What You Need to Know About Financial Fraud
Who are the victims of financial statement fraud?
Investors and shareholders are usually the victims of financial statement fraud. This is especially true during an initial public offering (IPO) when investor funds go directly to the company. The Association of Certified Fraud Examiners (ACFE) defines it as "deception or misrepresentation that an individual or entity makes knowing that the misrepresentation could result in some unauthorized benefit to the individual or to the entity or some other party."
How do I report financial fraud?
To report financial fraud call the FBI at 202-324-3000 or visit tips.fbi.gov. You can also contact the local U.S. Attorney's Office where the fraud was committed—there are 93 offices. Plus, some government agencies target particular types of financial fraud, such as the U.S. Securities and Exchance Commission or the Internet Crime Complaint Center.
What are the different types of financial fraud?
Criminals are constantly creating new types of fraud. But some common standards include embezzlement, insurance fraud, ransomware, identity theft, financial statement fraud, bribery, mortgage fraud, tax evasion, and ponzi schemes.
How do I avoid financial fraud?
There are a few things you can do. Block unwanted calls and text messages. Do not give personal information without doing your research. Never pay anyone with a gift card or wire transfer. And if you were a victim, report it to the Federal Trade Commission.
Is financial fraud a felony?
It depends. Both the federal government and each state have many laws that criminalize various types of fraud, and each type of fraud comes with its own classifications and penalties. Some can be civil wrongs and others can be criminal. They can come with jail time and/or fines.
Very similar to a pyramid scheme, a Ponzi scheme generations financial returns for previous investors by constantly attracting new investors with a promise of big profits for little to no risk. The scam falls apart when the new investor's pool dries up so no new money is coming in to continue to fool the investors.
Tax evasion is an illegal act where a person deliberately avoids paying for a tax liability. To willfully fail to pay taxes is a federal crime and those caught are usually subject to criminal charges and penalties.
Identity theft is a crime that occurs when a criminal steals your personal information and credentials to commit fraud, which is usually financial in nature. This type of crime is committed in many ways and its victims are often left with damage to their credit, finances, and reputation.
A forensic audit uses accounting methods to examine a company's or individual's financial records to find evidence to use in legal proceedings including criminal charges, divorces, and bankruptcy filings. Performing an audit requires expert knowledge of the legal framework.
The Panama Papers was a leak of 11.5 million encrypted confidential documents that were the property of Panama-based law firm Mossack Fonseca. The documents exposed a network of more than 214,000 tax havens involving companies and people from 200 countries.
The LIBOR Scandal was a scheme in which bankers at major financial institutions such as possibly Deutsche Bank, Barclays, Citigroup, JPMorgan and Chase colluded to manipulate the London Interbank Offered Rate (LIBOR). The scandal led to a wave of fines, lawsuits, regulatory actions, and LIBOR being phased out by June 30, 2023.
Spoofing is a scam in which a criminal disguises an email address, name, phone number, text message, or website URL to convince a person they are interacting with a trusted source. Always be skeptical of requests for personal information or downloading files. Be sure to install reputable antivirus and antimalware software.