Opening Remarks:  9:00 – 9:15 am

Chairman William Kovacic

Chairman,

Federal Trade Commission

Becoming a Scam Artist, Understanding the Victim:  Exploring the Psychology of Scammers and Victims

Moderator: 

Dan Salsburg, Assistant Director, Division of Marketing Practices, FTC 

Panelists:

Lynne M. Vieraitis, Ph. D., Associate Professor, Criminology Program, University of Texas at Dallas 

Jim Vitale, Former telemarketer of fraudulent business opportunity

Doug Shadel, State Director, AARP Washington

Panel 1:  9:15 – 10:45 am

The Motivations and Lifestylesof Identity Thieves

Lynne M. Vieraitis, Ph.D.

University of Texas at Dallas

Heith Copes, Ph.D.

University of Alabama at Birmingham

*

INTRODUCTION
        - Overview of Identity Theft
        - Decision-Making of Offenders 

*

Methodology
        - Sampling
        - Newspapers 
        - Press Releases
        - Data Collection
        - Federal Bureau of Prisons
        - Interviews

*

Key Findings
        - Motivations
        - Justifications
        - Perceptions of Risk

*

Money
        - Primary motivation

“It’s all about the money. That’s all it’s about. It’s all about the money. If there ain’t no money, it don’t make sense.”

*

Lifestyles
        - Street—Partying Lifestyle

“...getting money and getting high.” 

“It comes in and you throw it out. . . Partying, females... I bought a lot of things... I mean it’s a party... Just to party, go to clubs, strip clubs and stuff. Just to party.”

*

Lifestyles, cont.
        - Conventional

“...to maintain an upper class lifestyle. To be able to ride in first class, the best hotels, the best everything.” 

“...putting it away, saving it. Nothing flashy. Just living off it.”

“I had been laid off at work, my son was in trouble, about to go to jail. I needed money for a lawyer.”

*

Justifications
        - Denial of Harm*
        - Denial of Victim
        - Diffusion of Responsibility
        - Appeal to Higher Loyalties

*

Denial of Harm

“I always thought that just because it was white collar crime it didn’t hurt nobody.” 

“...it’s plastic. No one was being hurt.”

“Everything that I did was based on opening, grabbing the identity and then opening separate accounts.  It didn’t, it affected them, but it was different.”

*

Denial of Victim

“Man I can’t do that...Intentionally screw someone over...It’s just, it’s not right to me. So I couldn’t do it. But corporations, banks, police departments, government – oh, yeah, let’s go get ‘em. Because that’s the way they treat you, you know what I’m saying. If they done screwed me over, screw them.” 

*

Diffusion of Responsibility

“I’m an outside guy.  I’m not really involved.  I don’t know what’s going on.  I’m not making no transactions.  None of this money is coming into any of my bank accounts.  So I don’t have nothing to do with it.  But now I look like 

I’m the main guy.”

*

Appeal to Higher Loyalties

“...but I don’t regret at all what I did because everything that I did was for the safety of my kids. And I don’t regret it. As a mother, I think you do whatever needs to [be done] to keep your kids safe.”

“I did it for my son...I just wanted my son to be happy and loved.”

*

Perceptions of Risk
        - Think Positively
        - Risk of Detection
        - Perceptions of Punishment

*

Think Positively
        - Don’t dwell on risks
        - Think positive for success

“I was super-optimistic.”

“...it’s just like you get a superpower. You don’t think you’re going to get caught.”

*

Risk of Detection
        - Low Risk of Detection
        - Skills 

“It was calculated risk. Before the feds actually got me the first time, I never worried about getting caught. And that’s the truth. I never worried about getting caught. Because that’s how quick and good I was.” 

*

Perceptions of Punishment 
        - Minimal expectations

“I did, but as I said, my mind frame was that it’s white collar crime. At that point in time, back then, everyone that was getting [convicted of] white collar crime was getting a slap on the wrist.”

“...fired from my job. Yeah, that’s the worse I thought I’d get.”

*

Conclusion
        - Rewarding
        - Easily Justified
        - Risk-free

*

Acknowledgements

This project was supported by 

Grant No. 2005-IJ-CX-0012 awarded by the National Institute of Justice, Office of Justice Programs, U.S. Department of Justice. Points of view in this document are those of the authors and do not necessarily represent the official position or policies of the U.S. Department of Justice. 

*

Jim Vitale

Former telemarketer of fraudulent business opportunity

Doug Shadel

State Director

AARP Washington, Seattle, WA

Advances in Fraud Prevention Research

Doug Shadel

State Director

AARP Washington

FTC Fraud Forum

February 25, 2009

  Advances in Fraud Prevention Research 

                               Contributing Organizations

				    AARP Washington

			                 AARP Foundation		   

    		                 Consumer Fraud Research Group

                         FINRA Investor Education Foundation

                     National Telemarketing Victim Call Center

Advances in Fraud Prevention Research 

                              Consumer Fraud Research Group

               Anthony Pratkanis – University of California

               Doug Shadel – AARP Washington              

               Karla Pak – AARP Washington

               Bridget Small – AARP Foundation

	        Melodye Kleinman – Telemarketing Victim Call Center

	        Bruce Carlson – AARP Washington

Advances in Fraud Prevention Research 

                                                  Overview

  Profiles:       What we know (and don’t know) about victims.

  Persuasion:   Common psychological tactics found in fraud.

  Prevention:   Challenges and Successes.

Advances in Fraud Prevention Research 

                                         Profiling

                      What we know (and don’t know) about victims.

Advances in Fraud Prevention Research 

                                       Victim Profile Studies

Off the Hook (2003) USDOJ/AARP Foundation – A survey of 500 general population and 310 lottery fraud victims. 

Investor Fraud Victim Study (2006) FINRA Foundation/WISE Senior Services - A survey of 160 general population, 80 investment fraud victims and 80 lottery fraud victims.

Stolen Futures Investor Study (2007) AARP Washington – A survey of 258 general population and 125 investment fraud victims.

Profiling Investment Fraud Victims (2008) AARP Foundation – A survey of 150 general population and 150 investment fraud victims. 

Lottery Fraud Victims and Cognitive Capacity (2008) AARP Foundation. Mental status evaluations of known lottery fraud victims. Study still underway.

Advances in Fraud Prevention Research 

                                 Victim Survey Methodology

*Use Random Digit Dialing sampling to select a general population.

*Work with law enforcement to identify individuals whose victim status has been verified.

*Develop survey instruments that measure demographic, psychological, behavioral and situational characteristics of each group.

*Administer survey to general population and victim list.  

Advances in Fraud Prevention Research 

                              Profile of Investment Fraud Victims

		*Male

    		*55-61 years old

    		*More financially literate

    		*College-educated

    		*Higher income

    		*Internal locus of control

    		*More Optimistic

    		*Less “Persuasion” Literate

    		*Open to new sales presentations

   	   *Take more risks

Advances in Fraud Prevention Research 

                                 Profile of Lottery Fraud Victims

		*Female

       	*Over 70 years old

      	*Less financially literate

       	*Less educated

       	*More negative life experiences

       	*Earns less than 30k per year

       	*External locus of control

	   	*Cognitive Impairment

Advances in Fraud Prevention Research 

                                          Benefits of Profiling

    *Target a much smaller subset of the population.

    *Customize prevention messages to fit the profile: 

      Lottery Profile - A 75 year old, low income, single woman 

      Investment Profile -  A 58 year old, higher income, married man

    *Find common characteristics that link some victims together

      (ie) Inability to spot persuasion. 

Advances in Fraud Prevention Research 

Gaps in Profile Research

    Investment and lottery victim profiles are well developed. But 

    profiles of other victim types are not:

      	*Mortgage fraud

      	*Advance fee loan fraud

      	*Foreign money offer fraud

      	*“Romance” fraud

      	*Phishing fraud

		*Internet auction fraud

      	*Travel fraud

   Privacy rules have made it difficult to get victim lists.

Advances in Fraud Prevention Research 

    			     Persuasion 

                      Common psychological tactics found in fraud.

Advances in Fraud Prevention Research 

                                  Undercover Audiotapes Project

      Analysis of over 300 undercover fraud tapes completed by AARP and 

      the FINRA Investor Education Foundation in 2006 identified the most 

      common persuasion tactics used by con men by scam type.

Advances in Fraud Prevention Research 

			Most Commonly Used Persuasion Tactics

Phantom Fixation (22.39%) “The El Gordo is the biggest, most lucrative lottery in the world and you have won big.”

Scarcity(15.11%) “Time is running out and if you don’t make a decision right now, I will give your winnings to the second place qualifier.”

Source Credibility(10.88%) “This is John D’Arme from the Royal Canadian Mounted Police...I have good news for you.”			

Comparison(9.53%) “The regular price on this coin is $3,000, but if 

        you buy it today, you will pay only $899.” 

Social Proof(5.58%) “Everyone is calling wanting to participate in this

        promotion.”

Advances in Fraud Prevention Research 

Advances in Fraud Prevention Research 

Percentage of Persuasion Tactics used by Scam Type
| Scam Type          | Investment      | Lottery           | Travel             | Sweepstakes/Prize   | Recovery Rooms      | Rare Coins       |
|--------------------|-----------------|-------------------|--------------------|---------------------|---------------------|------------------|
| PhantomFixation    | 19.08%          | 30.95%            | 32.67%             | 32.43%              | 28.95%              | 15.83%           |
| Scarcity           | 13.36%          | 16.67%            | 22.77%             | 16.22%              | 14.47%              | 16.91%           |
| Social Proof       | 14.12%          | 4.76%             | 0.00               | 1.62%               | 0.00%               | 3.60%            |
| Source Credibility | 25.95%          | 11.11%            | 3.96%              | 4.86%               | 7.89%               | 5.04%            |
| Comparison         | 11.83%          | 3.97%             | 5.94%              | 5.41%               | 10.53%              | 16.19            |
| Other              | Profiling 9.54% | Friend-Ship10.32% | Commit-ment 12.87% | Landscaping  11.35% | Landscaping  14.47% | Friendship17.27% |

Advances in Fraud Prevention Research 

                                      Victims and Persuasion Literacy

       Two separate studies have found that investment fraud victims are less 

       “persuasion literate” than the general investor population.

       Victims were asked to rate their interest in a series of con man persuasion 

       statements on a scale of 1 to 7. The average percentage of victims scoring 

       5-7 (strong interest) was greater than the general population.

Advances in Fraud Prevention Research 

Persuasion Literacy: Victims Show Higher Interest in Con Statements
| Con Man Statement                                                                                                                  | AARP (2007)    GP         Victims | AARP Foundation (2008)      GP               Victims |
|------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|------------------------------------------------------|
| There is no way to lose on this investment- it is fully guaranteed.                                                                | 10.28%                            | 12.40%                                               | 20.27% | 28.08% |
| This is an opportunity to get in on the ground floor of a company about to roll out a revolutionary new technology.                | *                                 | *                                                    | 14.86% | 23.97% |
| The lowest return you could possibly get on this investment is 50% annually, but most investors are making upwards of 110% a year. | 13.89%                            | 20.00%                                               | 29.25% | 36.81% |
| This investment made hundreds of people extremely wealthy.                                                                         | 7.87%                             | 11.57%                                               | 14.29% | 26.71% |
| Combined Scores                                                                                                                    | 10.67%                            | 14.64%                                               | 19.66% | 28.87% |

*

Advances in Fraud Prevention Research 

                   Interest in Con Man Persuasion Statements

Source: AARP Washington - 2007

*

Advances in Fraud Prevention Research 

                    Interest in Con Man Persuasion Statements

Source: AARP Foundation - 2008

*

Advances in Fraud Prevention Research 

                                Key Points about Persuasion

*It is possible to identify the most common persuasion tactics used in 

 fraud (ie. Phantoms, scarcity, source credibility).

*Scams themselves change over time, but the underlying persuasion 

 tactics remain the same.          

*Victims have been shown to be less “persuasion literate” than the 

general population.

*Studies have shown if you can see a persuasive communication coming

from a distance, you are better able to defend against it by developing 

counter-arguments or refusal scripts.

Advances in Fraud Prevention Research 

                     Prevention 

             Challenges and Successes

Advances in Fraud Prevention Research 

                               Challenges to Preventing Fraud

Psychological Barriers

*Illusion of invulnerability (I can’t be taken.)              

*Reactance (You’re not the boss of me.) 

*Threats to self-esteem (I am not stupid.)

*Too much information (I cant remember what you taught me.)

Systemic Barriers

*Scams everywhere (how do you warn against so many different frauds?)

*Scale (how do you reach a critical mass of consumers?)

*Proving a negative (how to you show when something doesn’t happen?)

*Persistence (if you can show a preventative effect, does it last?)

Advances in Fraud Prevention Research 

       			    Tactics That Work

      *Outsmarting Investment Fraud Workshop - A 90 minute workshop

        centered around how con artists use persuasion as a way to help

        investors avoid fraud – co-developed by the FINRA Foundation and  

        AARP.

      *Fraud Fighter Call Centers – A national program where volunteers

       provide one on one peer counseling to victims and potential victims

       of fraud – co-developed by the AARP Foundation and the National 

       Telemarketing Victim Call Center.	

Advances in Fraud Prevention Research 

                                Outsmarting Investment Fraud

	*Workshop is centered on persuasion education and employs a variety   

     of tools including videotapes, lecture, powerpoint and audience participation exercises.

    *Self-assessment quiz is administered to address the “illusion of 

     invulnerability”.

   *Participants are told they are being trained to warn others, thus 

     addressing the reactance and threats to self-esteem barriers.

   *A simple decision rule: is the broker licensed and is the investment 

    is registered?

Advances in Fraud Prevention Research 

         Testing the Outsmarting Investment Fraud Curriculum

Method of testing:  A group of investors randomly self-selected to attend 

one of two workshops. 117 attended the first group, 158 the second 

group a week later. In between workshops, a former professional con 

man was hired to pitch both groups with a fraudulent investment offer. 

The hypothesis: The first group that received the training would respond 

less than the second group that had not received the training.  

Advances in Fraud Prevention Research 

    17.6

Source: FINRA Investor Education Foundation - 2008

Advances in Fraud Prevention Research 

      Findings: Community Workshops Can Change Behavior

This experiment showed that fraud prevention community workshops 

can change behavior. 

The response test used a persuasion tactic (foot in the door) that 

was not taught at the training. This means the participants were able

to generalize the training to other approaches used by con men.

Those who said “no” asked twice as many questions as those who 

said “yes”. 

Advances in Fraud Prevention Research 

                                 Fraud Fighter Call Centers

    *Peer counseling over the telephone – one volunteer fraud fighter (typically an older person) talking on the phone with a potential victim to warn them about fraud. 

    *A 2003 study tested peer counseling by volunteers to victims of fraud.  It found peer counseling reduced responsiveness to a subsequent fraud appeal by 50%.

    *The AARP Foundation operates regional peer counseling call centers that call 600,000 vulnerable consumers per year in the U.S.  

Advances in Fraud Prevention Research 

*Investment victims – Does the resistance effect from the curriculum 

persist over time or does it erode? 

*Lottery Victims – Development of prevention protocols that have 

some proven effectiveness.

*Profiling of other types of fraud victims besides lottery and 

  investment (ie) auction fraud, phishing, advance fee loan scams, 

  romance scams, etc.

*Testing other prevention delivery tactics such as tele-town halls, public 

  service announcements, email list serv reminders.

*Find a unifying theory of fraud prevention. 

				    Future Research

Advances in Fraud Prevention Research 

                                      For more information

			                  Doug Shadel

                                           State Director 

   		                           AARP Washington

                                           206 517-2316

				 dshadel@aarp.org

Questions?

10:45 – 11:00 am