Six men are looking at up to 20 years in prison on wire fraud charges, in a case that involves frequent flyer miles.
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Millions of frequent flyer miles stolen
The Unites States Attorney’s Office for the Northern District of Texas has charged six men with committing wire fraud in August 2019, in a scheme in which they allegedly stole millions of frequent flyer miles.
A federal grand jury has indicted a 43 year old man from Zgierz, Poland, who is the lead defendant, along with five other men ranging in age from 30 to 55, who are from California, Oklahoma, and Texas.
The lead defendant was arrested in Poland in May 2020, and following a successful extradition request, he was handed over to the FBI this past Friday morning, and flown from Warsaw to Dallas over the weekend. He made his initial appearance in court this morning.
According to the indictment:
- The man allegedly hacked into consumers’ airline frequent flyer accounts, and used compromised accounts to book flights for unsuspecting passengers who had purchased travel through the other five defendants
- The US-based passengers would send their requested itineraries and personal information, including names and dates of birth, to one of the five men
- They would then send that information, along with a money order, to the lead defendant in Poland
- He would then book those flights with fraudulently obtained miles
- He would then send the confirmation numbers to the men, who would share it with the passengers for travel
Of course it’s worth remembering that defendants are presumed innocent until proven guilty. If convicted, each of the defendants could be looking at up to 20 years in federal prison.
I’d be curious to know the scale of this
While it perhaps doesn’t matter one way or another, I’d be intrigued to know the scale of the theft here. All that we know is that it involves “the loss of millions of earned airline miles.”
For example, two million miles would be “millions,” and at a valuation of about one cent per mile, that would be worth about $20,000. Split across six people that’s not necessarily a huge amount. Of course that doesn’t make it right.
It’s more that I’m curious about how big of an operation this really was, since booking tickets with stolen frequent flyer miles seems like it would get caught pretty quickly and is also extremely risky.
The risks of online ticket brokers
We don’t yet know exactly how these men found the clients they sold tickets to. Regardless, this is a good reminder of the risks of online ticket brokers. There are all kinds of ticket brokers out there who claim to have access to discounted first & business class airfare.
While it’s possible that some are using legitimate consolidator fares, often they’re simply using others’ frequent flyer miles, in violation of most frequent flyer program terms & conditions.
Now, to be clear, these often aren’t stolen frequent flyer miles. Rather these brokers often buy miles and then resell them. This generally isn’t illegal (at least to my knowledge, as a non-lawyer), but rather just violates the terms of frequent flyer programs. Of course stealing frequent flyer miles absolutely is illegal.
Bottom line
Six men are being charged with wire fraud for stealing millions of miles, and then using them to book tickets for clients. Presumably the wire fraud charges are due to payment being accepted by wire. I’ll be curious to see what comes of this case, and what kind of scale we’re talking about.
@John (the john who is supposedly a lawyer) so let me ask u this question. Say I book a hotel room but can't use it due to some reason. So I sell it through or to one of those companies where I can sell hotel bookings that you can't use and have no cancellations or high fees for cancelling. Or even sell it myself to friend. So I just change 1 name on booking to...
@John (the john who is supposedly a lawyer) so let me ask u this question. Say I book a hotel room but can't use it due to some reason. So I sell it through or to one of those companies where I can sell hotel bookings that you can't use and have no cancellations or high fees for cancelling. Or even sell it myself to friend. So I just change 1 name on booking to purchasers name so they can check in but don't put their wife or kids are staying.. so I've committed fraud as well as whoever purchased it and the company acting as middleman assuming I used them.. but the hotel were suppose to serve breakfast and never did while staying there... So now the hotel broke the contract as well so they also committed fraud, according to you... Come on man. No way you are even a paralegals assistant or secretary, get out of here with that BS if you are a lawyer then I am lebron james
@Charles S -- Cases where fraud counts are premised on fraudulently concealing one's breach of a contractual requirement are too numerous to cite. Here's one example that came up on a quick search. U.S. v. Butler, 429 F.3d 140, 152 (5th Cir. 2005). There, a university professor was convicted of numerous federal criminal fraud offenses, because he violated a contractual agreement he had with his university related to consulting contracts -- and concealed the contractual...
@Charles S -- Cases where fraud counts are premised on fraudulently concealing one's breach of a contractual requirement are too numerous to cite. Here's one example that came up on a quick search. U.S. v. Butler, 429 F.3d 140, 152 (5th Cir. 2005). There, a university professor was convicted of numerous federal criminal fraud offenses, because he violated a contractual agreement he had with his university related to consulting contracts -- and concealed the contractual violation from the university, for the purpose of depriving them of some of the benefits they would otherwise obtain through their contractual agreement with the professor.
In other words, if you breach a contract and lie about the breach to your contractual counterparty with the goal of depriving them of valuable property (like an airline ticket), or otherwise take steps to conceal your violation from the counterparty, that can support criminal fraud liability. You could of course dispute the specific facts in any given case, but conceptually, that constitutes fraud.
To take the example I gave, if someone illegally sold their miles to a broker and told an airline representative that they were booking a ticket for a friend, that lie would support a fraud charge. On the other hand, as I noted, if you just "innocently" sell miles to a broker with no effort to conceal or misrepresent your program violation (e.g., you just aren't aware it's against the rules, so when the airline asks you, you readily admit you sold to a mileage broker), that's a breach of contract but not a criminal offense.
(For the avoidance of doubt, this comment is for general commentary and does not constitute formal legal advice -- everyone should consult their own counsel if they have specific questions.)
Thanks all. My passwords on mileage accounts are "somewhat complex" meaning they contain caps and lower case, special character, etc. but apparently not secure enough. Time for some tightening up!
@ John you are a pretty crappy lawyer if you don’t understand the difference between tort law and criminal law. It doesn’t matter what your “view” is. Post some legal precedent or get this garbage out of here.
Maybe you should too Gene.
@Charles S — The airlines are the victim in my view. There is no requirement that the victim be “involved in the transaction directly.” Any scheme to defraud is an offense. What matters is that you either made an affirmative misrepresentation to the airline or concealed information from them. So, if you know it’s against the terms and conditions, and you click a box representing that you’ve complied with the terms and conditions, you’ve made...
@Charles S — The airlines are the victim in my view. There is no requirement that the victim be “involved in the transaction directly.” Any scheme to defraud is an offense. What matters is that you either made an affirmative misrepresentation to the airline or concealed information from them. So, if you know it’s against the terms and conditions, and you click a box representing that you’ve complied with the terms and conditions, you’ve made a knowingly false statement to the airline. That’s fraud.
The landlord example is not fraud because you don’t make any false statement or effort to conceal the truth from the landlord.
Note that it’s *not* fraud if you just didn’t know it was against the rules and never lied about anything. (For instance, if the airline calls you up and asks, “Who’d you book this ticket for?” And you tell them you sold your miles to a broker, then you’ve breached the contract with the airline but you haven’t engaged in fraud. The fraud comes only if you knowingly lie about or conceal the truth about your conduct.
@SB — Under federal law, there is some difference between civil and criminal fraud, but not as great as you might think. In the example you give of sneaking a dog into a store, I don’t think the store owner has been deprived of any property so it’s probably not fraud. But if the store owner charged a $10 fee to allow dogs to come into the store and you lied and convinced the store’s representative you were only bringing a cat (which wasn’t subject to the $10 fee), then you would have defrauded him out of $10.
To use an airline analogy, if you present a forged doctor’s note saying your dog is a “service animal” when it is in fact a pet, and that avoids you paying a $100 pet fee, you’ve defrauded the airline.
@Luis — I am a lawyer. Legal concepts are counterintuitive to many people, but I’ve represented clients who had no idea they could be charged with fraud for what seemed like “innocent” activities — and they ended up convicted of federal crimes. The legal concept of “fraud,” in particular, is extremely broad. Many lawyers (including me) feel it is *too* broad. But my description is an accurate statement of the law as it currently stands, like it or not.
Even though the miles may 'only' be worth $20k in terms of valuation but on the grand scheme of things the group may have earn 100s of thousands of dollars through this illegal method.
They could have sold business and first class tickets for thousands each by just basically searching a fare online and then giving the buyer a 20% discount over the online fare
I've had 500k points stolen from Hilton (redeemed on Amazon) despite having a really hard password. And someone booked 3 award tickets through my JetBlue account. Like, directly booked through my account, not transferred to another account. I never got any confirmation of a booking having been made and only found out months later when I logged in. Amazing how this shiz happens. These companies all need multi-factor authentication enabled. It's shocking how many still...
I've had 500k points stolen from Hilton (redeemed on Amazon) despite having a really hard password. And someone booked 3 award tickets through my JetBlue account. Like, directly booked through my account, not transferred to another account. I never got any confirmation of a booking having been made and only found out months later when I logged in. Amazing how this shiz happens. These companies all need multi-factor authentication enabled. It's shocking how many still don't have it.
I read Polish travel forum and haven't heard about it.
I'm not a lawyer but even I knew that John didn't know what he was talking about.
If he’s being extradited from Poland to the US I’m going to guess it’s fraud on a pretty big scale.
did he do it one mile at a ...crime?
Ben, I thought you were updating the comment section so that we posted under unique names? Another John here?
@John criminal fraud versus tortious fraud (misrepresentation or deceit) are very different.
If a store's terms and conditions forbid dogs in the store, but you dressed your dog up to look like a cat to get it in the store, that would not be criminal fraud but store owner could definitely come after you for misrep or deceit in civil court
Is anyone else rushing to check their accounts? I’ve seen three of my four airline mileage totals lately, but it’s time to check my Delta account!
@John that is incorrect information. Breach of contract is not a criminal offense. Failure to deliver services is not a criminal offense. When you sell miles to a broker you are giving up access to them. When a broker buys a ticket with them and sells that ticket they have every intention on providing them that service. Intent matters in fraud cases. In a “legitimate” mileage broker operation no one is commuting fraud. They are...
@John that is incorrect information. Breach of contract is not a criminal offense. Failure to deliver services is not a criminal offense. When you sell miles to a broker you are giving up access to them. When a broker buys a ticket with them and sells that ticket they have every intention on providing them that service. Intent matters in fraud cases. In a “legitimate” mileage broker operation no one is commuting fraud. They are breaking terms and conditions of a civil contract. If the airline does cancel a flight booked by these mile brokers...as long as the broker returns the money to the ticket purchaser no fraud has taken place. I guess you could try to make the argument that the airlines have been defrauded but as they are not involved in the transaction directly it wouldn’t be wire fraud.
To give you a simple example that people everyday run into. Say you lease an apartment. There are stipulations usually that you can’t sublease the place. So you ignore it and lease it to your friend. The landlord finds out. By your logic the landlord can arrest you and your friend which is not true. Now you breached the contract so without question that can evict you or sue for damages. But this is not criminal in nature.
These guys got in trouble because they stole miles. The miles were obtained fraudulently. When money changes hands in that manner it is wire fraud.
Also I believe Utah is the only state to have a law to prohibit selling miles.
@Lucky -- I think it's pretty clear that buying or selling through a mileage broker -- if you know it's against the rules of the program -- is a criminal offense. In practice, you probably would not charged for it, but under the law, you could be.
For example, wire fraud (the charge here) broadly covers any kind of deception that involves using a computer connected to the Internet, a telephone, etc., which deprives a...
@Lucky -- I think it's pretty clear that buying or selling through a mileage broker -- if you know it's against the rules of the program -- is a criminal offense. In practice, you probably would not charged for it, but under the law, you could be.
For example, wire fraud (the charge here) broadly covers any kind of deception that involves using a computer connected to the Internet, a telephone, etc., which deprives a victim of something of value (which would include frequent flyer miles). If you know the airline rules only allow you to use the miles for yourself or give them away, you'd have to engage in wire fraud to either sell your miles through a broker or buy someone else's. If you at any point lie to the airline and tell them you're booking for a friend when in fact you were paid (or paid someone else) for the miles, that's a clear cut misrepresentation that would support a fraud charge. But even short of that, if booking a ticket online, you usually check a box agreeing to terms and conditions that include a representation by you that you're complying with all terms and conditions of the mileage program. If you know that your booking is against the rules, that could support a fraud charge. (Someone who just didn't know it was against the rules, and never tried to hide what they were doing, could not be charged, however.) That the miles *could have been* redeemed consistent with the terms of the program for someone else is not a defense. The property that you would have stolen from the airline is the specific ticket/seats that you booked and were not allowed to book. Even though someone else could have booked a ticket of equal or greater value, you still tricked the airline into booking you a ticket that they wouldn't have booked if you told them what you were doing.
Fraud as a concept is very broad, and it can cover a lot of conduct that people might not realize is illegal. In practice, though, prosecutors only charge it when the conduct is pretty clear-cut, and when it really is like "stealing." Prosecutors have more than enough "clear cut" cases to charge, so they don't usually waste their time with people who are technically violating the criminal law but not actually stealing anything.
We don’t yet know exactly how these men found the clients they sold tickets to.
My guess would be social media. Same way as binary options, fake bitcoin giveaways and other similar scams operate.
The US wouldn’t have wasted any resources in applying for an extradition from Poland for a scheme that involved an insignificant amount of money. This is going to me a multimillion $$$ operation not a couple of thousands of $$$.
Poland likely wouldn’t have extradited for a tuppence h’penny value crime either.
Akamai has an interesting report on this
https://www.akamai.com/us/en/multimedia/documents/state-of-the-internet/soti-security-loyalty-for-sale-retail-and-hospitality-fraud-report-2020.pdf
Endre's joke is quite harsh, but as someone who has grown up not too far away from that town I have to agree that a decent U.S. federal prison may indeed be preferable to Zgierz.
On a side note, I have not found a single mention of that on any of the Polish websites. Although one has to take into account the fact that searching here is a little bit more difficult – under...
Endre's joke is quite harsh, but as someone who has grown up not too far away from that town I have to agree that a decent U.S. federal prison may indeed be preferable to Zgierz.
On a side note, I have not found a single mention of that on any of the Polish websites. Although one has to take into account the fact that searching here is a little bit more difficult – under Polish law media outlets aren't allowed to publish accused person's full last name (only the initial).
All that theft and they still reward him with a FREE flight from Warsaw to Dallas?
@ endre -- You should try them both out and let us know.
Dang Endre anti polish comments right off the bat. Just no words.
Just maybe, US Federal prison life is better than life in Poland?