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A husband-and-wife fraud duo allegedly launders hacked Bitcoin, street gangs ditch dealing drugs for identity theft, an Instagram influencer allegedly steals COVID relief funds—what’s going on?

It seems that application fraud and account takeover aren’t the only thing organizations and consumers have to worry about, as financial crimes related to money laundering and system breaches have increased in recent years. 

We know that as fraud detection solutions improve, fraudsters seem to always be right behind, outwitting these solutions with innovative methods that allow them to bypass sophisticated technology. Likewise, as new opportunities for fraud appear, fraudsters seek to exploit them. Over the last several years, Bitcoin and other cryptocurrencies as well as COVID-related relief programs have offered bad actors new avenues for fraud.

There’s no question—greed can be a surprisingly effective motivator for innovation.

This blog will explore the frustrating dynamic of fraud, how it can be practiced in such bizarre ways, and yet be surprisingly common. Its aim is to help consumers, private organizations, and public-sector entities understand the ever-changing nature of fraud and identity-theft crime.

The Fraud Couple 

In 2016 nearly 120,000 Bitcoins were stolen from the Bitfinex crypto exchange. Since then, law enforcement officials have seized over $3.6 billion in cryptocurrency linked to the attack. In February 2022, Heather Morgan (aka Razzlekhan, aka the Crocodile of Wall Street) and her husband, Ilya Lichtenstein (aka Dutch) were arrested for an alleged conspiracy to launder cryptocurrency stolen during the 2016 attack.

It is alleged that they used chain hopping and the “peel chain” technique, whereby they would “peel” a small amount off their Bitcoin holdings and place it in a virtual currency exchange. The peel chain technique cycles through a series of manifold small transactions in order to make it difficult to recognize the source of the Bitcoin, and the miniscule amount doesn’t trigger any AML alerts. But then there’s the problem of accessing the funds: to withdraw the money as cash requires an identity. They allegedly tried to use fake identities but the exchanges couldn’t verify them and then froze the accounts. This is when they got the idea to create synthetic identities, synthesizing components of personally identifiable information (PII), which belonged to real people, with fake elements. This scam was successful for a while. In the end, however, the virtual exchanges were alerted by the large amount of money, and the blockchain analysis showed that the couple acquired the Bitcoin after the hack had occurred, giving the lie to Heather and Ilya’s story that they were early investors. So the alleged cryptocrime couple stopped.

Or so it seemed—until they reappeared with the purchase of a $500 Walmart gift card using stolen Bitcoin funds. The authorities were able to track the purchase through a blockchain analysis, which eventually led them to the couple’s cloud account. Having obtained a warrant to open the account, they discovered a spreadsheet containing all the synthetic identities Heather and Ilya had created, as well as passwords, logins, and records of the specific virtual currency exchanges they had used these identities for.

Opportunistic Fraud in the COVID-lockdown Era

The COVID lockdowns led to a new type of fraudster—the “citizen” fraudster. This isn’t someone who has long-term fraud career plans but an opportunistic bad actor seeking to supplement his or her income. This doesn’t mean, however, that a “citizen” fraudster can’t become a professional. Federal government relief loans, as well as unemployment insurance and other government programs, presented an especially vulnerable target for these new opportunistic fraudsters—with some estimates saying that up to 10% of PPP loans may have been fraudulently acquired.

It should be no surprise that the internet and social media are where these new opportunistic fraudsters—many of them young—have learned basic fraud techniques and met other more experienced fraudsters. How-to manuals are readily available online, providing third-party fraud tuition to these burgeoning bad actors, as well as tips for composing synthetic identities, buying data on the dark web, and other useful information. The internet and social media are also where many of these young scammers flaunt their ill-gotten gains, which is how some of them have been caught.

Danielle Miller is one such citizen who allegedly tried her hand at amateur fraud—but she didn’t just stop there. It all began when her parents cut off her financial support after she had allegedly scammed $20,000 from her friend’s mom by cashing the latter’s checks. She then moved on to credit card fraud, which landed her in New York’s notorious Rikers Island prison. Rather than mending her ways, however, she made friends with the con artists and scammers, including Scam Queen Anna Delvey, who were also serving time there. When COVID hit, she allegedly applied for a relief loan with a fake bank account that she opened using the PII of a Massachusetts resident—a crime for which she was indicted last year.

Perhaps not surprisingly, she’s also a social media influencer with tens of thousands of followers on Instagram and Tik Tok. With her expensive taste in handbags, shoes, cars, watches, and clothes, Danielle represents the life of luxury that motivates many would-be fraudsters. But this endeavor also came back to haunt her, as prosecutors used some of the photos she’d posted as evidence of fraudulent banking activity. She is charged with several counts of wire fraud and identity theft, and the Feds have seized over half a million dollars from her accounts. If convicted, she could face many years in prison and be fined up to $250,000.

Street Gangs Ditch Drugs for ID Theft

Over the last several years, there have been reports of street gangs moving into identity-related crime. These gangs, which have historically been involved with drug trafficking, have recently been updating their business model to focus on identity theft. 

One example, from southern Florida, concerns the investigation of a suspect involved with a local street gang. When law enforcement officials searched the suspect’s car they discovered three notebooks containing 197 stolen identities—some of which belonged to deceased individuals. In an incident involving another Florida street gang, law enforcement officials examined an iCloud account affiliated with a member of the gang and discovered a file titled “I’m rich bitch” that had over 7,600 pages of stolen identities—we’re talking tens of thousands of stolen PII elements. The investigating officials believe these stolen identities ultimately came from two Russian websites. 

Another street gang example involves the Woo Gang operating out of Brooklyn, NY. This gang used over 800 stolen identities to file fraudulent claims with the aim of obtaining over $20 million in unemployment insurance during the COVID lockdowns—in the end, they (allegedly) only got away with the paltry sum of $4.3 million and flaunted their ill-gotten gains on social media. The federal government has charged 11 members and associates with fraud.

More and more fraud rings are operating across state lines. Last year, four members of an identity-theft ring were sentenced to prison for bank and wire fraud as well as aggravated identity theft—their nefarious activities spanned the states of North Carolina, South Carolina, and Georgia. Members of the ring obtained PII from a variety of sources: the internet, stolen mail, real estate listings, and public records. With this information they created counterfeit driver’s licenses, which they then used to open over $450,000 in retail-chain credit card accounts. Like some of the other characters discussed in this blog, these criminals used the credit cards to indulge in luxury vehicles and hotel stays. According to court records, over 40 stolen identities were involved in the credit-card fraud operation.

Fraud is on the rise. Aite-Novarica Group predicts that losses from identity theft will increase to US$635.4 billion by 2023. Moreover, the number of amateur fraudsters continues to grow while many of them morph into professionals, and fraud rings are increasingly becoming more organized while discovering new ways to steal PII and use it to carry out third-party fraud, create synthetic identities, and defraud consumers and organizations of billions of dollars.

Aite-Novarica Group substantiates this movement in their Market Trends in Fraud for 2022 and Beyond report, saying, “The pandemic era has expanded the ranks of fraudsters, and most of these new ‘citizen fraudsters’ are here to stay… As fraudsters of all stripes seek to fill the void in revenue left by stimulus fraud, they will migrate to scams and other forms of fraud that require relatively little in the way of technical proficiency and that depend on the use of stolen and synthetic identities.”

For evolving threats like these, companies need comprehensive identity verification and fraud prevention, like that offered by Socure through our platform’s advanced machine learning (ML) models. Developed on the largest identity graph and performance dataset in the industry, Socure’s flexible ML technology constantly evaluates new features and learns from fraud attack attempts made within our vast and diverse customer consortium. Every attempted attack makes the network’s defenses stronger, and the ML model learns from ever-evolving fraudster techniques and adapts to proactively protect our customers.

To learn more about how you can protect yourself and your organization from fraud, contact Socure

Harry Neale
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Harry Neale

Harry Neale

Harry Neale is Senior Content Marketing Editor at Socure. In his career, he has worked in the enterprise technology, legal, and academic fields.