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Fraud is an intentional act of deception, misrepresentation, or dishonesty used to obtain money, property, services, or another benefit illegally. It includes a wide range of unlawful activities such as identity theft, financial fraud, credit card fraud, insurance fraud, securities fraud, and online scams. Fraud typically involves misleading victims, falsifying information, or manipulating data for personal gain. Because it poses major risks to consumers, businesses, and financial institutions, fraud detection and prevention are essential for security, compliance, and risk management across both digital and real‑world environments.

Diploma mill ordered to pay $22.7 million to 30,000 scam victims

On August 31, 2012, Belford High School, Belford University and several of their co-conspirators were ordered to pay $22.7 million to a class of more than 30,000 U.S. residents who were duped into purchasing fake high school diplomas from Belford. The defendants were also ordered to forfeit the websites used to perpetrate the scam, including www.belfordhighscool.com, www.belfordhighschool.org, www.belforduniversity.org, and www.belforduniversity.com.

The lawsuit, filed on November 5, 2009, charged that Belford High School is an Internet scam that defrauded students of their money by offering them a supposedly “valid” and “accredited” high school diploma. As affirmed by the judgment, the school is a fake and the diplomas are not valid. The lawsuit also alleged that the two accrediting agencies by which Belford claimed to be accredited – International Accreditation Agency for Online Universities and the Universal Council for Online Education Accreditation – are not legitimate accrediting agencies.

Notably, we came across Belford University in 2010 when a bachelor’s degree from the “school” was listed on an employment application by a candidate for a professional level position with one of our clients. Click here to read the 2010 blog.

 

December 18th, 2012|Categories: Compliance Corner for Employment Decisions|Tags: , , , , |

Epidemic of fake websites is real

 

Cyber crime experts report that fake websites are proliferating at the rate of 60,000+ per week or over 3,100,000 per year. And the fraudsters’ malicious exploitations are getting bold and more sophisticated, creating sites that are difficult to discern from those of legitimate businesses or organizations. From banks (which make up about 68% of fraudulent sites) to regulators and news reporting agencies, no entity is immune.

Recently, several local and national newspapers reported on a publicity campaign by a public relations company that purportedly set up a fake news site to promote one of its clients, a public entity, with positive articles and press releases “written in the image of real news” by “journalists” who allegedly do not exist. Although Web experts note that it is fairly common for celebrities and private-sector businesses to generate buzz or improve sales through news coverage, open government advocates called this stunt an egregious breach of trust and ethical standards.

The Federal Trade Commission (FTC) issued warnings a few months ago about scam artists exploiting well-known news organizations by setting up fake news sites to peddle their wares. The sites, which usually display logos of legitimate news organizations, promote everything from bogus weight loss products to work-at-home jobs, anti-aging products and debt reduction plans. The FTC cited several investigations that resulted in charges against the fraudsters, saying that many of the websites are owned by marketers and used to entice consumers to click on links to the sellers’ sites. In its case against acai berry supplement peddlers, the FTC disclosed that the sellers paid the marketers a commission based on the number of consumers they lured to their sites. There was no reporter, no studies, no dramatic weight loss, no satisfied consumers who left comments, and no affiliation with a reputable news source. As a rule, the FTC noted, legitimate news organizations do not endorse products.

The FTC itself, and other regulators have not escaped the fraudsters’ blitz. In April 2011, the FTC brought charges against an individual for multiple violations of the Federal Trade Commission Act for misrepresenting his affiliations with federal agencies, including the FTC, misrepresenting that the services advertised on his websites were government-approved, and making deceptive debt relief claims. The FTC alleged that the individual, a Texas-based “lead generator,” set up several websites through which he associated his business with a fictitious government agency – the “Department of Consumer Services Protection Commission” – that appeared to combine two real government entities, the Federal Trade Commission and the Consumer Financial Protection Bureau. Among other charges, the FTC stated that to further these scams, the websites depicted the FTC’s official seal, copied language about the fictitious agency’s consumer protection mission from the FTC’s site, and claimed that the fake agency “monitors and researches” member companies that provide financial assistance to American consumers.

The scammers and their fake websites are also busy abroad. Earlier this month, international news sources reported that Russian fraudsters set up a counterfeit site of a popular five-star hotel, complete with the real hotel’s photographs, room descriptions and services. According to published reports, they also paid a fee to Google to ensure that their bogus site was listed before the hotel’s genuine site. The fraudulent website purportedly came to an abrupt end after, among other disparities, it was discovered that the room rates were advertised in dollars.

Another story about a flagrant website invasion came in October 2011 from Belgrade, where Serbian media reported that a mock-up of the official Nobel Prize website was set up purportedly by political activists to promote their causes and views.

Fraudulent websites appear daily and no industry or organization is beyond these fraudsters’ reach. Scherzer International, a provider of specialized background investigations for business transactions and employment decisions, includes comprehensive website reviews in its reports. We know how to spot scams, exaggerated claims and other red flags.

November 29th, 2011|Categories: Commercial Transactions Due Diligence|Tags: , |

Bribing for business: Russia and China score lowest in fighting corruption

According to a survey released on November 3, 2011, by Transparency International, a non-profit, corruption watchdog, Russia and China got the lowest scores in its 2011 Bribe Payers Index, which ranked the top 28 largest economies according to the probability of companies headquartered in these countries practicing bribery. The scores were calculated from responses of 3,016 executives in 30 countries who had business dealings in those economies.

Companies based in China and Russia scored below 7 on a scale of 10, at 6.5 and 6.1, respectively. Mexico, with a 7.0 score, was third from the bottom. Companies in the Netherlands and Switzerland tied for first place with scores of 8.8, with Belgium, Germany, and Japan rounding out the top five.
The survey also ranked the business sectors in which bribery was perceived to be prevalent. Public works and construction were reported as the most pullulated along with oil and gas. Agriculture and light manufacturing were ranked as the cleanest.

The report noted that “there is no country among the 28 major economics whose companies are perceived to be wholly clean and do not engage in bribery.” And the scores, on average, have not improved significantly from the 2008 Bribe Payers Index. The average score of 22 countries increased only 0.1 points to 7.9 in the latest edition.

The survey also found that “international business leaders reported the widespread practice of companies paying bribes to public officials in order to, for example, win public tenders, avoid regulation, speed up government processes or influence policy.” However, companies are almost as likely to pay bribes to other businesses, according to the survey, which looked at business-to-business bribery for the first time. This suggests that corruption is not only a concern for the public sector, but for many businesses, and carries major reputational and financial risks.

November 3rd, 2011|Categories: Commercial Transactions Due Diligence|Tags: , , |

SEC issues warning about investing in reverse merger companies

 

On June 9, 2011, the Securities and Exchange Commission (SEC) issued an Investor Bulletin about investing in companies that enter U.S. markets through the so-called “reverse mergers.” These mergers allow private companies, including those outside the U.S., to access U.S. investors and markets by merging with an existing public shell company. The SEC and U.S. exchanges recently suspended trading in more than a dozen reverse merger companies, citing a lack of current, accurate information about these companies and their finances.

“Given the potential risks, investors should be very careful when considering investing in the stock of reverse merger companies,” said Lori J. Schock, director of the SEC’s Office of Investor Education and Advocacy. “As with any investment, investors should thoroughly research the company – including ensuring there is accurate and up-to-date information – before making a decision to invest.”

The SEC’s warning is especially strong regarding Chinese companies, as more than 150 entities have recently put their shares up for grabs to American investors through the backdoor “without any of the vetting from underwriters and investors that companies undergo when they perform a traditional IPO,” as noted by Commissioner Luis Aguilar.

Shareholders already have sued a string of China-based, U.S.-listed companies for fraud, claiming that they lost money when stocks plummeted after the financial scandals. They charge that the companies operated sham businesses, inflated revenue or gave vastly different information to U.S. and Chinese regulators. And they are starting to sue the auditors who signed off on the financial statements. But it will be tough to win these cases in American courts, as Chinese entities often have refused to comply with U.S. court proceedings.

The best hope for investors may be the SEC, which has launched an inquiry into U.S. audit firms with China-based clients. Investors could benefit if the SEC, which can force companies and auditors to cooperate in investigations, sues more auditors or companies.

 

June 15th, 2011|Categories: Commercial Transactions Due Diligence|Tags: , |

Maryland resident charged with making false statements on federal job applications

The Department of Justice reported yesterday that Karen M. Lancaster, of Upper Marlboro, MD, has been charged with four counts of making false statements, three counts of submitting false documents and one count of engaging in a concealment scheme in connection with her multiple job applications to U.S. federal government agencies.

According to the indictment, Lancaster was employed in various positions with the U.S. Department of Defense (DoD) from 1991 until March 2005. She subsequently was notified by DoD that she was being fired due to performance failures. In October 2006, according to the indictment, Lancaster reached a settlement with DoD whereby she was allowed to resign, retroactive to March 2005.

Between 2006 and 2008, Lancaster applied for jobs at the U.S. Departments of State, Commerce and Defense, as well as with the SEC. The indictment states that as part of the application processes, Lancaster allegedly submitted documents that falsified and concealed information about her criminal history, employment history and suitability for employment with the federal government. Specifically, Lancaster allegedly concealed and falsified informatabout her prior arrests, charges, convictions and prison terms, the unfavorable circumstances under which she had resigned from prior federal employment, the roles and responsibilities she had at previous federal jobs; and her salary history.Lancaster will be arraigned on March 25, 2011, in U.S. District Court in Alexandria. The maximum penalty for each count of making a false statement, submitting a false document and engaging in a concealment scheme is five years in prison. Lancaster also faces a maximum fine of $250,000 per count.

The Department of Justice notes that an indictment is merely an accusation, and a defendant is presumed innocent unless proven guilty in a court of law.

March 17th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: , , |

Tyson Foods charged with violations of the Foreign Corrupt Practices Act

 

The Securities and Exchange Commission (SEC) today charged Tyson Foods Inc. with violating the Foreign Corrupt Practices Act (FCPA) by making illicit payments to two Mexican government veterinarians responsible for certifying its Mexican subsidiary’s chicken products for export sales.

The SEC alleged that Tyson de Mexico concealed the improper payments by putting two veterinarians’ wives on its payroll but they performed no work for the company. The spouses were later removed from the payroll and their payments were processed with invoices issued for “services.” Tyson de Mexico paid the veterinarians, who were responsible for certifying Tyson’s chicken products for export and served as official Mexican government veterinarians at Tyson facilities, a total of $100,311. It was not until two years after Tyson Foods officials first learned about the subsidiary’s illicit payments that its counsel instructed Tyson de Mexico to cease making the payments.

The SEC further charged that in connection with these improper payments, Tyson Foods failed to keep accurate books and records and failed to implement a system of effective internal controls to prevent salary payments to phantom employees and the payment of illicit invoices. The improper payments were recorded as legitimate expenses in Tyson de Mexico’s books and records, and included in Tyson de Mexico’s reported financial results for fiscal years 2004, 2005 and 2006. Tyson de Mexico’s financial results were, in turn, a component of Tyson Foods’ consolidated financial statements filed with the SEC for those years.

Without admitting or denying the SEC’s allegations, Tyson Foods consented to the entry of a final judgment ordering disgorgement plus pre-judgment interest of more than $1.2 million and permanently enjoining it from violating the anti-bribery, books and records, and internal controls provisions of the FCPA. The proposed settlement is subject to court approval.

In a related criminal action announced today, the Department of Justice (DOJ) charged Tyson Foods with conspiring to violate the FCPA and violating the FCPA. The DOJ and Tyson Foods agreed to resolve the charges by entering into a deferred prosecution agreement. Tyson Foods also agreed to pay a $4 million criminal penalty.

February 12th, 2011|Categories: Commercial Transactions Due Diligence|Tags: , , , |

Prime Bank Frauds

 

Prime bank schemes generally claim that investors’ funds will be used to purchase and trade “prime bank” financial instruments on clandestine overseas markets, and generate huge returns. However, neither these instruments, nor the markets on which they allegedly trade, exist. To legitimize the schemes, the promoters distribute documents that appear complex, sophisticated and official. They frequently tell investors that they have special access to programs that otherwise would be reserved for top financiers on Wall Street, or in London, Geneva and other world financial centers. Possible profits of 100% or more with little risk also are touted.

The fraudsters target individuals and entities, including municipalities, charitable associations and other non-profit organizations. They advertise in national newspapers, such as USA Today and The Wall Street Journal, and often avoid using the term “prime bank note” in their spiel. In fact, investors are told that the programs do not involve prime bank instruments so that they appear legitimate.

The Office of the Comptroller of the Currency (OCC) posted the following warning signs of “prime bank” investment fraud:

  • Excessive guaranteed returns

Promises of unrealistic returns, of 20% to 200% monthly, at no risk, are the hallmarks of prime bank fraud.

  • Fictitious financial instruments

Despite credible-sounding names, the “financial instruments” at the heart of any prime bank scheme simply do not exist. Fraudsters frequently claim that the offered financial instrument is issued, traded, guaranteed, or endorsed by the World Bank (Department of Institutional Integrity or Operations Evaluation Department), International Monetary Fund (IMF), Federal Reserve, Department of Treasury, International Chamber of Commerce (ICC), or an international central bank.

  • Extreme secrecy

Fraudsters maintain that the transactions must be kept confidential by all parties, making client references unavailable. They describe the transactions as the best-kept secret in the banking industry, and assert that, if asked, bank and regulatory officials would deny knowledge of such instruments. Investors may be prompted to sign nondisclosure agreements.

  • Exclusive opportunity

Fraudsters claim that the investment opportunities are by invitation only, available to a handful of special customers, and historically reserved for the wealthy elite.

  • Complex presentations

Explanations often are vague about who is involved in the transaction or where the money is going. Fraudsters cover up the lack of specificity by stating that the financial instruments are too technical or complex for non-experts to understand.

January 12th, 2011|Categories: Commercial Transactions Due Diligence|Tags: , |

Historical investment fraud sweep compels numerous civil and criminal actions

 

On December 6, 2010, the Financial Fraud Enforcement Task Force announced the conclusion of Operation Broken Trust, the largest investment fraud sweep ever conducted in the United Stated. Started August 16, 2010, the operation captured 343 criminal defendants and 189 civil defendants who were involved in fraud schemes that harmed more than 120,000 victims throughout the country. The criminal cases involved more than $8.3 billion in estimated losses and the civil cases more than $2.1 billion. Eighty-seven defendants have been sentenced to prison, including several who will serve more than 20 years.

The sweep focused on fraudsters who offered “investment opportunities” that were either completely fictitious or not structured as advertised. An overwhelming number of these were high-yield investment frauds and Ponzi schemes. Others involved commodities fraud, foreign exchange fraud, market manipulation (pump-and-dump schemes), real estate investment fraud, business opportunity fraud, and affinity fraud. Some of the perpetrators filed for bankruptcy in an attempt to avoid claims by victimized investors. In many instances, the criminals were trusted people within their communities—neighbors, co-workers, fellow church members—who betrayed that trust in order to line their own pockets.

December 10th, 2010|Categories: Commercial Transactions Due Diligence|Tags: , |

Fake your way into a dream job for under $60

 

The job market is tight and fake-your-career services are in bloom. Buy a Job Reference, which describes itself as a “shameless service,” boasts that in the first six months of 2010, it assisted nearly 400 clients in gaining employment (but links to success stories do not work so maybe the stories are fake too.) For the low price of $59.99, payable through credit cards and PayPal, the company will supply a personalized fake employer name, phone number and address, suitable for any occupation you choose. And if you need a new apartment to go with that new job, for $29.99 the company will set you up with glowing previous landlord references.

CareerExcuse.com, a self-proclaimed “world’s largest network of job reference providers” since July 2009, is more expensive with a $65 set-up fee plus an undisclosed amount for a 30-day answering service, and a $20 monthly subscription. This basic package includes a “professional voicemail system that many banks and large companies use, calls that are returned from voicemail within 24 hours armed with positive references provided by you, and a toll-free number and e-mail addresses for your references.” If you really want to impress a prospective employer, there is a premium plan for $195+ that will upgrade the verifications to a live receptionist. But once you land that dream job, most likely you will have to wait a while before you accrue any paid time off. Guess what? For $35 you can get some bereavement days with CareerExcuse operators standing by to verify that your designated relative is deceased, and avail a real funeral home Web site and address for flower delivery. CareerExcuse apparently wants to be a one-stop shop for all your fibbing needs, as it also provides links to instant “real university degrees.”

According to several Internet sources, including ABCNews.com, Alibi HQ also is or has been in the fake reference business; however, its Web site address, www.alibihq.com, leads only to a spam-type search page. ABCNews.com said in its August 2009 article that Alibi HQ charges $199 for the first 90 days and $50 for each additional month for the fictitious declarations. Mark Stevens, a purported Alibi HQ spokesman, told ABCNews.com that the company, which also offers fake landlord references and fake doctor’s notes, has been operating for several years, and that customer interest in employment references has skyrocketed over the last year (2009) with calls from people seeking Alibi HQ’s services quadrupling.

So how do these companies get away with such slippery handicraft? Each claims that it will not do anything that defies the law, including providing references for loan purposes. CareerExcuse contends that in a segment by KENS-5 in San Antonio, the Better Business Bureau did not question the legality of its services, although it did not give the company a “ringing” endorsement. But legal experts say that such companies and the clients they serve may ultimately find themselves as defendants in lawsuits filed by duped employers.

August 27th, 2010|Categories: Compliance Corner for Employment Decisions|Tags: , , |

Common securities fraud schemes on the Internet

Pump and Dump: These types of schemes are quick manipulations of the stock price. The schemers buy thinly traded stocks and then transmit optimistic messages about the stocks, which cause  investors to buy, thus driving up the price. The ownership interest that the schemers have in the particular stock is not disclosed. The schemers then sell the stock for significant gains. Their messages are transmitted through official looking e-mails, bulletin board posts or Web sites.
Dump and Diss: This is the pump and dump scheme in reverse. The schemers short-sell a stock and then transmit negative messages to investors causing the investors to sell, which in turn drives down the price. No disclosure is made of the negative position that the schemers have in the stock. They then buy the lower valued stock to fill their earlier sell orders and make a profit on the difference.
Insider Trading: The recipients of non-public information use the insider information to trade ahead of the information’s release, and subsequently realize profits.
Unregistered Offerings: Purported issuers of securities offer and/or sell securities through the Web without being registered or exempt from federal and state securities laws.
Pre-IPO Offerings: Purported issuers offer and/or sell shares of their company to investors based on the premise that the company soon will be going public. Some of these companies do not exist or are marginally successful.
Private Placement Offerings: Purported issuers offer and/or sell shares of their company with the usual promise of high returns, with the help of slick promotional materials. The companies turn out to be nonexistent.
Prime Bank Offerings: Purported sellers offer and/or sell interests in some type of prime bank instrument. The investors are advised to put their money into the prime banks of Europe in a program that generally is available only to the very wealthy, but because there is a “shortage” for the particular program, it is being offered for a smaller minimum investment. Prime bank instruments do not exist.
July 30th, 2010|Categories: Commercial Transactions Due Diligence|Tags: , |
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