Retailers lose billions to online returns fraud via Telegram
The rise of online returns fraud facilitated through Telegram has resulted in substantial financial losses for retailers, amounting to billions. Apparel retailer PacSun observed a significant rise in the returns of online purchases earlier this year, highlighted by one customer who returned approximately 250 orders totaling $24,000. PacSun processed the refunds; however, the company did not receive the corresponding merchandise at its warehouse. Workers encountered “used or different merchandise returned in the box, or even empty shoeboxes,” remarked Shirley Gao, the company’s chief digital and information officer. Other promised packages failed to materialize entirely. The Southern California retailer specializing in beachwear, casual apparel, and footwear found itself embroiled in a larger trend of fraudulent purchases and returns, with losses reaching into the thousands of dollars, which began to escalate in early May.
The firm reported that its inquiry revealed a significant number of the fraudulent returns were linked to information disseminated via websites, Telegram messaging groups, and various forums designed to exploit the retail returns system for financial gain. The shift towards extensive, seemingly uncoordinated returns aimed at particular merchants signifies a significant development in what retailers describe as an escalating issue with the chaotic and expensive nature of returning online purchases. Across the country, retailers have experienced a significant increase in online returns over the last four years, a trend attributed to the implementation of lenient return policies designed to draw in customers during a pandemic-induced boom in e-commerce. The evolution of returns policies has significantly influenced consumer behavior: Shoppers have increasingly adopted the practice of purchasing multiple sizes and colors online, subsequently returning those that do not meet their preferences.
In the previous year, consumers returned 17.6% of their online purchases, amounting to over $247 billion, a figure that more than doubles the return rate observed in 2019, as reported by the National Retail Federation and software provider Appriss Retail. The phenomenon of returns has become deeply embedded in the fabric of online commerce, prompting the emergence of specialized firms to manage this expanding sector. Last year, United Parcel Service made a strategic acquisition of the specialized operator Happy Returns for $465 million.
Industry experts suggest that the convenience of returning goods has provided criminals with new opportunities to exploit an online marketplace where buyer interaction with store personnel is minimal. PacSun’s experience illustrates the increasing ambition and organization of fraudulent activities. The retailer has refrained from revealing the financial toll of fraudulent returns incurred this year; however, Gao indicated that the scheme is exerting a considerable influence on both the financial and operational aspects of the business.
The National Retail Federation has estimated that over $100 billion worth of merchandise was returned fraudulently in the United States last year, representing approximately 13.7% of the total returned goods that retailers processed in 2023. The figure represented more than double the amount of fraudulent returns recorded in 2020, as reported by the industry trade association, which highlighted a methodological shift in 2023 to incorporate customer returns data from Appriss Retail. David Johnston, vice president of asset protection and retail operations at NRF, noted that organized criminal groups are exploiting the omnichannel retail landscape. Criminals are taking advantage of the information disparities that exist among different departments within retailers, including sales personnel in stores, warehouse employees, and online customer service agents, to manipulate the system, he noted.
In certain instances, deceitful individuals are substituting counterfeit products for genuine designer items, dispatching packages filled with bricks or other materials instead of the authentic goods. Some individuals are exploiting shipping labels to obtain refunds merely by returning an empty envelope. According to industry experts, various tactics, including strategies for leveraging return policies at particular retailers, are proliferating across websites and within groups on anonymous messaging platforms like Telegram.
Certain individuals highlighted by The Wall Street Journal advocate for “refunding services” that enable customers to receive full refunds within days, all without the necessity of returning the merchandise. Various organizations outline the return policies of major retailers, providing customers with clarity on their eligibility for refunds. “This service can be utilized for personal purposes, or alternatively, one may resell the refunded products to generate additional income,” states a particular website. “We provide only stores that are devoid of risk, allowing you to utilize this service and resell your items with ease.”
A representative for Telegram, the Dubai-based messaging and social media platform, stated that its moderators aim to eliminate content that encourages fraud. However, the app’s expansion to nearly 1 billion users worldwide has led to challenges in its content moderation efforts. He stated that Telegram is prioritizing enhancements in moderation this year. The retailers identified by the refunding services offer a range of products, with prices varying from a modest few dollars for fast fashion items to several thousand dollars for electronics and luxury goods. Fraudsters promoting their services on Telegram and various websites frequently offer their assistance in exchange for a percentage of the refunds obtained by customers.
In a prevalent tactic, individuals provide the perpetrators with their names, email addresses, and order confirmation numbers for transactions conducted online. The perpetrators subsequently navigate to the website of a specific retailer to solicit a return label. The label is digitally altered to modify the shipping address, and the adjusted label is affixed to a vacant envelope. The parcel carrier responsible for collecting the envelope scans the label, transmitting a digital signal to the retailer, indicating that the item is en route to the retailer’s warehouse. Upon subsequent delivery to the amended address, the parcel carrier’s online tracking system indicates that the parcel has been “delivered.”
The perpetrators subsequently engage with the retailer’s customer service department online to request a refund for the item. The support agents, often distanced from the company’s warehouse activities, observe online that a package has been marked as “delivered” and promptly issue a refund to the customer’s account, well ahead of warehouse personnel realizing that no package has indeed arrived. Prosecutors across the country have begun to intensify their efforts against the practice. “Numerous investigations are underway nationwide, spanning local, state, and federal levels, targeting individuals as well as organized or coordinated groups,” stated Johnston from the NRF, who opted not to disclose specifics regarding particular cases.
In November 2023, the U.S. Attorney’s Office for the Middle District of Florida brought charges against Matthew Frederic Bergwall, a former student at the University of Miami, for orchestrating a refund-fraud scheme that resulted in losses of $8 million for retailers. Bergwall entered a guilty plea in July regarding a conspiracy related to mail fraud. He is set to receive his sentence in October. In July, two additional individuals, Brock David Fischer and Miguel Angel Fortier Jr., faced charges related to their purported participation in the scheme. Both defendants have entered pleas of not guilty, with the trial scheduled to commence in November.
In a distinct legal matter, Sajed Al-Maarej from Dearborn, Michigan, entered a guilty plea in July at the U.S. District Court in Seattle. Federal prosecutors charged him with operating a refunding service via Telegram, known as Simple Refunds, and for dispatching counterfeit returns to retailers. In a notable instance, prosecutors alleged that Al-Maarej dispatched an envelope containing plastic toy frogs to an unnamed retailer, rather than the “bulky tools” he purported to be returning. Prosecutors indicated that Al-Maarej’s operations collectively yielded over $3.9 million in fraudulent refunds. He is set to receive his sentence in September. Prosecutors assert that Al-Maarej engaged in a conspiracy with Leonardo Vidal from Wilkes-Barre, Pennsylvania, who has admitted guilt to an information, thereby foregoing an indictment by a grand jury, in connection with his purported management of a fraudulent refunding service. Prosecutors have indicated that Vidal’s operation, known as Ressu Refunds, utilized Telegram to facilitate approximately $6 million in fraudulent refunds over a span of two years. Vidal’s sentencing is set for November.
In June, PacSun suspended mail returns as a measure against fraud. However, Gao noted that some individuals have exploited in-person return drop-off points by returning used goods and counterfeit products. PacSun has implemented a $10 fee for mail-in returns on items including footwear and is collaborating with a technology firm to identify fraudulent return activities.
Certain retailers, including Amazon.com, have initiated their own legal proceedings. In December, the e-commerce giant initiated legal action against a refunding-services entity known as REKK, alleging that it was “responsible for stealing millions of dollars of products from Amazon’s online stores through systematic refund abuse.” An Amazon spokesperson indicated that the company escalates cases of individuals who consistently exploit its return policies to law enforcement, while also advancing technology aimed at identifying and mitigating fraudulent activities. “We are advancing in our efforts to detect and prevent fraud proactively, while also dismantling the networks that threaten the integrity of our store and those of retailers throughout the industry,” stated the representative.
