How A Fraud Ring Got 25,000 Real Credit Cards For Fake People

It's bad enough when someone steals your identity and opens accounts in your name. What happens if thieves steal part of your identity and use it to create a non-existent person?

Synthetic identity theft occurs when criminals manufacture a false identity using made-up Social Security numbers and other personal information. Sometimes, synthetic identity thieves start with a single piece of real information — for example, a child's stolen Social Security number — and fill in the rest with false information. Once the false identity has been created, thieves rack up huge bills under the identity and simply disappear, sticking creditors with the losses.

When criminals pool their talents, synthetic identity theft can reach astonishing scale. According to the FBI, one fraud ring managed to acquire 25,000 credit cards under 7,000 false identities and used those identities to steal $200 million from financial institutions from 2003 to 2013.

How did they pull it off? The criminals controlled every step of the long-term process, manipulating both card issuers and credit reporting agencies along the way.

The fraudsters used made-up Social Security numbers to create fake identities. Next, they created fake utility bills with mail drops to fool credit card issuers into thinking the fake accounts were real people with tangible billing addresses.

You can't steal much with the credit limits of a starter card, so the criminals played the long game. They built up credit histories by making small purchases and paying them off every month. With multiple cards showing responsible behavior, card issuers were quick to grant credit limit increases.

As credit scores increased, the thieves used their good records to receive favorable loan terms. They took out loans, never intending to pay them back.

Once credit limits were sufficiently high and the loans were in place, it was time to strike. The thieves ran up huge bills on the credit cards and multiplied the effect by making fake payments on the first round of bills. By the time the checks bounced, the thieves had run up bills well over the credit limit. Creditors were stuck with unpaid loans and credit card bills — an no one to hold accountable.

The criminals also created fake companies to go along with their fake customers and supplemented their gains with real businesses that were in on the con. The businesses served two purposes: they were conduits for the payments made by the merchant processors (middlemen between the credit card issuers and the businesses), and they supplied false positive information to the credit reporting agencies regarding the fake identities to further boost creditworthiness. When the scheme finally unraveled, 18 people were charged in the massive fraud.

Why should you care about criminals ripping off banks and credit card companies? If an identity thief uses some of your information to create a non-existent person to commit fraud, some of the fraudulent information could show up on your credit report by mistake. Synthetic identity thieves can also draw you into their scheme by adding their fake accounts as authorized users to any of your accounts that have been compromised.

Be sure to check your credit report on a regular basis and immediately correct any problems that you find. Consider applying a credit freeze to your account in case synthetic identity theft blossoms into full fraudulent use of your identity.

You may never be affected by synthetic identity theft, but why take a chance? Stay vigilant and protect your personal information. Let criminals make up their own fake identities without your help.

Credit cards can be an effective way to manage money, improve credit, earn points, and travel with perks if used the right way. Benzinga's personal finance staff provides tips on using credit cards effectively.

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