He had 5,000 gift cards. Prosecutors allege ‘sophisticated' scam; FBI warns of ‘untraceable cash'

Organized. Overseas. And ongoing. Those words describe a crime wave that targets U.S. gift cards. 

The NBC Bay Area Responds team has spent the past few months investigating the scam, following the money -- with the FBI’s help.  

Two things motivated our team to dig into this. First, viewers sending us lots of complaints that their gift card money is vanishing. Second, a recent photo from the Sacramento County Sheriff’s Office, showing a room full of gift cards. Sheriff’s deputies said they arrested one man who had 5,000 of them.

“Your balance is zero”

Fremont resident Isai Kothandaraman told us, “I don’t want another person going through what I went through.” Over the holidays, Kothandaraman’s boss gave her a generous gift: a $500 Target gift card. 

“All of us got gift cards,” she explained. “We were very excited. So, I took my family out to Target. ‘Hey, we have a new gift card. Let’s purchase some things.’”  

But at the register, Target declined the card. 

“When we called customer service, they said, ‘Your balance is zero,’” Kothandaraman recalled.

It was the same situation for Rena Waterson in San Ramon. “[I] had a couple of engagement parties to go to, and thought, ‘what can I get these kids?’ So, I went to Target and picked up a couple gift cards,” she said. 

One bride and groom-to-be told Waterson their $50 card was empty before they used it. So Waterson asked the other bride-to-be to check her $50 card. “She did and it had a zero balance. So, I’m like ‘Uh oh,’” Waterson recalled.

We don’t know exactly how Waterson and Kothandaraman’s gift card cash vanished. But we do know they are not alone. We’ve fielded dozens of similar complaints. So have our NBC and Telemundo sister stations coast to coast. 

A Northern California case

We also know Target is at the center of a major case quietly playing out in Sacramento. 

Back in December, Sacramento County Sheriff’s deputies arrested a man named Ningning Sun while they were on patrol for shoplifters inside a Target store. Deputies say Sun was putting a stack of Target gift cards on the rack. When deputies searched his car, they found more than 5,000 Target gift cards. 

“In these particular cases, it appears [Sun] was tampering with the sticky that covers the PIN,” said Adrianne McMillan, Deputy District Attorney in Sacramento County. McMillan is prosecuting Sun for various charges, including fraud. 

“The way that this is done is very sophisticated,” McMillan said. “The cards are taken without any sort of value on them, they’re tampered with in a way that is not detectable, then they’re re-shelved.”   

In court, McMillan is arguing that as soon as a shopper loaded money onto a card that Sun put on the rack, either he or an associate could immediately steal that money. Prosecutors say Sun went to lots of Target stores, as far away as Arkansas. “His phone records show that he is very mobile, throughout California, throughout the United States,” McMillan noted.

After Sun appeared in court recently, his court-appointed attorney took our questions. We asked why Sun had all those gift cards. 

“Something being in your possession does not automatically indicate some sort of criminal behavior. Or that something illegal occurred,” said Eugene Willis, who was Sun’s court-appointed attorney at the time. Shortly after that interview, a Los Angeles attorney took over Sun’s defense and did not respond to us. 

The District Attorney’s office suspects Sun worked with others. “It’s a serious fraud case. And we want to take it seriously,” McMillan said. 

We asked Target about all of its drained gift cards. Target told us, “...we are actively addressing the problem.” The chain told us, “...store teams regularly inspect cards for physical signs of tampering.” Target also noted that gift card tampering is “an industry-wide issue.”

Uncovering an international scheme

“This is a major problem,” said Robert Tripp, the special agent in charge of the FBI field office in San Francisco. Tripp had a revealing conversation with us, dissecting how crooks compromise cards of all kinds and steal billions of dollars. “There’s a well-developed market for these gift card accounts,” Tripp explained. “So, a scammer can have a lot of these gift cards, they can dump them, and get very untraceable cash.”

Tripp mapped out how a store gift card becomes untraceable cash. It’s “very much an international issue,” he said. 

Tripp said the thieves overseas consolidate and sell compromised card accounts online for less than face value. Ultimately, those thieves lure a U.S. buyer who pays them cash for a discount card. But that buyer is clueless they: a.) bought a card loaded with money stolen from someone else and b.) basically helped a crook launder the money on that stolen card. 

“If that [account] passes through two, three, four hands, with the end consumer being completely unwitting that there was any kind of fraud involved, other than the fact that they didn’t buy it directly from Target, virtually untraceable,” Tripp said. 

There’s some irony in this scam. Where it starts, in stores, many chains are locking up everyday items like toiletries or underwear. Yet, many gift cards are in the open. “Whether we recommend it or not, I imagine the day is coming when those cards will be locked up,” Tripp said.

How to protect your gift card balance

Until then, the FBI says you need to protect yourself: 

• Buy gift cards from behind a counter or in a locked case
• Always look for tampering-- like loose packaging or smudges on the card number, pin, or barcode
• Use the card fast, ideally faster than the thieves

Finally, you can also consider Kothandaraman and Waterson’s new tact. “I’m hesitant, actually, to buy gift cards anymore until they can get this under control,” Waterson said. 

Kothandaraman agreed. “I usually go with safer ways of gifting, because it was a nightmare, and I don’t want anyone else going through that,” she said. 

• How to avoid gift card fraud

If a scammer steals your gift card money, tell the FBI. Its internet crimes website is IC3.gov. Special Agent Tripp says reporting small crimes might unravel a big criminal web.

If you find your gift card funds drained, you can also let our NBC Bay Area Responds team know. We don’t have the power of subpoena like the feds do. Nonetheless, you can click this link to fill out our consumer complaint form online.