Stolen Names, Big Numbers

American Demographics, Sept 1, 2004 by David Myron

Byline: DAVID MYRON

DAMON CARLTON GORHAM HAD AN UNLUCKY DAY THIS SUMMER

Gorham was arrested for unauthorized purchases of computer and multimedia equipment by the Prince William County police in Virginia, with help from the U.S. Secret Service. According to a local newspaper, Gorham allegedly created credit accounts online using other peoples' identity and purchased at least $8,000 in products from various retailers, including Best Buy and Circuit City.

For Michael Higgins, the case literally hits close to home, as it marks the first arrest of its kind in his hometown of Dumfries, Va., a suburb of Washington D.C. And Higgins would know, being an authority on the subject. He teaches information security at George Washington University and is also the managing director of TekSecure Labs, the network security division of Tekmark Global Solutions, a technology and consulting services firm in Edison, N.J. Reacting to the arrest and the subsequent publicity, Higgins ruefully remarks, "This undermines the confidence among consumers about safety."

While crime didn't pay for Gorham, it certainly does for other crafty con artists - and pays well. These morally flexible miscreants committing identity theft both on and off the Web, lined their pockets with nearly $50 billion in ill-gotten gains in the U.S. last year alone, according to the Federal Trade Commission. As if that's not bad enough, the FTC says U.S. consumers reported losses from fraud of more than $400 million last year. And, like Gorham, increasingly, the weapon of choice is the Internet.

That should strike a nerve with U.S. business executives, especially as recent reports reveal that fraud and identity theft are already a much bigger issue than conventional wisdom estimates. "A lot more people than we thought had suffered from identity theft," confesses Keith Anderson, an economist at the FTC. In 2003, the agency received 516,740 consumer fraud and identity theft complaints, up from 404,000 in 2002. Last year's tally comprised 301,835 complaints of fraud and 214,905 complaints of identity theft. Of the fraud complaints, 55 percent were Internet-related, up from 45 percent in 2002. Collectively, the victims of Internet-related fraud lost an estimated $200 million, with a median loss of $195, the report states. "Over half a million people have had losses. I can't comprehend that number being kept quiet. I know the banking community and people on the fraud side of the business, they never indicated it is a problem on that scale," Higgins attests.

Yet, it is a significant problem and one that will likely get worse. With online sales soaring to new heights every holiday season, incidences of fraud and identity theft will undoubtedly continue to rise, sparking more fear and mistrust in the hearts and minds of consumers. And for corporate America, Higgins worries this will eventually increase the cost of doing business. However, some recent research reports indicate that while consumer trust is hard to earn, it is easier to keep.

Already, pundits argue consumer sentiment is at an all-time low, largely due to diminishing trust. "The trust is at the floor. We continue to see unimaginable things happening, such as the surreal attacks of 9/11, the unimaginable betrayal of Catholic priests and the molestation scandals, the corporate betrayals of Enron and the like, Martha Stewart's insider trading and Sammy Sosa's corked bat. Everywhere we look we see deceit, mistrust and dishonor," says Craig Wood, president of the Monitor division of Yankelovich Partners in Chapel Hill, N.C. and author of a study, entitled "The State of Consumer Trust Report." According to the report, consumer distrust has a potentially devastating impact on profitability. In fact, 45 percent of respondents in the study say there is at least one retail business that they trusted but no longer trust. Of those people, an overwhelming 94 percent say they spent less money with that company, and spending declined by an average of 87 percent.

Surprisingly, once victimized, consumers' concerns decrease, to a point. According to an Accenture consumer survey, almost all consumers - 97 percent - are concerned about privacy issues, and 9 in 10 maintain that identity theft and its financial consequences are a concern. However, according to the "FTC Identity Theft Survey Report," the actual victims are less fearful once they've been defrauded. Considering all victims of identity theft, only 44 percent say they are at least "somewhat" concerned that they will be victimized again, while 55 percent say they are "not very" or "not at all" concerned. Yet, those whose personal information was used to open new accounts or to commit other types of fraud are slightly more concerned: 47 percent of these victims are at least "somewhat" concerned about future misuse of their information, compared with those who only experienced the misuse of an existing credit card (36 percent were at least "somewhat" concerned). However, concerns rise drastically when multiple violations or misuses occur - four appears to be the breaking point for most people. Those who suffered four or more misuses of either an existing account, the unauthorized opening of a new account or improper use of personal information, were considerably more concerned about future misuse than victims of fewer incidences of misuse. More than two-thirds (68 percent) of those with four or more distinct misuses stated they were at least "somewhat" to "very" concerned about future incidents, compared with only 38 percent of those with one to three distinct misuses.