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The Horrific World of Financial Fraud: Tax Scams, Debt Collection Fraud, & So Much More

Category: Banking Scam
Length: 10 Pages
Reading Time: 30 Minute

Excerpt: It is considered financial fraud when someone deprives you of your money or otherwise harms your financial health due to misleading, deceptive, or other illegal business practices. The use of various methods, such as identity theft or investment fraud, can be used to accomplish this. Many fraud cases involve complex financial transactions carried out by ‘white-collar criminals,’ such as business professionals with specialized knowledge and criminal intent, rather than by traditional criminals.

May 17, 2022

Introduction

In the case of financial fraud, someone steals money or other assets from you by using deception or criminal activity to accomplish their goal. We recommend that you become familiar with the various types of financial fraud and learn how to protect yourself from them. The vast majority of victim compensation programs do not compensate for money lost as a result of fraud or fraudulent schemes. You must check your state’s laws on victim compensation to ensure that you are not breaking any rules. Civil justice may be the only legal option available to recover money that has been lost.

pounds money

Only about 13% of scam victims actually report the scam. It's discovered that in 2020 Australians lost over $634 million

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Table of Contents

CHAPTER 1: What Is Financial Fraud?

money loan

Generally speaking, financial fraud is defined as an intentional act of deception involving financial transactions with the intent of obtaining personal gain. Fraud is a criminal offense as well as a violation of civil law. Many fraud cases involve complex financial transactions carried out by ‘white-collar criminals,’ such as business professionals with specialized knowledge and criminal intent, rather than by traditional criminals.

If a dishonest investment broker offers clients the opportunity to purchase shares in precious metal repositories, for example, the client should be cautious. A potential client’s credibility can be enhanced by his status as a professional investor, which can lead to justified credibility in the future. Those who believe the opportunity to be legitimate make substantial cash contributions in exchange for authentic-looking bond documentation, which they receive as a result of their efforts. 

If an investment broker is fully aware that no such repositories exist but continues to accept payments for worthless bonds, the victims may be able to bring a fraud lawsuit against him. Fraudsters can contact their potential victims through a variety of methods, including face-to-face interaction, postal mail, phone calls, text messages, and/or emails, among others.

coins counting

It is difficult to verify individuals’ and businesses’ identities and legitimacy, and fraudsters can easily divert visitors to dummy websites and steal personal financial information. The international scope of the internet, as well as the ease with which fraudsters can conceal their true location, all contribute to internet fraud becoming the fastest growing area of fraud. 

In the financial world, “Get-Rich-Quick” schemes are plans that promise high or unrealistic rates of return for a small amount of money invested while also claiming that such investment is simple and risk-free. As a general rule, when an offer appears to be too good to be true, members of the public are advised to exercise caution and to make an effort to verify whether or not the promised high returns are legitimate. Most get-rich-quick schemes also claim that wealth can be generated with little skill, effort, or time on the part of the investor or participant.

Often, illegal schemes or scams are advertised through spam or telemarketing (also known as “cold calling”). Some forms of advertising for these schemes promote books or compact discs about how to get rich quickly rather than asking participants to invest directly in a specific scheme, which is common in the United Kingdom. It is undeniably possible to become extremely wealthy very quickly if one is willing to accept extremely high levels of risk – this is the premise on which the gambling industry is built. 

On the other hand, gambling offers the near-certainty of completely losing the initial stake over the long term, even if it offers some wins along the way if one continues to play. Although many people yearn for instant riches, these schemes appeal to those who are looking for quick riches. Financial fraud occurs when someone deprives you of money or capital or otherwise harms your financial well-being through deceptive, misleading, or other illegal business practices.

online problem

The use of various methods, such as identity theft or investment fraud, can be used to accomplish this. It is critical to report all types of financial fraud to the appropriate authorities and law enforcement authorities as soon as possible after the crime is committed. Disputed or canceled fraudulent charges should also be done immediately upon discovery of the fraud. As a further precaution, victims should gather all relevant documentation pertaining to the crime (for example, bank and credit card statements, credit reports, and tax returns from the current and previous years) and continue to file critical information throughout the reporting process. 

Unfortunately, the majority of victim compensation programs do not reimburse money that has been lost as a result of fraud or fraudulent schemes. To be sure, check your state’s laws on victim compensation to ensure that you are covered. Civil justice may be the only legal option available to recover money that has been lost.

The Most Common Types of Financial Fraud

Investment Fraud

Making false, misleading, or fraudulent statements about investments or securities in order to sell them. This can include, among other things, making false or grandiose promises, concealing or omitting key facts, and providing insider trading tips.

Ponzi Schemes

Ponzi Schemes

It is based on fraudulent investment management services. Basically, investors contribute money to the “portfolio manager,” who promises them a high return. Then when those investors want their money back, they are paid out with the incoming funds contributed by subsequent investors.

These types of fraud are organized by individuals who are responsible for overseeing the entire operation; they merely transfer funds from one client to another without engaging in any genuine investment activities. For more than a decade, Bernard Madoff orchestrated the most famous Ponzi scheme in recent history—as well as the single largest fraud against investors in the United States. Madoff defrauded investors through Bernard L. Madoff Investment Securities LLC, which he owned at the time. Madoff amassed a large network of investors from which he was able to raise funds by pooling the funds of his nearly 5,000 clients into a single account, which he then withdrew from.

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He never actually invested the money, and once the financial crisis of 2008 took hold, he was no longer able to continue the fraud on the public. The Securities and Exchange Commission estimates that investors have suffered a total loss of approximately $65 billion. The controversy sparked a period known as Ponzi Mania in late 2008, during which regulators and investment professionals were on the lookout for additional Ponzi schemes.

Pump and Dump Schemes

Pump-and-dump is a financial manipulation scheme in which the price of a stock or security is artificially inflated by making false recommendations to investors. These recommendations are based on statements that are either false, misleading or greatly exaggerated. Those involved in a pump-and-dump scheme already have a position in the company’s stock and will sell their positions once the stock price has risen as a result of the publicity surrounding the scheme.

forex chart

According to securities law, this practice is prohibited and can result in significant financial penalties. The rising popularity of cryptocurrencies has resulted in an increase in the number of pump-and-dump schemes in the financial sector. Pump-and-dump schemes are used to artificially inflate the price of a stock or security by making false, misleading, or greatly exaggerated statements about the stock or security. These schemes are most commonly used to target small- and micro-cap stocks. 

The operation of pump-and-dump schemes is punishable by steep fines for those found guilty of doing so. Ponzi and pyramid schemes are becoming increasingly common in the cryptocurrency industry. Pump-and-dump schemes were traditionally carried out by cold calling prospective victims. As a result of the internet’s proliferation, fraudsters can now send hundreds of thousands of email messages to unsuspecting targets or post messages on websites enticing investors to buy a stock as soon as it is offered to them.

This type of message typically claims to have inside information about an impending development that will result in a dramatic increase in the value of the company’s stock. Once buyers flood the market and the stock has risen significantly in value, the perpetrators of the pump-and-dump scheme are forced to sell their holdings. A large number of shares are typically sold in this situation, causing the stock price to plummet by a significant amount, as shown in the chart below. 

Many investors suffer significant losses as a result of this. These schemes typically target micro-and small-cap stocks traded on over-the-counter exchanges, which are less regulated than traditional stock exchanges. Due to the ease with which micro-cap stocks—and, on occasion, small-cap stocks—can be manipulated, they are frequently used in this type of abusive activity. Micro-cap stocks are typically characterized by a small float, low trading volumes, and a lack of publicly available corporate information.

broker on laptop

As a result, only a small number of new buyers is required to increase the value of a stock significantly. Anyone with access to an online trading account and the ability to persuade other investors to purchase a stock that is supposedly “ready to take off” can engage in the same type of fraud. The schemer can get the action started by making large investments in a stock that trades on low volume, which usually results in a price increase for the stock. Other investors are prompted to buy in large quantities as a result of the price movement, driving the stock price even higher. The perpetrator can sell their shares at any time they believe the buying pressure is about to collapse, resulting in a substantial profit.

Tax/IRS Scams

Criminals are well aware that filing taxes can be complicated and that stressed consumers may be more susceptible to falling prey to phishing scams, in which scammers trick consumers into disclosing their personal and financial information to fraudsters. They are also aware that many taxpayers are so terrified of the Internal Revenue Service that they will do almost anything, including sending them money or gift cards, in order to pay the taxes they believe they owe. 

Scammers can take advantage of this by stealing your Social Security number or snatching your income-tax refund, among other things. Fortunately, by being aware of the warning signs of an IRS scam and taking the necessary precautions, you can help keep yourself and your loved ones safe. So, let’s take a look at five of the more common tax-related scams that you might come across during the tax season.

Identity Theft Related to Taxes

question face men

In the case of tax-related identity theft, scammers steal your personal information — such as your Social Security number, mailing address, birth date, or other information — and use it to file an income tax return in your name. In order to steal your tax return, criminals engage in this act of theft. The first step is to determine whether or not you’ve been a victim of tax-related identity theft.

There are several indicators to keep an eye out for: You attempt to file your tax return online, only to have it rejected by the IRS on the grounds that a tax return with your Social Security number has already been filed with the same address. You submit your tax returns through the mail. The Internal Revenue Service then sends you a letter informing you that a tax return with your Social Security number has already been filed. The Internal Revenue Service notifies you that an online account in your name has been created at IRS.gov, despite the fact that you are well aware that you never signed up for such an account. The Internal Revenue Service sends you a transcript in the mail that you never requested.

mobile app

Preserving the confidentiality of your Social Security number and other personal information is the most effective way to avoid this type of fraud. Don’t ever give out personal or financial information to strangers who contact you via email and ask for this information! Don’t divulge this information during telephone conversations. Also, make a habit of checking your bank and credit card statements on a regular basis for any unusual activity that could indicate that someone has stolen your personal information. Make sure to take advantage of the IRS’s newest identity protection tool, the Identity Protection Personal Identification Number, also known as an IP PIN, which is available to you for free.

You can apply for this six-digit number directly from the Internal Revenue Service in order to make it more difficult for identity thieves to steal your information. This means that in order to steal your identity, these thieves would need not only your name, address, and Social Security number but they would also need to know your unique IP PIN. For more information on registering for your IP PIN, visit the IRS’s online Get a PIN tool. 

To begin, you’ll need to create an account on IRS.gov, which can be done online. Registering requires the following information: your email address, Social Security Number or Individual Tax Identification Number, tax filing status, mailing address, and one financial account number associated with your name.

The Gift Card Scam

Gift

One of the most common tax scams is the gift card scam, which is unfortunately all too common. IRS reports that scammers will call you or leave a voicemail with your phone number in the subject line and claim you owe federal taxes and are at risk of being charged with criminal activity. The criminal will demand that you pay a penalty fee and that you pay it by sending gift cards from various stores if you choose to pick up the phone or call the scammer back.

Once you have purchased the cards and returned the phone call to the scammer, the criminal will ask for the card’s number and PIN. Following that, you already know what will happen: the scammer will use your information to purchase items from the stores, and you will be out the money you spent on the credit cards. The Internal Revenue Service will never contact you regarding taxes that you owe or penalties that you must pay. Instead, the agency will reach out to you via postal mail. 

If you receive a phone call from the Internal Revenue Service regarding unpaid taxes, hang up. It’s a con artist. In addition, the IRS will never ask for gift cards in exchange for penalties or tax payments. If someone calls and asks for them, simply hang up. This is a tell-tale sign that you are dealing with a scammer.

The Refund Recalculation Scam

tax recompute

When it comes to filing our income taxes, we all want to get the biggest refund possible. Criminals are well aware of this and are not afraid to take advantage of it. In the refund recalculation scam, criminals will contact you via email or text message to inform you that they have recalculated your IRS refund. You are due more money than you originally believed you were due.

That appears to be encouraging news. Unfortunately, it is a ruse to defraud you. To complete the transaction, you must click on a link in the email, which may include the official IRS logo. When you do, you will be directed to a web page that will ask for information such as your Social Security number, birthdate, driver’s license number, and other details. The information you provide will be used by scammers to access your online bank and credit card accounts, as well as to apply for credit cards and loans in your name if you provide them to them. Once again, understanding how the IRS operates is the most straightforward method of avoiding this scam.

If the Internal Revenue Service makes a mistake with your refund, it will notify you by regular mail first, not by email. In addition, the IRS will never request any personal or financial information from you via email. Have you noticed any of these tell-tale signs? That email should be deleted. And never, ever click on any of the links contained within it. If you are concerned that you may be entitled to a larger refund than you anticipated, you should contact the IRS directly through its customer service numbers to confirm.

Stimulus Payment Scam

stimulus money

The COVID-19 pandemic has brought out the con artists and con men. And these crooks have been particularly active in attempting to steal victims’ personal and financial information in the hopes of sending them an additional stimulus payment as a result of their efforts. During the pandemic, the federal government did distribute stimulus payments to taxpayers.

However, there will be no new stimulus payments made until the end of 2021 or the beginning of 2022. If you receive an email claiming to be from the Internal Revenue Service informing you that you are due a stimulus payment, it is a scam. You may be asked to click on a link in the email in order to receive your payment. When you do, you’ll be directed to a page that asks for a variety of personal and financial information, including your Social Security number, birth date, and driver’s license number. This information should not be shared.

100 dollar and mask

If you do, you will be sending it to scammers, who will be able to use it to steal your personal information. First and foremost, keep in mind that the IRS will never contact you via email in the first instance. They will only contact you via regular mail if you are on their mailing list. Second, you will never be required to pay a fee in order to receive a stimulus check from the federal government. Any time someone requests money from you in exchange for money — in any circumstance — it is almost always a scam. Delete the email without responding to it or clicking on any of the links it may include.

The Taxpayer Advocate Scam

The Taxpayer Advocate Service of the Internal Revenue Service assists taxpayers with complicated tax issues. Despite this, the service is also at the center of a well-known tax-related con game. In this scam, con artists call taxpayers from a phone number that appears to be from the IRS Taxpayer Advocate Service office in Houston or Brooklyn, posing as an IRS representative.

100 dollar bill

These calls are occasionally made by a live person. Another type of call is one where a robocall asks taxpayers to return a phone call. An impersonator calls and asks for personal information from taxpayers who pick up the phone or call back, such as the victim’s Social Security number or taxpayer-identification number. Scammers can use this information to steal the identities of their victims once they have obtained it. What is the most effective way to protect yourself? Be on the lookout for anyone who claims to be calling from the Internal Revenue Service, even if the person claims to be calling from the Taxpayer Advocate Service. The Internal Revenue Service (IRS) claims that agents from the service do not contact taxpayers at random. Taxpayers are the ones who contact the service first. Agents from the service will only contact them after this has occurred.

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Debt Collection Fraud

Determining whether or not a debt collector is legitimate or is attempting to scam you can be a difficult task—especially when the person you’re being contacted by doesn’t seem to be genuine. The original creditor may attempt to collect the amount owed when a debt such as a credit card bill, auto loan, or cell phone bill becomes past due. The creditor may also employ the services of a debt collector or sell the debt to a third party who will attempt to collect the debt. Even though there are many legitimate debt collectors operating in the financial marketplace, there are also scammers who may attempt to trick you into paying on debts that you do not owe or on debts that do not exist at all.

Warning Signs of Debt Collection Scams

Information is Withheld from You
men at dark

In order to collect on a debt, a debt collector must provide you with certain information, such as the creditor’s name and the amount owing, and that if you dispute the claim, they will be required to get verification of the debt. It is obligatory for debt collectors that they offer this information to you during the initial contact with them; else, they must send you written notifications within five days of that initial contact.

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They Claim That They Will Inform Your Family, Friends, and Employment

In certain cases, fraudsters will threaten to divulge your debts to family, friends, co-workers, or employers in an attempt to coerce you into paying. In most cases, a debt collector is not permitted to disclose your debt to anybody else without your agreement. They can only inquire of others about your whereabouts in an attempt to make contact with you.

Requests Sensitive Personal Financial Information from You
typing on laptop

If your broker, for instance, your bank account number, routing number, or Social Security number are all protected. Unless you are certain that the individual you are dealing with is authentic, you should never provide them with your personal financial information. Identity theft is a crime that scammers can commit using your personal information.

Mortgage and Lending Fraud

Mortgage fraud occurs when an unauthorized individual (typically a friend or family member) creates a mortgage or loan in your name or with false information, or lenders sell you a mortgage or loan based on faulty information, misleading practices, or other high-pressure sales techniques. This type of service includes mortgage and loan modification services, to name a couple of examples. Unjustified risk-based pricing is a problem, as is credit insurance with a single premium. 

Failure to present the loan price as negotiable is a serious offense, as is paying disproportionately high-interest rates on short-term loans, contract negotiations that are “bait and switch,” as well as abuse by a servicing agent and in the securitization process are all examples of predatory lending practices that should be avoided.

Government Impersonator Fraud

guy on suit in corporation

Scammers pose as representatives from government organizations such as the Social Security Administration and the Internal Revenue Service. Alternatively, they could claim to work for Medicare. If you don’t pay them or if you refuse to provide them with your personal information, they threaten you with dire consequences.

Or it’s possible that you’ll lose out on a government benefit. When a government impersonator scam begins, it is common for a phone, email, or text message from someone claiming to be from a government agency to be received. They may provide you with their “employee ID number” in order to appear more official. Furthermore, they may be in possession of personal information about you, such as your name or home address. They frequently claim to work for the Social Security Administration, the Internal Revenue Service, or Medicare — but they may also use fictitious agency names, such as the non-existent National Sweepstakes Bureau.

It is likely that they will also provide you with a reason why you must transfer money or provide them with your personal information right away. If you receive a call like this, you should immediately hang up. It’s a con artist. Because government agencies will not contact you by phone, email, or text message and beg for money or personally identifiable information. That is something only a scammer would do.

CHAPTER 2: How to Avoid Falling for Financial Scams?

attorney

Don’t transfer money, send cash, or use gift cards or cryptocurrency to pay someone who claims to be with the government. Instead, use your debit or credit card. Scammers ask you to pay in this manner because it is difficult to trace down the money and almost impossible to recover it once it has been sent. They’ll take your money and vanish into thin air.

Give no financial or personal information to anyone who phones, texts, or emails you and claims to be with the government. This includes those posing as government employees. If you have any doubts that a call or message is legitimate, hang up. Remove the phone from your ear and contact the government agency directly at a number you are confident is correct. Don’t put your trust in your caller ID. Your caller ID might display the real phone number of the government agency, or it might simply say “Social Security Administration,” for example. Caller ID, on the other hand, can be forged. It might be anyone in the world calling from any location on the planet.

If you receive an unexpected email or text message, do not click on the link. Scammers send emails and SMS messages that appear to be from a government organization but are intended to trick you into handing over your money or providing personal information. Avoid clicking on any links, and don’t forward them to anybody else. Simply remove the mail from your inbox.

CHAPTER 3: How to Spot Financial Fraud?

research

Every year, tens of thousands of people lose millions as a result of investment fraud. Because of the internet and technological advancements in digital communications, these types of frauds are becoming more widespread and more difficult to detect. Fortunately, there are several warning indications that you should look out for in order to prevent being a victim of fraudsters.

If you receive an investment offer from someone you know or are linked to, it is possible that the offer was made out of the blue, either by phone or through email or an internet advertisement. The investment will almost always be enticing, but it will also be quite dangerous. Unsolicited investment offers are designed to attract your attention and appear to be something you should seriously consider investing your money in. Be aware of the warning flags that could suggest an investment opportunity is a scam, including but not limited to: unsolicited approaches such as phone calls, text messages, emails, or a stranger knocking on your door are all examples of spam when a company does not allow you to contact them again.

document checking

a situation in which you are required to make a hasty decision, or are under pressure to do so, the only contact information you’ll receive, or that can be located on their website, is a cell phone number or a PO box address and you’re being given a high rate of return on your investment, but you’re also being informed that the danger is low. Investment fraud can manifest itself in a variety of ways – and it can be extremely appealing. Scammers employ certain strategies to entice you to make a financial investment, no matter how appealing the opportunity appears. If you hear any of the following phrases, proceed with caution and consideration: “profits are guaranteed to you, it’s an astonishingly high rate of return on investment.

there is absolutely no danger, this offer is only valid today and cannot be combined with any other promotion, it’s a top-secret investing tip reserved only for you, simply write your check now, and I will take care of the rest of the paperwork later.” These are the ruses used by fraudsters to deceive their victims. It is their job to persuade you to make a financial investment. These phrases assist them in accomplishing their goal. If you hear any of these terms, or if you feel forced to make a decision, immediately stop.

CHAPTER 4: Fraudulent Activities Cost Businesses Around The World an Estimated £3.24 Trillion

One thing you can count on from the daily business pages is that fraud is a threat to any company’s bottom line. No matter how dedicated your financial team is or how secure your processes are, you will always be at risk of being cheated, whether by an employee or by a third party outside the company. Inevitably, as financial tools and processes have progressed, so have the strategies used by criminals to scam corporations.

Fraudulent activities cost businesses around the world an estimated £3.24 trillion in 2017, according to estimates. That’s the equivalent of the combined GDP of the United Kingdom and Italy flushed down the toilet. Or, more accurately, right into the wrong pockets. Business fraud has ramifications beyond only financial losses for organizations; it also adds to a loss of public confidence, as well as the erosion of relationships with service providers such as accountants and insurers. It’s also a huge source of frustration for management. Learn more on how to protect yourself by visiting our website!

Prevent Yourself from Getting Involved in a Financial Scam

When committing any form of financial fraud, it is vital to report the crime to the appropriate authorities and law enforcement authorities as soon as possible after the crime has been committed. The dispute or cancellation of fraudulent charges should also be completed soon when the fraud has been identified and discovered. As an additional precaution, victims should gather all relevant documentation pertaining to the crime (for example, bank and credit card statements, credit reports, and tax returns from the current and previous years) and continue to file critical information throughout the reporting process until the investigation is complete.

In most cases, money that has been lost as a consequence of fraud or fraudulent schemes is not reimbursed by the majority of victim compensation programmes, which is unfortunate. In order to be certain, examine your state’s rules on victim compensation to see if you are eligible for compensation. When it comes to recovering money that has been misplaced, civil justice may be the only legal alternative accessible to you. Take a look at your financial records. In order to ensure that no unauthorized charges are made to your accounts, check your credit card and banking accounts on a frequent basis. Every day, keep an eye on your online or mobile banking accounts to ensure that you are not charged with fraudulent charges as quickly as possible. Change the passwords on all of your online accounts. Changing the passwords on sensitive accounts on a regular basis and not using the same password on several accounts are two important security precautions.

Using the internet for business should be treated with prudence. Avoid using public Wi-Fi when shopping online, and make sure you are using a secure internet connection whenever you do your shopping online. It is necessary to obtain confirmation of all financial communications. Never forget to keep an eye out for typical scams like phishing. Phishing occurs when scammers send emails appearing to be from a bank and request that you update or confirm your account information. If you have any concerns about your account information slipping into the wrong hands, you should always contact your financial institution directly for assistance. In addition, it is vital to remember that the Internal Revenue Service would never approach you via email, text message, or social media in order to get personal or financial information from you.

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