internet fraud access device fraud

1. Internet Fraud &Access Device Fraud Sean B. Hoar sean.hoar@usdoj.gov 541-465-6792 (voice)

2. Class overview Federal statutes: 18 U.S.C. �� 1029 (access device fraud) & 1343 (wire fraud); United States v. Fumo, 2009 WL 1688482 (ED PA); United States v. Henckel, 570 F.3d 791 (7th Cir. 2009); United States v. Conner, 537 F.3d 480 (5th Cir. 2008); U.S.S.G. � 2B1.1.

3. 18 U.S.C. � 1343Internet (Wire) Fraud Text of statute: Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both.

4. 18 U.S.C. � 1343Internet (Wire) Fraud Text of statute (continued): If the violation occurs in relation to, or involving any benefit authorized, transported, transmitted, transferred, disbursed, or paid in connection with, a presidentially declared major disaster or emergency, or affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

5. 18 U.S.C. � 1343Internet (Wire) Fraud Definitions: �scheme or artifice to defraud� The term �scheme� includes "any plan, pattern or cause of action, including false and fraudulent pretenses and misrepresentations, intended to deceive others in order to obtain something of value, such as money, from the institution to be deceived.� United States v. Oplinger, 150 F.3d 1061, 1065 n.2�(9th Cir. 1998).

6. 18 U.S.C. � 1343Internet (Wire) Fraud Definitions: �scheme or artifice to defraud� every scheme that in its necessary consequences is calculated to injure another or to deprive of property wrongfully. Fasulo v. United States, 47 S.Ct. 200 (1926). �to defraud� commonly refers to wronging one in property rights by dishonest methods or schemes, and to cheat, to deprive of something of value by trick, deceit, chicane, or overreaching. Hammerschmidt v. United States, 44 S.Ct. 511 (1924).

7. 18 U.S.C. � 1343Internet (Wire) Fraud Definitions: �scheme or artifice to defraud� �defraud� means to deprive of a right, money or property by fraud. www.dictionary.com (2/16/10) �defraud� means to take or withhold some possession, right, or interest by calculated misstatement or perversion of truth, trickery, or other deception. Webster�s Third New International Dictionary (1993).

8. 18 U.S.C. � 1343Internet (Wire) Fraud Definitions: �scheme or artifice to defraud� does not include threat and coercion through fear or force. Fasulo v. United States, 47 S.Ct. 200 (1926). does not include theft by violence, robbery or burglary. Hammerschmidt v. United States, 44 S.Ct. 511 (1924).

9. 18 U.S.C. � 1343Internet (Wire) Fraud Issue of the day . . . the �intangible right of honest services� . . . In McNally v. United States, 107 S.Ct. 2875 (1987) The Supreme Court held that the mail fraud statute did not reach �schemes to defraud citizens of their intangible rights to honest and impartial government,� and that the statute was �limited in scope to the protection of property rights.� Congress responded by passing 18 U.S.C. 1346 which provides that the term �scheme or artifice to defraud� includes a scheme or artifice to deprive another of the intangible right of honest services

10. 18 U.S.C. � 1343Internet (Wire) Fraud Issue of the day . . . the �intangible right of honest services� . . . The Supreme Court is currently considering three cases in which 18 U.S.C. 1346, the �right to honest services� statute, is being challenged as unconstitutionally vague � Skilling v. United States, Black v. United States, and Weyhrauch v. United States. Arguments in Black and Weyhrauch suggested that the justices would likely overturn the statute . . .

11. 18 U.S.C. � 1343Internet (Wire) Fraud Definitions: �scheme or artifice to defraud� So . . . prospectively, the definition of �scheme or artifice to defraud� will likely include everything designed to deprive one of something of value by false representations � but not to the �intangible� right of honest services . . . The challenge will be for the court to issue an opinion that has no unintended consequences . . . Don�t all frauds involve the deprivation of an expectation of honest services? When one pays for a commodity based upon a misrepresentation via the Internet, doesn�t the purchaser expect honest service? So when the court finds that �honest service� is unconstitutionally vague, how will that effect the interpretation of materiality? Will materiality still be defined as that which would reasonably cause a person to part with something of value, or will it require something else? . . .

12. 18 U.S.C. � 1343Internet (Wire) Fraud Definitions: �presidentially declared major disaster or emergency� �affects a financial institution�

13. Elements of 18 U.S.C. � 1343Internet (Wire) Fraud D devised a scheme or plan to obtain money or property by making false promises or statements; D knew that the promises or statements were false; the promises or statements were material, in that they would reasonably influence a person to part with money; D acted with the intent to defraud; and D transmitted or caused to be transmitted in interstate commerce a wire communication, to wit: an electronic communication via the Internet, to carry out or attempt to carry out an essential part of the scheme.

14. 18 U.S.C. � 1343Internet (Wire) Fraud Types of Internet fraud Auction fraud �shill� bidding Non-delivery of merchandise Investment fraud Stock �pump & dump� fraud Ponzi/pyramid schemes Phisher scams �Nigerian� scams Business opportunities � �Get Rich Quick� schemes Many others . . . any fraud facilitated by the Internet

15. 18 U.S.C. � 1343Internet (Wire) Fraud Case examples United States v. Wheatley United States v. Pac Equities/Michael Rich United States v. Mondello

16. United States Sentencing Guidelines Offense Level Base Offense Level Specific Offense Characteristics Cross References Aggravating/Mitigating Factors Acceptance of Responsibility Departures Total Offense Level Criminal History Category Applicable Advisory Sentencing Guideline Range

17. Sentencing Guidelines for Internet Fraud U.S.S.G. � 2B1.1. Larceny, Embezzlement, and Other Forms of Theft; Offenses Involving Stolen Property; Property Damage or Destruction; Fraud and Deceit; Forgery; Offenses Involving Altered or Counterfeit Instruments Other than Counterfeit Bearer Obligations of the United States (a) Base Offense Level: 7, if the offense of conviction has a statutory maximum penalty of 20 years or more. 6, otherwise.

18. Sentencing Guidelines -- Actual penalties under the sentencing guidelines -- Actual guideline ranges are based primarily on the amount of loss (U.S.S.G. 2B1.1); prior to adjustments, the lowest guideline ranges based on ranges of loss are as follows: If more $5,000 or less: 0-6 months If more than $5,000 but less than $10,000: 4-10 months If more than $10,000 but less than $30,000: 8-14 months If more than $30,000.00 but less than $70,000.00: 12-18 months If more than $70,000.00 but less than $120,000.00: 18-24 months If more than $120,000.00 but less than $200,000.00: 24-30 months If more than $200,000.00 but less than $400,000.00: 30-37 months If more than $400,000.00 but less than $1,000,000.00: 37-46 months If more than $1,000,000.00 but less than $2,500,000.00: 46-57 months If more than $2,500,000.00 but less than $7,000,000.00: 57-71 months If more than $7,000,000.00 but less than $20,000,000.00: 70-87 months If more than $20,000,000.00 but less than $50,000,000.00: 87-108 months If more than $50,000,000.00 but less than $100,000,000.00: 108-135 mos If more than $100,000,000.00 but less than $200,000,000.00: 135-168 mos If more than $200,000,000.00 but less than $400,000,000.00: 168-210 mos If more than $400,000,000.00: 210-262 months Even if there is no loss, however, the "floor" or minimum applicable guideline range, prior to other adjustments, will be 10-16 months in prison if certain circumstances exist. U.S.S.G. 2B1.1(b)(10).

19. Sentencing Guidelines -- multiple victim enhancement -- U.S.S.G. � 2B1.1(b) Specific Offense Characteristics -- multiple victim enhancement * * * (2) (Apply the greater) If the offense� (A)(i) involved more than 10, but less than 50 victims, or (ii) was committed through mass-marketing, increase by 2 levels; or (B) involved 50 or more, but less than 250 victims, increase by 4 levels (C) involved 250 or more victims, increase by 6 levels.

20. Sentencing Guidelines -- multiple victim enhancement -- �Victim� means any person who sustained any part of the actual loss. �Person� includes individuals, corporations, companies, etc. U.S.S.G. � 2B1.1, comment. (n. 1). �Actual loss� means the �reasonably foreseeable pecuniary harm� that resulted from the offense. �Reasonably foreseeable pecuniary harm� means pecuniary harm that the defendant knew or reasonably should have known was a potential result of the offense. U.S.S.G. � 2B1.1, comment. (n. 3(A)).

21. Sentencing Guidelines -- �breeder document� enhancement-- Even if there is no loss, however, pursuant to U.S.S.G. 2B1.1(b)(10), the "floor" or minimum applicable guideline range, prior to other adjustments, will be offense level 12 (10-16 months in prison) if the offense involves: The possession or use of any device- making equipment The production or trafficking of any unauthorized access or counterfeit access device The unauthorized transfer or use of any means of identification unlawfully to produce or obtain any other means of identification The possession of five (5) or more means of identification that unlawfully were produced from, or obtained by the use of, another means of identification If the guideline range is already an offense level 12 (at least 10-16 months), then a two level increase is appropriate. U.S.S.G. 2B1.1(b)(10).

22. Sentencing Guidelines � �misrepresentation� enhancement -- If the resulting offense level is less than 10, increase to 10, or otherwise increase by 2 levels if the misrepresentation is that defendant was acting on behalf of a charitable, educational, religious, or political organization, or government agency during the course of a bankruptcy proceeding a violation of judicial or administrative order to a consumer in connection with obtaining, providing, or furnishing financial assistance for an institution of higher education U.S.S.G. � 2B1.1(b)(8).

23. Sentencing Guidelines � �relocation� or �sophisticated means� enhancement -- If the resulting offense level is less than 12, increase to 12, or otherwise increase by 2 levels if the defendant relocated fraudulent scheme to another jurisdiction to evade law enforcement or regulatory officials A substantial part of scheme occurred outside United States The offense otherwise involved sophisticated means U.S.S.G. � 2B1.1(b)(9)

24. Sentencing Guidelines-- financial impact enhancement -- (13) (Apply the greater) If� (A) the defendant derived more than $1,000,000 in gross receipts from one or more financial institutions as a result of the offense, increase by 2 levels; or (B) the offense (i) substantially jeopardized the safety and soundness of a financial institution; (ii) substantially endangered the solvency or financial security of an organization that, at any time during the offense, (I) was a publicly traded company; or (II) had 1,000 or more employees; or (iii) substantially endangered the solvency or financial security of 100 or more victims, increase by 4 levels. (C) The cumulative adjustments from application of both subsections (b)(2) and (b)(12)(B) shall not exceed 8 levels, except as provided in subdivision (D). (D) If the resulting offense level determined under subdivision (A) or (B) is less than level 24, increase to level 24.

25. Sentencing Guidelines -- Role adjustments � aggravating role -- �3B1.1. Aggravating Role -- Based on the defendant�s role in the offense, increase the offense level as follows: (a) If the defendant was an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive, increase by 4 levels. (b) If the defendant was a manager or supervisor (but not an organizer or leader) and the criminal activity involved five or more participants or was otherwise extensive, increase by 3 levels. (c) If the defendant was an organizer, leader, manager, or supervisor in any criminal activity other than described in (a) or (b), increase by 2 levels.

26. Sentencing Guidelines -- Role adjustments � mitigating role -- �3B1.2. Mitigating Role -- Based on the defendant�s role in the offense, decrease the offense level as follows: (a) If the defendant was a minimal participant in any criminal activity, decrease by 4 levels. (b) If the defendant was a minor participant in any criminal activity, decrease by 2 levels. In cases falling between (a) and (b), decrease by 3 levels.

27. Sentencing Guidelines -- Abuse of trust/special skill -- �3B1.3. Abuse of Position of Trust or Use of Special Skill If the defendant abused a position of public or private trust, or used a special skill, in a manner that significantly facilitated the commission or concealment of the offense, increase by 2 levels. This adjustment may not be employed if an abuse of trust or skill is included in the base offense level or specific offense characteristic. If this adjustment is based upon an abuse of a position of trust, it may be employed in addition to an adjustment under �3B1.1 (Aggravating Role); if this adjustment is based solely on the use of a special skill, it may not be employed in addition to an adjustment under �3B1.1 (Aggravating Role).

28. Credit Card Fraud Credit card fraud, encompassed in the broader definition of �access device� fraud, is prohibited by 18 U.S.C. � 1029.

29. Text of 18 U.S.C. �1029(a)(1)Production, use, or trafficking in counterfeit access devices (a) Whoever-- (1) knowingly and with intent to defraud produces, uses, or traffics in one or more counterfeit access devices; * * * shall, if the offense affects interstate or foreign commerce, be punished as provided in subsection (c) of this section.

30. Definition of �access device� The term "access device" means any card, plate, code, account number, electronic serial number, mobile identification number, personal identification number, or other telecommunications service, equipment, or instrument identifier, or other means of account access that can be used, alone or in conjunction with another access device, to obtain money, goods, services, or any other thing of value, or that can be used to initiate a transfer of funds (other than a transfer originated solely by paper instrument). 18 U.S.C. 1029(e)(1).

31. Definitions of �counterfeit access device� and �unauthorized access device� The term "counterfeit access device" means any access device that is counterfeit, fictitious, altered, or forged, or an identifiable component of an access device or a counterfeit access device. 18 U.S.C. 1029(e)(2). The term "unauthorized access device" means any access device that is lost, stolen, expired, revoked, canceled, or obtained with intent to defraud. 18 U.S.C. 1029(e)(3).

32. Elements of 18 U.S.C. � 1029(a)(1) Production, use, or trafficking in counterfeit access devices D knowingly used, produced, or trafficked in a counterfeit access device; D acted with intent to defraud; D�s conduct in some way affected commerce between one state and another state, or between a state or the United States and a foreign country.

33. Text of 18 U.S.C. � 1029(a)(2)Using or trafficking in unauthorized access devices (a) Whoever-- * * * (2) knowingly and with intent to defraud traffics in or uses one or more unauthorized access devices during any one-year period, and by such conduct obtains anything of value aggregating $1,000 or more during that period; * * * shall, if the offense affects interstate or foreign commerce, be punished as provided in subsection (c) of this section.

34. Elements of 18 U.S.C. � 1029(a)(2) Using or trafficking in unauthorized access devices D knowingly used or trafficked in one or more unauthorized access devices at any time during a one-year period; by using or trafficking in the unauthorized access devices during that period, D obtained anything of value aggregating $1,000 or more during that period; D acted with intent to defraud; D�s conduct in some way affected commerce between one state and another state, or between a state or the United States and a foreign country.

35. Section 1029 also proscribes a variety of other access device fraud knowingly and with intent to defraud possesses fifteen or more devices which are counterfeit or unauthorized access devices � � 1029(a)(3); knowingly, and with intent to defraud, produces, traffics in, has control or custody of, or possesses device-making equipment -- � 1029(a)(4);

36. Section 1029 also proscribes a variety of other access device fraud knowingly and with intent to defraud effects transactions, with one (1) or more access devices issued to another person or persons, to receive payment or any other thing of value during any 1-year period the aggregate value of which is equal to or greater than $1,000 -- � 1029(a)(5); without the authorization of the issuer of the access device, knowingly and with intent to defraud solicits a person for the purpose of (A) offering an access device; or (B) selling information regarding or an application to obtain an access device -- � 1029(a)(6);

37. Section 1029 also proscribes a variety of other access device fraud knowingly and with intent to defraud uses, produces, traffics in, has control or custody of, or possesses a telecommunications instrument that has been modified or altered to obtain unauthorized use of telecommunications services -- � 1029(a)(7); knowingly and with intent to defraud uses, produces, traffics in, has control or custody of, or possesses a scanning receiver -- � 1029(a)(8);

38. Section 1029 also proscribes a variety of other access device fraud knowingly uses, produces, traffics in, has control or custody of, or possesses hardware or software, knowing it has been configured to insert or modify telecommunication identifying information associated with or contained in a telecommunications instrument so that such instrument may be used to obtain telecommunications service without authorization; -- � 1029(a)(9);

39. Section 1029 also proscribes a variety of other access device fraud without the authorization of the credit card system member or its agent, knowingly and with intent to defraud causes or arranges for another person to present to the member or its agent, for payment, one or more evidences or records of transactions made by an access device; -- � 1029(a)(10);

40. Attempt provision for 18 U.S.C. � 1029 Whoever attempts to commit an offense under subsection (a) of this section shall be subject to the same penalties as those prescribed for the offense attempted -- � 1029(b)(1);

41. Conspiracy provision for 18 U.S.C. � 1029 Whoever is a party to a conspiracy of two or more persons to commit an offense under subsection (a) of this section, if any of the parties engages in any conduct in furtherance of such offense, shall be fined an amount not greater than the amount provided as the maximum fine for such offense under subsection (c) of this section or imprisoned not longer than one-half the period provided as the maximum imprisonment for such offense under subsection (c) of this section, or both -- � 1029(b)(2);

42. Penalties for 18 U.S.C. � 1029 (c)(1) Penalties generally -- (A) in the case of an offense that does not occur after a conviction for another offense under this section-- (i) if the offense is under paragraph (1), (2), (3), (6), (7), or (10) of subsection (a), a fine under this title or imprisonment for not more than 10 years, or both; and (ii) if the offense is under paragraph (4), (5), (8), or (9), [FN1] of subsection (a), a fine under this title or imprisonment for not more than 15 years, or both; (B) in the case of an offense that occurs after a conviction for another offense under this section, a fine under this title or imprisonment for not more than 20 years, or both; and (C) in either case, forfeiture to the United States of any personal property used or intended to be used to commit the offense.

43. Sentencing guidelines for 18 U.S.C. � 1029 Same sentencing guidelines section as used for identity theft and other fraud-related cases � U.S.S.G. � 2B1.1; Special rule for determining loss for stolen or counterfeit credit cards Loss includes any unauthorized charges and shall not be less than $500 per access device. U.S.S.G. � 2B1.1,comment.(n.3(F)(i)).

44. Sentencing guidelines for 18 U.S.C. � 1029 U.S.S.G. 2B1.1(b) Specific Offense Characteristics (continued) � enhancement for production or trafficking in access devices * * * (10) If the offense involved (A) the possession or use of any device-making equipment; (B) the production or trafficking of any unauthorized access device or counterfeit access device; . . . increase by 2 levels. If the resulting offense level is less than level 12, increase to level 12.

45. Questions?

46. Internet Fraud&Access Device Fraud Sean B. Hoar sean.hoar@usdoj.gov 541-465-6792 (voice)