Introduction

Retailers across the U.S. are grappling with a dramatic surge in fraudulent returns, with organized networks exploiting loopholes in return policies to steal millions. One of the most prominent forms of return fraud is Fake Tracking ID (FTID) fraud, where criminals manipulate return tracking systems to receive refunds without actually returning merchandise.

Case Study: PacSun’s Battle with Fraudulent Returns

California-based apparel retailer PacSun noticed an alarming rise in fraudulent returns earlier this year. One particular customer managed to return 250 orders totaling $24,000, yet the company’s warehouse never received the actual merchandise.

According to Shirley Gao, PacSun’s chief digital and information officer, warehouse staff found empty shoeboxes, swapped-out merchandise, or nothing at all inside return packages. In some cases, return packages simply never arrived.

What PacSun discovered was that the fraud wasn’t random—it was part of a systematic effort, with scammers sharing step-by-step return fraud techniques on platforms like Telegram and private online forums. By early May, fraudsters had already refined their tactics, exploiting PacSun’s return policies and successfully orchestrating high-value refund scams.

The Rise of Organized Return Fraud

Retailers nationwide have witnessed an explosion in fraudulent returns, largely due to increased e-commerce activity and relaxed return policies. During the pandemic, companies prioritized hassle-free returns to attract online shoppers, inadvertently creating a gateway for fraudsters.

According to the National Retail Federation (NRF) and Appriss Retail, consumers returned 17.6% of online purchases in 2023, amounting to over $247 billion—a figure that has more than doubled since 2019. Of those returns, approximately $100 billion were fraudulent, with return abuse more than doubling since 2020.

How Fraud Networks Operate

The evolution of return fraud has turned it into a coordinated industry, complete with professional refunding services, real-time fraud discussions, and underground marketplaces. Here’s how these fraud rings operate:

1. Sharing Loopholes & Refund Policies
   • Fraudsters openly discuss which retailers have the weakest return policies and outline exact steps to exploit them.
   • Groups on Telegram, Discord, and dark web forums post return policy guides, highlighting which retailers are “safe” for easy refund scams.
2. Executing FTID Fraud
   • Criminals place large-volume orders and generate fraudulent return labels.
   • The shipping labels are altered to show a successful return delivery, but packages never arrive at the retailer’s warehouse.
   • Warehouse teams, disconnected from online support teams, never receive the merchandise, yet refunds are issued based on the fake tracking confirmation.
3. Selling Fraudulent Services
   • Refund fraud has become a business itself, with fraudsters charging customers 10-25% of the refund valueto process fraudulent refunds.
   • These services are marketed through Telegram refunding groups, with sellers guaranteeing refunds without actually returning items.
4. Scaling Up with Automation
   • Fraud networks use bots to automate refund requests, enabling mass-scale scams across multiple retailers.
   • Some fraudsters resell stolen merchandise via third-party marketplaces, further profiting from the scheme.

The Impact on Retailers

FTID fraud is devastating for businesses, leading to:

• Significant Revenue Losses – PacSun and other retailers have lost millions due to fraudulent returns.
• Higher Chargeback Rates – False refund claims escalate into payment disputes, raising merchant fees and risking account terminations.
• Operational Disruptions – Customer service teams are overwhelmed with fraudulent refund requests, delaying service for legitimate customers.
• Stricter Return Policies – Retailers are forced to introduce return fees and stricter refund policies, potentially alienating genuine customers.

Crackdowns and Legal Action

Authorities have started prosecuting high-profile fraudsters involved in FTID scams:

• Matthew Frederic Bergwall, a former University of Miami student, pleaded guilty in July 2023 to operating an $8 million refund fraud scheme.
• Sajed Al-Maarej of Michigan was found guilty of running a Telegram-based refund fraud service, where he sent retailers toy frogs instead of legitimate returns, scamming over $3.9 million.
• Leonardo Vidal, another fraudster, led a $6 million refund fraud operation known as Ressu Refunds, which operated via Telegram.

Retailers like Amazon have also taken legal action, suing groups responsible for systematic refund fraud, aiming to dismantle large-scale refunding networks.

How Retailers Can Protect Themselves

FTID fraud is evolving, but businesses can adopt proactive strategies to minimize risk:

1. Leverage AI Fraud Detection

• AI-powered fraud prevention tools (e.g., 914AI) can analyze return behaviors, detect anomalies, and flag suspicious refund requests before refunds are issued.
• These systems track customer return patterns and identify unusual refund activity across multiple orders.

2. Strengthen Return Verification

• Require physical inspection for high-value returns before processing refunds.
• Implement unique return codes (RMA) to track returned items against original orders.

3. Monitor Fraud Networks

• Retailers should actively track fraud discussions on Telegram and dark web forums.
• Identifying early signs of fraud trends allows businesses to patch vulnerabilities before large-scale attacks occur.

4. Enhance Customer Service Protocols

• Train support teams to recognize fraud indicators, such as manipulated shipping labels or repeat refund requests.
• Establish better communication between online support and warehouse teams to validate returned packagesbefore issuing refunds.

5. Work with Law Enforcement

• Retailers should collaborate with local and federal authorities to report large-scale refund fraud cases.
• Sharing fraud trends with industry coalitions (e.g., NRF) can help disrupt major refund fraud networks.

Conclusion

FTID fraud is a rapidly growing threat that has turned return fraud into a highly organized industry. Retailers must understand that fraudsters are constantly refining their tactics, making early detection and AI-powered fraud prevention essential.

Simply tightening return policies isn’t enough—businesses must combine fraud analytics, operational safeguards, and industry collaboration to protect themselves. The companies that act now will minimize losses, safeguard their reputations, and maintain customer trust in an increasingly complex fraud landscape.

By Emily Carter
Published: April 22, 2024