Fraud's reach has gone worldwide as schemers seek digital gains. Photo by Markus Spiske on unsplash.com

Last month a Porterville man, Ray Brewer, pleaded guilty to 24 counts of wire fraud, money laundering and aggravated identity theft totaling nearly $9 million in ill-received funds as part of a manure digester Ponzi scheme.

As is usual with such schemes, some of the victims in the case were refunded, with Brewer using other funds to repay some of those who lost out.

In many cases like this one, victims are never compensated, with a large amount of modern Ponzi schemes occurring online. Con artists pose as local business owners and entrepreneurs when, in reality, they operate outside U.S. borders and jurisdiction.

Rocky Pipkin, owner of the Pipkin Detective Agency in Visalia, said the evolution of Ponzi schemes and cybercrime has followed a historically consistent trend in crime: as law enforcement improves tactics, so do criminals.

Last December, online consumer data analysis site Statista predicted that by 2027, cybercrime will cost nearly $24 trillion worldwide, three times what it was estimated to have cost in 2022. The data shows an estimated rise of more than $3 trillion annually from the estimated $8.44 trillion it cost in 2022.

While it can be difficult to prepare and protect against cybercrime and identity theft, it can be even more difficult to combat it if it does occur.

 

Evolution of Ponzi schemes

Over the 35 years he has owned and operated his agency, Pipkin says crime has evolved from simple face-to-face incidents to far more complicated Ponzi schemes, utilizing everything from aliases to skirting foreign extradition law and policy.

“With the advent of computers and technology and the ability to not have transactions face-to-face…it’s become quite lucrative for the crooks,” Pipkin said.

Pipkin said the ebb and flow of crime, specifically fraud, actually hasn’t changed much over the past 30-plus years, so much as the methods and techniques have evolved.

“Law enforcement continues to try and evolve to catch criminals and criminals try to evolve to not be caught,” he said. “There’s a push and a pull with regards to that.”

Evolving from what used to be simply “writing a bad check,” Pipkin said that technique is very much a thing of the past.

Pipkin said the crooks have figured out how to rip people off faster.

Additionally, with the ability to communicate with nearly anyone around the world at the press of a button, Pipkin said the fraud game has changed from a regional crime to a global problem.

“Now a crook’s world has gone from someone in his or her local town or county or state to almost a worldwide situation,” he said. “You’ve got people sitting at computers 24 hours a day, seven days a week, doing nothing but scanning through newspapers…news sites and things of that nature trying to glean information about people that are covered in local news stories.”

Many criminals operate out of countries such as Russia and China that do not extradite potential criminals to the United States, allowing a seemingly never-ending threat of online fraud from overseas.

 

How to identify fraud

Pipkin said that the main way to prevent fraud is to not fall for it in the first place, though in many cases, fraud can be difficult to identify immediately.

“When someone offers you something that’s too good to be true, it probably is,” Pipkin said.

The Brewer case acts as a perfect example of this, in which Brewer swindled investors into funding a fake project aimed at converting cow manure into renewable methane gas energy — a process that is catching a lot of attention in the ag industry.

Brewer stole nearly $9 million from victims who believed they were investing in the future of their company, a fellow businessman and an environmentally friendly product.

During the investigation, the FBI discovered that Brewer had falsified everything, even going so far as to pay some investors with funds stolen from other victims.

Brewer eventually fled the state and changed his name several times. He went to Montana, where he purchased a ranch with the illegitimate funds.

Pipkin’s agency suspected fraud on behalf of a client involved in the case who approached the agency early in the scheme.

“Our client was able to get in from the very beginning,” Pipkin said. The client became suspicious after approaching Brewer, who excused the transfer of funds by claiming that the “wire transfer never made it.”

In this specific client’s case, he was refunded his investment primarily because, despite investing in the scheme, he addressed the potential situation early.

Most investigations of this type, specifically those started after funds have been transferred to possible fraudsters, can take anywhere from a year to three years to be fully investigated and processed.

On a more person-to-person basis, many Ponzi schemes target vulnerable individuals, specifically elderly people, often preying on a combination of desire to help distant family members and lack of awareness of financial danger.

Pipkin said that often, criminals will peruse posted obituaries to glean names of relatives, specifically more distant relatives, in order to prey on their victims. They then take this information and reach out to a surviving relative, usually an elderly relative, posing as their family member requesting financial assistance for legal or other issues.

“They will call that survivor and pretend to be that surviving niece or nephew,” he said, explaining that fraudsters will then have an accomplice speak to the victim acting as “law enforcement,” and request that the victim purchase an iTunes card or other gift card with accessible funds.

Once the funds have been transferred, the fraudster will then remove the cash from the card and the victim is left without a paper trail and little options when it comes to being compensated.

While this may be an obvious pitfall for many, to those with less familiar with technology and legal practices, this is one of the most common scams criminals attempt on a smaller scale.

In those cases, “typically once that transaction is complete, the money’s gone,” Pipkin added.

 

How to prevent it

The best way to prevent fraud is to identify potentially risky financial situations early and avoid investing in anything until you can prove the investment’s legitimacy.

With most business fraud taking place online, gaining basic computer knowledge and an understanding of business transactions is one of the most important steps you can take, specifically when dealing with investments and capital.

Additionally, having a balance of patience and quick action is important; Pipkin advises anyone who has made a financial investment and suspects they may be a victim of a Ponzi scheme to seek assistance as soon as possible. He also recommends that potential victims remain patient when initially dealing with someone they suspect may be trying to steal from them.

“Try to get the person’s information; get a callback number, then then call them back,” Pipkin said, emphasizing that a potential victim reaching out may often stop the scheme dead in its tracks. “Sometimes you will get the crook [but] sometimes it’s a phony number.”

Pipkin said that often these numbers are computer generated and untraceable, adding that organizations that may seem illegitimate can be weeded out simply by the victim asking for the potential fraudster’s contact information.

On a person-to-person level Pipkin recommends a similar approach in situations involving fraudsters posing as law enforcement or other authority figures demanding funds.

He also recommends refraining from sharing details of family in obituaries and online, as it is one of the main ways that fraudsters gather information for potential victims.

“Law enforcement is never going to get on the phone with you and say that ‘we’ve got your relative in custody and if you don’t post bail we’re going to keep him overnight,’” Pipkin said. “That should be a ‘hang up’ call.”