Online returns fraud finds a home on Telegram, costing retailers billions

PacSun had issued the refunds, but the company never received the actual merchandise at its warehouse. Instead, workers found “used or different merchandise returned in the box, or even empty shoeboxes," said Shirley Gao, the company’s chief digital and information officer. Other promised packages never arrived at all.

For the Southern California-based seller of beachwear, casual clothing and footwear, the case turned out to be part of a broader pattern of purchases and bogus returns, many amounting to thousands of dollars, that started hitting the business in early May.

The company said its investigation found many of the fraudulent returns followed tips passed along through websites, groups on messaging app Telegram and other forums aimed at siphoning off money through the retail returns process.

The turn to such large-scale, seemingly loosely coordinated returns targeting specific merchants marks a new step in what retailers say is a growing problem with the messy, costly process of returns of online purchases.

Organized returns

Retailers nationwide have seen online returns skyrocket over the past four years after rolling out generous returns policies to attract customers amid a pandemic-driven surge in e-commerce. The returns policies have helped change shopping habits: Consumers have grown accustomed to ordering items online in several sizes and colors, then returning what they don’t want.

Shoppers last year returned 17.6% of items they purchased online, valued at more than $247 billion and more than double the percentage of goods returned in 2019, according to the National Retail Federation and software provider Appriss Retail.

Returns have become such an entrenched part of online commerce that companies have sprung up to handle the growing business. United Parcel Service last year acquired one of those specialized operators, Happy Returns, for $465 million.

The ease of shipping goods back has also given criminals new tools to exploit in an online environment in which buyers don’t need to interact with store employees, industry experts say.

PacSun’s experience shows the scale and organization of the fraud is getting more ambitious, and organized.

The retailer didn’t disclose the amount it has lost to fraudulent returns so far this year, but Gao said the scheme is having “a significant impact financially and operationally to the business."

The National Retail Federation estimated more than $100 billion in merchandise was returned fraudulently in the U.S. last year, amounting to about 13.7% of the overall returned goods retailers received in 2023. That was more than twice the level of bogus returns in 2020, according to the industry trade group, which noted its methodology changed in 2023 to include customer returns data from Appriss Retail.

Organized criminal groups “are taking advantage of the omnichannel retail environment," said David Johnston, vice president of asset protection and retail operations at NRF. Criminals are exploiting information gaps between retailers’ various departments, such as sales staff at stores, warehouse workers and online customer service representatives, to game the system, he said.

In some cases, fraudsters are returning knockoffs in place of designer goods and sending back boxes full of bricks or other filler rather than the original items. Others are manipulating shipping labels to receive a refund just from mailing back an empty envelope.

Sharing schemes

Industry experts say those tactics, including tips on exploiting the returns policies at specific retailers, are being shared across websites as well as groups on anonymous-messaging apps such as Telegram.

Some of those viewed by The Wall Street Journal promote “refunding services" that can get customers full refunds in days without actually returning merchandise. Several of the groups list out the returns policies of large retailers to show customers what they are eligible to get refunded.

“You can use this service for personal use or you can also resell the products that have been refunded to earn some money!" says one such website. “We only offer stores that are risk-free, so you can use this service and resell your items without any inconvenience."

A spokesman for Telegram, the Dubai-based messaging and social-media app, said its moderators seek to remove content that promotes fraud, but that Telegram’s growth to nearly 1 billion users globally “has caused growing pains in its content moderation." He said Telegram is giving priority to improving moderation this year.

The stores named by the refunding services sell merchandise that can cost anywhere from a few dollars for fast fashion up to thousands of dollars for electronics or luxury goods.

Fraudsters marketing their services on Telegram and through other websites often sell their services in return for a cut of customers’ refunds.

In one popular scheme, customers give the fraudsters their names, email addresses and order confirmation numbers for purchases made online. The fraudsters then go to a targeted retailer’s website and request a return label. They digitally manipulate the label to change the shipping address and apply the modified label to an empty envelope.

The parcel carrier who picks up the envelope scans the label, which sends a digital signal to the retailer that the piece of mail is on its way to the retailer’s warehouse. When the envelope is later delivered to the modified address, the parcel carrier’s online tracker shows the parcel was “delivered."

The fraudsters then go online with the retailer’s customer service department and ask for the refund on the item. The support agents, who typically are far removed from the company’s warehouse operations, see online only that a package was “delivered" and release a refund to a given customer’s account, long before warehouse workers discover that no package actually arrived.

Legal action

Prosecutors nationwide have started cracking down on the practice.

“There have been a number of different investigations across the country at the local, state and even federal level going after individuals or going after these organized or coordinated groups," said the NRF’s Johnston, who declined to provide details on specific cases.

The U.S. Attorney’s Office for the Middle District of Florida in November 2023 charged a former student at the University of Miami, Matthew Frederic Bergwall, with running a refund-fraud scheme that cost retailers $8 million. Bergwall pleaded guilty in July to mail-fraud conspiracy. He is scheduled to be sentenced in October.

Two other men, Brock David Fischer and Miguel Angel Fortier Jr., were charged in July for their alleged involvement in the scheme. Both have pleaded not guilty and their case is set to go to trial in November.

In a separate case, Sajed Al-Maarej of Dearborn, Mich., pleaded guilty in July in U.S. District Court in Seattle after federal prosecutors accused him of running a refunding service through Telegram called Simple Refunds as well as shipping retailers his own fake returns.

In one case, prosecutors said, Al-Maarej sent an unnamed retailer an envelope filled with plastic toy frogs instead of the “bulky tools" he claimed to be returning. Prosecutors said Al-Maarej’s schemes together resulted in more than $3.9 million of fraudulent refunds. He is scheduled to be sentenced in September.

Prosecutors allege Al-Maarej conspired with Leonardo Vidal of Wilkes-Barre, Pa., who pleaded guilty to an information—meaning he waived indictment by a grand jury—related to his alleged operation of a fraudulent refunding service. Prosecutors said Vidal’s service, called Ressu Refunds, operated through Telegram and obtained some $6 million in fraudulent refunds over about two years. Vidal is scheduled to be sentenced in November.

PacSun temporarily stopped accepting returns through the mail in June to deter fraud, although Gao said people have also taken advantage of in-person return drop-off locations by bringing back used merchandise and knockoff items.

PacSun now charges customers $10 for mail-in returns of items such as footwear and said it is working with a technology company to detect fraudulent returns.

Some retailers such as Amazon.com have taken their own legal action.

The e-commerce retailer in December sued a refunding-services group called REKK that it claimed was “responsible for stealing millions of dollars of products from Amazon’s online stores through systematic refund abuse."

A representative for Amazon said the company refers people caught repeatedly taking advantage of its returns policies to law enforcement, and that Amazon has been developing technology to detect and prevent fraud.

“We continue to make progress in identifying and stopping fraud before it happens, as well as dismantling the groups that attempt to damage the integrity of our store and the stores of retailers across the retail industry," the representative said.

Write to Liz Young at liz.young@wsj.com