America's Top Cybercop

Jodie Bernstein patrols the Web for the Federal Trade Commission, looking for swindlers and snake-oil salesmen. At 74, she's part John Wayne, part Jessica Tandy — and all business.

"Have you tried starvation diets with little or no success? Is your schedule too busy for daily trips to the gym? Have you lost 5-10 pounds only to put the weight right back on?"

If you answered yes to any of those questions, then you might consider trying NordiCaLite — an intriguing weight-loss product advertised on the World Wide Web. The secret, according to the product's Web site, is "Essence of Malmös — a unique blend of all-natural herbs derived from the evergreen forests of Scandinavia," which a company scientist has distilled into a concentrated extract that burns fat cells.

It sounds promising. Click the link that says, "More," and you learn that a month's supply of NordiCaLite gelcaps, usually available for a hefty price, can be yours for just $29.95. Thirty bucks isn't a huge sum if you're really trying to shed pounds, but it's still a bit pricey.

So click the link that says, "Save Even More!" and you get this message: "If you responded to an ad like NordiCaLite ... YOU COULD GET SCAMMED! NordiCaLite is not a real weight-loss product. The ad is a fake, posted by the Federal Trade Commission to raise awareness about the false and deceptive advertising claims made by many so-called 'weight-loss' products."

At the top of the page is the FTC's crest. At the bottom is a hyperlink to "Operation Waistline," a page on the FTC Web site that advises consumers how to avoid weight-loss schemes.

This is how government works in the new economy.

Cop of the Web

Four years ago, in his State of the Union address, President Bill Clinton uttered seven words that have become the operating assumption of the first presidential election of the 21st century: "The era of big government is over." In the race for the White House, Vice President Al Gore brags about reducing the federal workforce to its smallest size in four decades, and Governor George W. Bush vows to shrink it even further. The candidates and the country concur: Big government is bad government — and even worse politics.

Yet there remains one area of our national life where an equally broad consensus welcomes, practically demands, government intervention: law enforcement. Even if you're a staunch libertarian, when a bad guy swipes your wallet, or mugs your brother, you're going to dial 911. And what's true on the street is true in the marketplace. In the new economy or in the old economy, you can beat the competition, but you can't cheat the competition — or anyone else. For markets to be free, they must also be fair. Advertisers can't lie. Competitors can't collude. E-tailers can't sell you one thing and ship you something else. While fairness often regulates itself, a robust market still needs a cop on the beat — just in case. And with more and more commerce migrating to the Internet, marketplace marshals must pack a mouse beside their nightstick and navigate through some shady new sites.

The person who's taken on this job in the federal government is Jodie Bernstein, director of the FTC's Bureau of Consumer Protection. As the nation's leading cyberlaw enforcer, the country's top cop of the Web, Bernstein is not quite what you'd expect: She stands barely tall enough to qualify for most Disneyland rides — even in her impressive heels. She is the mother of three adult children. She rarely uses email. ("The only purchases that I've made online have been for panty hose.") And when she was born, Calvin Coolidge was president.

But in her five years at the helm, Bernstein, 74, has turned her bureau into one of the most Net-savvy offices in the federal government. She and her small team of lawyers and investigators fight fraud on the Internet, tracking down and bringing to justice those who try to scam, sucker, or swindle consumers. During Bernstein's tenure, her crew has brought more than 100 federal cases against Internet cheats and has put more than $80 million back into consumers' pockets. "If commerce is going to function successfully, there has to be trust," Bernstein says from her office on Pennsylvania Avenue, just 10 blocks from the White House. "It's fundamental to the marketplace and to society. I think that society is degraded when people take advantage of others."

The Making of a Cybercop

Chances are, you're wearing some of Jodie Bernstein's handiwork. During the early 1970s, while working as a staff lawyer at the bureau that she now heads, one of her tasks was to reckon with another technological change. "Before World War II, there were four major fabric groups: cotton, silk, wool, and perhaps early rayon," she explains. "Everybody knew how to take care of those things. But after the war, all of these new fabrics came into being — the nylons, the blends — and people were complaining that they had no idea how to care for these fabrics. So their clothes would shrink, or get ruined some other way."

Bernstein led a team that crafted a new rule: Manufacturers would provide instructions on how to care for a piece of clothing by putting that information on a permanently affixed label. "It was enormously controversial," she says. Manufacturers howled. They sued — and lost. "The rule's been so successful that nobody even knows how it came about. I think that's a badge of success."

Bernstein's journey to Pennsylvania Avenue began in Galesburg, Illinois, where her father owned a liquor store and her mother was a buyer at a department store. Bernstein was a superstar in school — a fact that fueled large ambitions for a girl in the 1940s. "I cannot remember ever thinking that I was going to be a homemaker," she says. "I thought that would be boring. I wanted to go into politics."

After graduating from high school, Bernstein — unlike many young women of her day — went immediately to college. At the University of Wisconsin at Madison, she continued to soar, graduating at the top of her class. Her sights set on elective office, she decided to go to law school. In the fall of 1948, she found herself in New Haven, Connecticut, one of maybe 10 women enrolled in the Yale Law School class of 1951. How did she fare in such a highly competitive environment? The answer is on a wall in Bernstein's office: In a photo of the 1949 law-review members, the top students in the school, only two women are in the group. One is Patricia Wald, who went on to become a federal judge. The other is Bernstein.

But her turbocharged career would soon stall.

Upon receiving her law degree, Bernstein had moved to New York, where she was an associate at a large law firm. The man whom she was about to marry — and to whom she has now been married for 48 years — was a doctor in Chicago. She asked him to come east. He asked her to come west. He prevailed. Recalls Bernstein: "He told me, 'My career is going to be more important than yours, so you should come here.' I agreed, because I thought that was probably true."

Back in Illinois, she shelved her political ambitions. "As a Jewish, female Democrat, I didn't have much of a future in my hometown during the 1950s," she says. So for the next decade and a half, she lived in Chicago doing precisely what she had vowed as a little girl to avoid: She became a full-time homemaker and a mother to the couple's three children.

In the late 1960s, her husband took a position in Washington, DC, and Bernstein began scouting for something to do. Through her law-review buddy Patricia Wald, she landed a staff job at the FTC, where she worked for nearly six years under the tutelage of Robert Pitofsky, then-director of the Consumer Protection Bureau. After that, Bernstein worked at other government agencies and in private practice for nearly two decades.

In 1995, a new chairman of the FTC was appointed: Robert Pitofsky. He called his one-time aide and asked if she would head their former bureau. She said yes. One of her first steps as the new leader was to visit the agency's field offices across the country. On one visit, she asked the staff, "What's new? What's hot?" The answer was unanimous: the Internet. The staff showed her some of the scams that had appeared online even in the Net's early days. Says Bernstein: "I thought, 'We gotta do this. We gotta make this a priority.' " Then, sounding more like someone who is not old enough to vote than like someone who is old enough to receive Social Security, she adds, "It was a no-brainer."

Scams and the Web

In 1995, Augustine Delgado and three compatriots launched a Web site that made an audacious promise: Invest $250, recruit people, and, without ever doing another stitch of work, you'd earn $5,000 a month. The "Fortuna Alliance" may have operated in the new medium of the Internet, but it was the oldest scam in the book: a Ponzi scheme. Fortuna followed the same lather-rinse-repeat technique that Carlo Ponzi had deployed in 1920, when he cleaned out New Englanders of $15 million and earned his plaque in the hall of shame: Lure the greedy by promising huge returns for a small investment. Force the initial recruits to enlist more dupes. Use the proceeds from the next round of "investors" to pay off the first round. Skim off the top. Start again.

For nearly two years, Fortuna's scam worked like a dream. The Web site offered testimonials from people who had made a bundle and explained that the secret to the financial alchemy was the "Fibonacci Sequence" — a mathematical series in which each number equals the sum of the previous two. (FTC economists later determined that relying on the Fibonacci Sequence ensured that 95% of participants would end up losing money.) The money rolled in — some $11 million from more than 25,000 people in 70 countries — and Fortuna transferred most of its $5 million in profits to a bank account in Antigua. Somewhere, Carlo Ponzi was smiling.

But in Washington, the Bureau of Consumer Protection was getting wind of the scam from consumers who had been duped. Bernstein and her team investigated and then brought down the hammer. They froze Fortuna's assets and replaced the Web site's breathless promises with a stern notice from the FTC. They ordered the offshore funds returned to the United States. And when the scammers didn't comply, the FTC tracked them down in Belize and issued civil-arrest warrants. To date, Bernstein's office has recovered roughly $5.5 million for more than 15,000 victims of the Fortuna scam. "That case was really humongous," Bernstein says. "And it was a little scary. Some of us thought that the Internet would bring us back to the Wild West."

The Fortuna case represents one category of Internet fraud that Bernstein's office tries to battle: old tricks in a new medium — pyramid schemes, chain letters, false advertising, and other familiar scams that have gone dotcom. The Internet, it turns out, is a fabulous tool for fraud. Boiler-room operations once required a basement full of telephones and people. Today, all you need is a modem. Direct-mail fraud once required stamps, envelopes, and a physical address. Today, it requires little more than a free email account and an underactive conscience. One hundred years ago, a peddler would wheel into town, set up his cart on the corner, sell bottles of magic elixir, and move on to a new town before his customers discovered that the snake oil didn't work. Today, new-economy snake-oil sellers can wheel into any town they want — without ever leaving their keyboards.

But Bernstein's team is also battling a second, very different variety of Internet fraud: new scams that have come about because of a new medium. Let's look at the case of the Moldovan modem jacker.

A few years ago, people who visited sites like [WEB_ADDRESS] or [WEB_ADDRESS2] were offered free pictures. But in order to see the tantalizing images, visitors first had to download a special viewer program called "david.exe." Here's what happened to anybody who clicked open this file: First, the program disconnected the person from his Internet-service provider. Then it silenced the speaker on the person's modem. Next it dialed a number in Moldova and reconnected the person to an overseas ISP. The cost of the call: $2 per minute for every minute that the computer was on.

When consumers began noticing extremely expensive calls to eastern Europe on their phone bills, they called the FTC. Lawyers from Bernstein's office worked with AT&T and MCI to find the business partners who had executed the scheme. It turned out that they were running other adult-entertainment sites that also were hijacking modems. (It also turned out that the calls that supposedly were routed to Moldova really went to Canada — a scam within a scam.) In the end, the agency recovered about $2 million for more than 27,000 people who were looking for a cheap thrill and ended up with an expensive phone bill.

"Sometimes I think to myself, 'Gosh, if these guys ever went into legitimate business, they'd be really successful.' " says Bernstein. "Some of them are really ingenious."

Other new tricks are invisible. For instance, most Web sites contain "metatags," a collection of keywords coded onto the site's front page. You can't see these metatags when you arrive at a site (unless you click on "Source," in your browser's "View" menu, and open up the underlying code). But the metatags are a crucial part of the architecture, because search engines comb metatags to determine whether a particular site includes what the searcher is seeking. (On fastcompany.com, the Fast Company home page, for example, the metatags include "business," "career search," "brand you," and about two dozen other key phrases.) But what if somebody lied? That's what a few companies did earlier this year. They inserted phrases like "arthritis cure," "cancer treatment," and "cancer cure" into their metatags — even though the products that they were peddling didn't cure anything. So when desperate people looking for a miracle punched one of those phrases into a search engine, they arrived at the digital doorstep of someone ready to swindle them. It was snake-oil-salesman heaven: The con artist didn't have to go to the customers. Thanks to metatags, the customers came to the con artist.

The Internet confers on scam artists the same benefits that it offers entrepreneurs: minimal barriers to entry; the ability to experiment with new business models; free and instantaneous, 24-7 communication with an international market. All of these things have made life easier for bad guys. But Bernstein understood something else about the Internet's impact: Its strengths could also work for the good guys.

Plain-Clothes-Police Work on the Web

The Web site touting the magical weight-loss potion NordiCaLite is what Bernstein calls a "teaser site." It's one of a dozen such sites that her office has set up on the Web. And it's part of a broader strategy to use the Internet to fight fraud, rather than enable it.

Part of that strategy is a project called Surf Days. When the FTC identifies a particular problem — say, privacy violations or large-scale online peddling of fake jewelry — it enlists other law-enforcement officials in a little desktop reconnaissance. The FTC and its counter- parts pick a date and a time, then drop whatever they're doing and spend three or four hours surfing the Web. When they see a violation, they preserve that page for evidence. And they send the site's owners a toughly worded email from the government, warning them that deceptive claims are illegal. In March, one Surf Day — dubbed GetRichQuick.Con — coordinated 150 agencies in 28 countries. They found more than 1,600 questionable sites.

But Bernstein knew that if scammers saw traffic from "ftc.gov," they might grow suspicious. So she established an Internet Lab — eight computers with high-speed connections and sophisticated surveillance software — that allows staffers to surf anonymously. Lawyers and investigators can establish fictitious email accounts and use credit cards that cannot be traced back to the government. Think of it as the new economy's version of plain-clothes-police work.

Bernstein's team also set up a massive database of consumer complaints called Consumer Sentinel, which allows the FTC and law-enforcement agencies throughout the United States, Canada, and Australia to search for names, companies, or types of fraud. What Lexis-Nexis is to lawyers, Consumer Sentinel is to fraud fighters.

Bernstein also groups small cases together for maximum press coverage and gives them great names like Operation Field of Schemes. ("Don't you love that one?" she says with pride.) And she can deliver a sound bite as well as anyone inside the beltway: "You shouldn't need a PhD to figure out the cost of a PC," she said in June, announcing an action against computer retailers who advertised "free" computers that came swaddled in hidden costs. Last year, in another fraud case, she glared into the camera and told the online world's scammers and schemers, "Clean up your act, or close down your site." As a public official, she is a TV producer's dream: John Wayne's persona stuffed into Jessica Tandy's person.

Web-Smart Government

Fraud is pretty tough to fight. Its perpetrators are crafty. Its victims are often too embarrassed to complain. On the Internet, where perpetrators can mask their identity and leave few physical footprints, the job is even tougher. The FTC is not the only government office charged with combating online bad guys. The FBI, the Secret Service, and the Securities and Exchange Commission also have Internet units. And Internet fraud is not the agency's only role. The FTC also works to keep the marketplace fair by enforcing antitrust rules and cracking down on sellers who swindle buyers in the offline world.

But just as more of commerce itself is making its way onto the Net, so are more instances of commerce running afoul of fairness. For example, in 1997, the FTC received 107 complaints about online-auction fraud. Last year, that number grew to more than 10,000. In July, the agency fined seven online retailers that in 1999 promised goods by Christmas but delivered them late, without ever notifying customers of the delay. The era of big government may be over, but the era of the giant marketplace has just begun — which means that in the new economy, the age of the smart, savvy government regulator may be dawning.

As for the era of Jodie Bernstein, says the woman herself: "I really am going to have to retire one of these days. But I'll stay here as long as the chairman does." And after that? "Sometimes I threaten to get a job at Bloomingdale's. I've always loved retail."

Daniel H. Pink (dpink@fastcompany), a Fast Company contributing editor, is the author of the forthcoming book Free Agent Nation: How America's New Independent Workers Are Transforming the Way We Live (Warner Books).

Sidebar: Police Yourself

At the top of the Federal Trade Commission Web site, the agency's mission is proudly displayed: "Working for consumer protection and a competitive marketplace." Visitors to the site can file a complaint over the Web, but the site also features a number of tips and tactics that consumers can employ to protect themselves. Here, adapted from those materials, are eight ways to protect yourself from online flimflammers.

 

  1. Watch the watchwords. If you see words like "miracle," "secret ingredient," "scientific breakthrough," "can't miss," "easy money," "guaranteed profits," and other hyperventilated phrases, you're probably facing a sham. If you're pelted with CAPITAL LETTERS, your best bet is to RUN FAST!!!
  2. Protect your private information. Don't disclose your credit-card number, Social Security number, telephone number, or address unless you know precisely who's asking for it and how that person is going to use it.
  3. Do not download files sent from strangers. The files could contain a virus, hijack your modem, or otherwise wreak havoc on your computer.
  4. When you buy items in an online auction, pay with a credit card. For all of the fear associated with credit-card theft, the FTC advises that credit cards give you the greatest protection if something goes wrong. If the seller doesn't accept them, consider using an escrow service.
  5. Never give your password to anyone. That includes your Internet-service provider.
  6. Pay attention. If you purchase items online, make sure that those items are delivered and that your credit card is charged the proper amount.
  7. When in doubt, check it out. If an offer sounds suspicious, check with your local Better Business Bureau and your state attorney general's office.
  8. Use your common sense. If something sounds too good to be true, it probably is.

 

For more consumer protection tips, visit the Federal Trade Commission on the Web (www.ftc.gov), or check out the federal government's consumer-protection portal (www.ftc.gov/ftc/consumer.htm).

Add New Comment

0 Comments