How To Know Forms of Financial Institution Fraud

Fraudulent activities involving financial institutions and establishments are nothing new. Banks and other financial institutions are often the target of such crimes, and are sometimes even party to the crime. Due to the sensitive position of financial and banking personnel, they are sometimes also implicated in the illegal activities of those who try to outsmart the system and get away with lots of cash. These types of fraud are seen as big red flags by the financial sector, since they make the system less secure and make the various banks and financial institutions vulnerable to all sorts of attacks and abuse.

Here are the forms of commercial financial institution fraud that have been heavily documented through the years.

1. Ponzi schemes. Bernard Madoff has been in the news recently after admitting to the largest Ponzi scheme in history. Despite being one of the biggest names in bank directory lists for being the chairman of the NASDAQ for quite some time, Maddoff did the unthinkable. Instead of being happy with what he had financially, he set up a scheme that asked money from contributors. Many retirees and those receiving pensions put their hard earned cash into the scheme due to Madoff’s reputation as an expert in the financial sector. But it was all a scam. A Ponzi scheme works by using the same money that is given by the contributors as the commission to the other people who join the project. Since there are no real products being sold and no money is really being generated, there is little money that is left in the end, and all those who committed their money to the scheme often find themselves in financial ruin.
2. Mortgage scams. There are also a lot of scams done in the mortgage loan market. To be able to make a loan, one usually has to present another property that the bank could hold on to as collateral. This is proof that you enough assets to cover for the money to be borrowed in case of defaulting on your payments. Many people have already attempted to over-declare the values of their properties so that they can get bigger loan amounts. It would then be easy to just default after one has drawn from the loan funds, since the collateral value is significantly lower. The money is then distributed among the conspirators, and oftentimes this includes bank insiders.
3. Counterfeiting. The simplest type of fraud, of course, is using counterfeit money.  In retail financial fraud, this has become a serious threat that stores are now equipped with special machines that allow them to verify whether a bill is legal tender. Many criminals have tried to get past the system by using hundreds of thousands of fake bills. With printers becoming more and more sophisticated, it’s no surprise that more people are trying their luck with this type of fraudulent operation, and that fake bills still get past cashiers.
4. Insider trading. In the investments market, insider trading occurs when people from within a financial institution manipulate the value of an investment instrument (stocks, bonds, mutual funds) to their benefit. In turn, a lot of people are divested of their hard earned money when the stocks or other investments are dumped into the open market and lose their value after the fraudsters have profited from the scam.

Financial institution fraud often involves large sums of money. In some cases, the effect trickles into the economy at large. Companies are known to have gone bankrupt due to fraudulent activities by some of its key officers. As such, the authorities—such as the Secret Service’s financial fraud division, and the Securities and Exchange Commission, among others—keep a watchful eye on possible crimes involving financial institutions and investments.