The ACFE selects the five most scandalous fraud tales of the year each year, with assistance from our Advisory Council, based on money lost, lives touched, and importance to the anti-fraud profession.
Here are the most shocking events of 2022. Also, see the sidebar for updates on some of the most well-known offenders of earlier frauds.
01/ Cryptocurrency Clyde and Bonnie
The bride entered on a Moroccan palanquin dressed in gold and rapped a love song to the husband, while the groom entertained the guests with a mind-reading technique. While the pair celebrated their love, US authorities were getting closer to apprehending them for allegedly laundering stolen bitcoin from the 2016 Bitfinex incident. When the couple was apprehended, US authorities seized nearly $3.6 billion in bitcoin from them, the greatest financial seizure in US history.
When US agents arrested Ilya "Dutch" Lichtenstein and Heather Morgan in their New York apartment in February for conspiracy to commit money laundering and defraud the US, they were an odd pair of fraudsters. Lichtenstein was a technology entrepreneur, and Morgan was a Forbes magazine contributor who wrote about protecting digital currency from fraud. She also has a side gig as a rapper known as "Razzlekhan." The couple frequently walked their cat in a stroller.
However, behind their eccentric identities, US law enforcement sources said the couple engaged in a complex money-laundering plan that would take six years to unravel.
Someone hacked cryptocurrency exchange Bitfinex in 2016 and stole 119,754 bitcoins, worth around $72 million at the time. Although Lichtenstein and Morgan are not accused of the actual hack, they face up to 20 years in prison for allegedly taking stolen funds, storing them in a digital wallet, and laundering them through gold coins, Walmart gift cards, international travel, five-star hotels, and, most likely, their wedding. According to federal authorities, the pair travelled to Ukraine in 2019 to plan a future there. They allegedly obtained false Ukrainian passports, SIM cards, and information for hidden bank accounts on the dark web.
The IRS Criminal Investigation (IRS-CI) traced the couple's alleged money laundering journey from Lichtenstein's digital wallets via the Bitcoin blockchain to wallets hosted on the AlphaBay darknet market, according to Ars Technica. The couple then employed strategies such as "chain-hopping," in which they exchanged bitcoins for monero, a "privacy coin," to conceal their cash' trail. Reporter Andy Greenberg said in a Wired magazine piece that the number of complex precautions the couple took to disguise their tracks wasn't the most astounding aspect of the case. What was more amazing was how federal agents cracked the case and exposed the couple's attempts at anonymity. "They illustrated precisely how advanced cryptocurrency tracing has gotten — potentially even for currencies that were previously thought to be practically untraceable," Greenberg wrote.
Fraud examiners, according to David Utzke, Ph.D., CFE, who worked with the IRS-CI when Lichtenstein and Morgan were arrested, must be familiar with the technology fraudsters use to launder cryptocurrency. Utzke is presently MasterCard's senior director of cryptoeconomic technologies. "Coming from a decades-long career in technology and civil/criminal cybercrime federal enforcement, and having been involved in this investigation as it evolved in mid-2016, whether we're talking about digital assets, art, drugs, or any other asset — digital or physical — laundering, traditional AML and sanction methods are not addressing the technology methods criminals used," Utzke says.
Federal investigators subsequently linked Lichtenstein and Morgan to the stolen cryptocurrency in a much more mundane way, by connecting a $500 Walmart gift card to their emails and cloud-service providers.
The futures of Lichtenstein and Morgan are uncertain as they await plea deals and punishments, but one thing is certain: cryptocurrency and fraud will remain hot subjects in 2023, especially in light of the unprecedented fall of crypto exchange FTX in November. The Securities and Exchange Commission is looking into whether FTX mismanaged consumer monies. Investors filed a lawsuit alleging that FTX creator Sam Bankman-Fried, as well as celebrities such as Tom Brady and Larry David, used misleading tactics to market FTX yield-bearing digital currency accounts.
Reports that Bankman-Fried had been improperly using FTX's customers' funds to prop up his crypto hedge fund Alameda Research spurred a rush for the exits and the exchange's overnight collapse. Creditors are now seeking billions of dollars in restitution from the corporation.
Bankman-high Fried's status not only in the cryptocurrency industry, but also among regulators and legislators, has made his bankruptcy all the more startling, and it has the potential to be one of the largest fraud cases of 2023. FTX's new CEO, John J. Ray III, is best known for orchestrating the fall of Enron more than 20 years ago and has been harsh in his evaluation of the exchange's inner workings. "I have never seen such a severe collapse of corporate controls and such a complete lack of trustworthy financial information as transpired here," he said.
02/ Unhealthy options
From lawsuits against prominent U.S. health insurers for allegedly cheating the Medicare Advantage programme to the eye-popping settlement reached by pharmaceutical company Biogen, 2022 proved to be a dismal year for health care.
Biogen agreed to a $900 million settlement with the US authorities in July to settle claims that company paid kickbacks to doctors in exchange for marketing its multiple sclerosis (MS) medications.
Former Biogen employee Michael Bawduniak filed a whistleblower lawsuit against the corporation in 2012 under the US False Claims Act. In his claim, Bawduniak accused his ex-employer of luring doctors with phoney consulting partnerships, speaking engagements, and lavish dinners in exchange for prescribing Biogen's MS medications to their patients. MS medications are pricey, and only a few drugs are approved to treat the autoimmune illness that affects the central nervous system. The claimed kickbacks were intended to help the Cambridge, Massachusetts-based biotech business, which specialises in neurological disease therapies, corner the market and increase sales of its MS medications.
The alleged kickbacks resulted in misleading Medicare and Medicaid claims for prescriptions of Biogen's MS medications. Biogen claims it has done nothing illegal.
The New York Times reported in October on the extent to which U.S. health insurers reportedly exploited Medicare Advantage — the private-sector arm of the U.S. national health system for older Americans — by illegally inflating diagnostic codes and making billions of dollars in the process.
The DOJ has sued some of the country's largest health insurance firms, including UnitedHealth, Humana, and Kaiser Permanente, for submitting inflated bills and overdiagnosing patients. The DOJ has joined multiple lawsuits filed by whistleblowers, indicating that law enforcement believes the fraud charges are true.
According to the lawsuits, extremely lucrative insurance firms are taking advantage of a system that pays them greater premiums for sicker customers. The complaints detail how the corporations "built intricate systems to make their patients appear as sick as possible, often without delivering any treatment" in order to collect more from the government.
Kaiser Permanente, based in California, allegedly pushed doctors to add new diagnoses to patients' medical records, bribing them with bottles of Champagne or salary raises. According to the U.S. Congressional monitoring group MedPAC, extra diagnoses will result in $12 billion in overpayments in 2020.
03/ Banking Scam-to-Scam
Zelle makes it simple to send money to others. Many of the top banks in the United States control this person-to-person payment service. You simply connect the app to your bank account, and the receiver receives your funds immediately, without the need to wait for a bank transfer or payment to clear. However, the service's speed is exactly what attracts fraudsters.
People sent $490 billion using Zelle in 2021, but those billions of transactions included plenty of fraud, and the service has become a popular hunting ground for romance and cryptocurrency scammers. While banks claim to take Zelle fraud seriously, many victims have had difficulty getting assistance. The issue is that many con artists dupe their victims into accepting Zelle payments, and banks claim that regulations do not force them to refund money for permitted transactions.
It's as if the banks have conspired with the scumbags on the street to allow them to steal.
"It's as if the banks conspired with the scumbags on the street to steal," fraud victim Bruce Barth told The New York Times. Barth is one of many consumers duped by crooks on the programme, but his bank refused to repay the stolen funds.
Customers of Zelle have joined various class-action lawsuits against their banks over the summer. The lawsuits, filed against financial institutions such as TD Bank, Capital One, and Wells Fargo, demand that banks accept responsibility for the money customers have lost to fraudsters via authorised Zelle payments and claim that financial institutions have not done enough to warn customers about these scams.
In September, the United States Senate Banking Committee held hearings, questioning bank CEOs and Zelle's operator, Early Warning Services, about how they can make their customers whole.
"Anything that's unlawful, we cover," JP Morgan CEO Jamie Dimon told the committee. So you're really talking about permitted transactions that we have a massive number of measures in place to prevent. And the quantity of fraud is pretty little for this free service."
An inquiry led by U.S. Senator Elizabeth Warren (D-MA) discovered that four banks had 192,878 cases totaling $213.8 million in 2021 and the first half of 2022 where a consumer claimed they'd been duped into making Zelle payments. In only 3,500 of those situations, banks refunded clients. Only 47% of the money was refunded in circumstances where it was clear that funds were transferred without the customers' permission. PNC Bank has 8,848 Zelle instances in 2020 and would have approximately 12,300 cases in 2022. In 2020, US Bank had 14,886 instances and in 2021, it had 27,702 cases. In 2020, Truist recorded 9,455 cases of fraud and scams on Zelle, which increased to 22,045 in 2021.
04/ Feeding deception
In September, the DOJ arrested 47 people associated with the Minnesota NGO Feeding Our Future, all of whom were wanted in connection with a major $250 million COVID-relief fund plot to defraud the US Department of Agriculture's Federal Child Nutrition Program (USDA). By the end of October, police enforcement had apprehended 51 people suspected of being involved in the operation. Aimee Bock, the nonprofit's founder and executive director, was among those jailed.
"This was a blatant conspiracy of breathtaking proportions," said United States Attorney for the District of Minnesota Andrew M. Luger. "These defendants misused a programme created to offer nutritional food to underprivileged children during the COVID-19 outbreak. Instead, they emphasised their own greed, stealing more than a quarter-billion dollars in federal monies to buy expensive automobiles, residences, jewellery, and seaside vacation property in other countries."
Employees of the group, allegedly encouraged others to open more than 250 Federal Child Nutrition Program sites around Minnesota in order to falsely claim to be serving meals to thousands of children. Defendants are accused of forming shell firms in order to participate in the programme and receive and launder refund cash. Furthermore, defendants reportedly fabricated and filed phoney paperwork to represent the number of children and meals served at each location, as well as false invoices and meals served. They also provided fraudulent food invoices and fake attendance records, along with the names of children who were allegedly served at the venues.
The hurry to send money to individuals in need, along with insufficient controls, a lack of oversight, and lowered rules for participation in the Federal Child Nutrition Program, contributed to the scale of fraud linked with Feeding Our Future, as it has in numerous COVID-related scams. The USDA allowed for-profit restaurants to participate in the programme, as well as off-site food distribution to children who were not enrolled in educational programmes. Both were involved in the Feeding Our Future deception. The New York Times reported that two Feeding Our Future sites claimed to run huge child care centres out of the same small premises. One claimed to feed 2,000 children every day, while the other claimed to feed 500. Another restaurant operator claimed to serve 6,000 children every day, which was more than the number of children living in the ZIP code in that area. According to the nonprofit's counsel, the organisation never had an accountant on staff. While Feeding Our Future claimed to have a three-member board to give outside control of its finances, the individual designated as the board's president between 2018 and 2020 was a bartender and electrician who claimed he was duped into accepting the position.
05/ The Chinese financial crisis
Customers with deposits of at least $1.5 billion at many local banks in rural Central China had their accounts frozen and unable to access their funds in April. The issue provoked rare protests, highlighted lax banking standards, and sparked what some regarded as China's largest-ever bank fraud investigation.
Customers later found their plight was due to financial trickery conducted by Lv Yi, a former official of a banking organisation who also happened to be the alleged head of a criminal gang.
The gang is accused of conspiring with bank employees to steal over 40 billion yuan ($5.9 billion) in savings and investments. They exploited internet platforms to attract depositors with high-interest promises and forged lending agreements to move money. Yi allegedly invested the funds in financial institutions, using shell businesses as security. In August, Chinese police arrested 234 persons suspected of being members of the group.
The most essential takeaway from the affair is the regulatory system's failure to adequately apply regulations.
In July, approximately 1,000 depositors seeking their money gathered in protest outside Zhengzhou's central bank. When plainclothes police officers forcibly removed depositors from the area, the demonstrations quickly turned violent. To quell protests, Chinese financial officials are already refunding depositors.
"The most essential takeaway from the scandal is the regulatory system's failure to adequately apply regulations," Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, said in an Aug. 29, 2022, report to Bloomberg Business Week.
While the scam only affected about 400,000 consumers in a country of 1.4 billion, rural banks account for roughly one-quarter of China's banking industry. As a result, these financial institutions are a potential hotspot for greater systemic risks and are subject to regulatory monitoring. Indeed, the scammers are said to have gotten around restrictions that barred rural banks from seeking new depositors outside of their regions by promoting throughout the country online. Their intricate ownership arrangements make companies a prime target for corruption.
This year, many fraudsters competed for a slot in the top five. Here are a few shocking ones that need greater attention, even if they didn't make the cut.
Everyone in the family
Bill Hwang, CEO of Archegos Capital Management, and Patrick Halligan, his senior subordinate, were arrested in April on charges of racketeering conspiracy, securities fraud, and wire fraud.
Prosecutors said that lax controls on "family offices," which are private wealth management organisations that service the very wealthy, allowed them to purposely mislead banks into lending them money so they could put wagers on stocks using sophisticated securities.
When Archegos failed in March 2021, Wall Street banks that were the investment firm's counterparties incurred billions in damages and shareholder value.
When Archegos failed in March 2021, Wall Street banks that were the investment firm's counterparties incurred billions in damages and shareholder value. Hwang allegedly timed stock trades to pique investor interest and borrowed enough to raise his portfolio's stock exposure from $1.5 billion to a staggering $160 billion.