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THEME 3 Part 2 IDENTITY & FRAUD CRIMES

WHAT IS FRAUD?

Primary Types of Fraud

①  Consumer

②  Scams and schemes

③  Corporate

④  Identity Theft

Consumer Fraud

1st Primary Type - Consumer Fraud

1. Consumer Scams – fraudsters use various schemes to earn consumer’s confidence and then use that confidence to get the consumer to pay or invest money or provide personal information.

Consumer Fraud Seriousness of the Problem

In 2016 15.4 million people fell victim to fraud. This is a 16% increase from 2015.

Consumer Fraud

Types of consumer fraud

①  Shopping Online

②  Loan Fraud

③  Employment Fraud

④  Stolen Identity

Consumer Fraud Types of consumer fraud

1. Shopping Online

Millions of people find online shopping easier and more convenient. Now the risk to get duped while shopping online has increased. It is better to shop in the online markets which are known to the majority of people and gained trust among them.

Consumer Fraud

Types of consumer fraud

2. Loan Fraud

While searching for online money support, don’t provide your credit/debit card information, or any other personal data to an unknown source. Use only well established lending institutions.

Consumer Fraud

Types of consumer fraud

3. Employment Fraud

Many people try to find jobs through the internet. Of course, the source provides great opportunities, but be aware, you can come across scams. So, think more than twice when applying for a job online.

Consumer Fraud

Types of consumer fraud

4. Stolen Identity

Not only in the USA but all around the world, identity theft is spreading. An offender will take your personal data from your trash or online account and use against you.

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SCAMS & SCHEMES

Scams & Schemes

Scam – afraudulentordecep.veactoropera.on.

Scams & Schemes Pyramid Scheme– A type of financial fraud in which people pay to join an organization in exchange for the right to sell memberships to other people.

Scams & Schemes Scams & Schemes

Ponzi Scheme– Closelyrelatedtoapyramidschemebutthepromotergenerallyhasnoproducttosellandpaysnocommissiontoinvestorswhorecruitnewmembers.

Scams & Schemes Affinity Scheme– a type of scam that targets members of a specific demographic. Perpetrators may attempt to relate to or exploit characteristics common to the demographic. Targeted groups can include the elderly, ethnic groups, and religions.

COMMON SCAMS

•  Advance fee schemes •  The prize that will cost you •  Online auctions •  Fraud jobs •  Moneymaking schemes •  Bogus charities •  Scam schools

HOW DO THIEVES WORK?

ü Skimming

ü Dumpster Diving

ü Computer Spyware

ü Account Redirection

ü Phishing

ü Pharming ü Wireless

Hacking ü Stealing ü Shoulder

Surfing

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TOP STRATEGIES TO AVOID SCAMS

•  Investigate strangers who have deals too good to

be true. •  Always stay in charge of your money. •  Don’t be fooled by appearances. •  Watch out for salespeople who prey on fears. •  Monitor your investments. •  Report fraud or abuse. •  Do your homework. •  Be wary of door-to-door solicitations.

Corporate Fraud

Corporate Fraud– consistsofac.vi.esundertakenbyanindividualorcompanythataredoneinadishonestorillegalmanner,andaredesignedtogiveanadvantagetotheperpetra.ngindividualorcompany.

Thesis: The Enron Scandal influenced by greed and immoral actions led to the American market becoming more strict upon the economic practices of large corporations that affect millions of people.

 One of the greatest and most significant accounting frauds in American history

 7th largest corporation in the United States in 2001, filed for bankruptcy at the end of the year

 Greedy top executives led an immoral path to quick money, Social Darwinism/greed influenced many to lose sight of moral acts and thinking consciously of their decisions

 22,000 workers unemployed, 401k’s robbed, $60 billion of debt

1985  Ken Lay merges Houston Natural Gas with Internorth,

1989  Enron begins to trade natural gas

1990   Jeff Skilling hired by Lay to lead natural gas trading commodities in deregulated markets  Schilling hires Andrew Fastow into Enron

1990-2000  Great success in deregulated markets  Partial profits stated were false (confidence into company)  Fortune’s “America’s Most Innovative Companies” for 6 years

2000  Enron’s stock is at an all time high ($90 per share)  Skilling named CEO

2001  Skilling resigns as CEO  SEC turns formal investigation for Enron

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2002  Powers Report is released  Congressional Hearings  Top executives are arrested

 Founder of Enron

 $200 million annual salary during the 1990’s

 Guilty of 10 federal charges

 Died July 6, 2006

 Former CEO of Enron  Creator of Mark to Market Accounting  Predicted revenues without actual value

 CEO form 2001 to beginning of 2002  Left for “personal reasons”

 Former CFO of Enron

 Took advantage of deregulations  Worked with Skilling to take out smaller corporations

 Creating partnerships that were strictly beneficial to Enron & hid losses

  Former Vice President of Enron

  Spoke out against the immoral and illegal acts of Enron after receiving a memo

  Top executives did not listen to her warnings, company is already on downfall

 Retirement plans that a certain percentage of your money is put into each year or monthly, some are invested into stocks that inflate the total amount for the account

 Money put into stocks of Enron fell from hundreds of thousands to mere thousands of dollars

 Roy Rinard - 35 year 401k plan worth over $400,000 that decreased to 40,000 dollars in a year

2nd Primary Type of Consumer Fraud

2. Identity Theft – most common type of consumer fraud, affecting thousands of people everyday.

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q Identity theft describes those circumstances when someone uses another person’s name, address, Social Security number (SSN), bank or credit card account number, or other identifying information to commit fraud or other crimes.

40% of the frauds reported to the FTC over the last few years have involved some type of identity theft. Federal Trade Commission – Itsprincipalmissionisthepromo.onofconsumerprotec.onandtheelimina.onandpreven.onofan.compe..vebusinessprac.ces,suchasmonopolies.

How Identity Theft Occurs Stage 1: Discovery Gain Information Phase:

 Searching trash  Stealing mail  Phishing  Scanning credit card information

How Identity Theft Occurs Stage 1: Discovery cont. Information Verification Phase:

 Telephone scams (Pretexting)  Trash searches

Stage 2: Action Accumulating Documentation Phase:

 Perpetrator gets the tools to commit the fraud (applying for credit cards, a driver’s license, or fake check in the victim’s name)

Stage 2: Action

Cover-up or Concealment Actions Phase:  Perpetrator takes steps to cover or hide the financial footprints left throughout the identity theft process.  Example: Changing the billing address on a credit card so that the statements go to the fraudster.

Stage 3: Trial 1st Dimensional Actions Phase:

 First attempts to test the stolen information.   If the test works, the fraudster attempts more

Stage 3: Trial 2nd Dimensional Actions Phase:

 Actions taken after the tests are successful  The fraudster usually attempts face-to-face transactions

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Stage 3: Trial 3rd Dimensional Actions Phase:

 Fraudster opens bank accounts, establishes phone accounts, secures auto loans, etc.

Personal Information à Financial Gain

The perpetrator may…  Buy large-ticket items  Take out car, home, or other loans  Establish phone or wireless services  Use counterfeit checks or debit cards  Open new bank accounts  Open new credit card accounts

Stealing a Victim’s Identity * Dumpster diving * Phishing * Social engineering * Steal mail * Stealing wallets/purses * Sneak into a victim’s home and steal information * Shoulder surfing

Minimizing the Risk  Guard your mail from theft  Opt out of preapproved credit cards  Check you personal credit information at least annually  Guard Social Security card and number

Minimizing the Risk cont.  Safeguard all personal information  Guard trash from theft  Protect wallet and other valuables  Protect the home, computer, passwords

 Prosecution of Identity Theft  For prosecution, it is necessary to show the perpetrator acted with intent to defraud—usually easy to prove if evidence of the fake identity used to purchase an item, open an account, or obtain a credit card is collected.

Once Identity Theft Occurs Victims should…

 Contact Federal Trade Commission  Contact local FBI and/or US Secret Service agencies  Contact the credit reporting agencies  Contact the local Postal Inspection Service

Once Identity Theft Occurs Victims should…

 Contact the Internal Revenue Service  Contact the Social Security Administration  Contact personal financial institutions  Change personal identification information

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1.ConsumerLeasingAct1976

 Requires that institutions disclose the cost and terms of consumer leases, such as automobile leases.

2.FairCredit&ChargeCardDisclosureAct

1988 Requires that applications for credit

cards that are sent through the mail, solicited by telephone, or made available to the public (for example, at counters in retail stores or through catalogs) contain information about key terms of the account. Amended the Truth in Lending Act.

3.TruthinLendingAct1968

  Requires uniform methods for computing the cost of credit and for disclosing credit terms.  Gives borrowers the right to cancel, within three days, certain loans secured by their residences.   Prohibits the unsolicited issuance of credit cards and limits cardholder liability for unauthorized use. Also imposes limitations on home equity loans with rates or fees above a specified threshold.

3.TruthinLendingAct1968

  Requires uniform methods for computing the cost of credit and for disclosing credit terms.  Gives borrowers the right to cancel, within three days, certain loans secured by their residences.   Prohibits the unsolicited issuance of credit cards and limits cardholder liability for unauthorized use. Also imposes limitations on home equity loans with rates or fees above a specified threshold.

4.FairCreditRepor.ngAct1970

 Protects consumers against inaccurate or misleading information in credit files maintained by credit reporting agencies; requires credit reporting agencies to allow credit applicants to correct erroneous reports.

5.FairDebtCollec.onPrac.cesAct1977

 Prohibits abusive debt-collection practices. Applies to banks that function as debt collectors for other entities.

6.Fair&AccurateCreditTransac.onAct

2003 Enhances consumers’ ability to combat

identity theft, increases the accuracy of consumer reports, allows consumers to exercise greater control over the type and amount of marketing solicitations they receive, restricts the use and disclosure of sensitive medical information, and establishes uniform national standards in the regulation of consumer reporting. Amended the Fair Credit Reporting Act.

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 Depending on the type of fraud that occurs, different agencies are assigned:

ConsumerProtec-onAgency Product error such as a faulty crib

FederalBureauofInves-ga-onCommon Fraud Schemes. Scams and Safety.

  SecretServiceAgency The Identity Theft and Assumption Deterrence Act was passed to establish the offense of “Identity Theft”.

Effective October 30, 1998, makes identity theft a Federal crime with penalties up to 15 years imprisonment and a maximum fine of $250,000. It establishes that the person whose identity was stolen is a true victim. Previously, only the credit grantors who suffered monetary losses were considered victims.