One of the many unintended consequences of the government’s response to the Covid-19 pandemic may well be a significant increase in financial fraud. This is due in part to the central banks lowering of the prime interest rate to zero percent. With money this “cheap” companies and individuals are encouraged to borrow money, which is all well and good until the money must be repaid. And when money is cheap, individuals may use the money they have borrowed recklessly, taking greater risks of loss.
Financial fraud occurs when an individual or corporation offers to provide goods, services, or financial benefits knowing that that these things do not and may never exist. In these situations, the victims of financial fraud trade money for these benefits, but never receive what’s been promised to them. This is because the perpetrators of the financial fraud know that the benefits do not exist, were never intended to be provided, or were misrepresented. Typically, victims give money but never receive what they paid for.
Possibly the most famous historical example of financial fraud occurred in the 1870s and is referred to as a “Ponzi scheme.” Charles Ponzi was a businessman and financier who created the Securities and Exchange Company. Using this as a front to defraud, Mr. Ponzi took money from investors, and then, after a mere 45 days, promised to return to them a 50% profit. Trouble was that the money was never “invested.” Ponzi simply took the new money he was being paid today to pay off the older investors. Also called a “pyramid scheme” a Ponzi scheme can only last so long, and like all Ponzi schemes, it eventually collapsed.
As with all types of financial fraud, the actors are often driven by greed and avarice. According to the Michigan fraud lawyers at the Barone Defense Firm, this is evident in four other kinds of financial fraud which include the following:
Embezzlement – occurs when a person in a position of trust comes into possession of property owned by another, called a “principle,” based on his/her relationship with the principle. The embezzler then converts the property to their own use. An example of this would be when a cashier at a retail store takes money from a customer and puts it in their own pocket rather than the till. On a larger scale, a CFO make take money or shares of stock or company goods and use them to pay personal bills. Depending on a variety of factors, prosecution for embezzlement can occur in the State or Federal Courts.
Payoffs and kickbacks – occur when an employee receives something of value in return for a referral or the creation of a business relationship. This can also happen when an employee sells something for more than necessary and pockets the difference. In the health care scenario, the Federal Anti-Kickback Statute may apply. According to 42 U.S.C. § 1320a-7b it is unlawful to request or receive something of value, usually money, in exchange for referring a patients to a facility that then receives reimbursement for this referral from a federal health care program. For all practical purposes, this is a bribe.
Bad Checks or Illegally Using Credit Cards – also called “uttering and publishing” or “financial transaction device” these types of crimes are very common at the state level. Knowingly writing a check for which you don’t have money in your bank account to cover is enough to be charged with uttering and publishing.
Junk Bonds Illegal Stock Schemes and Other Complex Financial Crimes – the imagination can be boggled by the ingenuity of those who create complex financial instruments with the intent of getting rich quick or in some cases, simply to try to save a failing company. Michael Milken is the famous junk bond king of the 1980’s and in the same and following decade the Enron stock scandal emerged. In this case Enron falsely inflated their stock value by recording in their financial ledgers assets and profits at grossly inflated value or that were totally nonexistent. This is similar to a Ponzi scheme in a way, and eventually Enron collapsed and went bankrupt. These are just two examples of how companies can create false or fraudulent financial instruments or schemes in order to enrich themselves or pay off existing debt.
Returning now to Covid-19 and the era of zero interest rates, Jim Chanos is an expert on financial fraud who has written and lectured extensively on this topic. He was recently quoted in the Detroit News as saying that today’s “easy money” is helping companies “that are not playing by the rules to keep the game going for a while.” According to Chanos, in times like these, well meaning intelligent individuals sometimes “drop their sense of disbelief” and make decisions that they would otherwise resist making. They then engage in fanciful thinking and begin to believe things that are too good to be true. This results in companies being able to obtain funding for otherwise questionable business models still get funded. Just like with Ponzi so many years ago, people do not realize they’ve been defrauded until they want their money back. Chanos predicts that as people begin to come to their senses, and as prosecutors at State and Federal levels begin to learn of the ongoing financial fraud happening right now, a cascade of new fraud cases will emerge.
If you have been charged with financial or health care fraud in Michigan have one of the Michigan Fraud Lawyers at the Barone Defense Firm review your case and develop a defense strategy to put you in the best possible legal position. Our consultations are free and carry no obligation to retain our services.