5 most scandalous frauds of 2020
By Hallie Ayres and Mason Wilder, Fraud Magazine, January/February 2021, summarized by Dr Sharad Joshi
We were all glad to discard our 2020 calendars. Fraudsters took advantage of COVID-19 conditions, but not all of them needed a pandemic to pull off some big frauds. From a long list, here is a compilation of 5 most infamous frauds of 2020.
01/ COVID-19 frauds infect society
Perhaps, unsurprisingly, the most widespread and impactful frauds of this year were directly connected to the novel coronavirus. As the pandemic led to massive shutdowns in many nations, governments responded with a wide range of stimulus measures, including loans, enhanced unemployment benefits, direct payments to citizens and more. Some fraudsters were quick to exploit these government stimulus plans, while others used COVID-19 as a premise for a plethora of cyber-fraud and consumer fraud schemes ranging from phishing attacks (i.e., obtaining sensitive information or data, such as usernames, passwords, credit card numbers, by impersonating oneself as a trustworthy entity in a digital communication) to sales of counterfeit personal protective equipment, testing kits and bogus cures.
By the beginning of August, reported U.S. losses related to coronavirus fraud had reached $100 million, with a large swath of cases originating in identity theft. (Identity theft occurs when someone uses another person’s personal identifying information, like their name, identifying number, or credit card number, without their permission, to commit fraud or other crimes). Cases like these were especially common with fraudsters who used stolen personally identifiable information (PII), such as Social Security numbers (SSN – read Aadhar card number in our environment), to file for unemployment benefits as more and more workers faced layoffs and desperately sought funds.
Myra Walker, a New Jersey retail worker who was laid off in March, found she’d been victimized by this type of scheme when she applied for unemployment benefits, only to find that someone had already created an account under her name and had used her SSN to receive payments starting in February.
In another case, after the Small Business Administration (SBA) rolled out the Payroll Protection Program, valued around $650 billion in loans to small businesses, a moving company owner in Florida received nearly $4 million in loans, which he’d declared would cover his company’s monthly payroll. However, an investigation revealed that his company’s monthly expenses averaged around $200,000. The man was arrested, and charged with fraud, after he was involved in a hit-and-run while driving a luxury car which he’d bought with money from his loan.
Assistant U.S. Attorney Michael Berger noted that Small Business loan scammers had become increasingly common because the agency was so overrun with applications that it had stopped checking the accuracy of applicants’ claims.
While identity theft and types of financial fraud dominated the fallout of the pandemic, the coronavirus also exposed the medical and public health industries to a range of scams. In May, the city attorney of Los Angeles sued Wellness Matrix Group for selling coronavirus testing kits they claimed had been approved by the FDA and a “virucide” that purportedly killed the virus. City attorney Mike Feuer said the company “attached false government registration numbers to these products and fabricated phony scientific studies and white papers to substantiate their false claims.”
From benefits fraud, loan fraud, identity theft and non-delivery scams, to counterfeit products, telemedicine fraud, insurance fraud, contact tracing scams and supply-chain fraud, fraudsters exploited the global COVID-19 pandemic like no other crisis in recent memory.
02/ Wirecard’s missing $2 billion
German financial technology company Wirecard delayed the public release of its 2019 financial results in June 2020 after revealing it couldn’t account for more than $2 billion in cash assets. The news reduced the company’s stock price by more than 90 percent and prompted the resignation of CEO Markus Braun. Wirecard filed for insolvency to protect itself from the $4 billion owed to investors.
Soon after, Braun and several other executives were arrested on accounting fraud and market manipulation charges. (Does this remind you of Satyam Computers?)
Founded in 1999, Wirecard, which processes payments and sells data analytics services, was at one point considered to be one of Europe’s foremost technology firms. Between 2013 and 2018, the company’s reported revenues quadrupled, coming in at nearly $2.2 billion in 2018. With nearly 6,000 employees spread over 26 countries and a place on Germany’s list of top 30 companies, the fintech behemoth must have thought itself too large to fail. After a series of fraud allegations and investigations into its accounting practices over the course of 2019, Wirecard confessed to the disappearance of more than $2 billion from its assets. (Following the disappearance of $2 billion in cash, Wirecard claimed the money had been held in bank accounts in the Philippines, but these banks refuted the claim.) Wirecards’ auditors faced significant criticism for signing off on Wirecard financial statements for 2016 through 2018 without independently confirming the existence of cash assets.
03/ U.S. Financial Crimes Enforcement Network (FinCEN) files exhibit huge money-laundering cases
In September 2020, leaked documents implicated major international banks — including Deutsche Bank, JPMorgan Chase, HSBC, Standard Chartered and Bank of New York Mellon — in the laundering of more than $2 trillion linked to Russian oligarchs, criminals and terrorists from 1999 to 2017. (Money laundering is the illegal process of concealing the origins of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions. The overall scheme of this process returns the “clean” money to the launderer in an obscure and indirect way).
The International Consortium of Investigative Journalists’ reports involved analysing more than 2,100 Suspicious Activity Reports (SARs) filed by banks and other financial firms to the U.S. Financial Crimes Enforcement Network.
04/Airbus’ routine briberies
In January 2020, France-based aviation company Airbus agreed to pay combined penalties of more than $3.9 billion, the largest fine ever recorded in a bribery case, to settle foreign bribery charges from authorities in the U.S., France and the U.K. The settlement put an end to nearly four years of investigations surrounding allegations that Airbus hired third parties to bribe government officials in various countries to purchase Airbus’ planes, helicopters and satellites — instigated by Airbus’ ongoing competition with rival Boeing.
05/Luckin Coffee’s large mug of fraud
The Nasdaq-listed, Chinese-based coffee company Luckin Coffee Inc., which managed to overtake Starbucks in total locations in China, within just around two years of being founded, announced in April 2020 that an internal audit revealed allegations of fabricated sales figures.
The discovery resulted in a drop in the company’s stock of more than 90 percent within a month and led to the firing of Luckin’s CEO Jenny Qian and COO Jian Liu, who also lost their seats on the board of directors. In July, a filing issued by the U.S. Securities and Exchange Commission (SEC) confirmed more than $300 million in fabricated revenue that began around the time of the company’s IPO on Nasdaq and determined that the stock should be delisted because of public interest concerns.
Dishonourable mentions
The unfortunate deluge of fraud cases each year makes it impossible to highlight all but the most inflammatory stories, so we’ve included a few dishonourable mentions that feature fraud cases notable for the brazenness of the fraudster or the sheer shock at the degree of ineptitude or scandal.
1. Authorities in South Korea indicted Lee Jae-yong, the vice chairman of Samsung and arguably the most influential South Korean businessman, along with 10 other current and former Samsung officials. The charges include stock price manipulation, unfair trading and audit-rule violations. They stem from an allegedly systematic effort to help transfer managerial control of Samsung to Lee from his father, Lee Kun-hee, who was incapacitated by a heart attack in 2014. (Lee Kun-hee died Oct. 25, 2020.) Both Lee Kun-hee and Lee Jae-yong have been previously convicted of bribery and other corruption charges.
2. In May 2020, U.S. authorities arrested a former U.S. soldier and his son, both of whom were wanted by the Japanese government for assisting Carlos Ghosn, the former CEO of Renault and Nissan, in escaping from Japan to Lebanon in late 2019. Ghosn was awaiting trial on charges of alleged financial misconduct when he was smuggled onto a private jet and taken to Lebanon, via Istanbul, despite being prohibited from leaving Japan.
3. In Nigeria, Ibrahim Magu, the acting chairman of the country’s Economic and Financial Crimes Commission, the agency responsible for looking into and charging companies and individuals with financial crimes, was arrested for involvement in re-looting recovered funds.
4. On the other side of the world, the Las Vegas-based fraud prevention start-up NS8 was forced to lay off hundreds of employees after the SEC announced an investigation that alleged the company had reported fraudulent revenue and customer information. Adam Rogas, the CEO of NS8, resigned following the investigation announcement and has been charged with securities fraud and wire fraud for lying to investors after securing $123 million in venture capital — $17 million of which Rogas kept for himself. On Oct. 28, 2020, NS8 filed for bankruptcy.
To read the complete article click, https://www.fraud-magazine.com/article.aspx?id=4295012581