Thieves Net $16 Billion a Year With Returns Fraud

Nov. 2, 2006 — -- The biggest fraud you've never heard of, returns fraud, robs retailers of $16 billion a year and makes shopping more difficult and more expensive for all of us.

In one store surveillance video, a couple are seen trying to return a TV, but when the couple first entered the store, they came in empty-handed.

Videotape shows the man in the electronics aisle, loading a television into his cart. Then, he goes directly to guest services, and tries to return it. Police say this is an example of basic returns fraud.

"They're stealing merchandise in large quantities from stores across the country and then doing repeated returns for financial gain," said Joseph La Rocca, vice president of loss prevention at the National Retail Federation.

The first time many people even heard of returns fraud was earlier this year when police arrested White House Domestic Policy aide Claude Allen.

Police said Allen bought long lists of merchandise to get a legitimate receipt, then he returned to the store and loaded up on those same items, using his receipt to return them.

Allen pleaded guilty to misdemeanor theft.

Allen, experts say, was an amateur, as are many thieves who stuff stolen goods into store shopping bags to make it more convincing when they try to return them later. But there are professional thieves out there as well.

Some thieves buy something like an expensive suit and make multiple copies of the receipt. They send other people to steal dozens more of the same suit, and then they return them. One theft ring netted $250,000 this way.

The biggest case of returns fraud that ABC News found started in tiny Portland, Tenn.

Two couples, Dewey and Laura Howerton, and Michael and Julie Poore, raked in more than $1 million.

In a police interview, Laura Howerton described how the couples stuck bar codes from cheap products onto expensive ones, buying them at the low price, then returning them at the high.

"After you purchase it for the $4, you take the sticker off and you could take it back to Wal-Mart and get your money," she said.