The Federal Trade Commission (FTC) took a handful of scam artists to court who were caught taking millions of dollars from small businesses and nonprofits over the past several years. Thankfully, the FTC filed a case in Maryland against these businesses and have since temporarily shut down the operation. One group called Midway Industries LLC actually had over 500 complaints filed against them dating back to 2012 for business to business (B2B) fraud.
How did Midway Industries LLC and other associated businesses get away with B2B fraud?
According to the FTC, these B2B scam artists call companies, typically small businesses and nonprofits, ask for an employee’s name and contact information and offer to send free samples, promotional gifts or a catalog. For example, they have been known to send employees a shipment of goods that frequently consist of light bulbs and cleaning supplies. Once these items are received and signed for, a high-priced invoice follows that lists the employee’s name as having ordered the items. Here’s the catch – if the employee or company paid the invoice, they are sent additional merchandise and invoices costing the company money for unordered items. If challenged by the company, the scammer would try and trick them further into believing that an employee had accepted the promotional gifts sent to them and therefore they must have ordered the follow-up supplies.
In the most recent case filed by the FTC, the filing shows that the defendant companies have illegally taken more than $40 million from businesses and nonprofits between the years 2011 and 2013. Clearly, the small business owners impacted would have preferred to use those dollars towards payroll, employee benefits, job creation and/or growing their business.
For further information on how to protect your small business from fraud and tips to avoid similar scams see a recent FTC blog post at their Business Center titled, “Law and (Un)ordered.”