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To catch an identity thief

By Tom Vogel
June 14, 2007

In 2006 $50 billion was lost due to identity theft -- a crime that affects one in every 20 U.S. consumers.

That's a statistic that Adam Elliot '88, co-founder and CEO of ID Insight, would like to see drop significantly. It's also why in 2002, along with co-founder Bob Clark, Elliot started ID Insight, a St. Paul-based company specializing in identity fraud detection and prevention. Since then, Elliot has gained the ear of some of the best regarded financial agencies in the United States regarding cracking down on identity theft and, in the process, given Ole grads and students the opportunity to join the fight.

ID Insight
Adam Elliot '88 (right), co-founder and CEO of ID Insight, is cracking down on identity theft and, in the process, giving Ole grads and students, such as Matt Schraan '04 (left) and Ben Roff '08 (center), the opportunity to join the fight.


Elliot recently announced that ID Insight will relocate its St. Paul headquarters to Northfield in August. He says that, in addition to Northfield's fiber-optic network -- built by St. Olaf College -- being an incentive for the move, as an Ole his personal ties to the city and home of his alma mater were also a factor.

"St. Olaf reaches out to solve problems," Elliot says. "It's a place where the brightest minds work on solutions."

After earning his B.A. in mathematics at St. Olaf and his M.A. in statistics from Pennsylvania State University, Elliot already had a core education in analytic modeling. He and Bob, ID Insight's vice president of business development, came from backgrounds in fraud prevention at such companies as Citibank, U.S. Bank and ChexSystems, and both shared the same conviction: identity thefts were spiraling out of control.

By Elliot's estimate, fraud was increasing 30 percent every year, yet it was not making headlines. "Financial institutions were complaining about the rise in fraud, but no one was focusing on coming up with a solution to account takeovers, wherein the most common M.O. for the fraudster was to change the account address, while posing as the victim, in order to gain control of the account," Elliot says.

And that's where ID Insight found its niche.

"Because a consumer's address is the critical link between them and their bank, virtually every identity theft involves an address manipulation by the thief," Elliot explains. "People tend to move in very predictable and pattern-like ways, often within similar demographic and geographic areas. When looking at a new credit card application, if we can detect data that is out of pattern, especially with regard to an address, we may be on our way to catching a thief."

Elliot says that 20 to 30 percent of credit card applications feature mismatched addresses, and while a vast majority of these are legitimate, these mismatches also indicate "where the lion's share of the fraud exists."

"A large swing -- moving from a quarter-million dollar home in Minneapolis to a rented mailbox in Reno, for example -- is anomalous," Elliot says. "When there are large swings in data differential between locations, that's when a red flag goes up."

Elliot explains ID Insight's process: "We take the pool of address changes in credit applications, run them through a scoring program similar to what a financial institution would run during a credit check, and figure the likelihood of change." Using hundreds of data points, ID Insight averages such variables as income, demographic statistics, distance metrics and name verification to determine risk factors.

It's a complex, tedious analysis, but Elliot has found that just as St. Olaf prepared him for the type of work he does with ID Insight, it's also prepared many other bright Oles to assist him.
Adam Elliot
Adam Elliot '88, whose staff is comprised of several Oles, believes that St. Olaf prepares its students well. "St. Olaf reaches out to solve problems," he says."It's a place where the brightest minds work on solutions."


The Ole connection
As a senior at St. Olaf, Matt Schraan '04 had the opportunity to intern for ID Insight. While Schraan's psychology major and concentration in management studies qualified him for the position, it was playing offensive tackle that put Schraan in contact with Elliot.

A former Ole football player himself, with strong ties to the Ole Touchdown Club, Elliot has had good luck recruiting interns with the help of head coach Chris Meidt. In 2002 Elliot, who taught a course on intercollegiate football at St. Olaf in the 1990s, told Meidt that he had an opening for a summer intern in a new business devoted to reducing identity theft. Schraan heard about the opening and, thanks to the analytical and research skills he'd developed in his psychology courses, got the internship.

Oles make up more than half of the ID Insight's board of directors, which, in addition to Elliot, includes the president of All Star Financial in Minneapolis, former Ole football coach and member of the Ole Athletic Hall of Fame Bob Klefsaas '82 in addition to Mike Jacobs '87, currently senior vice president at Oswald Companies in Minneapolis. And like Schraan before him, Ben Roff '08, a mathematics and economics major and fullback on the Ole football team, currently interns with the company.

A better mousetrap
Last year, ID Insight's St. Olaf ties were strengthened further when the company was selected to participate in the St. Olaf Mathematics Practicum, an intensive January Interim course during which senior mathematics majors attempt to solve real-life math problems for government agencies, corporations and non-profit organizations.

The idea to work with the Math Practicum originated when Elliot read the May 2004 St. Olaf Magazine article on Professor of Mathematics Matt Richey and Associate Professor of Statistics Paul Roback, who were teaching the course at the time. "Matt was one of my professors when I was at St. Olaf, so I contacted him and said: 'Let's go solve the problem of identity theft. Let's get savvy St. Olaf math and stats students to build a better mousetrap,'" Elliot recalls.

Assistant Professor of Mathematics Kristina Garrett, who, along with Associate Professor of Mathematics Steve McKelvey taught the Math Practicum this year and facilitated the ID Insight interaction, says the students had their work cut out for them.

"Adam had created this model to detect fraud, and while he was successful he also realized more brains might make a better model," Garrett explains. So the problem posed by Elliot to the class was: beat ID Insight's model. Elliot provided both legitimate and fraudulent data from credit card applications, and the students went to work setting up their own models to predict fraud.

When the students (including Mike Soma '07, who will intern at ID Insight this summer) were finished, Elliot verified their analysis and discovered they had detected more than 80 percent of the frauds in the riskiest 20 percent of the applications. Elliot was amazed, and, as Schraan attests, the project was mutually beneficial.

"By the end of the practicum we had strengthened the statistical models thanks to scrutiny from a team of bright young Oles," Schraan says. "We also helped facilitate further learning in an applied setting for these students."

Making a federal case
In 2004 Elliot spoke before the FBI's task force on identity theft. His message was this: "If the financial industry measured the risk involved with address changes, a substantial share of this problem, measured in tens of billions of dollars, could be avoided." A Federal Trade Commission (FTC) member who happened to be in the audience approached Elliot after his address. "We need to get you to Washington," she said.

Since then, Elliot has met with several financial decision makers at the national level, and along with the rest of ID Insight has worked with the Federal Reserve to get banks and financial institutions to adopt their processes of checks during credit applications. Based on their responses, Elliot is optimistic about the future.

"The burden now on financial institutions, especially the FTC, is to establish and publish regulations." Elliot says. "Right now the language is being finalized and compliance is expected early in 2008." And that could mean that American consumers will be a little bit safer when it comes to ID theft.

Contact David Gonnerman at 507-786-3315 or gonnermd@stolaf.edu.