Financial fraud is considered a type of white-collar crime that separates a victim from their money. It usually does not result in any type of physical harm, but that does not mean these crimes do not cause significant damage. Victims can be and often are individuals, but they can also be banks, investment funds, trusts, and other entities that are not technically people. Of course, there are many different types of financial fraud, so it is important to understand the more common types.
What Is Fraud?
Fraud is a type of criminal activity that encompasses illicit financial activities, but also much more. Health care and insurance fraud exist, as does mail fraud and telemarketing fraud. Check fraud, credit card fraud, embezzlement – the list goes on and on. However, in all situations, these crimes involve a person or business intentionally deceiving others with fraudulent promises or claims. These can involve promises of delivering goods or services, or they can involve claims involving a stolen identity. Usually, money is paid for whatever is promised, but the victims do not receive what they paid for.
Types of Financial Fraud
Financial fraud is not a single crime, but rather a term applied to a wide range of other crimes in which money is stolen or taken from someone or a business under fraudulent circumstances. Some examples of financial fraud-related crimes include the following:
- Credit card fraud
- Identity theft with the intent to access bank accounts or credit cards
- Bank fraud
- Securities, commodities, and investment fraud
- Ponzi schemes
- Credit card fraud
- Mortgage fraud
- Check fraud
- Tax fraud
- Pension fraud
- Trust fund fraud
These are just some of the examples. There are numerous others.
What Makes Financial Fraud Cases Federal Offenses?
In some cases, financial fraud cases are not felonies. However, in some cases, they become federal offenses and carry with them not only high fees and fines, but also the very real possibility of spending time in a federal prison. Some of the factors that may make a financial fraud crime a federal matter include the following:
- Amount – Financial fraud involving very large sums of money are usually handled at the federal level.
- Laws Violated – If the crime violated federal law, it becomes a federal crime. Some crimes violate both state and federal law, in which case both penalties may apply.
- Use of Public Services – If the crime was committed using a public service, such as Medicare or through the US Post Office, then it becomes a federal crime.
- Crossing State Lines – If the crime is committed across state lines, it becomes a federal matter. For instance, telemarketing fraud where the victim is in one state, but the accused individual or business is in another. If the crime is committed across national borders, it is also a federal matter.
What Are the Most Common Types of Financial Fraud?
Currently, the most common type of financial fraud is identity theft. This can be accomplished in several ways. One of the most common, yet least discussed involves someone going through discarded mail and gathering personal and financial information in that way. For instance, discarded “preapproval” letters from credit card companies allow an identity thief to apply for a credit card in the victim’s name and then make fraudulent purchases.
Another way that attackers are able to gain access to a victim’s personal and financial information is through phone scams. A wide range of scams operate today, including IRS scams, computer/Windows scams, vehicle extended warranty schemes, and more. In these instances, the attacker will call a victim’s home or cell phone and pretend to be someone from the IRS, from Microsoft, or from another company. They usually have just enough factual information to sound genuine. In the course of the conversation, they may get the victim to provide:
- Their bank account information
- Their Social Security number
- Their credit card information
Finally, there are online attacks, such as phishing. These can target individuals, but they can also target businesses and other organizations. The IRS was hacked in 2016 and the personal and financial information for 700,000 US citizens was compromised. Millions of other citizens have had their information stolen through hacks against Home Depot, Yahoo, Marriott, Target, and Equifax to name just a few.
With that being said, there are numerous other types of financial fraud rampant today. These include:
- Insurance Fraud – Insurance fraud can involve claims about accidents that never happened, or intentionally created accidents. However, it can also involve other types of insurance, including workers’ compensation. All forms of insurance fraud are felonies.
- Credit Card Fraud – Credit card fraud is committed when someone uses another person’s credit cards without permission. The card may not even be stolen. This is considered a felony.
- Tax Fraud – Tax fraud may involve failure to pay taxes, or the filing of false tax information. It is a felony.
What Are the Penalties for Financial Fraud Crimes?
In most situations, the penalty will fit the crime. Factors that affect the outcome include things like the amount of the fraud, the number of people defrauded, the criminal record of the individual accused of committing the crimes, and more. In all cases, the accused will be required to make financial restitution to the victims. In most cases, the accused will also be sentenced to prison time.
Sentences can be as low as 20 years or they may be much higher. For instance, Bernie Madoff, the mastermind behind one of the largest Ponzi schemes ever to be pulled off, was sentenced to the maximum of 150 years in federal prison, in spite of the fact that he was 71 years old at the time of sentencing.
What to Do Next
If you have been accused of any type of financial fraud, it is vital to have experienced representation. A criminal defense attorney can fight for your rights in court.