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10 greatest scandals in the world of e-commerce Trust or distrust? Very often such a dilemma occurs when the matter concerns the use of all types of payment systems presented in a wide range on the Internet. So, what talks for using them? The simplicity, speed and mobility. And against? Multiple stories proving imperfection of those systems, and that virtual passion may turn into real non-virtual scandals, where the primary role is played by real money belonging to common people. So, let’s start. e-Gold. Launched in 1996, this payment system has opened a new milestone in the history of online payments. In the very beginning everything was perfect. Complete anonymity and possibility to transfer any amounts on the Internet. Speed and convenience. Very soon it became a good soil for business of those people who prefer not to call their names, and certainly it couldn’t fail to attract the attention of government. What happened? In 2007 the owners of the company Dr. Douglas Jackson and his partner, Barry Downey were charged of illegal activities and money laundering. By this time the company activity has already gone down caused by massive blocking of the accounts and forfeiture of assets. Later in 2008 all charges were dropped but later both of the owners were charged of the same crimes again. And this time both of the owners pleaded guilty. Despite pleading guilty nor Douglas Jackson nor his fellow were imprisoned but the company has changed almost beyond recognition. Result Now company requires a full identification, blocks all the accounts that seem suspicious and did not register any new ones. Although, after all this history, and after it became known that all data provided by the system, was transferred to FBI and other federal bodies, the number of people who desired to register in the system has declined considerably. Currently e-gold that previously was payment system number 1 is just exists rather than operates. Currency is devalued, and nobody needs it. It’s a pity but perhaps this is the end….. Another story in which government has also played an important role is an electronic payment system Neteller, which is now known now as Neovia Financial Plc. What happened? We have already written about the history, when the Government of Uncle Sam has decided to arrange a public execution of a company which was carrying out transactions for online casinos, which were prohibited in the United States. In January 2007, the U.S. government issued a warrant for the arrest of Stephen Lawrence and John Lefebvre, the ex-founders of Neteller. Also it was ordered that the company is to pay a fine of 136 million dollars that forced Neteller to sell its main properties in Calgary (Canada) and other assets. And the most important thing is that the company was asked to leave the U.S. market. All of these executions could not fail to affect the affairs of the company, shares fell, and no one believed in the return of the company, the government crushed by the USA governmental machine. Result However a miracle has happened and a company rise like Phoenix from its ashes having proved all those spiteful critic and skeptics that there is nothing impossible. Yet the whole history like a stone was pulled the company down, so the management decided to re-brand the company. Now the company is known as Neovia Financial Plc., Neteller but still is a trademark of the company. One thing is when the authorities meddle in business aiming not to deprive you of your funds, but to make the legality of the service, and another thing is when someone tries to steal your hard-earned money. Despite the numerous certificates and assurances of a payment systems security is a very important question. About what security guarantees a payment system talk can if it was launched just six months or a year ago, if the giants which have received recognition worldwide suffer from the attacks of fraudsters. Let’s remember just the most massive breaches. In 2005, due to the negligence of the staff of CardSystems Solutions approximately the numbers 40 million credit cards have been stolen the most part of which were branded by MasterCard. What happened? Some unknown hackers have attacked a security system of CardSystems Solutions and installed malicious software, which allowed the fraudsters to obtain the necessary data. As it turned out, information leakage has occurred mainly because of the flagrant violations of safety rules. Thus, according to CEO John Perry, CardSystems Solutions stored requisites data in their bases after completing transactions that was a true violation of the statute of MasterCard and Visa according to which the company was to delete all the information immediately after the completion of operations. Moreover, the information was not encrypted and, as one American edition said, it was the was as if the bank sends statements of account in the envelopes, typing text on the back of the envelope. Что в итоге? As a result of the breach 263 thousand credit card details stored at CardSystems Solutions were stolen that corresponds approximately 239 thousand bank accounts. 68 thousand people were asked to urgently check the status of their accounts. After such a “disaster” the company could not stay in business. Companies Visa and American Express immediately refused partnership with the company. As a result, the company was acquired by Pay by Touch. Until the current year, the MasterCard case was considered the largest in history however records are always improving and not only in sports but in the world of crime as well. This year, one of the largest processing companies Heartland Payment System announced the leakage of information. The real scale of the incident is still unknown but some sources call the numbers up to 100 million credit and debit cards. What happened? As in the previous case with the CardSystems Solutions some hackers have found a gap in the security system and installed their software that read the data on credit and debit cards, which were processed by a system system. It is supposed that the software was installed approximately six months before it was discovered that can explain such figures. Security breach was discovered only owing to the operators of MasterCard and Visa Help operators who noticed some suspicious activity in the accounts of the cardholders. Что в итоге? As a result, many banks were forced to completely change the cards of their clients, since it certainly could result in massive data theft however not data but the real money. Company Heartland Payment System was deprived of a certificate of conformity and was to pay compensation. The investigation is continuing. Such a hasty decision to replace the numbers was prompted the most likely by another system breach that was very scandalous one RBS WorldPay. What happened? In the beginning everything was in accordance with a classical scheme. They have found vulnerability and installed software that allows reading the card details. The hackers managed to collect the necessary information to recreate the exact copies of the so-called payroll cards, used in to cash via ATMs. The exact number of the cards stolen is unknown, but according to some sources their number reaches a half million. Further the events moved like in the best Hollywood movies. At the night of the 8th November some unknown men simultaneously came up to 137 ATMs in 49 cities around the world. Within half an hour 137 ATMs were emptied. The total amount of stolen funds amounted to 9 million dollars. This was the largest operation in terms of the number of participants, and on the amount stolen in the history of cardership. Что в итоге? There were lots of cases brought against the company. For some time the company was deprived of its certificates of conformity. Currently RBS WorldPay is developing successfully, and is expanding its customer base. Another victim of hackers was an electronic payment system LibertyReserve. This year was a difficult one for users and fans of the system that were to go through fire, water and copper pipes. What happened? In the beginning the company constantly was under ddos attacks. One day the company site went down and the company didn’t make any announcements. The rumors started spreading. Later, the company reported maintenance and installation of new equipment, thus the site could become temporarily unavailable. In some time the situation is repeated. Having asked the clients to wait for several hours to install the necessary updates and SSL certificate on the site LibertyReserve went down for several days. According to experts, this procedure was to take from a couple of minutes to several hours, but not for several days. It was clear that something was wrong. But what? When the system resumed its operation, it became clear what exactly caused the extraordinary ‘holiday season’ for the company. LibertyReserve suffered from the security system problems. Several customers complained of the theft of funds at once. The total amount of funds stolen was not known, but people called the amounts from a quarter of a million to a million dollars. the most surprising thing was that the system denied the fact of breach, calling everything happened fiction and a provocation aimed at maligning the good name the company. Result The plea lasted for a couple of months. Some users threw mud at the system, LR tried to defend itself and blocked the accounts of some of the attackers. LR rate started to fall, some talked about the coming end of a system and began to look for alternatives. However, the situation has resolved itself. The rate went back to its norm though nobody told about any reimbursements. In other words, they hushed up a scandal... Though users can be understood with their panic, since we know a case when a payment system turned out to be a real scam. Of course, this is a system Altergold, launched early last year and existed less than a year. What happened? The system Altergold made splash nobody doubts this fact. Very startling with shocking statements this payment system came to the market threatening to become the future of the entire e-commerce. Having chosen an aggressive marketing strategy, it soon appeared everywhere. In all, more or less interesting sites one could see beautiful banners calling to join the world of Altergold, forums were full of enthusiastic feedback of the system that was posted by paid posters. The system was growing exponentially, but in one bright (?) day everything changed. The system has decided to become a ‘closer’ to its users, sent by e-mails with the latest news, including news about a new executive director - a mother of 2 children. The letters told of the changes and innovations that were to improve the system. All seemed to be good however among other items there was the one that was very important. The company announced the suspension of the withdrawals from the accounts. In other words one could freely use the money by sending it from one account to another, but without a right to cash it. Then the users received announcement of the maintenance at the site… Company blog also have disappeared somewhere…. Here one and a sole idea prompted itself…. We deal with the fraudsters. Result After a while the site came back, but not for long. Shortly after the return the company has gone – but this time finally and irreversibly, and with the money of the users blocked in the accounts of the company. It turns out that not only HYIPs can be scam… Unfortunately, this is not the first time when the payment system didn’t return from its “maintenance”. For example, last August an online payment system e-Bullion. went down for maintenance and didn’t came back. Although the ubiquitous agents of the FBI also contributed to this story. What happened? On July 28, 2008 Pamela Fayed, owner of the company e-Bullion was stabbed in parking lot. On August 1 James Fayed was arrested being accused of money laundering and conducting illegal business. Later he was charged of the murder of his wife. On August 5, the system e-Bullion became unavailable. We know that e-Bullion was managed by the couple and after the death of Pamela and arrest of James nobody could continue the business. Moreover, the company was accused of laundering funds, which enabled the authorities to seize the whole database system. James Fayed asked the judge several times to allow him to return money held in accounts of their owners, but the response was strongly negative. Result More than a year has already passed, but nothing changed. The only thing changed was the site of e-Bullion where today instead of the maintenance announcement one can see just a blank page. No site anymore and probably no money... Case of LibertyReserve was not the first one when the users missed their money after system breach. So, after hacking of the servers of Capital Collect Services (CCS, also known as CC) in 2006, many customers missed their hard-earned money. What happened? According to the data supposed the server was breached in November 2006, but the gap in the security system has been found only in late April next year. The main shock after the first breach the staff was continuously discovering new and new vulnerabilities. Customers urged to change card PINs. Some customers found that their accounts with money stolen. Even though the system formally recognized the fact that it was hacked, it refused to pay compensation, saying that the remittances were made legally, without violating the rules of the system. Another item that didn’t bring honor to CC was the fact that the company has voluntarily agreed to provide its database to the some governmental agencies. Everyone knows what the audience did the system serve and that was quite natural, because the people involved in illegal businesses, prefer the official banks, rather than the so-called offshore laundries such as CC was. It should be said that the database was a very interesting one since to open an account with CC the client was to provide a number of documents comparable to the ones that normally banks require. So, having provided their archives to the FBI, CC got into trouble many of its serious clients whose activity was very interesting for the government. Result After the discovering of this fact the activity in the customers’ accounts minimized as well as the interest of the customers in the company as a whole. Their currencies have ceased to take, and the company was to left the market. And the last scandal is of course, the case Madoff, called a scam of the century. 65 billion dollars is an estimated damage caused by the corporation of Bernard Madoff to the world's largest companies. What happened? There was almost unreal. It turned out that one of the largest investment funds Madoff Investment Securities LLC that was established almost 40 years ago is a grandiose pyramid. According to the originator of the pyramid during 40 years of his company existence he has managed to steal more than 50 billion dollars from their clients. If it were not for the financial crisis, perhaps the system would have existed even now. However, after the crisis came all companies rushed to the fund, trying to withdraw their capital. New investors didn’t join the fund, so business began to lose its force. According to the fund staff Madoff recently looked depressed. On December 10, during the conversation with his sons Bernard confessed that its whole business was just one continuous deception. He also said that at that moment he had only $ 200-300 million from the 50 billion stolen and he was going to distribute it to some of his subordinates, family members and friends. The next day, Madoff was arrested. Among the victims are such companies as Access International Advisors, French bank BNP Paribas, British HSBC, Swiss Neue Privat Bank and the Japanese Nomura. But the main victim was Spanish giant Banco Santander which lost 2.33 billion euros. Result After 4 months of investigation, Bernard Madoff pleaded guilty to 11 counts, including fraud, perjury, theft of money from the incentive funds of workers and money-capital. According to the court decision 71-year-old Madoff was sentenced to 130 years of imprisonment. Here in our opinion about the most striking points that you can remember and throw a stone into the garden of e-commerce, together with all its payment systems and investment funds. However, nobody can abandon it now, because it has already become an integral part of the offline economy which determines the direction of the world economy as a whole. So, perhaps, its worth trusting though one shouldn’t neglect one simple saying “trust but verify”, especially when it comes to your hard-earned funds. Tell your opinion |