Internet enabling coupon fraud biz

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the internet has yet to make much headway in legitimate coupon distribution, where it accounts for less than 1% of the $6.8 billion industry. But it is having a growing impact as the enabler of a $100 million-plus coupon fraud business.

Supermarket retailers as Publix, Shoprite and some Kroger Co. stores nationwide have stopped taking Web-generated, home-printed coupons in recent weeks after a wave of counterfeiting left them holding the bag for giveaways of products such as Unilever's Dove shampoo and body wash.

The Web is making coupon counterfeiting easier than ever, said Bud Miller, president of the marketer-funded, non-profit Coupon Information Corp., which has logged more than 100 phony coupons in circulation.

At least one consumer Web site compiles a database to help users decode bar codes, Mr. Miller said, which can be used to help create counterfeit coupons. Some hackers have discovered ways to capture images of online coupons and make limitless copies, he said, while others are using software that can be grabbed from the Internet to capture and manipulate bar codes that can be used to make more typical-looking coupons.

Others sell CDs with images of newspaper coupons that can be rigged with fake barcodes.

But counterfeiting is only the most flagrant part of what's becoming a Web-enabled cottage industry for folks operating closer to the fringes of legality.

Despite pleas and threats of legal action in August by the Food Marketing Institute and Grocery Manufacturers Association-who call the trade illegal-eBay allows auctions of regular Sunday-newspaper manufacturer coupons, hosting nearly 7,000 coupon active auctions on Oct. 17 alone.

Sellers claim they're operating legally-officially hawking clipping and distribution "services" rather than the coupons themselves. Ebay did not return calls for comment. By contrast, Yahoo! doesn't allow coupon auctions and never has, a spokeswoman said.

While the trade groups charge many of the coupons sold on auction sites are counterfeit, Mr. Miller believes most sellers deal only in legitimate coupons publicly, then some offer counterfeit coupons directly to buyers they compile in their databases.

Online message boards are full of tips from consumers explaining how to exploit flaws in manufacturer coupon codes, such as using high-value coupons to buy lower-priced products from the same manufacturer for next to nothing.

"People who do this need to know they're putting themselves at risk," said a spokeswoman for Procter & Gamble Co. "If they're caught, it's a form of fraud."

She said P&G handles its own coupon processing in part so it can spot patterns that signal abuse. "Coupon fraud has been around forever," she added. "It's just getting more sophisticated."

questions

"Knowing how to make a coupon does not make me a criminal," said the operator of one of the sites, which also offers a bar code decoder, in an e-mail, adding that just making the information available is not illegal.

Message-board posters, he said, "do what [manufacturers'] quality assurance and loss prevention departments failed to do, so don't drive them underground. Let them speak and learn your mistakes."

Beyond blatant fraud, some marketing executives privately blame mainstream supermarket retailers, who they suspect let "mal-redemptions" slide to avoid rankling consumers.

Michael Sansolo, FMI's exec VP, said those retailers "say the industry is so competitive today that they don't want to do anything at the checkout counter that would annoy a consumer in any way."

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