A man pled guilty today and is expected to get probation after scamming American Airlines out of $160,000 in tickets paid for with gift cards.
Billy Schwarze booked travel for friends and family. He bought gift cards to pay for the tickets, and then refunded the tickets – to his own credit card. This cost American $160,000 “and his friends and associates..$20,000.”
William Joseph “Billy” Schwarze, 27, told people that he was affiliated with a travel agency and was planning to open his own travel business, prosecutors said. He referred to himself online as a travel agent who had “elite airline and hotel statuses,” and claimed to log “about 200,000 flight miles a year. My background allows me to optimize airline and hotel customer experience programs to build exceptional travel value for you,” his plea records quoted him as saying.
In reality, Schwarze was exploiting a glitch in American’s computer systems. From January 2016 through October 2018, Schwarze bought gift cards online using his personal credit cards, then used those gift cards to buy airline tickets for family, friends and associates to travel across the globe, Assistant U.S. Attorney Hal Goldsmith said in court.
Apparently the glitch, that’s since been fixed, let cancelled tickets credit back to a credit card – rather than splitting payment back to non-refundable gift cards. I imagine that after buying the ticket with a gift card he’d reissue the ticket, paying an additional charge with a credit card, and then when he requested a refund the American Airlines system only saw the card as source of the payment.
Thanks to this glitch Schwarze “bought 690 gift cards online using his credit cards, in amounts ranging from $50 to $150.” He also earned miles on those purchases.
Surprisingly the prosecutor will recommend probation as part of he plea, along with repaying the claimed $180,000 in losses. That suggests to me that there’s more to the story – either a weaker case than imagined, or details of the story the government or airline would prefer not get out.
On the other hand it’s possible that in exchange for his plea he’s provided information on others. I believe he was a member of some of the Facebook groups that I’m in, and I’ve heard about his offers for discounted airfare and now wonder whether anyone I know will get further caught up in this. (I haven’t to the best of my knowledge had interactions with him myself.)
American might consider trying something like United or like Hyatt with a bug bounty program. Of course at the beginning of the year, before the global pandemic, American was pushing over $60 million worth of sales through its website a day so they may just consider $160,000 in losses to be rounding error – and getting the services of law enforcement and taxpayers free rather than investing in proactive IT fixes to avoid these losses in the first place is probably cheaper.
Anybody claiming to “optimize” anything is full of excrement. Unless they can derive Newton-Raphson for you on a whiteboard. Most likely an “optimizer” can’t even explain what a second derivative is.
I’m not condoning what he did, but did AA really loose anything substantial here?
He bought an AA gift card for $X. Bought a ticket for $X+Y=Z. AA “pockets” $Z.
Guy refunds $Z to his credit card so he’s “even” and AA is at net zero after taking in $Z and refunding $Z.
most readers read this article to learn and to see if they could pull up a similar “workaround” (or scam if you want to call it that), myself included.
@ Gary — Yeah, there is something missing from the story. As @ Daniel points out, it sounds like AA lost nothing in this scheme. Furthermore, 690 gift cards x $150 = $103,500, so where did the figure $180,000 come from? If anyone is guilty of anything, the St.Louis Post-Dispatch sounds guilty of Fake News.
Not sure I understand his scheme here. He buys gift cards with a credit card…then purchases a flight with those gift cards and then gets a refund to his credit card? What am I missing? Was it an AA credit card and he got points for the gift card purchases and pocketed those?
He still spends money on the gift cards and gets money back to his credit card. Is there some type of rewards or points that were left out of the story?
So surprising that a white collar criminal gets a slap on the wrist. This country sucks
@ We_Are_Exceptional — Some are even elected President.
Wowsa! The article elided the fact that refunding did not void the ticket! So he literally flew for free. He also earned reward points so that amounts to roughly 101% cash back!
“Unbeknownst to AA, and as part of the scheme, SCHWARZE took advantage of a vulnerability in the AA refund system by entering the Gift Card MSR into the AA Refund portal, instead of the requested actual ticket identification number, causing the AA refund system to automatically refund the price of the airline ticket, minus any fees, directly to the credit card which SCHWARZEhad originally used to purchase the virtual AA Gift Card. Through his scheme, SCHWARZE, or his family members, friends and associates, used the AA airline tickets purchased by SCHWARZE with AA virtual Gift Cards for their actual flights, but the cost of those flights was refunded to SCHWARZE by AA through a credit to SCHWARZE’s credit cards. SCHWARZE received approximately $160,340.00 in refunds from AA for airline flights that he, or his family members, friends and associates actually took.”
@Sexy_kitten7, you’re the real MVP. Was wondering where the actual swindle was!
@We_Are_Exceptional, I agree in general, though when I think of “white collar crime” I usually think of big businesses / the “1%” screwing over individual people / the “99%”. I have less of a problem with it and think it deserves less punishment when it’s the other way around. (Still don’t condone it though.)
Folks…
1. AA had gift cards sold places other than their own site, likely. If AA cards are sold in retail stores, those retailers net some of that money. And there are other costs involved. So, while they’ve probably exaggerated their loss, it’s not imaginary.
2. In addition to the that, credit card transactions aren’t free for merchants. Issuing a refund isn’t free, I believe, especially when there wasn’t an original card transaction of that amount.
3. Discount gift cards are sold all the time. Gift cards are the preferred currency of scammers, since they obscure the crime. With the volume he used, I’d be surprised if some weren’t from scammers, with or without his knowledge.
4. All of this means his process looks identical to money laundering, regardless of whether he was intending to do so.
My objection to the airline demanding restitution is that they should fucking eat it because gift cards are the biggest criminal tool that hides in plain sight.
Any form of financial abuse against a business is stealing from you and me. In this case, insurance costs go up, which are passed on to the cosumer by increase in the cost of airline tickets. I think he needs to go to jail. He walks this time he will find another loop hole to steal from you and me again.
@Sexy_kitten7
Look to the source for that?
I am curious on how he discovered any such scam that allowed him to get refunds (to his bank card/cards) for the total eticket value without the ticketed booking and ticket being cancelled. I have to assume that if he managed to find out about this system irregularity and engaged in this scam, then he’s probably not the only one.
Does the plea agreement comes with a cooperation agreement for him to disclose the others involved? Either way, I’m betting on the prosecutors fishing around in the online waters frequented by this convict.
@GUWonder “I’m betting on the prosecutors fishing around in the online waters frequented by this convict.” In my experience it’s usually the airlines going to the prosecutors, not the prosecutors finding the conduct independently.
I don’t understand the people saying the airline didn’t have a real loss here …. didn’t his scheme get free seats on flights that otherwise could have been sold as revenue tickets? (Seats that he re-sold to family and friends who were unaware that he was getting the tickets for free)
Here is a link to the legal filing related to this: https://loyaltylobby.com/wp-content/uploads/2020/09/1-Inforrmation-Felony.pdf
Some people are Lucky and don’t get prosecuted for their crimes against airlines
Gary,
Yes.
When the prosecutors are made aware of the online waters with a bad fish, the prosecutors go fishing in them too — even if the primary objective at the time is to gather evidence/witnesses against an already identified target.
I don’t quite understand exactly how he did what he did, or how he knew about the system weakness that he exploited. I certainly don’t understand the transactional flow well enough to know if it was even illegal, but there must be more details than what is posted here.
If you follow system procedures, then how can that be wrong? After all, you’re only doing what the system lets you do. Shouldn’t AA test their procedures sufficiently to avoid such matters, and if AA can’t invest the time and resources to at least detect the maneuvers, then they should accept the loss. I’m not at all condoning his behavior or agreeing that it’s morally acceptable to fly for free (if that is what happened), but it’s clear that AA should have a better IT system.
“Unbeknownst to AA, and as part of the scheme, SCHWARZE took advantage of a vulnerability in the AA refund system ”
Sounds like the American IT people should be charged for the lost money. If they didn’t cancel the
refunded tickets, how is that a crime by the purchaser? AA screwed-up and someone took advantage. Like an error-fare. Judge should tell AA to fix their systems. Problem solved.
@Kenneth, @Ray: don’t know if I agree completely; it’s gotta be at least partly about intent. If you do something that you know you’re not supposed to be able to do, hoping they don’t notice, then that’s…I don’t know if “fraud” or “theft” is the right word, but something like that.
I think a physical equivalent would be shoplifting. You go into a store, stuff some items in your pocket, and leave. The “system” (the little beeping security gates at the exit) didn’t detect that anything was wrong, so it let you get away with it – but you still stole those items. (Maybe a better equivalent is swapping the bar code on your item with that of a much cheaper item, so it still looks like you’re legit paying for it but you’re not – more in line with fraud than theft. But the system let you do it!)
Though again, I find “stealing from”/”defrauding” a large company to be much less objectionable than the other way around. Maybe the guy should only be ordered to pay back a portion of the amount he “stole” equal to the ratio of his annual income to that of American Airlines. Google tells me they made $1.4 billion in 2018 (net profit), so if the guy makes $140k a year (just an example), that puts the percent at 0.01% (i.e. 0.0001), and the amount he’d owe (0.0001 * $160,000) at…a whopping $16. The guy stole the equivalent of $16 from AA – less than they charge us for a single checked bag one-way.
Yeah, on second thought, maybe they should have just let it go.
@Chris
How about mistake fares? Did you really think you could travel 1st class to Japan for $159?
They loaded the prices and you made a selection. Did you steal?
A store marks an item for $1.29 when they really meant $2.29. You buy it. Did you steal? Should you go to jail?
I thought at first that this guy was a hacker. Perhaps he had found a way to alter the code and get the rebate money for free. But it sounds like he did nothing. American’s IT dept. screwed up the system. I can accept that they might now want to charge him for the merchandise he received, but not not for more than he spent. And certainly not give him a prison sentence as a “white collar criminal”. Please . . .
He was refunding the MSR of the gift card, not the ticket itself. So he would pay with the gift card, then get issued a ticket, then refund the gift card, and the AA system would refund the gift card inadvertently.
@Ray,
In the case of mistake fares, I don’t think that’s stealing at all; the customer purchased the product for the amount officially advertised. They didn’t try anything underhanded to get a discount or refund they weren’t entitled to, which is the part that makes it a crime: he had every intention of receiving goods/services without paying for them, using a clearly unintended exploit in their system.
The difference is
1. Who initiated the action allowing the customer to get the discount/refund: the airline (mistake fare) or the customer (exploiting a clearly unintended system glitch)
2. Whether the customer ultimately paid the officially advertised/agreed-upon price (net) for all products received / services used.
To clarify, I agree that a prison sentence would be a harsher punishment than something like this deserves. After all, based on my math in my previous post, the impact of “stealing” $160k from American Airlines (whose 2018 net profit was $1.4 billion) is equivalent to stealing $16 from someone who makes $140k a year, or $8 from someone making $70k; in other words, it’s peanuts. Once someone reaches even a full percent of AA’s profit (which is still $14 million), then we could *maybe* talk about a prison sentence, but I generally believe that should be saved for the richer/more powerful stealing from the poorer/less powerful.
@Joe, thanks – that helps clear it up for me more, and makes it even more hilarious to me!