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'Backward technology' makes WNY a target for gift card fraud

Shoppers who go the gift-card route for the holidays may be finding it takes a little longer to make their purchases this holiday season, especially if they're using a "swipe" credit card.

Retailers may ask for more ID, double-check card verification or even limit the amount on the cards that can be bought.

That's because an entire criminal industry revolves around easy-to-counterfeit swipe credit cards that crooks use to buy dozens or hundreds of gifts cards at store after store. Then they turn those cards into cold, hard cash through resell markets.

Candace Vogel, chief of the Erie County District Attorney’s Special Investigations and Prosecutions Bureau. (Provided by the Erie County District Attorney's Office)

“It’s like money laundering,” said Candace Vogel, chief of the District Attorney’s Special Investigations and Prosecutions Bureau. “They don’t even have to have the (original) card. They’re getting the credit card numbers.”

For knowledgeable thieves, it is still relatively easy to manufacture the “swipe” style credit cards. In fact, three Buffalo college students have been convicted of manufacturing credit cards in their off-campus apartment and are awaiting sentencing.

That card vulnerability is why in October 2015, banks and other credit card issuers began shifting liability for credit card losses to merchants who were still using old swipe technology. If a transaction is fraudulent, the store now pays, not the bank. (Customers are still protected.)

Despite the risk of loss, retailers in Western New York are phasing in the chip readers more slowly than in some other regions, making this area particularly popular for illicit gift card purchases.

“Out-of-towners love our backward technology,” Vogel said.

The crime can be simple to execute, particularly when stores are busy with holiday shoppers and when thousands of legitimate consumers are buying gift cards by the handful. Gift cards are among the most requested items for giving and, even more, for receiving. The National Retailers Federation estimates holiday gift card sales can top $26 billion.

Prosecutors consider it something of a hit-and-run crime, with the perpetrators traveling from place to place, making dozens of purchases at a variety of marketable retailers, then leaving town before the stores know what hit them.

Vogel points out that not everyone gets away with it. For example:

- Deladier Benitez, 33, of Miami was arrested Oct. 11 at the Peace Bridge trying to use a fake driver's license to cross the border. A search of his person and of his Buffalo hotel room resulted in a 77-count indictment for possession of forged instruments, in reference to the cache of fake credit cards found in his name and in the name on the fraudulent driver’s license.

Investigators also found gift cards.

After Benitez pleaded guilty earlier this month to three of the charges, prosecutor Brian P. Dassero said it’s believed Benitez, a Cuban national, and others in his car were on their way to the IKEA in Burlington, Ont., to get more gift cards, and didn’t expect the border crossing security.

“It appears they may not have realized that (IKEA) was in another country,” Dassero said.

- In another high-dollar case, Leon G. Williams is scheduled for trial in January on charges that he and co-conspirator Kevin George stole more than $100,000 in gift cards from Tops Friendly Markets. Vogel said the men are accused of going from grocery to gocery buying gift cards with fake credit cards, spreading out the purchases to avoid suspicion.

- Christopher McCullen, 45, of Buffalo pleaded guilty in October to fraud in the first degree and seven counts of grand larceny as leader of a theft ring that broke into vehicles parked at gyms, parks, restaurants and other entertainment venues in the city and suburbs and stole credit cards. The credit cards were handed off to women who used them to buy gift cards for resale. A total of 10 defendants pleaded guilty in that case.

- In November, four men used cloned credit cards to buy $1,200 worth of gift cards and a few other items at the Wegmans on Amherst Street. Because supermarket gift cards are easy to resell, those stores are popular targets with the thieves.

The use of gift cards as criminal currency affects consumers in several ways, ranging from mild inconvenience to serious financial loss. Some stores won’t put gift cards on credit cards if they are still using swipe technology. Other businesses have limits on the value of gift cards that can be purchased with credit cards, according to creditcard.com.

There are legitimate web sites that provide consumers an outlet to unload their unwanted gift cards, which are then resold at a discount of anywhere from 2 to 20 percent.

In some states, Coinstar operates grocery store kiosks to buy the cards. Customers swipe the gift card, the machine reads its value and issuers, then makes an offer. Just like when returning coins or cans, the customer then gets a receipt to exchange for cash in the store. Fraud control includes asking for a mobile number, driver’s license, credit card and/or email address.

Other resale buyers that are less fastidious usually buy the cards only at a deep discount. Still, a well-organized group can reap thousands in a very short time.

And the return can far outweigh the risks. Because of the lower value of gift cards, almost always under $1,000, defendants can face jail time of no more than four years and usually less, depending on what prosecutors are able to prove.

Consumers who buy the discounted cards also face the risk of losing their money, Vogel said. If merchants can identify by code number the gift cards purchased illegally, they can deactivate them.

And, in a related issue involving gift card scams, prosecutors remind all consumers to ignore any unsolicited calls from the IRS, police or any other government agency about a supposed overdue debt. It is an immediate red flag when the caller asks for payment via iTunes gift card or some other gift card.

The government does not do its banking through iTunes.

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