From: TELECOM Moderator Subject: Cell Phone Fraud Losses Triple in a Year Date: Tue, 29 Jun 1993 23:38:16 -0500 Organization: TELECOM Digest In a one year period from 1991 through 1992, losses from cellular phone fraud tripled from $100 million to $300 million nationwide according to the Washington DC based Cellular Telecommunications Industry Association. Industry sources say Los Angeles cellular providers account for about ten percent of the losses, which are passed on to consumers in higher service costs. Todd Young, an investigator for the Guidry Group, a Texas-based organization which investigates cellular fraud for carriers all over the United States said that Los Angeles is both the leader in cellular fraud dollar volume and in the technology itself which makes the fraud possible. He said fraud techniques seem to begin in Los Angeles then start showing up all over the country. Young oversees investigations for the western half of the US for the Guidry Group. He said in 1992 there were only twelve arrests in the entire USA for cellular fraud, but that due to 'improved techniques in detecting fraud' arrests have increased to about four a month during 1993, and these are mostly in the Los Angeles area. The two main cellular providers in Los Angeles, LA Cellular and PacTel Cellular both refused to say what their losses were last year, claiming this is proprietary information ... must be pretty high, huh? :) Someone at the Cellular Telecommunications Industry Association who would not be quoted on the record said the two firms lose about two million dollars between them *each month* from calls made on stolen numbers. There are methods for calculating approximate losses due to fraud where LA Cellular and PacTel Cellular are concerned; it involves looking at chargebacks between the companies and other cellular carriers where alleged 'roamers' came from when in the LA service area. Other cellular companies are willing to talk -- when they think it in their best interest to do so -- even though PacTel and LA Cellular want to keep quiet. To make matters worse, an infamous court decision in November, 1992 by US District Court Judge Wallace Tashima has caused a complete halt to cellular phone fraud prosecutions by the Secret Service. the one federal agency which had been charged with investigating that crime. According to Judge Tashima, ESNs are not the same as PINS or private access codes, which is what the Secret Service regulates ... therefore he ruled the Secret service out of order in investigating cellular fraud involving the changing of ESNs ... how do you like that? :) The end result in Los Angeles? According to Stan Belitz, the Secret Service special agent-in-charge of financial crimes in southern Cal- ifornia, the Secret Service is no longer investigating cellular phone fraud. The United States Attorney's office in Los Angeles no longer prosecutes cellular phone fraud cases either. "Why bother," said Mr. Belitz. "The judge in this district said cellular fraud is not a violation of the law ..." At present, the Secret Service and the US Attorney in Los Angeles are considering whether or not to appeal the ruling by Judge Tashima. Todd Young said this is not a helpful turn of events. His firm and the cellular clients he serves are trying to get the federal government involved in more prosecutions ... but they may not succeed unless Judge Tashima is overruled on appeal. The majority of cellular fraud is made possible by the use of ESN readers; devices which can pick up the serial number of a cellular phone from almost two miles away. They are expensive devices, and often cost about $5000, but apparently are well worth it to cellular phone phreaks. Once an ESN has been obtained, the data is cloned on blank computer chips. Stolen phones are then retrofitted with the newsly-cloned chips, and in many cases, pirate manafacturers of cell phones simply install the clone chips directly into new phones they build in their factory. About a year ago, a pirate factory where illicit cellular phones were built was raided by the Secret Service. As the phones were built, they were sold 'on the street' as 'ready to use cellular phones; no carrier turn on required ...' Of course this leads to the true -- and until this point unwitting -- customer of the cellular company getting a BIG bill a month or so later, and typically roaming bills take a couple months to get back to the home carrier, meaning pirated ESNs from Los Angeles get sold in New York and vice-versa. Two or three months later, the owner of the phone gets a shock when he sees the bill, and this is the first notice the carrier had that something was wrong in many instances. So phreaks, have phun! Judge Tashima in Los Angeles Federal District Court is on your side. Patrick Townson