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State agency cracks down on escrow fraud

December 13, 2004

Task Force to coordinate prevention, enforcement actions


Inman News

The California Department of Corporations has formed the Escrow Fraud Task Force to coordinate fraud prevention and enforcement action by state and federal regulators, law enforcement, industry groups and businesses against fraudulent escrow companies operating on the Internet.

There are about 650 independent escrow companies in California licensed by the Department of Corporations. The Department has taken enforcement actions against 33 Internet escrow providers to shut down fraudulent escrow sites since May 2004. None of these Internet escrow companies applied for licenses to operate legitimately in California.

The Escrow Fraud Task Force will be lead by California Corporations Commissioner William P. Wood and a representative from the Federal Trade Commission, the FBI, the Southern California High Tech Task Force, the Los Angeles County Sheriff's Department and the Escrow Institute of California.

"Internet escrow fraud is widespread. It is criminal," Wood said. "For the first time, we have a coordinated strategy to quickly seek out and eliminate these online criminals. The rate of phony escrow sites popping up on the Internet is alarming and underscores the immediate need for cross-coordination between state and federal regulators, law enforcement, industry groups and businesses."

Users of Internet auction sites, such as eBay, and marketplaces that advertise classifieds are vulnerable to scam artists who commit Internet escrow fraud. Escrow services have become extremely popular in the online auction world and are often used for expensive purchases such as computers, electronics, jewelry and cars. Internet payment services allow buyers to use a credit card or electronic bank transfer to pay sellers who may not be equipped to accept these kinds of transactions. Internet escrow services accept and hold a buyer's payment until the merchandise is received and approved. The escrow company then forwards the payment to the seller.

The Department of Corporations is California’s Investment and Financing Authority, reporting to the Business, Transportation and Housing Agency and the Governor. The Department is responsible for the regulation, enforcement and licensing of securities, franchises, off-exchange commodities, investment and financial services, independent escrows, consumer and commercial finance lending and residential mortgage lending.

Copyright 2004 Inman News



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