Financial and Systemic

Fraud: Introduction
SEMESTER X
SESSION: 2023-24
SYMBIOSIS LAW SCHOOL, NOIDA
COURSE INSTRUCTOR:
S M ATHAR
Financial Fraud:
What is...
• Financial fraud encompasses a broad range of
illegal activities aimed at stealing money or other
assets through deception or manipulation. It can be
perpetrated by individuals, organizations, or even
entire criminal networks. Understanding the
various types of financial fraud is crucial for law
professors to effectively teach students about the
legal framework surrounding these offenses and
how to identify and combat them.
• In India, the spectrum of financial fraud is diverse,
encompassing various offenses that impact
individuals, businesses, and the nation's economic
fabric
More often, fraudsters appear to be ordinary individuals who believe that they are caught in
extraordinary circumstances. Moreover, they don’t really look at themselves as criminals.
But they certainly are.

• Fraud, as you will see in this course, is not

committed by accounting systems or
computers. It is carried out by living,
breathing human beings who outwardly
seem no different from you and me.
• It would be easy to say that this
phenomenon happens because of greedy,
dishonest people. But greed is a natural
human trait. And Most of us Lie.
• So that explanation falls short of predicting
who will turn to financial and systemic
frauds.
• First, those who commit fraud usually do so
without a grand plan; instead, they made bad
decisions, one after the other.
• Second, like water, fraud follows the path of
least resistance. That is, these offenses are Some Universal
Themes to motives
never more complicated than they need to be in
order to accomplish the perpetrator’s illicit
goals. So, you will notice that many of these
schemes are the essence of simplicity.
• Third, occupational fraud follows definite and Morals of
White-collar
patterns. Association of Certified Fraud
Examiners (ACFE) conducted in-depth study
of more than 2,000 cases and classified frauds

Criminals/ Financial
into three by the methods used to commit
them. There are three broad categories—asset
misappropriations, corruption, and fraudulent
financial statements— and there are numerous
sub-schemes. Fraudsters ?
Classification of
Frauds
1. The most common offenses, asset
misappropriations.
2. The second is Corruption.
3. the least common but by far the most
expensive systemic frauds, the fraudulent
financial statements.
4. variety of other fraud schemes.
Each case focus on
four areas
• Why the fraud was committed is an important human-interest
story.
• How the fraud was committed gives the accounting and other
technical details.
• Lessons learned offers sound advice on what went wrong.
• And preventing future occurrences shows what must be
done to keep the same kind of schemes from happening
again. You will notice that many of these stories don’t have
pleasant outcomes; justice was not served, and lives were
changed forever.
• My experience in this field has taught me that when fraud
occurs, there are no winners. That makes prevention the
ultimate goal. And that process begins with educating
ourselves.
Fraud is a serious problem that
goes much beyond monetary
losses. It costs jobs, raises,
corporate reputations, and
individual dignity. This course will
shed light into the dark corners of
government and commerce
(individual and corporate) so that
we can hopefully avert, in the
future, some of the same mistakes
we have made in the past.
 • Overview of financial fraud and its prevalence in India
• Historical context: Notable financial fraud cases
Introduction to • Distinction between white-collar crime and traditional
Financial Fraud crime
Types of Financial
and Systemic Frauds

• Individual-Level Frauds
• Corporate/Organisation-Level
Frauds
• Systemic Frauds
 Identity Theft: This involves the unauthorized use of another person's personal information
for financial gain, such as opening credit cards or taking out loans in their name.

Credit Card Fraud: This includes unauthorized use of stolen or lost credit cards, skimming
card data through ATMs or point-of-sale systems, and creating counterfeit cards.

Investment Fraud: This encompasses a wide range of schemes aimed at deceiving investors
into purchasing worthless or overvalued securities, including Ponzi schemes, pyramid
schemes, pump-and-dump schemes, and high-yield investment scams.

Individual Bank Fraud: This involves activities aimed at defrauding banks or their customers, such as
check forgery, wire transfer fraud, and account takeover.

Level Fraud Tax Fraud: This includes underreporting income, claiming false deductions, and filing
fraudulent tax returns.

Mortgage Fraud: This involves misrepresenting information on mortgage applications to

obtain loans for which borrowers are not qualified.

Insurance Fraud: This includes filing false insurance claims for losses that never occurred
or inflating the value of legitimate claims.
Corporate or
Organisation Fraud
• This involves companies engaging in fraudulent activities to
deceive investors, creditors, or regulators. This can include
manipulating financial statements, engaging in insider
trading, or bribing officials.
• Accounting Fraud: This involves manipulating financial
statements to misrepresent a company's financial health,
often by inflating profits or concealing losses.
• Securities Fraud: This involves activities aimed at
manipulating the market price of securities, including insider
trading, stock manipulation, and issuing false or misleading
statements about a company's financial condition.
• Currupting & Bribing Government Officials: This involves
bribing national or foreign government officials to obtain or
retain business.
Systemic Fraud

• Market Manipulation: Artificially influencing market prices through

illegal practices like insider trading, front running, or wash trading.
• Accounting Fraud: Misrepresentation of financial statements to deceive
investors, creditors, or regulators.
• Ponzi Schemes: Large-scale versions of the individual fraud, operating
through complex financial structures.
• Pyramid Schemes: Large-scale versions of the individual fraud, often
involving multiple layers of recruitment.
• Insider Trading: Utilizing confidential, non-public information for
personal gain in the stock market.
• Cybercrime: Fraudulent activities conducted through digital means,
including hacking, phishing, and malware attacks.
• Money Laundering: Concealing the source of illegally obtained funds to
appear legitimate.
Prevalence of
Financial and
Systemic Frauds in
India
•The 2018 Report to the Nations on
Occupational Fraud and
Abuse issued by the Association of
Certified Fraud Examiners (ACFE)
includes 96 cases from Southern
Asia that were investigated between
January 2016 and October 2017.
These cases caused a median loss of
US $100,000 per case.