Refund fraud schemes promoted on TikTok, Telegram are costing Amazon and other retailers billions of dollars
A UPS seasonal worker delivers packages on Cyber Monday in New York on Nov. 27, 2023.
Stephanie Keith | Bloomberg | Getty Images
Just before midnight on May 4, 2023, police were called to an Amazon warehouse in Chattanooga, Tennessee, to investigate a reported theft.
They were met by a loss prevention employee, who directed them to a warehouse worker named Noah Page, the suspected culprit, according to a police report of the incident that was obtained by CNBC.
When confronted by police, according to the report, Page admitted that he’d marked a customer’s order in Amazon’s internal system as returned even though the products were never actually sent back to the company. Page received $3,500 for his part in the scheme, the report said.
Page didn’t know the customer but had chosen to call him “Ralph,” the report said. Ralph, it turned out, was part of a group named Rekk, an expansive refund fraud organization that targeted major retailers and recruited company employees by promising them a cut of the profits, Amazon alleged in a lawsuit.
Refund fraud, which involves tricking retailers into refunding a customer for a purchase without an item being physically returned, has become so pervasive that groups now market their services on Reddit, TikTok and Telegram. Type in “refund method” — or “r3fund,” to skirt content moderators — on TikTok and videos will pop up of users showing off piles of cash, sneakers and iPhones. One video has the caption, “me after realizing you can get a refund on any Rick Owens if the ‘package never came,'” referring to the minimalist fashion brand. The clip shows a hand endlessly tossing shoes to the ground.
Fraud groups are taking advantage of retailers’ lenient return policies, experts told CNBC, which often include unlimited free returns and sometimes even a preference that customers keep the items. It’s ballooned into a massive problem for retailers, costing them more than $101 billion last year, according to a survey by the National Retail Federation and Appriss Retail. The figure includes multiple forms of fraud, such as sending back clothing after it’s been worn, known as “wardrobing,” and returning shoplifted merchandise, the survey said.
In December, Amazon filed a lawsuit against Page and 47 other people across the globe with alleged ties to Rekk, accusing them of conspiring to steal millions of dollars worth of products in a refund fraud operation. Amazon described these services as “illegitimate ‘businesses'” that look to “exploit the refund process for their own financial gain to the detriment of honest consumers and retailers who must bear the brunt of increased costs, decreased inventory, and service disruption that impacts genuine customers.”
Amazon also suffered more than $700,000 in losses at the hands of another alleged fraud ring in which 10 people were indicted last year, according to documents from a suit filed in 2023.
Robots transport goods to the employees in warehouse at Amazon fulfillment center in Eastvale on Tuesday, Aug. 31, 2021.
the Riverside Press-enterprise | Medianews Group | Getty Images
An Amazon spokesperson said the company is addressing the issue “head on” through specialized teams and machine learning tools that detect and prevent refund fraud. Amazon says its work with law enforcement has led to arrests, the dismantling of organized retail crime groups and civil lawsuits.
“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 spokesperson said in a statement.
Here’s how it works: A shopper buys a product online and sends the order information to a group such as Rekk, which then poses as the customer in requesting a refund. Amazon refunds the money to the customer, who then pays the fraud group usually between 15% and 30% of the refund amount, often via PayPal or with bitcoin. That means the customer ends up buying the product for what amounts to a huge discount.
The fraud group then pays the conspiring employee at the retailer, typically a certain amount for a batch of packages the employee scans as returned.
Retailers and law enforcement agencies are catching onto the trend. In September, a 25-year-old man in Michigan, Sajed Al-Maarej, was arrested and charged with conspiracy, wire fraud and mail fraud after he allegedly ran a return fraud service called Simple Refunds that targeted more than 50 retailers. The following month, 10 men were indicted in Oklahoma, charged with conspiracy to commit wire fraud for allegedly operating a refund fraud service named Artemis Refund Group. And a 24-year-old U.K. man was convicted of fraud in December after running the KeptSecrets refund service, which targeted retailers including Amazon, Walmart and Wayfair, according to court documents.
Following the Rekk scheme, Page was arrested when police showed up at the Chattanooga warehouse in May, and he was charged with theft of property worth more than $60,000. He pleaded guilty and was sentenced in November to three years of probation, as well as ordered to pay Amazon $5,000.
Page didn’t respond to requests for comment.
A thriving refund fraud market
For every refund fraud service shut down by law enforcement, swarms of similar groups remain open for business.
CNBC viewed several active refund fraud services on encrypted messaging app Telegram, each with thousands of followers. Updates are posted almost daily of new stores on their services, or new retailers that have been successfully targeted. Amazon and Apple are frequently hit, along with Nike, eBay, Saks Fifth Avenue and Ralph Lauren. Some groups even offer their services for DoorDash and Uber Eats orders, claiming users can “eat for free.”
The groups are highly organized and run like businesses, providing customer service, cataloging orders and creating fake shipping labels. Some sell how-to guides.
A Google form from an active refund fraud service explaining which stores it targets and how much it charges customers.
Source: Google
Fraudsters employ multiple strategies. A common one is to claim a package never arrived so that the retailer issues a refund. According to Amazon’s lawsuit, a Rekk user received a full refund for two MacBook Air laptops after filing a police report falsely claiming the products never arrived.
Mail-in fraud involves a user filling out a company’s return form, but instead of sending back the purchased product, users will mail an empty box or a package filled with junk. In the case of Simple Refunds, Al-Maarej, the man who allegedly operated the group, sent an unnamed retailer “an envelope filled with plastic toy frogs” instead of the tools he claimed he was returning, prosecutors said.
Al-Maarej also recruited employees at UPS and the U.S. Postal Service who either manipulated a package’s tracking history or input false “return to sender” notices to fool the retailer into thinking an item couldn’t be delivered or that it was sent to the wrong address, according to court documents.
Chris Black, an attorney for Al-Maarej, declined to comment. Amazon said its own internal investigation identified Al-Maarej’s scheme and contributed to the eventual indictment.
The company didn’t respond to questions specifically about how it monitors and handles bribery of its employees by ORC and refund fraud groups.
Rekk allegedly used bribes, offering Amazon staffers thousands of dollars a day to approve customer returns for products that were never sent back.
In a text message last year to Page, a Rekk representative said they’d been working with two other Amazon employees for about two months and offered them $4,000 for 30 orders marked as returned, according to court documents.
“They usually do 30 scans per day per shift,” the Rekk user wrote. “Sometimes they choose to do more. So at least 12k a week.”
According to the complaint, Rekk also recruited one of Page’s colleagues at CHA1, Amazon’s name for the Chattanooga facility. Between February 2023 and May 2023, the CHA1 employee allegedly approved product returns for 76 orders at Rekk’s request, causing Amazon to refund over $100,000 to customers, and netting $3,500 from the scheme.
A refund fraud service claims to have access to Amazon insiders in a Telegram post.
Source: Telegram
Amazon said it has tried to address the bribery problem. In its lawsuit against Rekk, the company said it has an internal customer protection and enforcement team made up of attorneys, former prosecutors, and analysts investigating organized crime schemes such as refund fraud. The company has also reportedly fired employees who were allegedly bribed to leak confidential data on third-party sellers.
Cyril Noel-Tagoe, a cybersecurity expert who has studied refund fraud extensively, said the economic incentive for low-wage workers to get involved with these schemes creates a perpetual challenge for retailers.
“If you’re offering an employee much more than they’re getting paid, then it’s quite hard to combat that,” Noel-Tagoe, who works as a principal security researcher at bot detection software company Netacea, told CNBC.
‘All you need is a phone’
Those on the lookout for moneymaking opportunities will find no shortage of promotional videos across social media. For a fee, you can learn how to play the game.
One TikTok video on the topic shows bags of Louis Vuitton, Gucci and Apple products and reads, “[Point of view]: You mastered the art of r3funding and started to teach others.” TikTok clips often serve as advertisements for a user’s Telegram channel that’s linked in the bio of their account.
Similar tactics are used on Reddit.
In the “Illegal Life Pro Tips” forum on Reddit, which is no longer active but counts 1.1 million members, refund scammers shared their tips and tricks. In recent days, Reddit banned an offshoot of that subreddit, called “illegallifeprotips2,” saying it violates the site’s rules “against transactions involving prohibited goods or services.” Users quickly resurfaced on a new subreddit, “ELegalLifeProTips.” After CNBC flagged “ELegalLifeProTips,” Reddit took down the subreddit for violating its ban evasion policy.
In the past, such illicit behavior ran rampant on the dark web and required VPNs and a special browser, said Brittany Allen, a trust and safety architect at fraud detection software company Sift. These days the perpetrators regularly discuss their activities openly on forums and in messaging apps, which Allen described as the “democratization of fraud.”
“You don’t need to be that specialist that can figure out how to find these deep web groups,” Allen said. “All you need is to have a phone that can go to Reddit, or a TikTok account you’re already on, and you’ll potentially be exposed to fraud that doesn’t take as much uplift to participate in.”
Remi Vaughn, a spokesperson for Telegram, told CNBC in an email that the company moderates “harmful content” on its platform, including posts that promote fraud. “Moderators use a combination of proactive moderation on public parts of the platform and accept user reports in order to remove content which breaches Telegram’s terms,” Vaughn added.
A Reddit spokesperson said it uses a combination of automated tooling and human moderators to enforce its content policies, which prohibit users from soliciting or facilitating any transaction that involves fraudulent services.
After CNBC provided TikTok with examples of videos about refund fraud, the company said it removed them for violating its community guidelines. It said it also blocked hashtags that were used to promote refund fraud.
The use of mainstream apps in these schemes has made it easier for investigators to do their work. Noel-Tagoe referenced a case in which a retailer was able to track down an individual whose email address was in an Instagram post.
Allen said she’s been able to identify fraudsters through “vouches,” or screenshots of successful fraudulent returns. Some of the images show order numbers, store pickup locations or cart items, according to Allen, all useful intel for retailers investigating return fraud.
David Johnston, vice president of asset protection and retail operations at the National Retail Federation, said an increasing number of companies are “tightening up their return policies” in response to customer abuse and fraudulent activity.
Delivery workers, for example, are encouraged to photograph a package once it reaches its destination, and retailers are looking more closely for suspicious behavior in analyzing returns.
“There are some retailers that monitor the number of returns you make in-store, and if you return too much too frequently, they might put you on pause,” Johnston said. “We’re starting to see more of that now on the e-commerce side.”
WATCH: The ‘shopping journey will drastically look different’
The X logo appears on a phone, and the xAI logo is displayed on a laptop in Krakow, Poland, on April 1, 2025. (Photo by Klaudia Radecka/NurPhoto via Getty Images)
Nurphoto | Nurphoto | Getty Images
Elon Musk‘s xAI Holdings is in discussions with investors to raise about $20 billion, Bloomberg News reported Friday, citing people familiar with the matter.
The funding would value the company at over $120 billion, according to the report.
Musk was looking to assign “proper value” to xAI, sources told CNBC’s David Faber earlier this month. The remarks were made during a call with xAI investors, sources familiar with the matter told Faber. The Tesla CEO at that time didn’t explicitly mention any upcoming funding round, but the sources suggested xAI was preparing for a substantial capital raise in the near future.
The funding amount could be more than $20 billion as the exact figure had not been decided, the Bloomberg report added.
Artificial intelligence startup xAI didn’t immediately respond to a CNBC request for comment outside of U.S. business hours.
The AI firm last month acquired X in an all-stock deal that valued xAI at $80 billion and the social media platform at $33 billion.
“xAI and X’s futures are intertwined. Today, we officially take the step to combine the data, models, compute, distribution and talent,” Musk said on X, announcing the deal. “This combination will unlock immense potential by blending xAI’s advanced AI capability and expertise with X’s massive reach.”
Read the full Bloomberg story here.
— CNBC’s Samantha Subin contributed to this report.
Alphabet CEO Sundar Pichai during the Google I/O developers conference in Mountain View, California, on May 10, 2023.
David Paul Morris | Bloomberg | Getty Images
Alphabet‘s stock gained 3% Friday after signaling strong growth in its search and advertising businesses amid a competitive artificial intelligence environment and uncertain macro backdrop.
“GOOGL‘s pace of GenAI product roll-out is accelerating with multiple encouraging signals,” wrote Morgan Stanley‘s Brian Nowak. “Macro uncertainty still exists but we remain [overweight] given GOOGL’s still strong relative position and improving pace of GenAI enabled product roll-out.”
The search giant posted earnings of $2.81 per share on $90.23 billion in revenues. That topped the $89.12 billion in sales and $2.01 in EPS expected by LSEG analysts. Revenues grew 12% year-over-year and ahead of the 10% anticipated by Wall Street.
Net income rose 46% to $34.54 billion, or $2.81 per share. That’s up from $23.66 billion, or $1.89 per share, in the year-ago period. Alphabet said the figure included $8 billion in unrealized gains on its nonmarketable equity securities connected to its investment in a private company.
Adjusted earnings, excluding that gain, were $2.27 per share, according to LSEG, and topped analyst expectations.
Alphabet shares have pulled back about 16% this year as it battles volatility spurred by mounting trade war fears and worries that President Donald Trump‘s tariffs could crush the global economy. That would make it more difficult for Alphabet to potentially acquire infrastructure for data centers powering AI models as it faces off against competitors such as OpenAI and Anthropic to develop largely language models.
During Thursday’s call with investors, Alphabet suggested that it’s too soon to tally the total impact of tariffs. However, Google’s business chief Philipp Schindler said that ending the de minimis trade exemption in May, which created a loophole benefitting many Chinese e-commerce retailers, could create a “slight headwind” for the company’s ads business, specifically in the Asia-Pacific region. The loophole allows shipments under $800 to come into the U.S. duty-free.
Despite this backdrop, Alphabet showed steady growth in its advertising and search business, reporting $66.89 billion in revenues for its advertising unit. That reflected 8.5% growth from the year-ago period. The company reported $8.93 billion in advertising revenue for its YouTube business, shy of an $8.97 billion estimate from StreetAccount.
Alphabet’s “Search and other” unit rose 9.8% to $50.7 billion, up from $46.16 billion last year. The company said that its AI Overviews tool used in its Google search results page has accumulated 1.5 billion monthly users from a billion in October.
Bank of America analyst Justin Post said that Wall Street is underestimating the upside potential and “monetization ramp” from this tool and cloud demand fueled by AI.
“The strong 1Q search performance, along with constructive comments on Gemini [large language model] performance and [AI Overviews] adoption could help alleviate some investor concerns on AI competition,” Post wrote in a note.
WATCH: Gemini delivering well for Google, says Check Capital’s Chris Ballard
CNBC’s Jennifer Elias contributed to this report.
An Amazon employee works to fulfill same-day orders during Cyber Monday, one of the company’s busiest days at an Amazon fulfillment center on December 2, 2024 in Orlando, Florida.
Miguel J. Rodriguez Carrillo | Getty Images
For 10 years, Aaron Cordovez has been selling kitchen appliances on Amazon. Now he’s in a bind, because most of his products are manufactured in China.
Cordovez, co-founder of Zulay Kitchen, said his company is moving “as fast as we can” to move production to India, Mexico and other markets, where tariffs are increasing under President Donald Trump, but are mild compared with the levies imposed on goods from China. That process will likely take at least a year or two to complete, he said.
“We’re making our inventory last as long as we can,” Cordovez said in an email.
Zulay is also temporarily raising the price of some of its milk frothers, smores roasting sticks and other products. The company’s popular kitchen strainer now costs $12.99, up from $9.99 before Trump announced his sweeping tariff proposal earlier this month.
Amazon merchants are hiking prices for everything from diaper bags and refrigerator magnets to charm necklaces and other top-selling items as they confront higher import costs. E-commerce software company SmartScout tracked 930 products on Amazon that have seen increased prices since April 9, with an average jump of 29%.
The price hikes affect a range of categories, including clothing, jewelry, household items, office supplies, electronics and toys.
The trade war with China has threatened to upend sellers on Amazon’s third-party marketplace, which accounts for about 60% of the company’s online sales. Many merchants are based in China or rely on the world’s second-largest economy to source and assemble their products.
Sellers are now faced with the conundrum of raising prices or eating the extra costs associated with Trump’s new tariffs. It’s an existential threat for many sellers, who subsist on razor-thin margins and have, for the last several years, dealt with rising costs on Amazon tied to storage, fulfillment, shipping and advertising fees along with pricing pressure from increased competition.
CEO Andy Jassy told CNBC earlier this month that the company was “going to try and do everything we can” to keep prices low for shoppers, including renegotiating terms with some of its suppliers. But he acknowledged some third-party sellers will “need to pass that cost” of tariffs on to consumers.
Amazon’s stock price is down 15% so far this year, sliding along with the broader market. The company reports first-quarter earnings next week.
Goods imported from China now face import duties of 145%, though Trump said Wednesday his administration is “actively” talking with China about a potential deal to lower tariffs. Chinese officials on Thursday denied that trade talks are taking place.
About 25% of the price increases observed by SmartScout were initiated by sellers based in China, said Scott Needham, the company’s CEO. Last week, stainless steel jewelry maker Ursteel hiked prices on four of its products by $6.50, while apparel brand Chouyatou raised the price of some of its dresses by $2. Both businesses are based in China’s Zhejiang province.
Anker, a Chinese electronics brand and one of Amazon’s largest sellers, has raised prices on one-fifth of its products sold in the U.S., including a portable power bank, which went up to $135 from $110, SmartScout data shows.
Representatives from Anker, Ursteel and Chouyatou didn’t respond to requests for comment.
Zulay, headquartered in Florida, is one of many U.S.-based sellers raising prices. The company is also cutting costs. Cordovez said he’s been forced to lay off 19% of his workforce and slash online ad spending by 85%.
Desert Cactus, based in Illinois, is also taking action. Joe Stefani, the company’s president, has been looking to move production of some of his brand’s college-themed merchandise out of China and into Mexico, India and Vietnam. About half of Desert Cactus’ goods come from China, while the rest are made in the U.S., Stefani said.
An Amazon worker moves a cart filled with packages at an Amazon delivery station in Alpharetta, Georgia, on Nov. 28, 2022.
Justin Sullivan | Getty Images
One of the company’s top products is a customizable license plate frame that’s manufactured in China. At the start of Trump’s first term in 2016, Stefani’s company paid import and shipping fees of 4% on the license plates. That rate has since skyrocketed to 170%, he said.
“The tariffs can’t stay this high,” Stefani said. “There’s so many people that just aren’t going to make it.”
Stefani said he expects Desert Cactus will end up raising prices on some products, though he’s worried shoppers might be put off by sticker shock.
“Will someone be willing to pay $50 for a hat on Amazon?” Stefani said. “You know it’s going to be expensive at the ballpark, but on Amazon we don’t know.”
Dave Dama, co-founder of health and beauty business Pure Daily Care, said the price to manufacture one of his skin-care products in China jumped to $25 from $10. Most Amazon sellers will have no choice but to raise prices, he said.
“If you were selling something for $40 and making a $7 or $8 profit at the end of the day, with these tariffs, those days are gone,” Dama said. “You can’t do that anymore. It’s unsustainable.”
Pure Daily Care plans to stagger price increases over several weeks, and only on products “we absolutely need to,” to keep Amazon’s algorithms from ranking it lower in search results or losing the valuable buy box, he said. The buy box determines which listing pops up first when a shopper clicks on a particular product, and the one that gets purchased when they tap “Add to Cart.”
An Amazon spokesperson said the company’s pricing policies continue to apply.
“As always, sellers set their own prices, and we regularly monitor how we highlight great prices as Featured Offers to provide customers with low prices across a wide selection,” the spokesperson said in a statement.
Dama said his company has enough inventory for some products to last up to six months, which it aims to “stretch as long as possible” in the hope that China and the U.S. can reach a trade deal. The company is also forgoing some sales promotions and discounts, while pausing spend on some display and video ads.
Regarding his inventory, Dama said, “We can try to stretch that seven, eight, nine months, which buys us a lot more time for this thing to work out, hopefully.”
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