Is It Fraud If You Collect One Penny Legally Over And Over Again?

from the legal-conundrum dept

If you’ve ever needed to associate your bank account with some online service (such as PayPal), you know the drill: you provide the necessary info to the service, and a few days later, it makes two small deposits into your account (usually between 1 and 5 cents or so). You then have to report back the amount of the deposits to prove you own that account. It’s a relatively cheap way for the services to confirm the account details. However, to one man, it was also an opportunity to make some cash. He set up automated scripts to basically use just such a system to open thousands of accounts and collect approximately $50,000 of these micro-transactions. As the guy noted for at least one of these accounts (with Google’s CheckOut system), he read through the terms of service and this did not appear to violate the terms. In fact, it does make you wonder how illegal this really was. The fact that the guy used fake names (of various Mike Judge characters, which seems like a nod to the “skim a penny” computer hack from Judge’s movie Office Space) probably hurts his case — but it still raises some questions. If there are no limits on accounts and no other terms of service that prevent this sort of action, what exactly about it is illegal? Is there a certain number of accounts that you can open before it’s considered fraud? Or does it have to do with his intent — which was solely to get the microdeposits, rather than to use the accounts?

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Comments on “Is It Fraud If You Collect One Penny Legally Over And Over Again?”

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PaulT (profile) says:


I don’t know what the legal definition would be here, but intent would be my opinion of what’s wrong. There’s no reason for any normal person to need to open that many accounts legitimately, so unless he’s got a very good excuse then the only reason would be to collect the cash.

I doubt the courts would look kindly on it, though if there was no barrier in the EULA, I don’t know how severely he’ll be prosecuted.

Anonymous Coward says:

Re: No

You have confused banking law and securities law with a web site.

PayPal is the same as a credit Card Company is the same as a bank account is the same as a stock account, a money wire transfer accounts et when it comes to setting up accounts in anything but your own proper legal name.

Using Mickey Mouse et for any of these is illegal. Good for a few years in the old slammer. You know the place where the sun don’t shine.

Eliot says:

Re: heer yay go Mikey

If you’re making a morality claim, then you’re not responding to Mike’s point, otherwise you haven’t pointed out what makes it illegal.

I am not really equipped to talk about the legality of gathering the remnants like this — I’m sure they put something in their employment contracts that forbids it, but I don’t know that its illegal.

Similarly, while this guy made a legal mistake by using false information, the act of gathering all these micro-deposits like this … I don’t think it’s illegal.

Anonymous Coward says:

What I don’t understand is how the system would even allow that. I remember a situation quite a few years ago where I needed to take a bank account out of one PayPal account and add it to another one. I won’t go into the details now, but I assure you it was a perfectly legitimate action. Anyway, PayPal was setup such that it wouldn’t allow the same bank account to be associated with more than one PayPal account at the time, for the specific purpose of preventing fraudulent usage. Now I know there’s no way this guy had 50,000 bank accounts, so he must have rigged up some method of adding a bank account long enough to get the deposits and then removing it and moving on to the next PayPal account. That alone should constitute fraud, because he had no intention of using the accounts legitimately. But as it was said earlier, the fact that false information was used to register the accounts should be the smoking gun here.

Trerro says:

They're starting to the the opposite

Pulling up the Wikipedia definition of fraud:
In criminal law, fraud is the crime or offense of deliberately deceiving another in order to damage them – usually, to obtain property or services unjustly.

IANAL, but I think this fits pretty clearly – the deception is from creating all those fake IDs, the damage has a direct, obvious material value (50 grand), and clearly this money was obtained unjustly – abusing a confirmation system to get thousands of handouts instead of 1.

On a side note though, a lot of companies are starting to take the opposite approach – they take a very small amount of money OUT of your account, you report the amount, then they credit the amount towards your first transaction. Of course, no one really minds, since you aren’t signing up for the service until you intend to make a transaction anyway.

krsd says:

Re: Multiple accounts NOT allowed

Violating the TOS of a company is not illegal. It is grounds for them to stop service, but that is all. Otherwise every company out there would be making their own laws to favor themselves. This falls in the same area as an eula, breaking a EULA is not illegal, but it is reason for the company to revoke their service/license. Continuing to use the product after breaking the eula is what might be considered illegal (Assuming that eula’s are enforceable, but that is another debate).

enough says:


This is really reaching. Homestly, I think some peoples obsession with the Internet and “new economies” has soften their brains.


Registering accounts under a false name? FRAUD.
Registering accounts under false pretenses? FRAUD.

What do people insist on pretending that just because something is done using a computer it’s somehow not illegal or unethical.

Eliot says:

The Point...

I think people are missing Mike’s point.

He’s not suggesting its not illegal to commit fraud, because he pretty much says it, though “probably hurts his case” was perhaps weak phrasing.

The question Mike was asking was: “If there are no limits on accounts and no other terms of service that prevent this sort of action, what exactly about it is illegal?”

Anonymous Coward says:

not necessarily a fraud

as a lawyer I can tell you that this is not necessarily a fraud, unlessnhe provided fake data that if they were true would have prevented multiple withdras. For instance if the paypal system DOES check whether a social sec numb has been reused, then providing a fake one for this purpose would be fraud.

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