Here’s the hardest thing about writing a fraud roundup in a year so rich with scams, financial chicanery, and all-around questionable behavior: picking the most shocking examples. Is it the Trump Organization’s tax fraud conviction, the stiff sentences for Theranos executives, or the billions of pandemic relief dollars that were misused?
“Very recent cases aside, there haven’t been the enormous headline makers…but the numbers that we’re seeing with a lot of these cases are just astounding to me compared to what we were seeing five years ago,” said Andi McNeal, VP of education at the Association of Certified Fraud Examiners (ACFE).
Any way you slice it, 2022 has been a bumper year for fraud, and 2023 could be worse. Research has shown that fraud increases during an economic downturn, so if the economy goes into a skid, we’ll probably have an uptick in fraud to look forward to as well.
But, before we go all doomsday on 2023, let’s recap some of the biggest fraud stories of 2022.
Crypto crash. There was so much fraud and deception in crypto this year that even Kim Kardashian somehow got caught up in it when the SEC charged her with not disclosing that she was paid to tout crypto coin EthereumMax on Instagram.
Privacy Affairs, an online privacy group, estimated that crypto scams generated $4.3 billion in revenue from January to November 2022.
“I think those of us in the fraud field always knew there were going to be giant crypto scandals because of the gap between the laypersons’ understanding of what’s there and the reality of what that landscape actually looks like,” McNeal told CFO Brew. “The big ones this year, though, is where we’re starting to actually see some of the hypotheses that have been out there come to fruition.”
And you didn’t even have to get hustled to get ripped off. In March, hackers tied to North Korea stole assets worth ~$620 million from a blockchain linked to the Axie Infinity game, according to the US Treasury department, the largest crypto heist ever at the time.
In June, the Justice Department charged six people for a variety of crypto fraud cases with over $100 million in intended losses. The cases included an alleged rug-pull scheme involving the “Baller Ape” NFT, good old-fashioned securities fraud, and an alleged crypto Ponzi scheme.
Also in June, crypto lender Celsius froze user accounts and was accused of being a Ponzi scheme in a lawsuit filed by a former employee. As of September, at least 40 states were reportedly investigating the now-bankrupt company.
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And, of course, the year in crypto fraud is closing out with the multi-billion dollar collapse of FTX. Former CEO Sam Bankman-Fried was arrested in the Bahamas on Monday at the request of the US government, and is reportedly facing charges of wire fraud, wire fraud conspiracy, securities fraud conspiracy, and money laundering, according to the New York Times.
Who’s watching the watchers? It’s been a tough—and expensive—year for auditor malfeasance and neglect, with all of the Big Four accounting firms penalized in 2022 for ethical or legal auditing lapses. In June, the SEC fined EY a record $100 million after the company admitted that its employees cheated on ethics exams. In September, the SEC fined Deloitte’s Chinese affiliate $20 million for letting audit clients conduct their own audit work.
Also in September, “without admitting or denying the SEC’s findings,” audit firm RSM agreed to a $3.75 million penalty from the SEC for failing to “improper conduct and failing to properly audit” a client’s years-long fraud. Not to be left out, KPMG paid $17.2 million to British authorities for giving “false and misleading” info to a regulator during a check of its audits.
“The audit professional wants to keep leaning on their ‘That’s not our job, we’re not supposed to be finding these things’ song and dance that we’ve been hearing for a really long time,” McNeal said. “And I don’t think people buy it anymore. I think people are ready to say, ‘No, we need you to be undertaking your duty as a public watchdog.’”
Corporate misconduct. This wasn’t a great year for corporate behavior, either. In March, the Department of Justice accused telecommunications company Ericsson of violating a previous billion-dollar settlement by “failing to fully disclose evidence of alleged corruption and possible payments to terrorists in Iraq,” including possible bribes paid to ISIS. Boeing agreed to a $200 million fine in September, after the SEC accused it of having “misled” investors about the safety of the 737 MAX.
There were also some not-so-shining examples of CFO behavior this year. Usama Malik, former CFO of pharmaceutical company Immunomedics, was indicted in May for insider trading. Trump Organization CFO Allen Weisselberg pled guilty to his role in a tax-fraud scheme in August. And Frank Okanuk, former CFO of PR firm Weber Shandwick, was sentenced in December to 52 months in federal prison for falsifying records and wire fraud that included embezzling over $16 million.
As for what 2023 might bring? The only prediction we’re willing to make is that the amount of fraud that will happen next year will be greater than $0.—DA