San Diego State University Chapter 5 Fraud Scheme Case Summary For this discussion, choose a fraud scheme from Chapters 15, 16, or 17. Educate yourself on
San Diego State University Chapter 5 Fraud Scheme Case Summary For this discussion, choose a fraud scheme from Chapters 15, 16, or 17. Educate yourself on your particular selected scheme, including some outside research to broaden your understanding. Post a 2 to 4 paragraph summary of the following:Summary description of the fraud schemeEducate us regarding the symptoms and warning signs of the particular schemeSummarize a case study example of the fraud scheme, either from research or from personal experience, of the fraud in your life or that of someone close to you Discuss methods of prevention for your selected fraud scheme, including how you can educate others in your life to help protect themPlease be sure to cite any outside resources that you may use CHAPTER
Consumer Fraud
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After studying this chapter, you should be able to:
? Define what consumer fraud is and understand its
seriousness.
? Understand identity theft.
? Classify the various types of investment and consumer
frauds.
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? Consumer fraud
? Any fraud that targets individuals as victims
? Examples
? Telephone fraud
? Magazine fraud
? Sweepstakes fraud
? Foreign money offers
? Counterfeit drugs
? Internet auctions
? Identity theft
? Bogus multilevel marketing schemes
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? Federal Trade Commission survey results
? Estimated that more than 25 million adults10.8 percent of
the adult populationwere victims of fraud during 2011
? Identified characteristics of victims of consumer fraud
? Ranked top-five most frequently reported types of consumer
fraud
1. Weight-loss products (estimated 5.1 million victims)
2. Prize promotions (estimated 2.4 million victims)
3. Unauthorized billingbuyers club memberships (estimated 1.9
million victims)
4. Unauthorized billingInternet services (estimated 1.9 million
victims)
5. Work-at-home programs (estimated 1.8 million victims)
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? Identity theft is used to describe those circumstances
when someone uses another persons name, address,
Social Security number (SSN), bank or credit card
account number, or other identifying information to
commit fraud or other crimes.
? The most detrimental consequence of identity theft
isnt the actual loss of money, but rather the loss of
credit and reputation along with introduction of
erroneous information that is extremely difficult to
restore or fix.
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? Perpetrators of identity theft follow a common pattern
after they have stolen a victims identity.
? Although some fraudsters perpetrate their frauds in
slightly different ways, most generally follow the stages
in the cycle shown in Figure 15.1.
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Stage 1. Discovery
1. Perpetrators gain information.
2. Perpetrators verify information.
Stage 2. Action
1. Perpetrators accumulate
documentation.
2. Perpetrators conceive cover-up or
concealment actions.
Stage 3. Trial
1. First dimensional actions
Small thefts to test the stolen
information.
2. Second dimensional actions
Larger thefts, often involving
personal interaction, without much
chance of getting caught.
3. Third dimensional actions
Largest thefts committed after
perpetrators have confidence that
their schemes are working.
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? Buying large-ticket items
? Taking out car, home, or other loans
? Establishing phone or wireless service in victims name
? Using counterfeit checks or debit cards
? Opening a new bank account
? Filing for bankruptcy under the victims name
? Reporting a victims name to police in lieu of their own
? Opening new credit card accounts
? Changing victims mailing address
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? Common ways to steal someones identity
? Posing as a legitimate employee, government official, or
representative of an organization with which the victim
conducts business
? Shoulder surfingwatching or listening as a victim enters a
credit card number
? Dumpster divingrummaging through consumers trash to
gain access to preapproved credit card applications, tax
information, receipts containing credit card numbers, social
security receipts, or financial records
? Skimmingusing a storage device to gain access to valuable
information when a credit card is processed
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? Skimming is predominantly used to commit credit card
fraud but it is gaining in popularity among identity
thieves.
? Skimming devices are small and easy to hide
? Skimming occurs during transactions at common
locations including:
? Restaurants
? ATM machines
? Gas pumps
? Stores
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? Gathering information from businesses
? Stealing wallets or purses
? Breaking into victims homes
? Stealing mail
? Completing change of address forms
? Shoulder surfing
? Phishing
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? Guard your mail from theft
? Opt out of preapproved credit cards
? Check your personal credit information (credit report) at
least annually
? Protect SSNs
? Safeguard personal information
? Guard trash from theft
? Protect wallet and other valuables
? Use strong passwords
? Protect your home
? Protect your computer
? Opt out of information sharing
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? When people commit identity theft, they can face
criminal charges, civil actions, or both.
? Every state, as well as the federal government, has
statutes prohibiting identity theft in its various forms.
? Table 15.1 lists some of the more common identity
fraud federal statutes that every fraud examiner should
know about.
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? Contact the Federal Trade
Commission (FTC).
? Contact financial
institutions where your
identity might have been
used to establish a
fraudulent account.
? Consider changing personal
identification numbers
(PINs), bank account cards,
checks, and other personal
identifying data.
Organizations and agencies that
provide assistance to victims of
identity theft
? Federal Trade Commission
(FTC)
? Federal Bureau of
Investigation (FBI)
? U.S. Secret Service
? U.S. Postal Inspection Service
? Internal Revenue Service
? Social Security Administration
? Credit reporting agencies
? Check verification companies
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? Identity theft is not the only type of consumer fraud.
? Other types of scams target consumers.
? These scams fall into five categories:
? Foreign advance-fee scams
? Work-at-home schemes
? Bogus mystery shopping scams
? Telemarketing fraud
? Investment scams
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? Nigerian money offers
? Other foreign-advance fee scams
? Clearinghouse scam
? Purchase of real estate scam
? Sale of crude oil at below market price
? Disbursement of money from wills
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? Multilevel marketing
? Fraudulent multilevel marketing organization (pyramid or Ponzi
scheme)
?
?
?
?
?
Headhunter fees
Front loading
Opportunity meetings
Snake oil plans
Ground floor opportunity
? International multilevel marketing schemes
? Chain letters
? Mail stuffing
? Product testing
? Craft assembly
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? Perpetrators promise victims a job that involves
strolling through stores, shopping for merchandise,
and then filing reports on their experiences.
? Consumers are asked to pay an application charge and they
are promised supplies with a list of places and companies that
may hire mystery shoppers.
? This list is a simple collection of department store addresses
and contact information.
? Other scams require that consumers buy merchandise
from a particular Web site.
? Although some mystery shoppers advertisements are
legitimate, the majority are not.
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2
? Figure 15.4 provides an
example of three mystery
shopping letters.
1
3
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? Basics
? Boiler rooms
? Target lists
? Scripts
? Promises
? Scams that prey on the elderly
? Safeguards against telemarketing fraud
? Avoid sales calls
? Telemarketing fraud involves large and small
transactions
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? Investment fraud is any fraud that is related to stocks,
bonds, commodities, limited partnerships, real estate,
or other types of investments.
? In investment fraud, perpetrators usually make
fraudulent promises or misstatements of fact to induce
people to make investments.
? Investment frauds are often set up as Ponzi schemes.
? Investments frauds can occur within or outside
business organizations.
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? Mortgage fraud involves falsifying or omitting
information when obtaining a mortgage loan.
? The goal is to obtain a higher loan than would be
provided if the truth was disclosed.
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? During the subprime mortgage crisis, banks and mortgage
brokers were encouraging and even, in some cases,
creating fictitious information.
? This is an unusual form of consumer fraud in that
consumers can play both roles as perpetrator and victim.
? In many cases, consumers were encouraged to commit fraud for the
purpose of getting a loan on a home that they could not afford.
? In the end, they become victims of the lender who gained fees to
originate their loan.
? The ensuing subprime mortgage crisis, which was arguably
the result of multiple frauds, led to massive worldwide
economic consequences of epic proportions.
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