Is It Fraud If You Collect One Penny Legally Over And Over Again?

from the legal-conundrum dept

Wed, May 28th 2008 12:59pm — Mike Masnick

If you've ever needed to associate your bank account with some online service (such as PayPal), you know the drill: you provide the necessary info to the service, and a few days later, it makes two small deposits into your account (usually between 1 and 5 cents or so). You then have to report back the amount of the deposits to prove you own that account. It's a relatively cheap way for the services to confirm the account details. However, to one man, it was also an opportunity to make some cash. He set up automated scripts to basically use just such a system to open thousands of accounts and collect approximately $50,000 of these micro-transactions. As the guy noted for at least one of these accounts (with Google's CheckOut system), he read through the terms of service and this did not appear to violate the terms. In fact, it does make you wonder how illegal this really was. The fact that the guy used fake names (of various Mike Judge characters, which seems like a nod to the "skim a penny" computer hack from Judge's movie Office Space) probably hurts his case -- but it still raises some questions. If there are no limits on accounts and no other terms of service that prevent this sort of action, what exactly about it is illegal? Is there a certain number of accounts that you can open before it's considered fraud? Or does it have to do with his intent -- which was solely to get the microdeposits, rather than to use the accounts?

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Filed Under: fraud, pennies, verification

36 Comments

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PaulT (profile), 28 May 2008 @ 1:11pm

Intent
I don't know what the legal definition would be here, but intent would be my opinion of what's wrong. There's no reason for any normal person to need to open that many accounts legitimately, so unless he's got a very good excuse then the only reason would be to collect the cash.

I doubt the courts would look kindly on it, though if there was no barrier in the EULA, I don't know how severely he'll be prosecuted.
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Chronno S. Trigger, 28 May 2008 @ 1:12pm

Technically fraud
"Largent's script allegedly used fake names, addresses and Social Security numbers for the brokerage accounts."

I think that's the part that makes it fraud. What's the punishment for 58,000 cases of fraud?
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Anonymous Coward, 28 May 2008 @ 1:22pm

YES!
Is It Fraud If You Collect One Penny Legally Over And Over Again?

The setting up of bank account by using fragulant names ie Mickey Mouse is illegal so the accounts were not set up legually.

The settin up of fradulant account is what the charges are about; not about the reception of the penny.
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Spike, 28 May 2008 @ 1:39pm

No
He wasn't setting up bank accounts, he was setting up PayPal and Google Checkout accounts. PayPal and Google Checkout will emphatically tell you that they are not banks; as such, they are not entitled to the fraud protections afforded to banks. That knife cuts both ways...
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Anonymous Coward, 28 May 2008 @ 1:40pm

Possibly Computer Fraud and Abuse
Yes, if supplying a fake name = violation of terms of service = breaking Computer Fraud and Abuse Act. This seems to be the opinion of the U.S. Attorney for the Central District of California in the case the MySpace teen who committed suicide.

http://www.securityfocus.com/news/11519/1
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www.custompcmax.com, 28 May 2008 @ 1:46pm

We will have a clear answer on this once the desicion on the Myspace suicide case is resolved. Technically, I think it is up to the providers of the service to set up rules, and then use their rules within the actual laws to procecute. Is there a case here, yes. Will he be found guilty of fraud, maybe...
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Ajax 4Hire, 28 May 2008 @ 1:59pm

It is fraud...read the base article...
Michael Largent allegedly used fake names, addresses and Social Security numbers to setup brokerage accounts at ETrade and Schwab.

That is fraud.
Using misleading on wrong information to obtain services and goods, duh!

Suppling fake name, fake addresses, fake Social Security Numbers; fake means fraud.
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angry dude, 28 May 2008 @ 2:03pm

heer yay go Mikey
"what exactly about it is illegal?"

Same problem as with a bank worker handling gold coins all day long in his own special gloves and then burning the gloves at home after each week of work to extract gold

Mikey has trouble interpreting basic facts
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Ian, 28 May 2008 @ 2:04pm

Re: Technically fraud
Try more like 1,000,000 - 5,000,000 cases of fraud. They're transactions of $0.01 - $0.05 not $1.
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Anonymous Coward, 28 May 2008 @ 2:05pm

I'm doing the math..at even 5 cents per account, thats more then 50,000 accounts...
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Anonymous Coward, 28 May 2008 @ 2:08pm

What I don't understand is how the system would even allow that. I remember a situation quite a few years ago where I needed to take a bank account out of one PayPal account and add it to another one. I won't go into the details now, but I assure you it was a perfectly legitimate action. Anyway, PayPal was setup such that it wouldn't allow the same bank account to be associated with more than one PayPal account at the time, for the specific purpose of preventing fraudulent usage. Now I know there's no way this guy had 50,000 bank accounts, so he must have rigged up some method of adding a bank account long enough to get the deposits and then removing it and moving on to the next PayPal account. That alone should constitute fraud, because he had no intention of using the accounts legitimately. But as it was said earlier, the fact that false information was used to register the accounts should be the smoking gun here.
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Tom G, 28 May 2008 @ 2:24pm

Shame on the bonehead system designers that neglected to restrict the number of micro deposits to a single bank account.
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DrTodd, 28 May 2008 @ 2:25pm

Never confirmed account
He probably never confirmed the account to actually set it up. The safeguards to ensure they don't add mulriple instances of the same bank account apparently don't kick in until an account is actually confirmed by the person receiving the token deposit.
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Anonymous Coward, 28 May 2008 @ 2:29pm

Wait, .001 cents or dollars?
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Eliot, 28 May 2008 @ 2:29pm

Re: heer yay go Mikey
If you're making a morality claim, then you're not responding to Mike's point, otherwise you haven't pointed out what makes it illegal.

I am not really equipped to talk about the legality of gathering the remnants like this -- I'm sure they put something in their employment contracts that forbids it, but I don't know that its illegal.

Similarly, while this guy made a legal mistake by using false information, the act of gathering all these micro-deposits like this ... I don't think it's illegal.
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Trerro, 28 May 2008 @ 2:30pm

They're starting to the the opposite
Pulling up the Wikipedia definition of fraud:
In criminal law, fraud is the crime or offense of deliberately deceiving another in order to damage them – usually, to obtain property or services unjustly.

IANAL, but I think this fits pretty clearly - the deception is from creating all those fake IDs, the damage has a direct, obvious material value (50 grand), and clearly this money was obtained unjustly - abusing a confirmation system to get thousands of handouts instead of 1.

On a side note though, a lot of companies are starting to take the opposite approach - they take a very small amount of money OUT of your account, you report the amount, then they credit the amount towards your first transaction. Of course, no one really minds, since you aren't signing up for the service until you intend to make a transaction anyway.
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Anonymous Coward, 28 May 2008 @ 2:37pm

He got burned because he setup brokerage accounts with false names and made up social security numbers. That's wire fraud and a federal rap to boot. No early release for this clown.
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Tony, 28 May 2008 @ 2:57pm

Multiple accounts NOT allowed
It says so very clearly at https://www.paypal.com/us/cgi-bin/webscr?cmd=xpt/cps/general/PayPalAccountTypes-outside

"PayPal allows members to have one Personal account and one Premier or Business account."

That means a total of two accounts. So at least for PayPal, he was in violation of their TOS.
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Buck, 28 May 2008 @ 3:09pm

multiple accounts
You cannot set up the same account over and over...

He must have set up thousands of accounts.

at a max of 39 cents per account... how many accounts did he have to make for $50,000?

128,206 accounts!

Seems like a lot of work. Even for $50,000.

Frankly I don't believe it...
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Anonymous Coward, 28 May 2008 @ 3:09pm

Re: No
You have confused banking law and securities law with a web site.

PayPal is the same as a credit Card Company is the same as a bank account is the same as a stock account, a money wire transfer accounts et when it comes to setting up accounts in anything but your own proper legal name.

Using Mickey Mouse et for any of these is illegal. Good for a few years in the old slammer. You know the place where the sun don't shine.
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ehrichweiss, 28 May 2008 @ 3:21pm

Re: Possibly Computer Fraud and Abuse
I came in here to say EXACTLY that. Lots of people were attempting to say it was not a violation of any actual law but the truth is that they WILL stick it to you if your behavior suggests that you were trying to pull a fast one on someone.
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Adam, 28 May 2008 @ 3:23pm

Re: Intent
Maybe he had Alzheimers :).
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enough, 28 May 2008 @ 3:27pm

OF COURSE IT'S FRAUD
This is really reaching. Homestly, I think some peoples obsession with the Internet and "new economies" has soften their brains.

OF COURSE IT'S FRAUD

Registering accounts under a false name? FRAUD.
Registering accounts under false pretenses? FRAUD.

What do people insist on pretending that just because something is done using a computer it's somehow not illegal or unethical.

http://dictionary.reference.com/search?q=fraud&x=0&y=0
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Tom, 28 May 2008 @ 3:42pm

wow...
quite brilliant, really. but wouldn't having the process automated be in itself illegal?
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Anonymous Coward, 28 May 2008 @ 3:52pm

Re: OF COURSE IT'S FRAUD
You have to remember that most people here believe that unless you tell them exactly what they are doing is wrong, it isn't wrong and if you do tell the exactly what is wrong they just say it shouldn't be and that they ignore the law.
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Rose M. Welch, 28 May 2008 @ 4:12pm

When I setup my PayPal account, it deposited .17 cents and .46 cents... but then took it back a week later...
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krsd, 28 May 2008 @ 4:24pm

Re: Multiple accounts NOT allowed
Violating the TOS of a company is not illegal. It is grounds for them to stop service, but that is all. Otherwise every company out there would be making their own laws to favor themselves. This falls in the same area as an eula, breaking a EULA is not illegal, but it is reason for the company to revoke their service/license. Continuing to use the product after breaking the eula is what might be considered illegal (Assuming that eula's are enforceable, but that is another debate).
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Anonymous Coward, 28 May 2008 @ 4:47pm

"enough" said "OF COURSE IT'S FRAUD Registering accounts under a false name? FRAUD."

I can't help but wonder if his name really is "enough" or if he committed fraud (by his definition).
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Anonymous Coward, 28 May 2008 @ 5:32pm

He is probably going to PMINA federal prison
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joshua, 28 May 2008 @ 11:32pm

i believe that's federal pmiTa prison.

it's always some mundane detail that gets you...
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Ferin, 29 May 2008 @ 4:57am

Fraud
I thought the real problem they had with the guy was using the false names to enable the transactions?
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eclecticdave (profile), 29 May 2008 @ 5:34am

Torch The Place!
Clearly this guy missed the ending of "Office Space". All he needed to do was torch Paypal HQ and he would have been in the clear!
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Eliot, 29 May 2008 @ 6:37am

The Point...
I think people are missing Mike's point.

He's not suggesting its not illegal to commit fraud, because he pretty much says it, though "probably hurts his case" was perhaps weak phrasing.

The question Mike was asking was: "If there are no limits on accounts and no other terms of service that prevent this sort of action, what exactly about it is illegal?"
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Mad Monkey, 29 May 2008 @ 9:40am

Its not illegal in my opinion its just poor ethics but whats ethics these days? Thats why we have so many law suits on whats illegal or not.
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Anonymous Coward, 29 May 2008 @ 2:16pm

not necessarily a fraud
as a lawyer I can tell you that this is not necessarily a fraud, unlessnhe provided fake data that if they were true would have prevented multiple withdras. For instance if the paypal system DOES check whether a social sec numb has been reused, then providing a fake one for this purpose would be fraud.
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MARV, 16 Jun 2008 @ 10:33am

First off, the accounts were worthless anyway. Couldn't transfer them, they're too small. couldn't join them. If He tried to send them all to one account with Paypal, the fees would desolve the money to 0$.
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