When scams make headlines

What should news outlets do when it becomes clear they've treated scams as legitimate stories?

On September 15, 2011, executives of Arevenca, an Aruba-based oil company, and Avic Xac, a Chinese state aircraft company, signed the biggest oil deal in history in Madrid. The agreement promised $200 billion a year in trade over 10 years at a total value of $2 trillion. Francisco Javier González, the president of Arevenca, spoke at the signing about plans to supply not only fuel but also ports and railways.

Within hours, the news was out. Scores of news websites around the world carried a wire story from EFE, Spain’s biggest news agency. Viewers could also see a Spanish-language video news report on EFE’s own page or on its YouTube channel; an extended English-language version promptly appeared on González’ YouTube channel.

EFE had been played. Arevenca was little more than a website full of lies and an office in Aruba. The money involved, $200 billion, was comparable to the annual revenue of global corporations like Chevron. Avic Xac has nothing to do with ports. There was barely anyone at the signing ceremony—no ambassadors, no bankers, and, notably, no oil reporters. Despite enough red flags to stock a Communist Party parade, EFE ran its story, both in print and video. Commenters on YouTube quickly said the event was a fraud, but the video is still there. (The article and video have been removed from EFE’s website.)

The screwup would have been long since forgotten, like an unfunny “Yes Men” prank, except that González is a prolific con man. He and his front men have consistently referred back to the EFE coverage as proof of the company’s seriousness as it convinces victims to wire advance payments for oil products which then never arrive—the type of fraud often referred to as a Nigeria scam. A civil court in Puerto Rico judged González liable for stealing $7.8 million from an asphalt company there, and he is now facing criminal complaints in Spain.

A trader who tried to buy fuel from Arevenca says Bloomberg’s imprimatur helped convince him to work with the company.

EFE is hardly alone in being duped. News organizations are routinely targeted by frauds, from weight-loss schemes to bogus stock advice, hoping to burnish their reputations and amplify their sales pitch by getting coverage from legitimate newsrooms. They take advantage of several built-in biases of the news process, which make it easier to promote a scam than to expose one. In the rush to feed the beast with content, a story that repeats a company’s line is low-risk and can be produced in a hurry. A story pushing back against a company’s claims requires extra reporting, editing, and lawyering. The objective voice is also a problem, requiring outside sources to raise doubts about a company first.

Arevenca is a useful case study, as the company has benefited from a series of press hits that should never have happened.

Arevenca’s first big hit with the press was a stroke of luck. In 2009, González went to Ivory Coast and met with presidential insiders. The local French-language press reported that he had plans to build one of the world’s biggest oil refineries in the West African country for $7 billion. A stringer for Bloomberg News summarized the story, referring to Arevenca as a Venezuelan-based company.

I was Bloomberg’s oil correspondent in Venezuela at the time. The story popped up on the terminal just as I arrived at my desk that morning, and it gave me a sinking feeling. Not only had I missed the story that a Venezuelan company was planning a big, market-moving investment—I had never even heard of Arevenca. I scrambled to learn all I could so we could match the story and start adding to it.

The website looked fine—dozens of oil tankers, refineries in Korea, Mexico, Aruba, and Venezuela. And here I thought only state oil companies owned refineries in Mexico and Venezuela. I started to feel stupid; I couldn’t believe how much I had missed. Arevenca’s ships weren’t on the Bloomberg terminal. I had never submitted their refinery units to our refining database. I had never heard of Arevenca’s president, just the sort of person I should have been interviewing while the state oil company stonewalled the press.

But then I saw something funny. Among pages offering fuel specifications, the page for the refinery byproduct petroleum coke (petcoke for short) was labeled “Pet Cock.” Then I started to focus on all the questionable details: The company claimed to be in western Venezuela, but had an eastern Venezuela area code. Its US address had a street, but no city. The “contact” page asked for bank account details and passport numbers.

It’s embarrassing to admit, but it took me a couple of hours to see that Arevenca was fake. At first, I couldn’t believe someone would spend so much time and energy making a slick website for a company that didn’t exist. Late in the day, I spoke to an oil trader who explained that fake commodities brokers constitute an entire category of fraud.

Much of the market for particular oil products—JP54 jet fuel and D2 diesel, for example—involves fraudulent operators seeking high-net-worth individuals who can wire in money for supposed discount cargoes of fuel, in order to make a quick buck. “There have been commodities scams along the lines of these JP54 scams circulating around the globe for as long as I can remember,” said Larry Kolb, an investigator who has published two books documenting international intrigue. “The information used to be circulated by phone, by mail, by telex, by fax.” Some in the industry refer to these self-proclaimed commodities vendors as “joker brokers.”

By the time I had nailed down that the whole thing was a fraud, Bloomberg’s Africa staff had gone home. My editors didn’t want to correct, since the press summary was accurate. It correctly summarized the local press. (It probably didn’t help that anyone posting a correction risked suffering on Bloomberg’s famously quantitative performance reviews.) We agreed that the best strategy would be to run a followup story debunking Arevenca.

That created a new problem. We couldn’t say the company was fake. We needed outside voices. But we had no victims. Neither traders nor law enforcement wanted to go on record talking about a company they hadn’t heard of. The stringer in Ivory Coast requested an interview with the government official who had met with Arevenca, but he stood her up. The followup story never ran. Contacted for this piece, a Bloomberg spokeswoman, Lee Cochran, confirmed the details of the case but declined to discuss whether the press should break out of its objective pose once the press itself has become the target of a con. She also declined to put me in touch with editors who could discuss the topic.

After I went freelance, I saw EFE’s false report and wrote a blog post poking holes in the Arevenca story. That brought victims forward, allowing me to write a more complete piece this year in Vice, three years after the initial story.

Some of the victims I’ve spoken to over the years mentioned the tiny old Bloomberg story. One trader, for example, tried to buy fuel from Arevenca. (He asked not to be named to protect his reputation with current clients.) He said Arevenca’s credibility came primarily from its political connections in Aruba, but that Bloomberg’s imprimatur helped convince him to work with the company. He said he spent $100,000 flying his client to Aruba to meet the supposed vendor, who they quickly determined was a fake. The due diligence saved his customer millions, but after the waste of time and energy, the client abandoned him.

Meanwhile, Arevenca went on with its business. It has never had to pay a judgment in the multimillion-dollar lawsuits it has faced in Spain, Puerto Rico, and New York. Reached by phone in Spain, González declined to comment and said he wouldn’t allow his representatives to speak to the press. González himself comes from Spain but speaks with a Venezuelan accent. He has faced a series of lawsuits in Venezuela for alleged frauds around an unapproved $1 billion port development, real-estate deals, and failure to pay a lawyer and a pilot. After the big press conference in Madrid, Arevenca leased an Airbus and tried to start an airline called Fly Aruba, but it was never granted permission to operate. This year, Arevenca and Fly Aruba entered their names as potential buyers of Cyprus Air. Agence France-Presse included them without comment in four articles about possible buyers. AFP didn’t return two phone calls and an email seeking comment. The reputation laundromat keeps spinning.

The ways that frauds use the media are as diverse as the frauds themselves. The press has been manipulated not just by financial operators but by agents of all manner of deceptions, from pranksters to climate-change deniers. But financial frauds are special cases in that they so clearly aim to benefit the few at the expense of the many—and also in that the press often has the expertise to debunk the fraud rather than promote it. Charles Ponzi, whose name is synonymous with pyramid schemes, was built up by news reports that covered the frenzy for his products, making at best sidelong mentions of the possible risks.

Craig Silverman, who runs the media-corrections blog Regret The Error, says stories promoting frauds often are “too good to check.” They come from parts of the world with few outside reporters, and the initial stories are in a local language, using “unnamed or uncheckable sources,” and “including audacious claims that are surprising or newsworthy.” All outlets want to “plant a flag” on the story, so as to show that it’s on their radar, but nobody can offer original reporting, Silverman said in an interview. “It jumps borders and becomes true.”

Social media and content-hungry websites offer a new path for dubious merchants to get before an audience. Wide-eyed news reports have, for instance, gotten gadget-lovers to open their wallets for implausible wristwatches through the crowdfunding website IndieGoGo, and to pre-order possibly fictional gourmet beef jerky through Kickstarter. The surge in such crowdfunding campaigns has given rise to the term “scampaign.”

Pando Daily’s James Robinson has created a beat looking behind the claims of sketchy projects. He harped on two, too-good-to-be-true wearable devices: the GoBe nutrition tracker that promised to document users’ calorie intake by tracking glucose levels through the skin, and the Ritot watch, that supposedly beamed a projection of the time onto the back of one’s hand, bright enough to be seen in daylight. IndieGoGo allowed promoters of both products to collect over $1 million from funders. Robinson has suggested that fundraising sites bear some responsibility for products that turn out to be bogus. But reporters who fail to scrutinize the companies’ credentials may also bear some responsibility.

One of the first scampaigns to come to light was Kobe beef jerky, in June 2013. This theoretical dried beef snack made from Kobe beef received $120,309 in pledges before Kickstarter shut it down. Kickstarter’s belated action saved advance buyers their money, but it didn’t help the reputation of news outlets that had celebrated the salty morsels.

The coverage was embarrassing. “Japanese beer-fed Kobe beef jerky is a real, glorious thing,” said OC Weekly’s food blog. “Folks at South By Southwest couldn’t get enough.” The website of the CNN-owned HLN network said, “We suspect it’ll probably blow your minds (and ours).” Gadget site So Freaking Cool recommended we “Try the Brown Sugar-Lemongrass.” None mentioned that they had never seen the actual product.

One reporter who was taken in said the hype machine was in full effect, and there was only so much checking a person could do. “It was not just good for our audience, it was also absolutely everywhere when it came out,” said the reporter, who requested anonymity so she could speak candidly about the gaffe. “It was an error on our part not to correct.” The HLN website removed its article after being contacted for this story; the others were still up at press time.

News outlets know what to do if someone spells
Hillary Clinton’s first name with one L. A different approach is required when dealing with a con man—or even a PR representative—determined to get undue coverage. An entirely accurate report of what was said at a press conference, for instance, may still be deceptive.

US law doesn’t hold the press liable for inadvertently aiding a con man, said Charles Glasser, a media-law consultant in New York who was counsel for Bloomberg when the Arevenca story ran. “The press is news, it is not a guarantor of your investment advice,” he said. Still, even if there is no requirement to make a correction, it is sometimes the right thing to do.

And there are commercial reasons to correct. Regret The Error’s Craig Silverman notes that for someone seeking to spread fake business news, “once you get into Bloomberg, your job is pretty much done. Even a tiny article with no original reporting, you can’t count on the readers knowing that. It’s the Bloomberg brand being misapplied and abused.” The same goes, more or less, for EFE, AFP, or the OC Weekly food blog.

But brand degradation rarely affects an individual reporter, and criminal penalties are rarely applied to journalists who fall for scams. Rather, the big risks come when reporters try to expose frauds: They can face defamation claims or, in some jurisdictions, charges of spreading financial panic.

Another issue, especially outside the US, is that subjects sometimes pay for coverage. EFE, for example, accepts payment from subjects. “A company can contract for coverage of a press conference or event,” Carlos Serrano, an economics editor at EFE, said in a phone interview. They can’t pay for the article to say anything in particular, he said. But the mere fact of coverage is sometimes all a fraud needs to burnish his reputation. Serrano said EFE would act to correct any false news on its site, but the Arevenca video is still on EFE’s YouTube page. EFE’s public-relations office didn’t respond to a phone call and two emails seeking comment.

It may be easier to avoid these kinds of errors than to correct them. “What you see over and over again is laziness,” said Lydia Chávez, a professor of media ethics at UC Berkeley’s Graduate School of Journalism. “For me, the joy of being a reporter is finding something out. But many people just want to get the job done, and that doesn’t necessarily mean doing the job.” Most stories don’t need to get posted in 10 minutes, she said. “There’s so much crap out there. Why add to it?”

Such counsel doesn’t take into account the reality of work at content-hungry sites. “People are trying to keep up with the pace,” said the reporter who covered Kobe beef jerky. “It’s an impossible pace.”

Still, The Next Web, a tech-news site, managed to do the right thing recently when confronted with the possibility that it had fallen victim to a scam. In July, the site published a 160-word report about the crowdfunding campaign for Ritot, the watch that promised to project the time on the back of a user’s hand. Even without a working prototype, the promoters were quickly racking up cash via IndieGoGo.

Ritot’s promoters put The Next Web’s logo on their crowdfunding page, along with those of 16 other media outlets. When a reader sent The Next Web a list of doubts about the watch, editor in chief Martin Bryant wrote a piece highlighting concerns about the campaign. Bryant pointed out the Ritot crew’s lack of a social-media presence, and he spoke to a technical expert who raised additional questions about the project’s feasibility. “It was a sense of pride in the product we have,” Bryant said in an interview. “You can’t go back and change memories of your original content, and you might not get much traffic, but it’s all about pride.”

Sadly, the Next Web article had already become the source for a story in USA Today, with its much wider reach. The USA Today reporter didn’t respond to two requests for comment. That story remains uncorrected.

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Steven Bodzin is a freelance reporter and researching in Montreal. He specializes in writing about energy industry scams. This story was published in the November/December 2014 issue of CJR with the headline, "Conned news."