Financial Crime & Fraud
Learn more about financial crimes such as fraud, money laundering, and Ponzi schemes, and what you can do to avoid them.
Financial Crimes: What You Need to Know
Frequently Asked Questions
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After years of logging expected profit as realized profit and using special purpose vehicles (SPVs) to move debt and losses off its balance sheet, Enron found itself subject to an SEC probe in October 2001 and filed for Chapter 11 bankruptcy on Dec. 2, 2001. Between 2004 and 2011, the reorganized Enron paid creditors about $21.7 billion.
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Cryptocurrencies have attracted the scrutiny of the U.S. Financial Crimes Enforcement Network (FinCEN) for their utility in money laundering. FinCEN noted in a June 2021 report that criminals making illegal transactions or transferring dirty money with cryptocurrencies can use mixers or tumblers to obscure the connection between the sender and recipient of crypto. Cryptocurrency networks are particularly useful for money laundering due to their global nature, decentralization, and under-regulation.Learn More Money Laundering
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Bernie Madoff operated a simple but large Ponzi scheme. He used his Wall Street connections and reputation to attract high-net-worth clients, whose investments he promised to manage. But instead of investing their money, he’d put it in a bank account that generated nearly no return. When a client wanted to cash out, he simply withdrew their initial investment plus a respectable “return” that was actually just a portion of another client’s investment. The scheme collapsed when clients scrambled to cash out at the onset of the 2008 financial crisis.Learn More Who Was Bernie Madoff?
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Cook the books is a slang term for accounting fraud, which is the act of manipulating a company’s financial results to inflate revenue and/or deflate expenses.Learn More Cook the Books
Key Terms
- RacketeeringRacketeering is the act of acquiring a business through illegal activity, operating a business with illegally-derived income, or using a business to commit illegal acts.
- Wire FraudWire fraud is a federal crime in which the perpetrator uses telecommunication to deceive another for their own personal gain. Telecommunication methods include but are not limited to phone calls, faxes, emails, text messages, and social media.
- RedliningRedlining is the illegal practice of denying financial services to residents of neighborhoods deemed too high risk for investment, regardless of the individual’s creditworthiness. Redlining takes its name from the early 20th-century banking practice of delineating city maps with red lines around “hazardous,” usually majority-minority neighborhoods that were excluded from mortgage lending.
- SmurfSmurf is a colloquial term for a money launderer who attempts to evade government scrutiny by breaking up one large illegal transaction into many smaller transactions that are under-reporting thresholds. Currently, U.S. banks and financial institutions must notify the government of any cash transaction over $10,000 in a suspicious activity report (SAR).
- EmbezzlementEmbezzlement is a crime in which a person or entity, like a financial advisor or corporate executive, intentionally misappropriates assets entrusted to them. Embezzlement can involve diverting client funds to a personal bank account or spending company money on non-business items, like personal luxuries or investments.
- ExtortionExtortion is the wrongful use of actual or threatened force, violence, or intimidation to attain money or property from an individual or entity. While extortion often involves the threat of bodily harm, it can also be perpetrated through the threat of reputational harm or unfavorable government action.
How Can Cash Flows Be Manipulated or Distorted?
Enron Executives: What Happened, and Where Are They Now?
Who Was Charles Ponzi? What Did He Create?
What Is a Pyramid Scheme? How Does It Work?
Enron: Scandal and Accounting Fraud
Explore Financial Crime & Fraud
What Investors Can Learn From Insider Trading
8 Ways Companies Cook the Books
Four Scandalous Insider Trading Incidents
Catfishing: What it is, Examples of Financial Fraud
Bucket: What it Means, How it Works, Example
Bucket Shop: What It Is, How It Works, Example
Quote Stuffing: What it Means, How it Works
Auditability: Meaning, Requirements, Benefits
Opinion Shopping: What It is, How It Works, History
Writ of Attachment: What They Are, How They Work
How to Submit a Complaint to the CFPB
The Biggest Stock Scams of Recent Time
What Is Insider Trading and When Is It Legal?
Short and Distort: Bear Market Stock Manipulation
Salad Oil Scandal: Meaning, Market Implication, Precursor
Civil Money Penalty (CMP): What it is, How it Works
The Impact of the Sarbanes-Oxley Act of 2002
Tailgating: What It Is, How It Works, Example
Fictitious Trade: Meaning, Example, Improper Use
Misfeasance: Definition and How It Works Vs. Malfeasance
Administrative Order-on-Consent (AOC): What it is, How it Works
Poop and Scoop: What It is, How It Works, Example
Jitney: What It is, How It Works, Example
Privity
De Novo Judicial Review: Meaning, Overview, Types
Rount-Trip Trading Definition, Legitimate & Unethical Examples
Depository Trust Company IPO Tracking System Definition
Arguments For and Against Insider Trading
How Insider Trading Is Prevented in Corporations
Illegal Insider Trading: What it Means, How it Happens
Stuffing: What It Means, How It Works, Types
What Is Accounting Fraud? Definition and Examples
Jerome Kerviel: History and Work With Derivatives
Dummy Shareholder: What It Is, How It Works, Example
Remote Disbursement
Predators' Ball: What It is, How It Works
Backdating: Insight Into a Scandal
4 Dishonest Broker Tactics and How To Avoid Them
Blind Entry: What It is, How It Works, Example
Barings Bank: Its Collapse, Acquisition, Lessons Learned
Hockey Stick Bidding
How the SEC Tracks Insider Trading
Blocked Account: Definition and Restrictions in Finance and Trade
Short Tender: What It is, How It Works, Example
Financial Double Dipping: What It Is, How It Works, Penalties
Pay Czar
How Did John Rusnak Lose $691M in a Bank Fraud?
Cash Flow on Steroids: Why Companies Cheat
Detecting Financial Statement Fraud
The Most Common Types of Consumer Fraud
Ponzi Schemes: Definition, Examples, and Origins
Lady Godiva Accounting Principles (LGAP)
Why These Industries Are Prone to Corruption
What Was Enron? What Happened and Who Was Responsible
Straw Buying: What it Means, How it Works, Examples
6 Ways Cybercrime Impacts Business
Blanket Bond: What It Is, How It Works, Types
Forensic Accounting: What It Is, How It's Used
Computer Crime Insurance: What It is, How it Works
What Is Fraud? Definition, Types, and Consequences