Legal Communication – Nicola Sarjeant
Fraud
In criminal law, fraud is the crime or offence of deliberately deceiving
another in order to damage them – usually, to obtain money, property
or services unjustly.
Acts which may constitute criminal fraud include:
1. bait and switch
a. a fraudulent investment operation that involves paying
abnormally high returns ("profits") to investors out of the
money paid in by subsequent investors, rather than from
2. bank fraud
profits
b. an attempt to defraud a person (known as the "mark")
3. confidence tricks
which involves gaining his or her confidence - exploiting
human weaknesses like greed, dishonesty, vanity, but also
4. embezzlement
virtues like honesty, compassion, or a naïve expectation of
good faith on the part of the con artist
5. false advertising
c. attracting customers by advertising a product or service at
an unprofitably low price, then saying that the advertised
6. false billing
good is not available but that a more expensive substitute
is.
7. false insurance
d. billing or otherwise requesting funds from an individual or
claims
firm without showing obligation to pay
e.
deliberately false statements or deception in advertising, in
8. forgery of documents
order to gain a commercial advantage
or signatures
f. false claims filed with the intent to get money from an
insurer
9. health fraud
g. illegal usage of another individual's identity
h. making an illegal copy
10. identity theft
i. when investors are enticed into purchasing (or not selling)
security instruments based on untrue data, statements or
11. investment frauds,
promises
such as Ponzi
j.
selling ‘medicines’ with which have no medical value
schemes
k. taking money entrusted to someone’s care but owned by
someone else
12. mail fraud
l. obtaining or planning to obtain property or money from any
federally insured financial institution in a fraudulent manner
13. marriage fraud
m. any scheme which attempts to unlawfully obtain money or
valuables in which the postal system is used at any point in
14. securities (stocks and
the commission of a criminal offence
bonds) fraud
n. any criminally fraudulent activity that involves electronic
communications of any sort, at any phase of the event.
15. wire fraud
o. entering a marriage for personal gain (such as immigration
benefits) rather than a genuine desire to enter into a
sincere marital relationship.
Fraud, in addition to being a criminal act, is also a tort. A civil fraud typically involves the act of
intentionally making a false representation of a material fact, with the intent to deceive, which is
reasonably relied upon by another person to that person's detriment.
Discussion
1. Do you know anyone who has been affected by any of these kinds of fraud?
2. Have you heard about any fraud cases in the news?
3. Have you heard about Bernie Madoff? What did he do?
Legal Communication – Nicola Sarjeant
Charles Ponzi (March 3, 1882 – January 18, 1949)
was one of the greatest swindlers1 in American history.
He promised clients a 50% profit within 45 days, or
100% profit within 90 days, by buying discounted
postal reply coupons in other countries and redeeming
them at face value in the United States as a form of
arbitrage2.
Vocabulary
esoteric – very unusual; understood or liked by only a
small number of people, especially those with special
knowledge
insider – someone who is an accepted member of a group and who therefore has special or
secret knowledge or influence
well-to-do – rich
Nasdaq – a technologies-based stock market
return – the profit or loss you have on your investments, including income and change in value
expose – to make public something bad or dishonest
Watch the video “How does a Ponzi scheme work?”3
1. Why did Charles Ponzi go to federal prison?
2. How does the scheme work?
3. Why does this kind of scheme initially work so well?
4. What are the three ways a Ponzi scheme usually comes to an end?
1
To swindle is to get money dishonestly from someone by deceiving or cheating them.
Arbitrage is the practice of taking advantage of a price differential between two or more markets.
3
http://www.youtube.com/watch?v=zRTPKcJGwe4
2
Legal Communication – Nicola Sarjeant
Fraud
More vocabulary
1. She is a seasoned traveler, who has
been to over 50 countries.
2. A company's assets can consist of
cash, investments, buildings,
machinery, specialist knowledge or
copyright material such as music or
computer software.
3. The girls were duped by drug
smugglers into carrying heroin for
them.
4. They make the naïve assumption that
because it's popular it must be good.
5. He was found guilty of reckless
driving.
6. The venerable American jeweler,
Tiffany & Company, appointed a new
president.
7. It is the global watchdog for human
rights abuses.
8. Inflation is likely to accelerate this
year, adding further upward pressure
on interest rates.
9. I thought it was time to come clean
with everybody about what I'd been
doing.
a. a person or organization responsible for
making certain that companies or other
organizations maintain standards and do not
act illegally
b. doing something dangerous and not worrying
about the risks and the possible results
c. having a lot of experience of doing something
and therefore knowing how to do it well
d. respected, esp. because of long experience
or age
e. something valuable belonging to a person or
organization which can be used for the
payment of debts
f. to deceive someone, usually by making them
do something they did not intend to do
g. to happen or make something happen sooner
or faster
h. to tell the truth about something that you have
been keeping secret
i. too willing to believe that someone is telling
the truth, that people's intentions in general
are good, or that life is simple and fair.
exposure – the state or condition of being unprotected and open to damage, danger, risk of
suffering a loss in a transaction, or uncertainty.
hedge fund – an investment company that is organized as a limited partnership and uses highrisk techniques in the hope of making large profits
redemption – the return of an investor's principal (the original investment) in a security, such as
a bond, preferred stock or mutual fund shares, at or prior to maturity.
Watch the video “How did $50b ‘fraud’ happen?” (bbc.co.uk)4
1. When did Madoff start investing?
2. Why was this scheme different from most traditional pyramid schemes?
3. Why was the Securities and Exchange Commission (SEC) accused of “sleeping on the job”?
4. Why was Madoff able to get so many investors?
5. Why did Madoff have to come clean?
6. What happened to the Simpkins as a result of Madoff’s scheme?
7. Warren Buffett, the world’s richest man, once said of excessive risk-taking in times of
economic crisis: “You only learn who’s been swimming naked when the tide goes out”.
What does this mean?
4
http://news.bbc.co.uk/2/hi/programmes/world_news_america/7784800.stm
Legal Communication – Nicola Sarjeant
Madoff was charged with 11 federal offenses, including securities fraud, wire fraud, mail fraud,
money laundering5, making false statements, perjury6, theft from an employee benefit plan, and
making false filings with the SEC.
 What kind of punishment do you think he should get? Why?
Watch the video “What is in store for Madoff?” (bbc.co.uk)7
1. Andrew Cohen says that prosecutors will say that that judge should
“throw the book” at Madoff. What does this mean?
2. What would have happened if Madoff hadn’t pleaded guilty?
3. Why do most people think that Madoff didn’t act alone?
4. How long did the scheme last?
5. What does the government have to prove with respect to other people beneath Madoff?
6. Andrew Cohen says investors are likely to get “pennies on the dollar” – what does this mean?
Discussion
1. Why do you think Madoff decided to plead guilty? Was it a wise decision?
2. In June, Madoff was sentenced to 150 years in prison. This is effectively a life sentence
(the date he is eligible for release – on good behaviour – is November 14, 2139). Do you
think this is an appropriate punishment? Why/why not?
3. In December 9, 2008, Madoff apparently told his sons that he was “finished,” that he had
“absolutely nothing” left, that his investment fund was “just one big lie” and “a giant Ponzi
scheme.” According to their attorney, Madoff's sons then reported their father to federal
authorities. On December 11, he was arrested and charged with securities fraud. What
would you have done if you were in his sons’ situation? Why?
4. Do you think it is possible that Madoff acted alone? Why/why not?
5. Ruth Madoff, his wife, has agreed to give up US$85 million in assets (including three homes,
a yacht, fur coats and jewellery), leaving her with "only" US$2.5 million in cash -- a good
deal more than many of Mr. Madoff's victims. Do you think she should be able to keep this
much cash? Why/why not?
6. Often people who are convicted of white collar crimes are sentenced to time in minimum
security prisons, which have much nicer facilities than higher security prisons. Should all
criminals have to do their time in the same type of facility? Why/why not?
7. In Madoff’s case, he will initially spend his time in a medium-security facility – with violent
criminals, drug dealers and gang members, most of them serving life sentences of their
own.8 Do you think this is appropriate, or should he be in a minimum security facility? Why?
5
Money laundering is concealing the source of illegally gotten money.
Perjury is the criminal offense of making false statements under oath.
7
http://news.bbc.co.uk/2/hi/programmes/world_news_america/7941054.stm
8
http://www.nytimes.com/2009/07/15/business/15madoff.html?_r=1&hp
6