Jonah Patel
Fraud is a criminal deception intended to result in financial or personal gain. It involves falsification, either by withholding important information, lying, or faking documents. Fraud can be committed by a single person or an organization, and often targets businesses such as insurance companies and banks, as well as individuals. Some common types of fraud include consumer fraud, financial and investment fraud, identity theft, and mortgage fraud. Fraud is a serious offence and can result in criminal penalties, civil fines, and imprisonment.
| Characteristics | Values |
|---|---|
| Definition | Any activity that relies on deception in order to achieve a gain |
| Fraud against | Businesses like insurance companies and banks, individuals |
| Types | Identity theft, securities fraud, mortgage fraud, consumer fraud, financial and investment fraud, online and digital fraud, check fraud, consumer product and retail fraud, credit card and debit card fraud, debt collection fraud, elder financial exploitation, imposter scams, phishing scams, "advance-fee" schemes, tax fraud, lying to investors and shareholders, falsifying work done, demanding bribes, submitting bad checks, returning knock-off or stolen products, theft of intellectual property or customer information, false insurance claims, cooking the books, pump-and-dump schemes, Medicare or Medicaid fraud, health care fraud, submitting false health care claims, Medicare or Medicaid false claims, Medicare or Medicaid services payable fraud, Medicare or Medicaid kickback fraud |
| Fraud risk | Significant |
| Fraud case resolution | Criminal trial, civil case |
| Penalty | Criminal penalties, civil fines, exclusion from Federal health care programs, loss of medical license, fines, imprisonment |
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What You'll Learn
Identity theft
Fraudsters may use phishing to gain information from victims through fraudulent emails, texts, or phone calls. They may also use social media accounts to find personal information in posts or photos, or ask for personal details through online quizzes and surveys. It is important to never respond to such messages or requests from people or numbers you don't know and to avoid sharing personal information like bank account numbers, Social Security numbers, or dates of birth.
Other ways to protect yourself from identity theft include collecting your mail daily and placing a hold on it when you are away, reviewing credit card and bank account statements for any unauthorized or suspicious transactions, and understanding how to protect yourself when using public Wi-Fi networks. It is also recommended to store personal information, including your Social Security card, in a safe place.
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Securities fraud
- High-yield investment fraud: This involves guaranteeing high rates of return while claiming there is little to no risk.
- Ponzi schemes: This is an investment fund where withdrawals are financed by new investors, rather than profits obtained through investment activities.
- Pyramid schemes: Similar to Ponzi schemes, these schemes use funds from new investors to pay returns promised to previous investors.
- Late-day trading: This involves trading after the market has closed for the day.
- Pump-and-dump schemes: These schemes use false or fraudulent information to manipulate stock prices, often via the internet or newsletters.
- Microcap fraud: Stocks of small companies are deceptively promoted and then sold to an unsuspecting public.
- Boiler rooms: These are unlicensed stock brokerages that pressure clients to trade using telesales, often as part of microcap fraud schemes.
- Insider trading: This involves trading a corporation's stock based on material non-public information or trading shares without disclosing material information.
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Consumer fraud
There are several types of consumer fraud, including check fraud, which involves the unauthorized use of a person's checks; consumer product and retail fraud, which involves the purchase or sale of goods through deceptive marketing or counterfeit products; and credit card and debit card fraud, which involves the unauthorized use of a person's credit or debit card to make purchases or withdrawals.
Another type of consumer fraud is debt collection fraud, where scammers impersonate legitimate debt collectors to scare consumers into paying non-existent debts. Elder financial exploitation is a form of consumer fraud that involves the theft or misuse of an older adult's money, assets, or personal information.
Online and digital fraud is another common type of consumer fraud, where scammers use deceptive emails, websites, or messages to trick people into providing personal information or money. Holiday and gift card scams are also prevalent, especially during the holiday season, where consumers are targeted with false promises or fraudulent schemes involving gift cards.
Financial and investment fraud is a broad category of consumer fraud that involves deceptive practices to lure individuals into fake investments, often by promising returns that are too good to be true. This can include securities fraud, where individuals are conned into buying stock based on false information, or Ponzi schemes and pyramid schemes.
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Internal and external occupational fraud
Fraud is any activity that relies on deception to achieve a personal gain, often financial. Fraud becomes a crime when there is a "knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment" (Black's Law Dictionary). In other words, if an individual or entity lies to deprive a person or organization of their money or property, they are committing fraud.
Occupational fraud, also referred to as internal fraud, is committed by an organization's employees, managers, or executives. It involves deceiving the organization itself and can take many forms, including embezzlement, tax fraud, lying to investors and shareholders, and asset misappropriation. The latter includes theft of company checks, improper use of company assets, and payroll fraud, such as claiming more hours than actually worked.
Occupational fraud can also be committed by external parties, such as vendors who lie about the work performed, demand bribes, or rig costs. Customers can also commit external fraud, such as by submitting bad checks or attempting to return knock-off or stolen goods. With the increasing use of technology, new schemes of external occupational fraud continue to emerge, including the theft of intellectual property and customer information.
According to the Fraud Triangle theory, developed by Dr. Donald Cressey, three factors are typically present when an individual commits fraud: unshareable financial need, perceived opportunity, and rationalization. In the context of occupational fraud, the opportunity arises from the trust placed in employees, which they violate by taking advantage of their positions. Rationalization refers to the excuses perpetrators make for their actions, such as thinking that the organization will not miss the money or that they deserve it.
To protect against occupational fraud, organizations should take a proactive approach by implementing anti-fraud controls, providing comprehensive anti-fraud training, conducting regular risk assessments, and offering accessible fraud reporting mechanisms.
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Fraud against government agencies
Another form of fraud against government agencies is bribery or corruption. This involves individuals or organizations offering bribes to public employees or government officials in exchange for favourable treatment, such as obtaining contracts, subsidies, or loans. This type of fraud undermines the integrity of government processes and can result in significant financial losses for the government.
Additionally, fraud can occur through the falsification of information or documents. This may include submitting false insurance claims, false grant or subsidy applications, providing misleading information in government procurement processes, or even altering official records to conceal wrongdoing. Such actions can have far-reaching consequences and lead to a loss of public trust in government institutions.
To combat fraud against government agencies, various measures are in place. The Federal Bureau of Investigation (FBI) plays a crucial role in investigating and addressing fraud, often working in conjunction with the Commercial Litigation Branch and the Criminal Division of the United States Department of Justice. Citizens are also authorized to bring lawsuits against those committing fraud against the government, known as "qui tam" actions, further empowering individuals to take action and help protect government interests.
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