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What Are the Different Types of Financial Fraud?

Embezzlement is a common type of financial fraud.
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  • Written By: Jessica Ellis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 09 October 2014
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Financial fraud is intentional deception used for financial gain. There are many different types of financial fraud, including insider trading, embezzlement, falsifying financial records, and Ponzi schemes. Understanding some of the different types of financial fraud can help watchful individuals identify fraudulent schemes and report them to the proper authorities.

Insider trading is a kind of financial fraud that involves the trading of securities using proprietary information. This occurs when a person who has non-publicly disclosed information about a business or entity uses this information to buy or sell stock or other securities. For example, if a company executive finds out that his company is in secret negotiations to be sold, he would be committing financial fraud by selling his stock, or warning others to sell stock, before the sale of the business is publicly disclosed. Insider trading can artificially inflate or deflate stock prices, and is considered a serious crime in many regions.

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Embezzlement occurs when a person entrusted with funds intentionally misuses them for his or her gain. The key factor in this type of financial fraud is that the offender must be in a position of trust and control over the funds. For example, a trustee for a minor child might choose to dip into trust funds for his or her own expenses, even though the money actually belongs to the child. Banks and other financial institutions are frequent targets of internal embezzlement attempts; many enforce strict security programs to ensure that no one person has unfettered access to funds.

Many different types of financial fraud are accomplished through the falsification of financial records. Embezzlement schemes may use this method to hide the tracks of the embezzler; for instance, an embezzling bank manager could invent records for a non-existent employee and transfer the salary for this phantom worker into a false account. Companies sometimes commit this form of fraud by making it look as if they have earned less than they actually have in order to avoid taxes.

Ponzi schemes are a tricky form of financial fraud that are often very difficult to track. In these scams, the schemer convinces people to invest in a project or business that promises high yields. Initial investors are paid returns, but using funding from new investors, rather than actual profits. The success of this type of financial fraud relies on re-investment by initial investors, based on the falsified returns, plus the continual pool of new investors, brought in by word of mouth following the falsified high yields.

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anon357127
Post 5

I have a brother who knew that our father changed his trust before he passed away. He was notified by the original drafting attorney, taking my brother off as sole successor trustee, and making all four of us co-trustees, and giving me a life estate. My brother, also two months before my dad passed away, went to an attorney and paid him $450 to figure out he could invalidate the amendments to the trust, that was notarized with a thumbprint and a valid driver’s license, along with a letter saying my father had made changes. He had them certified and hand delivered to the attorney to put in the file, and then put a copy in his safety deposit box trust.

My brother went to the bank two hours before our appointment, where he concealed the amendment and re-appointed himself sole successor, then gained access to the safety deposit box and took the trust out of our name and put in his own name, committing conversion, stealing all contents, deeds and cash. He did the same at stock firm, concealing the amendment. signing as sole successor, taking 100 percent financial control of the trust. Then he went down to the county recorder and put his name on the title of the home, then six months later filed a lawsuit in probate court for the validity of the amendments.

In his opening statement, he says he found out about the amendments one month before his father died. This is not true. He knew a year ago. He was notified by letter. He also went to the attorneys two months before his dad died to find out how he could invalidate the amendments, then told the court I have control of the largest asset -- the home where I have lived 35 years with my father, and where I was living at the time.

He lied again to the court since he already stole the trust and the deed to the home and put only his name on the deed, and had gained control of the stocks, but he lied and says I do. Then he got the court to believe he was the landlord and evicted me from my home illegally by a lock out by the sheriff. He put the whole contents of the home into a storage facility in 19 vaults.

My question is, when my father died, the amendment was valid and my life estate would go into effect at the moment my father passed away, and I would be protected against this type of wrongdoing attacking the life estate and not giving me my life estate, not distributing any of my inheritance, keeping it all for himself and dragging me through probate court and stealing my home that he stole with a fraudulent title and sold two weeks ago. Is it not true he cannot disturb my quiet enjoyment of the home I live in and sell my home with a fraudulent title? He also signed my name to release my interest over to him. I never have signed anything. How do I present these facts to the judge? I have a sworn deposition of him confessing all that he did, and bank documents signed and dated, of when he made himself sole successor. He also told the courts he was only a beneficiary. He lied again. He took the position of sole successor to gain financial control of the trust so he could drag me into probate court and since I am a disabled dependent adult on a fixed income, and without my inheritance, knew I could not afford representation in court and I would not have a chance with his attorney. I have been paupered because of that reason, and they have been trying to financially ruin me, and make me do court orders that I cannot preform.

They have been beating me up by the use of the system, but have committed fraud in writing. His attorney has even made up a person, used her to serve a lawsuit on me, and told the judge that this person lived with me for one year rent free, and used it in writing in her declaration under perjury signed by her, and got the judge to rule in her favor making me post an $85,000 bond, and has made me homeless because of this. I am going ex-parte this week but would like to know how I can present this to the judge so he does something about this fraud and theft of my life.

anon238077
Post 4

My sister found out her husband is dying and she found an insurance company to back date a policy for her, before he got sick and she paid them cash. Now she will get $250.000 when he dies. This is not right.

JaneAir
Post 3

Financial fraud is bad, I agree. But I actually kind of feel a little sympathetic for people who get convicted of inside trading. Imagine how easy it would be. You hear a little something at work, pass it on to your mom or something. Your mom profits of your tip, and you feel great. Then you're in trouble with the law.

I know that for many crimes, a person has to have had a malicious intent to be convicted. I know insider trading is wrong, but I guess what I'm trying to say is I could see how someone would do it without intending to hurt anyone.

ceilingcat
Post 2

@SZapper - You're right, these crimes are serious. I think they're double serious because they involve a breach of trust.

Take embezzlement for example. Usually the person is someone on the inside, who was entrusted to take care of the money. Like the parent and child in the article. The child trusts the parent to take care of that money for them. When they take the money for their own use, they've not only stolen, they've breached the other persons trust. That can be very damaging too!

SZapper
Post 1

I know in this country, we sometimes don't treat financial fraud as seriously as we treat violent crime. White collar criminals get lesser sentences and go to nicer prisons.

I think this is ridiculous. Financial fraudsters hurt people too. Even though no one is physically hurt, that doesn't mean fraud isn't a terrible crime.

For instance, in a Ponzi scheme, a ton of people can lose a lot of money. No one gets rich except the person who made up the scheme. What if someone invests all their retirement savings in something like this? It just doesn't seem right for a person that perpetuated a crime like this to do less time a burglar!

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