Case Study: Organized Refund Fraud

Organized refund fraud has been going on for many years, and it is likely to continue, especially if stores make it easy for thieves to get away with it.


When the news broke in March 2006 that Claude Allen, a White House advisor, was arrested on numerous counts of refund fraud, this crime was briefly placed in the national spotlight. Then, like all sensational events, it quickly faded to black.

Unfortunately, the crime itself has not vaporized with the cessation of the news coverage. Organized refund fraud has been going on for many years, and it is likely to continue, especially if stores make it easy for thieves to get away with it.

Following is the description of a very lucrative organized refund fraud scheme, the steps the retailer followed to put a stop to it, as well as tips for other stores to build cases that can be successfully prosecuted.

MARSHALLS AND T.J. MAXX

In 2001, a married New Jersey couple began targeting Marshalls and T.J. Maxx stores up and down the East Coast, committing fraudulent returns.

Both stores are off-price apparel retailers that belong to the MarMaxx division of the TJX Companies, Inc. There are approximately 715 Marshalls stores and 800 T.J. Maxx stores in the United States, with combined annual profits of approximately $10 billion. The couple hit branches of these stores in nine states, committing 758 fraudulent returns and taking the stores for over $160,000 in a four-year period.

The two, who were living the American dream in an upper-middle class suburb in New Jersey -- a very nice home complete with two cars and two kids -- suffered a financial setback in 2001. They began committing fraudulent returns in order to generate revenue to pay their living expenses. This money-making activity quickly escalated into a full-time job for both of them.

THE SCAM

The division of labor worked like this: The wife was responsible for acquiring the merchandise, and the husband committed the fraudulent returns. The female half of the couple purchased items at clearance or super-discounted prices from both Marshalls and T.J. Maxx stores. She would remove the discount stickers from the price tags to reveal the original, full-price cost.

The couple also kept a cache of merchandise tags. They would put the appropriate bar codes and the original prices on the tags, then retag the merchandise.

Using a laptop computer and home printer, the wife generated a counterfeit receipt that reflected the purchase of several items, including those they planned to return for cash refunds.

The receipts were printed on thermal register tape of the kind used at the stores. In fact, it was exactly the same as the tape used at the registers; the male half of the couple stole a roll of it that had been left out at a customer service desk in one of the stores. Any store employee who handled the receipt would be easily fooled by its texture.

The printouts were almost perfect. There was, however, a slight difference in ink color between the fraudulent and the genuine receipts. The cashiers did not seem to notice this discrepancy, but store loss prevention did eventually pick up on it. That piece of the puzzle was difficult for LP to get a handle on because the man was scrupulous about getting the receipts back. After receiving cash back, he would ask for the receipt back “just in case [he] wanted to return another item” that appeared on the same receipt.

Out of all the evidence that was collected in this case, only three fraudulent receipts were recovered by the stores.

MAKING THE ROUNDS

The wife constantly made purchases at Marshalls and T.J. Maxx stores, amassing merchandise that the husband would return for cash. He went on his appointed rounds daily, blanketing the East Coast. He traveled as far north as Massachusetts, New Hampshire and Rhode Island, and as far south as Virginia. The states he hit the most frequently were New Jersey, with 479 returns totaling over $100,000; and Pennsylvania, with 128 returns in the amount of almost $27,000.

This content continues onto the next page...