Internet Law News

Fraudulent Internet Escrow Companies

New Task Force Warns Internet Users to Take Precautions During the Busy Holiday Shopping Season

Los Angeles, December 9, 2004 -- The California Department of Corporations announced today the formation of the Escrow Fraud Task Force to coordinate fraud prevention and enforcement action by state and federal regulators, law enforcement, industry groups, and businesses against fraudulent escrow companies operating on the Internet.

There are about 650 independent escrow companies in California licensed by the Department of Corporations. The Department has taken enforcement actions against 33 Internet escrow providers to shut down fraudulent escrow sites since May 2004. None of these Internet escrow companies applied for licenses to operate legitimately in California. The Department has licensed only one Internet escrow company in California escrow.com.

"Internet escrow fraud is widespread. It is criminal," said Corporations Commissioner William P. Wood. "For the first time, we have a coordinated strategy to quickly seek out and eliminate these online criminals. The rate of phony escrow sites popping up on the Internet is alarming and underscores the immediate need for cross-coordination between state and federal regulators, law enforcement, industry groups, and businesses."

The Escrow Fraud Task Force will be lead by California Corporations Commissioner William P. Wood and a representative from the Federal Trade Commission (FTC), the Federal Bureau of Investigation (FBI), the Southern California High Tech Task Force, the Los Angeles County Sheriff's Department, and the Escrow Institute of California.

Users of Internet auction sites, such as eBay, and marketplaces that advertise classifieds are vulnerable to scam artists who commit Internet escrow fraud. Escrow services have become extremely popular in the online auction world and are often used for expensive purchases such as computers, electronics, jewelry and cars. Internet payment services allow buyers to use a credit card or electronic bank transfer to pay sellers who may not be equipped to accept these kinds of transactions. Internet escrow services accept and hold a buyer's payment until the merchandise is received and approved. The escrow company then forwards the payment to the seller.

To help educate and protect Internet users during the busy holiday shopping season, the Escrow Fraud Task Force members provided consumers with 10 Tips to Avoid Internet Escrow Fraud. The first step Californians can take is to call the Department of Corporations toll-free at 1-866-ASK-CORP (1-866-275-2677) to make sure the escrow company you plan to use is properly licensed.

The 10 Tips list as well as a list of 33 fraudulent Internet escrow sites the Department of Corporations has shut down in 2004 are attached.

The Department of Corporations is California’s Investment and Financing Authority, reporting to the Business, Transportation and Housing Agency and the Governor. The Department is responsible for the regulation, enforcement and licensing of securities, franchises, off-exchange commodities, investment and financial services, independent escrows, consumer and commercial finance lending and residential mortgage lending. For further information or to obtain a complaint form, see the Department’s Web site at corp.ca.gov or call 1-866-ASK-CORP (1-866-275-2677).

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	About computer trespass or hacking Or known as hacking, any person who uses a computer or computer network with knowledge that such use is without authority and with the intention of: Deleting or in any way removing, either temporarily or permanently, any computer program or data from a computer or computer network; (2) Obstructing, interrupting, or in any way interfering with the use of a computer program or data; or (3) Altering, damaging, or in any way causing the malfunction of a computer, computer network, or computer program, regardless of how long the alteration, damage, or malfunction persists