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When Gaming The System Goes Too Far - Two Fatwallet Members Plead Guilty To Wire Fraud

Thursday, April 12, 2012 - 5:54 AM
If you find a glitch in a rewards program and use that glitch to build up a huge reward, you may be committing fraud. Two brothers who are Fatwallet members learned that the hard way when they plead guilty for wire fraud.

From the U.S. Department of Justice website:
According to records filed in the case, in 2008 the CHIU brothers were barred from ordering merchandise from Nordstrom.com because of excessive claims for refunds based on representations that merchandise had never been delivered.  However, both brothers continued to try to place orders with Nordstrom.com.  Both men belong to FatWallet Inc., a membership based shopping community website that promotes various online retailers by providing coupons and cash back incentives for purchases.  FatWallet paid cash back rewards to the CHIU brothers for purchases made at various on line retailers, including Nordstrom.com.  In January 2010, the brothers discovered they could exploit a computer programming error in Nordstrom’s ordering system by placing orders that would ultimately be blocked by Nordstrom.  No merchandise would ship and nothing would be charged to their credit card.  However, Nordstrom would unknowingly continue to compensate FatWallet for the order, and the brothers would still receive the cash back credit from FatWallet.  Between January 2010 and continuing through October 2011, the CHIU brothers collectively placed more than $23 million in fraudulent orders through Nordstrom.com.  The fraudulent ordering resulted in Nordstrom paying $1.4 million in rebates and commissions, with more than $650,000 in fraudulent cash back payments going directly to the brothers.  The error that permitted the continued payment of rebates in the ordering system has since been fixed.

There's a lot of debate on this FW thread about if this case deserved criminal prosecution rather than a civil trial. Senior FW member suckisstaples writes:
Many FW attorneys I have discussed this case with agree the brothers should not have been charged with criminal fraud, and/or should not face prison time. Financial restitution is more than enough, and the government has already seized assets exceeding the amount the Chius received.

FW member dshibb writes:
The only thing that holds that these referral bonuses should only be paid for completed orders is in Nordstroms terms and conditions. Terms and conditions is contract law which means this would be a civil case.

FW member FW10001 warns how this could set a dangerous precedent:
I think the issue here is that companies can use this case as a precedent to maul any customer who games the system, even when the gaming is restricted to relatively commonplace (non-criminal) stuff like stacking coupon codes, combining various click-thru sites for extra CashBack, etc. The brothers are already out the money they milked off the CashBack system.

Not all FW members think the DOJ was wrong in the criminal prosecution. FW member duck51 writes:
SIS, your portrayal of these 2 guys as victims of the judicial system is baffling, no one put a gun to their head to create this immoral & elaborate scam to swindle all that cash, would you feel the same if that 1.4 million was from your company? I think not, but since it isnt it easy to try to justify what these two scammers did in the name of FW camaraderie.

8
Ken TuminKen Tumin5,469 posts since
Nov 29, 2009
Rep Points: 125,077
1. Thursday, April 12, 2012 - 7:12 AM
For every criminal caught in such a case, there are tons of others behind the scene.  People sometimes take a deal (or loopholes in this case) to the extreme (called it abusing, not used as intended, etc.).  I wil not be surprised that there are many gamers that have crossed the line (of the law) and are not caught (yet). 
9
51hh51hh1,476 posts since
Jan 16, 2010
Rep Points: 6,426
2. Thursday, April 12, 2012 - 7:42 AM
As the saying goes, "Just because you can doesn't mean you should".
10
pearlbrownpearlbrown1,433 posts since
Nov 2, 2010
Rep Points: 6,255
3. Thursday, April 12, 2012 - 11:06 AM
 
As the saying goes, "Just because you can doesn't mean you should".

 

  But if could and you don't, and someone else does, you might be left saying coulda woulda shoulda....
2
Chic_HenlipsChic_Henlips11 posts since
Mar 14, 2012
Rep Points: 44
4. Thursday, April 12, 2012 - 5:20 PM
Chic, I'll bet these brothers are probably wishing right about now that they could have a "do-over" so they could take the "coulda woulda shoulda" fork in the road.      ;-D

There are some interesting opportunities out there, and I am not above temptation.   However, my good name is important to me, so I make it a point to do business as if it were going to be reported on the front page of the Wall Street Journal.  That seems to keep me out of trouble.   

Well OK, that and the fact that horizontal black stripes don't look good on anyone :D

 
8
pearlbrownpearlbrown1,433 posts since
Nov 2, 2010
Rep Points: 6,255
5. Sunday, April 15, 2012 - 7:12 PM
This is theft, pure and simple. Stacking coupons is one thing. Deliberately and knowingly creating false transactions for the sole purpose of financial gain at the expense and detriment of another party is fraud, which is a crime. Really, why is this any different from shoplifting? These moral equivalence arguments are nonsense. Someone was certainly harmed in the commission of this crime, and the criminals should be prosecuted to the fullest extent of the law. That certainly should be the prcedent here.
4
crazycashcrazycash1 posts since
Apr 15, 2012
Rep Points: 4
6. Monday, August 13, 2012 - 6:33 AM
These two Fatwallet members were convicted of 2 years in prison last week. According to The Seattle Times:
Two brothers used a loophole in Nordstrom's online ordering to defraud the company of more than $650,000, court filings said, ultimately costing Nordstrom about $1.4 million. They were sentenced to two years in prison on Friday.

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1
Ken TuminKen Tumin5,469 posts since
Nov 29, 2009
Rep Points: 125,077
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