Chargeback Fraud: What it is and how to protect yourself

If, like me, you have an obsession with fraud and a soft spot for gossipy news articles, you may have stumbled upon this one the other week.

The article tells the story of "Matt Bergwall, a skinny 21-year-old University of Miami student," who falls into the bucket of young men we described last week.

Rather than using wire fraud to scratch his entrepreneurial (read: steal money on the internet) itch, Matt focused on chargeback fraud. He was pretty damn good at it. So good that between December 2021 and April 2022, he made $3.5 million

So here is how you commit chargeback fraud (disclaimer: THIS IS NOT FRAUD ADVICE):

Like any good high school essay, let's start with Webster's definition:

Chargeback fraud is a type of fraud that occurs when a cardholder intentionally disputes a charge in order to get a refund while keeping the product or service.

Chargeback fraud can be either first-party or third-party fraud. (Quick note for the uninitiated: any time you hear "third-party fraud," it means identity fraud in which a stolen identity is used to defraud.)

If you only want a free pair of shoes, you are good with sticking to first-party fraud, and it is pretty simple.

1. You order a pair of the latest Nike Dunks on nike.com (you are an unimaginative 20-year-old who is looking to fit in with the other unimaginative 20-year-olds strolling through the West Village).

1. The shoes get delivered.
2. You log into your credit card account and dispute the charge, telling them that the shoes were never delivered. Nike and your credit card issuer are big corporations, and fighting with you over a $80 pair of shoes (no matter how cool you look in them) is not worth their time.
3. They refund you and you keep the shoes.

You then realize everyone in the West Village is now wearing New Balance 550s. You rinse and repeat at New Balance, and you are good to go.

For more extensive schemes, you need to initiate a lot of chargebacks, risking being flagged by your credit card issuer. You have to get creative, but the good news is you have a couple of options:

Steal some credit cards:

1. You have experience in drop-shipping (because, of course, you do), so you know your way around a Squarespace account. You use your skills to spin up the next up-and-coming DTC urban streetwear brand and start running some TikTok ads.
2. Some 16-year-old sees you selling the exact Siegelman Stable hat she has been looking for. She grabs her Mom's credit card and purchases.

1. Bingo! You won't be sending her the hat. That "Stripe" form is actually directing her personal and credit card information to a Google Sheet.
2. You head to whatever sites tickles your fancy and start digitally swiping away.
3. The girl's Mom catches on and disputes the charges with her credit card issuer.

Fake Tracking ID:

1. To keep your credit card processor off your back, you must provide proof that something with the order is wrong.
2. Rather than claiming the shoes didn't arrive, you claim you returned them. But you don't want to actually return them.
3. Buy an empty FedEx box and print out the return label. Change the return address slightly and slap it on your box.
4. UPS picks up your empty box and sends you an email stating that the return is on its way. You share that email as proof of a return to your credit card company, but that empty box will never arrive anywhere.

The fraud landscape is expansive for enterprising young adults looking to make money online. There are Telegram groups, Reddit threads, and Discord chats to guide you step-by-step. We are here to share their tactics (and help you from being the victim!)