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Common Types of Business Fraud

15. What are some common types of business fraud?

Many examples of business fraud include a scheme or plan designed to take from a person the tangible right of honest services. Below are some common examples of fraud in the business context:

•    Mail or Wire Fraud – It is illegal to use the US postal service or electronic means of interstate communication to carry out a scheme to defraud. This is a very broad statute, as it includes any fraudulent conduct employing mail or wire transmission.  “To mail” means a communication is sent or received through use of the US Postal Service or any interstate carrier. “Wire transmission” includes the use of radio, television, telephone, Internet, or other wired form of communication.

•    Securities Fraud – Federal laws defining securities fraud are the Securities Acts of 1933 and the Securities Exchange Act of 1934. Section 17 of the 1933 Act covers fraudulent activity in the issuance of securities. Section 10 and Rule 10(b)(5) of the 1934 Act cover fraud in the purchase or sale of a security.

•    Insurance Fraud – This is a common state-law crime in which an insured makes a fraudulent claim for benefits under an insurance policy. For example, intentionally setting fire to the building of a failing business to collect the insurance proceeds is insurance fraud.

•    Healthcare Fraud – Healthcare fraud generally involves making fraudulent claims for payment or reimbursement of healthcare expenses. The common offenders are healthcare providers who make fraudulent claims for reimbursement for services never performed or unnecessary. The prosecution usually falls under the False Claims Act.

•    Tax Fraud – Tax fraud is the knowing concealment of transactions or property ownership in an attempt to illegally avoid paying federal, state, or local taxes.

•    Discussion: Do you think there should be varying degrees of fraud? When does in individual’s conscious decision to do a poor job or cut corners amount to a plan or scheme to defraud the individual paying for the services? Could an intentional misstatement amount quality of services or effectiveness of a product amount to fraud? Could it be fraud if an individual misrepresents (or lies about) a work process in order to get hired or win a contract?

•    Practice Question: Javier opens a personal wealth investment business. He represents to clients that he can generate above-average returns on their investment with minimal risk. He claims to have insider information on many new business ventures that makes them a certain success. He makes up fake disclosure documents for business that do not exist or have no connection with Javier. In reality, Javier is running a Ponzi scheme in which he takes money from investors and uses the funds to pay returns to other investors. He also spends much of the remaining funds soliciting new investors through email and direct-mail advertisements. What crimes, if any, has Javier committed? Why?

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