If you fell victim believing one of the scam artists advertising on Facebook, with links sending people to a Shopify store, you don’t appear to be alone. I’ve seen the ads for several months now, and it doesn’t appear Facebook or Shopify have much of a desire to shut the fraudulent practice down. At some point one or the other will have to, because their reputations will take enough of a hit that the money they’re making won’t justify the income, albeit in a world where computer artificial intelligence is available, one has to believe it shouldn’t go on for this long.
First, let me describe how the scam works and why it’s profitable
Step one, make sure you’re in a jurisdiction that you don’t have to fear criminal charges. This is somewhat easier said than done because even in China and Hong Kong people can face prison for false pretenses (theft by fraud). Maybe things are changing, however when I was buying products and traveling to China regularly, the feeling and understanding I was impressed with is that if you’re Chinese and defrauding foreigners, it wasn’t such a big deal and you’re not likely to have a problem with the police. However, on the other hand, if you defraud domestic Chinese, you could have a serious problem. Clearly the message as I understood it was if you’re going to be a scammer, your victims better be across the border.
Step two, get a merchant, Paypal, and/or other payment transfer accounts to facilitate the transfer of money from the victim into your hands. A merchant account is what the vehicle to take credit card payments is called. Generally speaking, there’s a certain level of vetting that goes on, and in order to receive a merchant account, the bank (or bank like) is going to perform some due diligence because they’re on the hook if the merchant is a scammer and/or simply doesn’t deliver.
To better understand, let’s look at the path for the money (not 100% exactly, albeit adjusted for clarity). When you make a purchase with a credit card (assuming everything is electronic in this example), the seller (merchant) sends a request to their merchant account at their bank for authorization. The bank then transfers the request to VISA for example, and VISA then transfers the payment request to your Credit Card Company, say Capital One in this example.
Capital One will look at the information provided, including the card number, exp date, street address, zip code, name, and the three digit code (that’s on the back of the card) and see if the information provided by the retailer matches what they have on file. If it matches, then Capital One also checks to see if funds for the transaction are available. If everything matches and funds are available, Capital One replies with a authorization code along with the approval for the transaction. I’ll touch on this more in a moment, albeit for now, I’ll continue with how the scammers set this up.
Step Three, setup a Shopify store. The reason to use Shopify makes a lot of sense. Shopify appears to be readily willing to allow anyone with a heartbeat to setup a store from most countries, and doesn’t perform what most are likely to consider due diligence on their sellers. The scammer receives the credibility (which is always vital to performing fraud) having a Shopify platform store offers. After adding items to the store, they’re almost ready to start scamming people out of money.
Step Four, setup a business Facebook page. Facebook offers advertising on their platform and seems readily willing to allow these fraudsters access. Because Facebook is considered to be less fraudulent than Craigslist by many people because the person they’re interacting with is a “real person,” its ripe for a place to commit fraud as long as Facebook doesn’t put any real effort into stopping it.
Ok, I get I’m crapping on Facebook and Shopify pretty hard here, and I also realize they’re both probably doing more than I describe, but come on, week after week after week of seeing similar fraudulent ads means, at least to me, neither one of the online giants is taking this serious enough. If Facebook is targeting me for these ads, which I believe it is because I’ve clicked on many, than Facebook has the ability to shut it down easily.
Step Five, start advertising storage sheds for crazy prices hoping unsophisticated naive and trusting people will purchase. When people click on the Facebook ad for a storage shed, send them to the Shopify shopping cart page with what appears to be a legit offer to sell a $1000+ shed for less than $200. Then make some sales.
Step Six, after receiving an order, send a small low-value item through a traceable source. This is key to maximizing the amount of money from the scam because it increases profitability by reducing costs, which I will describe in detail.
Step Seven, For those wondering if they were scammed, receiving a tracking number seems comforting. Also, it reduces the amount of charge backs (charge disputes) at least the ones that would otherwise come right away.
Step Eight, when the person who ordered a shed receives a $1 item, the scammer has a “delivery” of the item. To make things appear more legit from a third-party standpoint, on the package include the name and description of the item ordered, not the item actually sent. This would appear to be postal fraud too, however, what’s a little extra fraud on top of the primary fraud, right???
Step Nine, get ready for the charge backs, also called a dispute. The best part from the scammer’s seat is a certain percentage of people will never dispute the charge. They either feel “dumb,” don’t understand their rights to dispute a charge, or don’t want to take the time and effort to relive the experience multiple times. Assuming the victim contacts their credit card company and reports the fraudulent transaction, the scammers are prepared to mitigate the amount they would otherwise refund.
Now, if there was any doubt of the legitimacy of the company, for example, some companies make mistakes, and when combined with incompetence, sometimes a charge back is required to set things straight. In my experience, I’ve never (and I rarely dispute charges relative to the amount I charge) had a time where a legit company disputed a charge back when they were in the wrong. I’ve only faced it twice, with both times the transaction was fraudulent. The first time was with a so-called lead provider (it wasn’t, it was only a fraud), and this time.
Step Ten, After they receive the charge back notice, the scammers provide documentation that they sent, and that the victim received the product ordered. Generally, it’s my understanding that if you order a product, you’re refund is based on following the (reasonable) terms of sale. If not reasonable, which is more likely with a scammer, you may not be subject to them, albeit when working with a “real merchant/retailer” you generally are. This may include returning the item.
By providing information and documentation that they sent the item, they’ve found a “weak link” in the credit card payment system that will allow someone to defraud victims. What keeps this from being more common is two-fold. First, we’re just now entering into an international marketplace.
Historically, buying with a credit card meant buying domestically. The merchant banks weren’t interested in eating a lot of losses, so if they didn’t believe you were legit, they wouldn’t allow a merchant account, or if they did, the amount you could charge per month was too small to make it financially viable to scam. The other barrier of entry is the criminal justice system. Once you start scamming much over $50,000 people with letters in the alphabet after their names will show up at your door.
Step Eleven, Hope. Yup, that’s right, the power is in your court, and if you didn’t throw anything away (which the scammers are betting you did), you have all the documentation to show it’s a fraudulent Facebook & Shopify storage shed scam. Even if you threw everything away, including the near-zero dollar value item sent, you can use the scammer’s documentation to reverse the dispute against them. There’s a short time window to follow up, usually well less than a month.
Notice how the storage shed, which is 15×8 feet in size weighs only .04 kilograms according to the documentation provided by the scammer to the credit card company, well, that’s less than one tenth of a pound.
If you can provide emails, especially your desire to cancel, that’s more documentation. That said, here’s the step by step of what I’m doing to dispute the charge.
What I’m doing to get my money back and if you paid with a credit card and/or PayPal, following the same path will increase your chances to get your money back too.(click to read)
Robert Weinstein is a husband, dad, stock market junkie, real estate broker, and of course…Insurance agent. Interests include my family, economics, marketing, technology, real estate, finance/investing, history, and Asia.
Robert’s insurance expertise includes having the designation of Certified in Long-Term Care (CLTC) and assist in asset protection for families with members entering retirement.
Robert is also an accomplished syndicated writer whose work can be found in TheStreet, MainStreet, CNBC, Forbes, Yahoo Finance, Seeking Alpha, MSN Money, The Money Show, Stock Saints, Motley Fool, Fidelity, Minyanville, RealMoney Pro, and many national and international newspapers.