5 most scandalous fraud cases of 2019


By Emily Primeaux, CFE

When Fraud Magazine debuted its first list of scandalous fraud cases last year, names like Theranos, 1MDB and Danske Bank were all over the news for their notorious schemes. It’s hard to believe that anything could top these costly and infamous cases, but, sadly, fraud never seems to be on the decline.

The ACFE has found that large, noteworthy fraud cases — like Enron or Bernie Madoff — will live on in infamy and can provide valuable lessons for fraud fighters. That’s why we, along with input from our members, have selected these five stories of 2019 as the most scandalous frauds of the year. We chose the stories based on money lost, lives impacted and relevance to the anti-fraud profession.

admissions Hero

Thirty-three parents of college applicants are accused of bribery to influence undergraduate admissions decisions

Boston, Massachusetts - April 3, 2019: Felicity Huffman exits the John Joseph Moakley U.S. Courthouse after appearing in Federal Court to answer charges stemming from the college admissions scandal. (Photo by Paul Marotta/Getty Images)

Parties charged: 50

The ringleader: William Singer

They’re rich. Some of them are famous. Not all of them are ethical. In March 2019, U.S. federal prosecutors charged at least 50 people for schemes involving wealthy parents who bought spots for their children in freshman classes at Yale, Stanford, the University of Southern California and other big-name schools. (See Actresses, Business Leaders and Other Wealthy Parents Charged in U.S. College Entry Fraud, by Jennifer Medina, Katie Benner and Kate Taylor, The New York Times, March 12, 2019.)

Nicknamed “Operation Varsity Blues,” by the U.S. federal government, the 2019 college admissions bribery scandal arose over a criminal conspiracy to influence undergraduate admissions decisions at several top American universities. Hollywood celebrities, like Felicity Huffman and Lori Loughlin, and prominent business leaders, like William E. McGlashan Jr., a partner at the private equity firm TPG, were among the parents charged. Also implicated were top college athletic coaches, who were accused of accepting millions of dollars to help admit undeserving students to a wide variety of colleges by suggesting they were top athletes.

According to prosecutors, many of the students were unaware that their parents were doctoring their test scores and lying to get them into school. Federal prosecutors haven’t charged any students or universities with wrongdoing.

“‘Bounded ethicality’ describes the systematic and predictable ways in which people engage in unethical acts without realizing they are doing anything wrong,” says Bret Hood, CFE, ACFE Faculty member and director, 21st Century Learning & Consulting. “In the school admissions case, parents were focused on doing what they felt was best for their children. Bounded ethicality likely led the parents to never give thought to the possibility that their actions would adversely impact others, yet for someone completely detached, the damage to others would be obvious.”

And the damage to others in the college admissions scandal is obvious, according to Andrew E. Lelling, the U.S. attorney for the District of Massachusetts. “The parents are the prime movers of this fraud,” Lelling said in The New York Times article. “The real victims in this case are the hardworking students.” They were displaced in the admissions process by “far less qualified students and their families who simply bought their way in,” he said.

Of the schemes, some of the most noteworthy included:

  • Parents of a teenage girl who’d never played soccer paid $1.2 million to magically make her a star soccer recruit.
  • A student with no rowing experience won a spot on the University of Southern California crew team after a photograph of another person in a boat was submitted as evidence of her ability. Her parents paid $200,000.
  • Actress Felicity Huffman paid thousands of dollars to have one of her daughter’s SAT scores inflated. She was later sentenced to 14 days in prison. (See Actress Felicity Huffman Sentenced To 14 Days In College Admissions Scandal, by Vanessa Romo, NPR, Sept. 13, 2019.)

According to The New York Times article, the puppeteer of the financial crime and fraud case was William Singer, the founder of a college preparatory business called the Edge College & Career Network, also known as The Key. Authorities said The Key and its nonprofit arm helped students cheat on their standardized tests, and paid bribes to the coaches who could get them into college with fake athletic credentials. This was the Justice Department’s largest-ever college admissions prosecution.

Capital One Hero

More than 100 million Capital One credit card applications and accounts compromised

New York, New York - July 30, 2019: A Capital One bank stands in Midtown Manhatten. In one of the largest-ever thefts of bank data, a software engineer in Seattle was arrested for hacking into a Capital One server and obtaining the personal data of over 100 million people. (Photo by Drew Angerer/Getty Images)

Accounts hacked: More than 100 million

The hacker: Paige Thompson

We’ve seen a surge of data breaches in the last decade: Target in 2013, Home Depot in 2014, Anthem in 2015, Marriott International in 2018 and more. But 2019 saw one of the biggest data breaches ever when a hacker gained access to more than 100 million Capital One customers’ accounts and credit card applications. (See A hacker gained access to 100 million Capital One credit card applications and accounts, by Rob McLean, CNN Business, July 30, 2019.)

In July 2019, Paige Thompson, 33, was accused of breaking into a Capital One server and gaining access to 140,000 Social Security numbers, 1 million Canadian Social Insurance numbers and 80,000 bank account numbers, plus an undisclosed number of people’s names, addresses, credit scores, credit limits, balances and other information, according to the bank and the U.S. Department of Justice (DOJ).

According to the CNN Business article, a criminal complaint said Thompson tried to share information with others online. She’d previously worked with Amazon Web Services, the cloud hosting company that Capital One was using. Capital One said the hack occurred in March, and the company had fixed the vulnerability.

“It was obviously application data that was released,” says Tom Shaw, CFE, financial services consultant and former vice president of Enterprise Financial Crimes Management at USAA. “So, once we heard about the Capital One breach, the major players in the space of providing products such as credit cards, deposit accounts and loans asked, ‘What do we need to mitigate that fraud that is going to emanate once that information gets out on the dark web and starts to get sold?’ That was our No. 1 priority in the industry. When a sizable breach happens it can expose financial institutions to an uptick in application fraud, which results in identity theft for many consumers that were part of the breach.”

Shaw says that without knowing all of the types of individual records released, they had to relook at the financial services preventive and detective measures to verify who people say they are, and they had to make sure they were doing the best job of validating people applying for accounts.

“It had a big impact on digital banks that open accounts online,” he says. “We had to verify in nondocumentary means using third-party data sources. We had to look at our defenses without knowing what information had been breached.”

According to a source with direct knowledge of the breach investigation, the problem in the hack stemmed in part from a misconfigured open-source web application firewall that Capital One was using as part of its operations hosted in the cloud with Amazon Web Services. (See What We Can Learn from the Capital One Hack, KrebsonSecurity, Aug. 19, 2019.) A misconfiguration allowed Thompson to trick the firewall into relaying requests to key back-end resources on the platform.

“Financial institutions need to have defense of depth to protect their data and to be able to detect cyber intrusions,” says Shaw. “Fraud examiners should collaborate with their front-line defense teams in cybersecurity and fraud prevention and detection. When you see patterns that look out of the ordinary, make sure you’re working closely with the front-line fraud preventative and detective teams to report back your investigative findings.”

Steinhoff Hero

PwC investigation finds $7.4 billion accounting fraud at Steinhoff

Money lost: $7.4 billion

Duration of fraud: 8 years

Steinhoff International is a South African international retail holding company that deals mainly in furniture and household goods. It operates in Europe, Africa, Asia, the U.S., Australia and New Zealand. (See steinhoffinternational.com.) It also overstated profits for several years to the tune of a $7.4 billion accounting fraud involving a small group of top executives and outsiders, according to an independent report by PwC. (See PwC investigation finds $7.4 billion accounting fraud at Steinhoff, company says, by Tiisetso Motsoeneng and Emma Rumney, Reuters, March 15, 2019.)

According to the Reuters article, Steinhoff first disclosed irregularities in its books in December 2017, but it wasn’t until PwC conducted and completed its investigation that the accounting fraud was revealed. PwC found the firm recorded fictitious or irregular transactions totaling 6.5 billion euros ($7.4 billion) from 2009 to 2017. Investigators found that a small group of former Steinhoff executives and individuals from outside the company implemented the deals, which substantially inflated the group’s profit and asset values. It’s the country’s biggest corporate scandal to date.

Chief Executive Markus Jooste has resigned, but denied any wrongdoing, while other high-level executives at Steinhoff have also exited the company. Shareholder value plummeted in the wake of the news, and reports have said the company posted a $12 billion valuation write-down after PwC provided its findings to the firm. (See PwC Probe Uncovers $7.4B Steinhoff Accounting Fraud, PYMNTS, March 18, 2019.)

Huawei Hero

US charges Chinese telecom giant Huawei with fraud, stealing trade secrets

Vancouver, British Columbia - Sept. 23, 2019: Huawei Technologies Co. Chieft Financial Officer, Meng Wanzhou, leaves the British Columbia Superior Court. (Photo by Karen Ducey/Getty Images)

Facing possible extradition: Meng Wanzhou

Next hearing date: March 2020

What do the U.S., China, Canada and Iran have in common? Telecom giant and smartphone maker, Huawei. In May 2019, U.S. authorities charged Huawei with nearly two dozen criminal charges and sought extradition of Huawei executive Meng Wanzhou from Canada. Authorities claim Huawei misled the U.S. government about the company’s business in Iran, which is under U.S. economic sanctions. (See Huawei faces US charges: The short, medium and long story, BBC News, May 7, 2019.)

Huawei is one of the largest telecommunications equipment and services providers in the world. According to the BBC article, it’s become the poster child for China’s dynamic tech sector, and recently overtook Apple in the number of handsets shipped worldwide.

In December 2018, Canada arrested Huawei’s chief financial officer, Meng Wanzhou, at the request of the U.S. Huawei and Meng were charged with bank and wire fraud, and conspiracy to commit bank and wire fraud in relation to skirting American sanctions on Iran. (See Huawei CFO’s extradition case: Everything you need to know, by Arjun Kharpal, CNBC, May 8, 2019.)

According to the BBC article, the indictment alleges Huawei misled the U.S. and a global bank about its relationship with two subsidiaries, Huawei Device USA and Skycom Tech, to conduct business in Iran. In 2018, President Donald Trump reinstated all U.S. sanctions on Iran that had been removed under a 2015 nuclear deal.

A second indictment alleges Huawei stole technology from phone company T-Mobile used to test smartphone durability plus obstructed justice and committed wire fraud, which Huawei says was settled in a civil case filed in 2014.

“Technology has exponentially increased fraud risk around the globe,” says ACFE Regent Bethmara Kessler, CFE. “As we think about fraud risk, the need to be expansive and open to thinking the unthinkable must be our new normal. To be effective in combating global fraud, we need to be proactive and deeply understand the realities of fraud risk outside of our traditionally defined boundaries. A case has to be made for western companies to actually care about the Huawei fraud and the reach of its implications.”

According to the BBC article, when news broke that Meng had been detained, China’s embassy in Canada was quick to protest the arrest and demand her release. Not long after her arrest, two Canadians were detained in China on allegations of endangering Chinese national security.

Meng is currently out on bail and under house arrest in Vancouver. In March 2019, Canada’s Department of Justice authorized her extradition process, and she’s due in court in March 2020, when her hearing date will be scheduled.

healthcare Hero

Feds take down $1 billion Medicare fraud

Money lost: $1 billion

Parties charged: 24 doctors and owners of medical equipment companies

The U.S. Senate Committee on Aging recently presented its annual report on staggering elder financial abuse. Scammers continue to target this vulnerable population, according to a Jan. 16, 2019, Forbes article by Ted Knutson, Frauds Threatening Seniors With Jail Unless They Pay Proliferate As Elder Abuse Nears $3 Billion.

It appears that elder fraud continues to keep a target on its back — in April 2019, an international telemarketing network lured hundreds of thousands of elderly or disabled patients into a criminal scheme, according to U.S. prosecutors. (See Feds take down $1 billion Medicare fraud scheme in ‘Operation Brace Yourself,’ by Adiel Kaplan, Jay Blackman, Tom Costello and Sarah Ploss, NBC News, April 9, 2019.)

According to the article, two dozen people, including doctors and owners of medical equipment companies, were charged in a more than $1 billion Medicare scam. Investigators uncovered a plot that targeted elderly and disabled people by setting them up with back, neck and knee braces they didn’t need. The scheme has been dubbed Operation Brace Yourself.

Prosecutors said the fraudsters laundered the ill-gotten gains through international shell companies and used them to buy exotic cars, yachts and luxury real estate in the U.S. and overseas. As part of the scheme, doctors were paid to prescribe braces to patients they had little-to-no relationships with. Doctors had brief conversations via phone calls or video conferences with patients they never met using call centers in the Philippines and throughout Latin America. As a result, personal information of hundreds of thousands of Medicare beneficiaries was compromised and could be used in future schemes, according to prosecutors in the NBC News article.

Emily Primeaux, CFE, is associate editor of Fraud Magazine. Contact her at eprimeaux@ACFE.com.

Dishonorable mentions

It’s impossible to highlight every large fraud case because of the sheer number of frauds that are discovered or prosecuted each year. While they weren’t selected as part of our top 5, here are a few additional stories from 2019 that are still notable because of the size of the fraud, callousness of the fraudsters or sheer scandal of the crime.

Homeless man and New Jersey woman plead guilty in $400k GoFundMe hoax

In April 2019, Katelyn McClure, 29, and Johnny Bobbitt, 36, pleaded guilty for their roles in duping thousands of people out of $400,000 through a fictionalized GoFundMe page. In November 2017, McClure and her then-boyfriend Mark D’Amico created a GoFundMe page titled “Paying It Forward.” It said that McClure was driving home from Philadelphia when she ran out of gas and that Bobbitt, a homeless veteran, spent his last $20 to buy her gas. Fourteen thousand people donated $400,000, which the couple squandered away gambling, on a helicopter ride, a BMW, clothing and Louis Vuitton handbags. When Bobbitt realized most of the money they’d put in a bank account for him had been blown, he sued the couple. McClure pleaded guilty in federal court to one count of conspiracy to commit wire fraud, while Bobbitt pleaded guilty to charges related to the hoax. (See N.J. Woman Pleads Guilty In Homeless GoFundMe Hoax, Faces 4 Years in State Prison, by Amy Held, NPR, April 16, 2019.)

Fake heiress Anna Sorokin sentenced to up to 12 years in prison

In May 2019, a judge sentenced fake German heiress Anna Sorokin, 28, to four to 12 years in prison for defrauding hotels, restaurants, a private jet operator and banks out of more than $200,000. Sorokin posed as a German heiress with a $60 million trust fund and talked herself into the most exclusive hotels, clubs and parties in New York City. At the trial, prosecutors said she overdrew a bank account and forged financial records to further her ruse that she perpetuated under the name Anna Delvey. She was found guilty of grand larceny and theft of services. (See Anna Sorokin: fake German heiress sentenced to up to 12 years in prison, by Edward Helmore, The Guardian, May 9, 2019.)

80 indicted in Nigerian online fraud, money laundering scheme

In August 2019, the U.S. Department of Justice unsealed a 252-count federal indictment charging 80 defendants — most of them Nigerian nationals — with conspiring to steal millions of dollars through online frauds that targeted businesses, the elderly and women. A nearly three-year FBI investigation uncovered one of the largest internet fraud schemes the FBI has ever seen. (See 80 indicted in Nigerian online fraud, money laundering scheme, CBSN Los Angeles, Aug. 22, 2019.)






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