a veteran Internet user, and an accomplished dentist. He has a friend in the FBI, and they have discussed Internet crime. Bruce Lachot is not your typical Net scam victim. But in November, just after the birth of his third child, Lachot decided his family needed a larger car. He was tempted by a great deal on a new BMW M5, and optimistically wired money to the German seller. Now, Lachot finds himself out $55,000, with no new sedan, and no chance to recover the money, a victim of one of the most successful and widespread Internet scams to date.

LACHOT AGREED TO SHARE his tale with MSNBC.com because it might prevent others from suffering the same fate. Many victims of the widespread scam have been silent, Lachot thinks, which in the end only helps the criminals.

"With most people, they feel embarrassed, they think 'I don't want to let anybody know.'Well, I feel I'm a pretty smart guy, but I'm a trusting soul, and I got burned. Got burned very bad. This sets me way back, but luckily, it's not going to kill me. It's an expensive lesson.'

Lachot was the victim of a fake escrow site, a sophisticated scam that actually turns victims'skepticism against them. Suspicious Internet auction buyers have long been instructed to use escrow services to insert an added layer of safety and security into their high-priced transactions. Typically, escrow services act as a third-party go-between: buyers send money to the escrow company, which holds the funds until the seller delivers the merchandise. Both buyer and seller are protected — unless the escrow firm is really controlled by the seller. That's basically how Lachot lost $55,000.

BABY ON BOARD

It all started on Halloween, the day Lachot's third son was born. The dentist decided it was time to get a 5-seat car, and began test-driving BMWs at dealerships near his Scottsdale, Ariz. home. He was smitten with the M5 series, which can cost $70,000-$80,000. But no local dealers had one, and there was a long waiting list.

"So I thought, 'Maybe I'll look online,''Lachot said. "My (business) partner has a friend in the FBI, I talked to him, and he said the safest things to buy online are golf clubs and cars.'

Lachot ended up at Autotrader.com, the eBay of online car sales, where there seemed to be an ample supply of M5s for sale, particularly 2002 models. Eventually, he started negotiating with a seller who said he was in Munich, Germany, and bargained the price down to $55,000.

"That's a screaming deal for a 2002 M5,'Lachot said.

SELLER INSISTS ON ESCROW

And it seemed safe enough. The seller instructed Lachot to take extra precautions. He was to wire money using the electronic currency system called E-gold.com. The funds would then be moved into Escrow-deals.com's E-gold account; then, once the escrow company verified the deposit, the seller would ship the car.

The instructions included one oddity; Lachot was told to place the money into six different E-gold accounts. The seller explained that breaking up the transfers kept the payment amounts under $10,000, which helped both seller and buyer evade some taxes.

Lachot sent the money to E-gold, but as he prepared to transfer it to the six Escrow-deals.com accounts, he had misgivings.

"I talked to E-gold, and E-gold said once you move funds, we can't help you. I was leery about wiring all that money,'Lachot said. "Then when I clicked on the (escrow company's) E-gold account names, there were six different names of people, and I'm thinking, 'What is this?''

Hours later, as he communicated his misgivings to the seller, E-gold closed the six accounts "for possible fraud.'The escrow company set up six new accounts, and Lachot got an e-mail apology allegedly from the president of Escrow-deals.com. But the dentist listened to his gut, and told the seller he wouldn't have anything to do with the escrow company.

THE FATAL ERROR

Unfortunately, he didn't listen closely enough to the little voice inside, and gave the seller another chance.

"He said there's another escrow company I work with,'Lachot said. This second escrow company, Premier-Escrow.com, appeared much more convincing. "Their site seemed a lot more legitimate. It said they were part of the Internet Security Alliance. It had a direct link to the Internet Fraud Complaint Center. It was a really slick site, and I'm thinking, OK, this looks good.'

So on Nov. 9, Lachot transferred the money — again into six separate accounts. On Nov. 12, the escrow company sent an e-mail confirming receipt of the funds, and the seller said the car would be shipped via Lufthansa air cargo and arrive in five days.

Weeks went by with no word from Lufthansa or the seller.

"By Thanksgiving, I'm starting to get nervous,'Lachot said. "When you hear escrow you think it's safe,'he said. "Now I'm thinking, 'This is unbelievable.'

He called his friend at the FBI, and filed a report with the Internet Fraud Complaint Center. The next day, the seller sent a new e-mail, claiming that he was hung up at the NATO conference in Prague, and promised to ship the car on Dec. 4 for a Dec. 9 arrival.

That's the last Lachot heard from either the escrow firm or the seller.

TOO EMOTIONALLY INVOLVED

"It's a sad story, but hopefully other people can learn from it,'Lachot said. "It was a good lesson for my son, we've talked about it. You don't get emotionally involved in anything like this. Our third son was born Oct. 31. I figure I get a 5-seat car. But when you do, what you lose sight of is asking, 'Is everything on the up and up?''

Autotrader.com confirmed it is aware of the incident but refused to comment on it.

"We are aware of this situation and are working with authorities, which prohibits us from discussing or commenting on the case,'said spokesperson Lisa Uhl in an e-mail. "I apologize for not being of more direct help ... Hopefully, the more people become aware of these scams the less likely they are to be hurt by them.'

PLENTY OF VICTIMS

But plenty of victims are being hurt by a combination of auction fraud and fake escrow sites. In December, MSNBC.com revealed that a single fake escrow site had probably netted well over $1 million from victims like Lachot. And at any given time, about 20 fake escrow sites are operating, according to Paul Moreau, who runs a Web site devoted to exposing fake escrow sites called SOS4auctions.com.

At least some of that is big-ticket, car auction fraud.

Another victim who requested anonymity told MSNBC.com that he lost $44,000 in May when he tried to buy a Porche on eBay. He claims to know four other victims who've lost similar amounts.

Moreau says the con is so successful that criminals are starting to create fake escrow sites devoted exclusively to car auction fraud. Two of the sites, Automobile-escrow.com and Energy-Escrow.com, were still operating when this story went to press.

And the con artists are becoming more sophisticated, creating more realistic car ads. In late November, scam artists posted at least a dozen fake auctions on eBay Motors using pictures and information stolen from a Clearwater, Fla., auto dealer named Dimmitt Chevrolet.

Ralph Goddard, the dealer's director of Internet sales spent several days writing e-mails to eBay bidders warning them they were about to be scammed.

The auctions were particularly realistic because each car was listed with a compliment of eight photos, an authentic Vehicle Identification Number, and other very specific car information, Goddard said.

"They even went to the trouble to use a paint program and black out our logo,'Goddard said.

In each of these scams, the con artist told auction winners to wire 10-to-15 percent in earnest money within 48 hours to an overseas account. Fortunately, Goddard managed to stop many winners from sending the money. But he can't be sure other victims didn't fall for the trick.

"Practically, it's impossible to search all eBay to see if more of our cars are being listed on there,'he said.

DEVIL IN THE DETAILS

In each fake auto auction listing, the con artists are willing to provide extensive details about the car, the location, the reason for the sale, and the reason for a slightly complicated electronic funds transfers.

For example, use of an authentic Vehicle Identification Number (VIN) in a fake car auction can really give a potential victim a false sense of security, Moreau said.

"Some of the victims do a lot of research. They check the VIN ... and the information checks out. The car is where the 'owner'says it is, for example,'Moreau said. "What people don't know is the con artist just steals the VIN.'

It all serves to create the image eager buyers want to see — a great deal on a new car, a new collectible, a valuable piece of jewelry. Even afterwards, the stories continue, a sudden family illness or an emergency international trip, like Lachot's NATO story. That serves as a smoke screen, which helps the criminal buy time to move and launder the stolen money.

"The con artists are professionals, and they'll tell you what you want to believe,'says online auction watchdog Rosalinda Baldwin of TheAuctionGuild.com. "But the problem is one of carelessness (by the consumer). These people take this online stuff at face value without doing the most rudimentary checking. They do things they would never do in 'analog'life. You know how easy it is to put up a Web site; why would you trust a Web site as being real without checking it out?'

Baldwin said eBay Motors currently offers a very inexpensive escrow service called "Secure Pay,'through partner site Escrow.com, exclusively for auto auction sales — the flat $22 fee is considerably less than most percentage-based escrow transactions. Instead of agreeing to use a seller's recommended escrow service, auction car buyers should insist on using eBay's inexpensive service, she said.

"For $22, you are protected against this kind of fraud,'she said.

Lachot, who found his car on Autotrader.com, didn't have any protection when he sent away $55,000. Still, he's luckier than many victims: thanks to his FBI agent friend, he knows federal investigators have at least taken a look at his case. But even with the inside help, he knows he's unlikely to see any of his money, or any justice.

"My friend called; he said he was talking with the supervisor in Phoenix who said he might want to review my case. So I called the local agent. She said, 'Have you already reported it to the Internet Fraud Complain Center? Then here's the phone number, you can follow up with them. ... The FBI has gone from the war on drugs to the war on terrorism, and it seems white collar crime has taken a back seat,'he said.

He's also lucky in that he makes enough money that the $55,000 loss sets him back only about a year, he said. But plenty of other victims aren't in that situation, so he wants to offer advice to potential victims.

"If you're going spend that kind of money (online), you'd better be prepared to lose it,'he said.