Fraud is any illegal activity or appropriation of someone else’s property, funds, securities, or sensitive data. Scammers use intentional lies, manipulations, schemes, and various technical tricks to achieve their goals. Fraudulent attempts can be observed in every sphere of human society, but most concern financial transactions. Only in the USA, in 2023, losses of consumers amounted to 10 billion dollars because of different fraudulent actions. That’s why both businesses and individuals should be aware of what fraud is and how it can manifest itself.

As with any crime, fraud, if revealed, has consequences. The degree of punishment depends on the severity and scale of an offence. If it’s a small fraud, like forging a check for a small amount, it’ll often be classified as a misdemeanour. In this case, it may lead to reimbursement of losses, community service, and possible litigation costs. Repeatable small fraud acts and severe damage can warrant more serious punishments, including prison sentences. 

Fraud Types

There are as many types of fraud as technological, social, and other means humanity has invented, which can be exploited. But this diversity may be divided into several classes:

1. Abusive practices. Frauders strive to find legal loopholes anywhere to get a benefit. Among such crimes are the following:

• Friendly fraud. It occurs because of chargebacks overused by customers. They make a legitimate purchase in order to request a chargeback due to allegedly poor-quality goods or services.
• Check forging. It’s any manipulation with checks to withdraw funds illegally.
• Insurance abuse. It’s about claims for reimbursement of lost or damaged insured property, which actually is intact.
• Medical Fraud. It refers to deceptive practices within the healthcare system intended to obtain unauthorised benefits or profits.

2. Securities fraud. It’s any criminal speculation in the stock or commodities markets. 

• Insider trading. Abuse of illegally obtained information is unknown to other trading stock market participants.
•  Pump-and-dump schemes. They are an artificial overstatement of stock prices through its hard promotion. 
• Ponzi schemes. This fraud gets its name from the businessman and charlatan Charles Ponzi, who invented this illicit enrichment approach. The scheme is based on paying investors not from profits but from the funds of earlier ones.
• High-yield investment fraud. It involves investment-like projects that create a lot of hype around themselves and then irrevocably take investors’ funds.
• Pyramid schemes. They are similar to Ponzi schemes, but the emphasis is on participants rather than investments. Every participant has to enlist a few people in a pyramid to support the structure.

3. Data hunt. Scammers are urged to acquire personal data to exploit somehow. For this, they can use the following methods: 

• Phishing. This popular illegal method implies sending fake communications like emails and messages. If a victim follows a link, a perpetrator gains entry to his sensitive data for abuse.
• Identity theft. It occurs when scammers try to steal personal data to access someone’s credit cards or transactions.
• Account takeover. Fraudsters gain access to a customer’s account, typically by stealing login credentials. Once inside, they can make purchases, alter account details, or transfer funds. This type of fraud often goes unnoticed until substantial harm has already occurred.
• Card-not-present fraud. Criminals exploit stolen card information obtained through various illegal means. By leveraging this illicitly acquired data, they can execute financial transactions for their benefit, often without detection.

With financial growth worldwide, the number of fraudulent attempts is increasing accordingly. Scammers cause large business losses, so fraud prevention and protection is one of the main ways to boost their profits. Crooks take many approaches to steal money, personal data, or securities. Understanding and successfully opposing these fraudulent tactics is key to the prosperity of any company.