Insider trading one of FBI’s top 10 frauds

| 15/10/2015 | 1 Comment
CNS Business

FBI Supervisory Special Agent David G. Nanz

(CNS Business): “You cannot make money in a hedge fund unless you are insider trading,” a trader who was caught by the FBI once told Supervisory Special Agent David G. Nanz. Speaking about the FBI’s top 10 financial crime threats at a recent financial crime conference, Nanz said that it’s almost unheard of for the FBI to lose a case at trial and 90% of cases are settled out of court.

“Just like on TV and in the movies”, he said, the Federal Bureau of Investigation “flip them to go up the food chain”, in other words, they will offer a deal to the lower level criminals to catch the ones at the top.

The FBI, he said, is not just a criminal but an intelligence organization with an “entire cadre of human resources”, who basically spy for the FBI at places like banks and airlines, providing confidential information and taped conversations. He said some do it for their country and others are paid – as much as $150,000 per year.

When they bring a “bad guy” in, they will sit him down and play him the secretly recorded tape, and, “as he listens to his own voice, he sinks in his chair – he’s done,” said Nanz.

As well as very sophisticated recording devices, the FBI also does a lot of surveillance and have a larger fleet of aircraft than many small airlines, from which they can make high-definition video. Undercover work, he said, is also very effective.

At the 11th Annual Anti-Money Laundering/Compliance and Financial Crime Conference held at the Marriott Grand Cayman Beach Resort, Nanz listed the FBI’s top ten frauds, including insider trading, which he described as “rampant but a hard violation to investigate”.

Pump and dump schemes, where stocks are artificially inflated through fraud in order to sell to victims and then dumped, can trap people of all levels of education, he said. Those caught by this fraud are often entrapped because the fraudster met them at a fancy restaurant, had a Rolex watch and drove a Bentley or a Ferrari, and they think, “I want that!”

Mass marketing fraud, such as the Jamaican lottery fraud, where people, often pensioners, are told they have won large amounts of money but must first pay taxes, was recently highlighted by CNN (see here).

It’s big issue, Nanz said, and not unknown for senior citizens to commit suicide because of their losses. Although the Jamaican government has said they will crack down on this particular fraud, he noted, “We haven’t seen the political will to stop it.”

Overpayment scams are also very common. There are lots of variations and many originate in Nigeria, but the basic idea is: a person buys goods or services but the payer “overpays” and asks for a refund. Before the bank has cleared the cheque, which in US it takes 10 days after a deposit, the victim sends the refund, only later finding out that they have been given a dud cheque.

According to Nanz, thousands fall victim to this fraud, even prominent law firms, which are taken in by co-conspirators who say they are owed money and retains the firm to sue for it. Those “owing” the money agree to settle, say for $300,000, but they send a cheque for $750,000 and ask the law firm to keep the money owed but send the balance. Once the money is wired to a foreign country, it’s usually gone for good.

The “moral of the story”, he said, is do not trust cheques and do not send a refund until the cheque has cleared.

Another crime that is increasing is where fraudsters use a bogus email address that is very similar to the email of a company that the victim does business with, requesting that they pay them using a different account, the details of which are given in the email. So they think they have paid what is owed until they get notified by the real company asking where their money is.

The FBI also goes after commodities fraud, foreign currency, healthcare, mortgage and corporate fraud.

Why do people do it? Nanz said it’s mostly for the lavish lifestyle and much of the proceeds of financial crime is spent in Las Vegas, mostly on strippers and hookers.

He recalled one case where the FBI caught a guy who had acquired several million dollars through fraud but spent 90% of it at Club Paradise in Vegas. He even kept a spreadsheet on the girls with a rating next to each one. He took one girl to Lake Tahoe and described the weekend as “the best $15,000 he’d ever spent”.

Identity theft is a growing concern and insurance fraud is particularly prevalent in South Florida, where Nanz is based. Frequently this is a staged auto accident and, he said, is perpetrated mainly by Cubans, who seem to feel that stealing from the government or insurance companies is not really a crime. Body injury fraud is also common, where there is real accident but the injuries are exaggerated, which requires corrupt doctors and lawyers.

Defence against fraud is often very simple: “If you get a phone call from someone you don’t know trying to get money, hang up,” Nanz urged.

Everyone wants big returns on investments, he said, “but if Goldman Sachs can’t guarantee 20% returns, the guy calling from a hotel bar can’t either,” he said.

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Category: Finance, Financial Crime

Comments (1)

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  1. Tipping off says:

    “The “moral of the story”, he said, is do not trust cheques and do not send a refund until the cheque has cleared.”


    A cheque can be cancelled years after it’s been issued and you’ll still lose your money.

    The correct answer is to know who you’re dealing with AND if it seems to good to be true it usually is

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