Payment Apps Draw Warning from Manhattan DA

The growth of peer-to-peer payment services including Venmo, Zelle, and Cash App has triggered a wave of scams in which victims may have little chance of recovering their money. More than ever, fraudsters are finding ways to exploit their targets’ payment apps, sometimes by tricking victims into lending them their smartphones. When scammers gain control of a phone, they can click on the apps to withdraw money and make online purchases – without getting caught or penalized. In a January 22 letter to Cash App, Manhattan District Attorney Alvin L. Bragg Jr. expressed concern over the growing number of payment frauds in the New York area and urged the industry to strengthen consumer protections. Online payment services burgeoned during the pandemic and now represent nearly a trillion-dollar industry. Such claims of fraud tripled between 2020 and 2022, according to Bragg, costing consumers “hundreds of millions of dollars” a year. Victims may have little recourse. “While cash apps, like PayPal and Venmo, offer consumers an easy and fast method to transfer funds, they also have made these platforms a favorite of fraudsters because consumers have no option to cancel transactions, even moments after authorizing them,” Bragg wrote in the letter.

Scammers may deceive their victims by pretending they need to borrow a phone for a legitimate call. Criminals have been known to assault or drug people to give up passwords or other authentication required to use a financial platform, Bragg said. In Los Angeles, criminals robbed several individuals of thousands of dollars at knife point to get into their Venmo accounts. Robberies also have been reported in West Virginia, Louisiana, Illinois, Kansas, Tennessee, and Virginia. In the letter Bragg urged the payment apps to consider a range of steps to protect consumers including:

• Use “multi-factor authentication,” which requires additional proof of identity to open the app along with a password to access the app (as a default option).
• Reduce the amount of cash that can be moved out of the payment app in the course of a day.
• Require wait times in cases of unusually large transactions.

Consumer Tip:  New Safeguard to Stop Fraud on iPhones

In a separate response to the app scams, Apple has introduced Stolen Device Protection, which makes it harder for a crook to gain money through a stolen iPhone. When an iPhone is removed from its usual location, sensitive operations such as changing passwords are only possible if the user meets certain requirements, such as Face ID or touch ID.  Directions on how to enable Stolen Device Protection on iPhones can be found here.

Justice Department Busts Global Crypto Scam

The Justice Department has broken up a cryptocurrency fraud ring based in Maryland, Florida, and the United Arab Emirates (UAE) that allegedly cheated victims out of $1.89 billion. The defendants are charged with defrauding individuals into believing they would receive large profits from investments in the industry that produce bitcoin – a digital or “virtual currency” that, unlike regular money, is not supported by a central bank like the U.S. Federal Reserve.

Defendant Sam Lee, charged with conspiracy to commit fraud, is a resident of the UAE and known in Australia as “the crown prince of bitcoin,” according to the Guardian newspaper. Co-conspirator Rodney Burton (Miami) was also charged in the scheme and co-conspirator Brenda Chunga (Maryland) pleaded guilty to conspiracy to commit securities fraud and wire fraud.

A separate civil complaint by the U.S. Securities and Exchange Commission, charges Lee and Chunga with participating in a “global, crypto asset-related, multi-level marketing pyramid and Ponzi scheme that raised over $1.7 billion from victims worldwide, including millions from U.S. investors.”

“The level of alleged fraud here is staggering,” said U.S. Attorney Erek L. Barron for the District of Maryland. “Whether it’s cryptocurrency fraud, or any other financial frauds, if it sounds too good to be true, it probably is. This office and our law enforcement partners will hold perpetrators accountable for these and other fraud schemes.”

U.S. Officials Move to Protect Kids from Scams

Adults can take many steps to guard against elder fraud, identity theft and other scams. But the challenge can be just as great when the targets are children.

In response to this growing threat, the Federal Trade Commission is moving forward with a sweeping plan to protect kids from online scammers and to limit the personal information about children that companies can obtain online.

The proposed FTC rule is intended to strengthen the Children’s Online Privacy Protection Act of 1998 (COPPA). The law, enacted when the internet was rapidly expanding as a marketing tool, restricts the ability of companies to track youthful users online. The updated rule seeks to “shift the burden” of protecting kids away from their parents and onto those who would profit from them, according to the FTC. It will apply to many smartphone apps, video games, and other digital services.

“Kids must be able to play and learn online without being endlessly tracked by companies looking to hoard and monetize their personal data,” FTC Chair Lina M. Khan said upon releasing the plan in December. “The proposed changes to COPPA are much-needed, especially in an era where online tools are essential for navigating daily life – and where firms are deploying increasingly sophisticated digital tools to surveil children…By requiring firms to better safeguard kids’ data, our proposal places affirmative obligations on service providers and prohibits them from outsourcing their responsibilities to parents.”

The impending FTC action comes at a time of rising concern over child safety on the internet. In a heated congressional hearing, Senate members recently grilled an array of high tech magnates over the abundance of obscene material that children can access with ease. That session led to no solutions, however. The FTC plan targets a more narrowly focused problem – business strategies that exploit kids such as by profiting from the data children may give up as a condition of using a service.

Among the provisions of the new FTC rule:

• Websites and online services aimed at kids under 13 would no longer be allowed to advertise directly to that age group.
• Digital operators would generally be required to get parental consent before sharing information about their young users with third parties, including advertisers.
• Companies may not require children to provide more information than is needed for them to participate in a game or other activity.
• Vendors would be effectively barred from sending children digital “push notifications” that encourage them to keep using a service.
• Companies may not retain children’s personal data when it is no longer necessary for the purpose it was provided.

The FTC rule is still being finalized, and interested citizens may submit public comments to the agency by March 11. For more information, click here.