5 most scandalous fraud cases of 2022

It’s hard to believe, but it’s been almost three years since the start of the COVID-19 pandemic, and fraud fighters are still grappling with the fallout of frauds tied to government-relief funds. Yet, despite the massive scale of pandemic frauds and the staggering loss of money, governments made some progress after enacting task forces to investigate COVID-related frauds and recover stolen funds. And while some of the most scandalous frauds of 2022 were connected to the pandemic, it wasn’t all COVID all the time. Indeed, there were plenty of other frauds we believe will live on in infamy and serve as essential case studies for fraud examiners in the years to come. (See “Justice Department Announces COVID-19 Fraud Strike Force Teams,” U.S. DOJ press release, Sept. 14, 2022 and “Secret Service recovers $286 million in stolen COVID relief funds,” by Julia Ainsley and Sarah Fitzpatrick, NBC News, Aug. 26, 2022.)

Here we look at the most scandalous of 2022. And see the sidebar below for updates on some of the most famous perpetrators of past frauds.

01/ Crypto Bonnie and Clyde

The bride, dressed in gold, arrived on a Moroccan palanquin and rapped a love ditty to the groom, and the groom performed a mind-reading trick to delight the guests. But while the couple feted their love, U.S. law enforcement officials were inching closer to nabbing the newlyweds for allegedly laundering stolen bitcoin from the 2016 Bitfinex hack. When the couple was arrested, U.S. law enforcement seized from them approximately $3.6 billion in cryptocurrency, the largest U.S. financial seizure to date. [See “The Ballad of Razzlekhan and Dutch, Bitcoin’s Bonnie and Clyde,” by Nick Bilton, Vanity Fair,  Crypto Crime, Aug. 18, 2022 and “Two Arrested for Alleged Conspiracy to Launder $4.5 Billion in Stolen Cryptocurrency,” U.S. Department of Justice (DOJ) press release, Feb. 8, 2022.]

Ilya “Dutch” Lichtenstein and Heather Morgan were an unlikely pair of fraudsters when U.S. officials arrested them at their New York apartment in February for conspiracy to commit money laundering and defraud the U.S. Lichtenstein was a technology entrepreneur, and Morgan was an occasional contributor to Forbes magazine with articles about protecting digital currency from fraud. She also had a hobby as a rapper called “Razzlekhan.” The couple often took their cat for walks in a stroller. But behind their quirky personas, U.S. law enforcement officials say the couple conducted an intricate money-laundering scheme that would take six years to solve.

In 2016, someone hacked cryptocurrency exchange Bitfinex and looted 119,754 bitcoins, about $72 million at the time. Lichtenstein and Morgan aren’t accused of the actual hack, but they’re facing more than 20 years in prison for allegedly taking those stolen funds, storing them in a digital wallet and laundering them via gold coins, Walmart gift cards, international travel, five-star hotels and likely their wedding. Federal prosecutors say the couple traveled to Ukraine in 2019 to plan a life there. They allegedly bought fake Ukrainian passports, SIM cards and details for secret bank accounts from the dark web. (See “How Feds Aimed To Unravel One Of The Most Notorious Cryptocurrency Heists Of All Time,” by Jill Sederstrom, Oxygen True Crime, Oct. 19, 2022.)

According to Ars Technica, IRS Criminal Investigation (IRS-CI) traced the couple’s alleged money laundering path from Lichtenstein’s digital wallets across the Bitcoin blockchain through wallets hosted on the AlphaBay darknet market. The couple then used techniques like “chain-hopping,” in which they exchanged bitcoins for monero, a “privacy coin,” to hide the trail of funds. In an article for Wired magazine, reporter Andy Greenberg wrote that the number of multilayered measures the couple took to obscure their tracks wasn’t the most impressive part of the case. What was more remarkable was how federal investigators were able to crack the case and expose the pair’s attempts at anonymity. “They demonstrated just how advanced cryptocurrency tracing has become — potentially even for coins once believed to be practically untraceable,” wrote Greenberg. (See “$3.6 billion bitcoin seizure shows how hard it is to launder cryptocurrency,” Ars Technica, Feb. 12, 2022.)

According to David Utzke, Ph.D., CFE, who worked with the IRS-CI when Lichtenstein and Morgan were arrested, fraud examiners must know the technologies criminals are using to launder cryptocurrency. Utzke is now senior director of cryptoeconomic technology for MasterCard. “Coming from a decades-long career in technology and civil/criminal cybercrimes federal enforcement and being engaged in this investigation as it evolved in mid-2016, whether we’re talking about digital assets, art, drugs, or some other asset — digital or physical — laundering, traditional AML and sanction methods are not addressing the technology methods criminals utilized,” Utzke says.

However, federal investigators eventually tied Lichtenstein and Morgan to the stolen crypto in a much more ordinary way by linking a $500 Walmart gift card to their emails and cloud-service providers. (See “A Crucial Clue in the $4.5 Billion Bitcoin Heist: A $500 Walmart Gift Card,” by James Fanelli, Ben Foldy and Dustin Volz, The Wall Street Journal, Feb. 15, 2022.)

Lichtenstein and Morgan’s futures are uncertain as they await plea deals and sentences, but one thing is for sure: Cryptocurrency and fraud will still be hot topics in 2023, especially in the wake of crypto exchange FTX’s extraordinary crash in November. The Securities and Exchange Commission is investigating if FTX mishandled customer funds. Investors filed a lawsuit alleging that FTX founder Sam Bankman-Fried and celebrities like Tom Brady and Larry David engaged in deceptive practices to sell FTX yield-bearing digital currency accounts. (See “Sam Bankman-Fried’s FTX Empire Faces U.S. Probe Into Client Funds, Lending,” by Lydia Beyoud, Yueqi Yang and Olga Kharif, Bloomberg, Nov. 9, 2022 and “FTX’s Bankman-Fried, Tom Brady and other celebrity promoters sued by crypto investors,” by Jody Godoy, Reuters, Nov. 17, 2022.)

Reports that Bankman-Fried had inappropriately been using FTX’s customers’ funds to prop up his crypto hedge fund Alameda Research sparked a rush for the exits and the overnight collapse of the exchange. Creditors are now looking to recoup billions of dollars from the company. Bankman-Fried’s high standing not only in the crypto community but among regulators and politicians has made the bankruptcy particularly shocking and has the potential to be one of the biggest fraud cases of 2023. FTX’s new CEO John J. Ray III, better known for overseeing the collapse of Enron more than 20 years ago, has been scathing in his assessment of the inner workings of the exchange. “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” he said. (See “8 Days in November: What Led to FTX’s Sudden Collapse,” by David Z. Morris, CoinDesk, Nov. 9, 2022 and “The crypto meltdown, explained,” by Allison Morrow, CNN, Nov. 18, 2022.) 

02/ Unhealthy choices

From suits against large U.S. health insurers for allegedly defrauding the Medicare Advantage program to pharmaceutical giant Biogen’s eye-popping settlement, 2022 turned out to be quite a shameful year for health care.

In July, Biogen agreed to a $900 million settlement with the U.S. government over allegations that it gave kickbacks to doctors for promoting its multiple sclerosis (MS) drugs.

A former Biogen employee, Michael Bawduniak, originally sued the company in 2012 under the U.S. False Claims Act as a whistleblower. In Bawduniak’s lawsuit, he accused his ex-employer of enticing doctors with sham consulting deals, speaker engagements and fancy dinners so they’d prescribe Biogen’s MS drugs to their patients. As Reuters explained, MS drugs are expensive, and only a small number of drugs are approved to treat the autoimmune disease affecting the central nervous system. The alleged kickbacks were meant to help the Cambridge, Massachusetts-biotech company, which specializes in treatments for neurological diseases, corner the market and boost sales of its MS drugs.

The DOJ claimed the alleged kickbacks resulted in false claims to Medicare and Medicaid for prescriptions of Biogen’s MS drugs. Biogen denies any wrongdoing. (See “Biogen agrees to $900 million drug kickback settlement on eve of trial,” by Nate Raymond, Reuters, July 20, 2022 and “Biogen Inc. Agrees to Pay $900 Million to Settle Allegations Related to Improper Physician Payments,” DOJ press release, Sept. 26, 2022.)

In October, The New York Times highlighted the extent to which U.S. health insurers have allegedly exploited Medicare Advantage — the arm of the U.S. national health system for older Americans managed by private entities — by fraudulently inflating diagnostic codes and making billions of dollars in the process. (See “‘The Cash Monster Was Insatiable’: How Insurers Exploited Medicare for Billions,” by Reed Abelson and Margot Sanger-Katz, The New York Times, Oct. 8, 2022.)

The DOJ has sued some of the biggest health insurance companies in the country — UnitedHealth, Humana and Kaiser Permanente, to name a few — for submitting inflated bills and overdiagnosing patients. The DOJ has joined several suits that were originally filed by whistleblowers, signaling that law enforcement believes the fraud allegations have merit.

The suits suggest that incredibly profitable insurance companies are gaming a system that pays them higher rates for sicker patients. The lawsuits describe how the companies have “developed elaborate systems to make their patients appear as sick as possible, often without providing additional treatment” to collect more from the government, The New York Times wrote. California-based Kaiser Permanente allegedly urged doctors to add extra illnesses to patients’ medical records, incentivizing them with bottles of Champagne or pay bonuses. The U.S. Congressional watchdog group MedPAC has estimated that additional diagnoses led to $12 billion in overpayments in 2020. (See “‘The Cash Monster Was Insatiable’.”)

03/ Scam-to-scam banking

The company Zelle makes sending money to someone a cinch. It’s a person-to-person payment service controlled by many of the largest U.S. banks. You only need to connect the app to your bank account and voila: The recipient gets your money instantly with no need to wait for a bank transfer or a payment to clear. But the immediacy of the service is also what makes it popular with fraudsters.

In 2021, people sent $490 billion through Zelle, but all those billions in transactions also include plenty of fraud, and the service has become a favorite hunting ground for the likes of romance and cryptocurrency scammers. And while banks say they take Zelle fraud seriously, many victims have struggled to get help. The problem is that many fraudsters trick their marks into authorizing Zelle payments, and banks say regulations don’t require them to refund money for authorized transactions. (See “ Fraud Is Flourishing on Zelle. The Banks Say It’s Not Their Problem,” by Stacy Cowley and Lananh Nguyen, The New York Times, March 6, 2022.)

“It’s like the banks have colluded with the sleazebags on the street to be able to steal,” fraud victim Bruce Barth told The New York Times. Barth is one of many customers scammed by thieves on the service but discovered his bank was unwilling to refund the stolen money.

Since the summer, Zelle customers have joined in several class-action lawsuits aimed at their banks. The lawsuits, against the likes of TD Bank, Capital One and Wells Fargo, press banks to take responsibility for the money customers have lost to fraudsters through authorized Zelle payments and claim financial institutions haven’t done enough to warn customers about these scams. (See “TD Bank, Capital One and more, Zelle fraud class action lawsuit investigation,” Top Class Actions, Oct. 30, 2022 and “Class Action Lawsuit Filed Over Alleged Wells Fargo Zelle Scam [Update],” by Corrado Rizzi, ClassAction.org, updated June 30, 2022.)

The U.S. Senate Banking Committee convened hearings in September, pressing bank CEOs and Zelle’s operator, Early Warning Services, on how they can make their customers whole. JP Morgan CEO Jamie Dimon told the committee, “Anything that’s unauthorized, we do cover. So, you’re really talking about authorized transactions that we have an enormous amount of systems to stop. And the amount of fraud relatively is very small for this free-of-charge service.” (See “Zelle Emerges as Lawmakers’ Surprise Foe at Bank Hearings,” by Jennifer Surane, Bloomberg, Business, updated Sept. 22, 2022.)

An investigation led by U.S. Senator Elizabeth Warren (D-MA) found that in 2021 and the first half of 2022, four banks had 192,878 cases worth $213.8 million where a customer claimed they’d been tricked into making Zelle payments. Banks reimbursed customers in only 3,500 of those cases. Only 47% of the dollars were reimbursed in cases where it was obvious that funds were transferred without the customers’ authorizations. Warren’s report also found that PNC Bank had 8,848 cases on Zelle in 2020 and will have about 12,300 cases in 2022. US Bank had 14,886 cases in 2020 and had 27,702 cases in 2021. Truist had 9,455 cases of fraud and scams on Zelle in 2020, which shot up to 22,045 in 2021. (See “Senate report finds increasing cases of fraud, scams on Zelle,” by Ken Sweet, Associated Press, PBS Newshour, Oct. 3, 2022.) 

Protestors at Wells Fargo Bank shareholders meeting (Photo by Justin Sullivan/Getty Images)

04/ Feeding fraud

In September, the DOJ arrested 47 people affiliated with Minnesota nonprofit Feeding Our Future, all wanted in connection with a massive $250 million COVID-relief fund scheme to defraud the Federal Child Nutrition Program of the U.S. Department of Agriculture (USDA). By the end of October, law enforcement officials had arrested 51 people allegedly involved in the scheme. Among those arrested was Aimee Bock, founder and executive director of the nonprofit. (See “U.S. Attorney Announces Federal Charges Against 47 Defendants in $250 Million Feeding Our Future Fraud Scheme,” DOJ press release, Sept. 20, 2022 and “51st person charged in $250 million Feeding our Future fraud case,” by WCCO Staff, CBS Minnesota, Oct. 28, 2022.)

“This was a brazen scheme of staggering proportions,” said U.S. Attorney Andrew M. Luger for the District of Minnesota. “These defendants exploited a program designed to provide nutritious food to needy children during the COVID-19 pandemic. Instead, they prioritized their own greed, stealing more than a quarter of a billion dollars in federal funds to purchase luxury cars, houses, jewelry, and coastal resort property abroad.” (See tinyurl.com/mswc2azn.)

According to the DOJ, employees of the organization allegedly recruited others to open more than 250 Federal Child Nutrition Program sites around Minnesota to fraudulently claim to be serving meals to thousands of children. Defendants are accused of creating shell companies to enroll in the program and receive and launder reimbursement funds. Furthermore, defendants allegedly created and submitted fake documents to show the number of children and meals plus false invoices and meals served at each site. They also submitted false invoices for food and fake attendance records complete with fake names of children supposedly served at the sites.

As in many COVID-relief-related frauds, the rush to get money to people in need combined with poor controls, lack of oversight and relaxed standards for participation in the Federal Child Nutrition Program contributed to the scale of fraud associated with Feeding Our Future. USDA allowed for-profit restaurants to participate in the program and permitted off-site food distribution to children outside of educational programs. Both were part of the Feeding Our Future fraud. According to The New York Times, two Feeding Our Future locations claimed to be running large child care centers out of the same small building. One said it was feeding 2,000 children a day and the other claimed to be feeding 500. Another operation in a restaurant said it was feeding 6,000 children a day, which was more than the number of children who lived in the ZIP code in that area. A lawyer for the nonprofit said the group never had an accountant on staff. And while Feeding Our Future said it had a three-member board to provide outside oversight of its finances, the person listed as the board’s president between 2018 and 2020 was a bartender and electrician who said he’d been tricked into taking the job. (See “Running a marathon at a sprinter’s pace,” by Paul Kilby, Fraud Magazine, May/June 2021 issue; “Preparing for a post-pandemic fraud landscape,” by James Ruotolo, CFE, and Linda Miller, Fraud Magazine, November/December 2021 issue; and “F.B.I. Sees ‘Massive Fraud’ in Groups’ Food Programs for Needy Children,” by David A. Fahrenthold, The New York Times, March 8, 2022.)  

05/ China’s banking scandal

In April, customers of several small banks in rural Central China with deposits worth at least $1.5 billion, found their accounts frozen and were unable to access their funds. The scandal sparked rare protests, put a spotlight on loose banking regulations and ignited what some described as China’s biggest-ever bank fraud probe. (See “China probes officials, repays more depositors in Henan bank scandal,” Reuters, July 29, 2022.)

Bank officials claimed internal updates were blocking access to funds, but customers later realized that their plight was due to financial shenanigans perpetrated by Lv Yi, a former official of a banking group, who also happened to be the alleged head of a criminal gang. The gang allegedly colluded with bank employees to steal about 40 billion yuan ($5.9 billion) in deposits and investments. They used online platforms to entice depositors with promises of high interest rates and created fake lending agreements to transfer money. Yi allegedly used the money to invest in financial institutions, leveraging shell companies as collateral. In August, Chinese police arrested 234 people allegedly connected to the gang. (See “China’s cash crisis culprit named by police, said to have run powerful criminal gang since 2011,” by Luna Sun and Amanda Lee, South China Morning Post, July 11, 2022; “China’s rural bank scandal has $300 bln tail risk,” by Yawen Chen, Reuters, July 12, 2022; and “China arrests hundreds in rural banking scandal,” by Nectar Gan, CNN, Aug. 30, 2022.)

In July, over 1,000 depositors, seeking to get their money, gathered in protest outside the central bank in Zhengzhou. Demonstrations soon turned violent when plainclothes police officers forcibly dispersed depositors from the scene. Chinese banking regulators now are refunding depositors to quell unrest. (See “China arrests hundreds in rural banking scandal.”)

“The most important takeaway from the scandal is the failure of the regulatory system to properly implement regulations,” Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, told Bloomberg Business Week in an Aug. 29, 2022, report. (See “An Epic Bank Scandal in China Adds to Social Tensions Over Finance,” Bloomberg.)

While the fraud only affected about 400,000 customers out of a nation of 1.4 billion people, rural banks comprise about one-quarter of China’s banking industry. That makes these types of financial institutions a potential hotspot for broader systemic risks and worthy of regulatory scrutiny. Indeed, the scammers allegedly circumvented rules that prohibited rural banks from soliciting new depositors outside their regions by marketing online across the country. Their complicated ownership structures also make them a prime spot for corruption, according to a report by CNN. (See “An Epic Bank Scandal in China Adds to Social Tensions Over Finance,” Bloomberg and “Small banks in China are running into trouble. Savers could lose everything,” by Laura He, CNN Business, June 24, 2022.) 

Dishonorable mentions

Many frauds vied for a spot in the top 5 this year. Here are some scandalous ones that deserve a little bit more attention even if they didn’t quite make the cut.

All in the family

In April, Archegos Capital Management CEO Bill Hwang and his top lieutenant, Patrick Halligan, were arrested for racketeering conspiracy, securities fraud and wire fraud. According to prosecutors, loose regulations over “family offices” — private wealth management firms that serve the super wealthy — allowed them to intentionally mislead banks to loan them money so they could place bets on stocks through sophisticated securities.

When Archegos collapsed in March 2021, Wall Street banks that were counterparties to the investment firm suffered billions in losses and shareholder value. Hwang allegedly timed stock trades to drum up investor interest and borrowed enough to increase his portfolio from $1.5 billion to a staggering $160 billion in stock exposure. (See “Archegos stock manipulation scheme was ‘historic,’ U.S. attorney says,” by Matthew Goldstein and Lananh Nguyen, The New York Times, Business, April 27, 2022.)

Bill Hwang leaves for federal court (Photo by Spencer Platt/Getty Images)

Bed Bath & Beyond fraud

In September, the CFO of Bed Bath & Beyond, Gustavo Arnal, fell from the 18th floor of a Manhattan building to his death less than two weeks after being named in a federal lawsuit accusing him of securities fraud and insider trading. The suit, filed in the U.S. District Court for the District of Columbia claimed that Arnal and GameStop chairman Ryan Cohen used false statements to sell their Bed Bath & Beyond shares and inflate the price of publicly traded stock. Arnal sold more than 42,000 shares for $1 million, and Cohen sold all his 9.8% stake, causing shares to plummet in a pump-and-dump scheme. The home goods retailer closed 150 of its 900 stores and laid off 20% of its corporate staff. (See “Bed Bath & Beyond CFO was implicated in insider trading and fraud scheme days before death, court docs show,” by Oliver O’Connell, The Independent, Sept. 5, 2022.)

The pastrami wasn’t amazing

In September, the owners of a tiny deli in New Jersey were charged with securities fraud for falsely valuing their business at more than $100 million. In a letter to clients, investor David Einhorn noted the deli had generated less than $40,000 in sales but had a market cap of $113 million. “The pastrami must be amazing,” he joked.

According to prosecutors, the owners of Hometown Deli, James Patten, Peter Coker Sr. and Peter Coker Jr., had been conspiring since 2014 to inflate the stock prices of the deli’s parent company Hometown International and another company, E-Waste Corp, through manipulative trading. Hometown’s stock prices rose 939% and E-Waste’s rose 19,900%, raising Hometown’s market value to $123 million even though its sole asset was a deli. (See “Owners of a small deli are charged with fraud for valuing business at $100 million,” by Matt Adams, NPR, National News, Sept. 28, 2022 and “$100 million New Jersey deli scheme leads to U.S. fraud charges,” by Jonathan Stempel, Reuters, Sept. 26, 2022.)

‘Gucci Master’ of none

Nigerian Instagram influencer, Ramon Abbas, aka the “Billionaire Gucci Master” or Hushpuppi to his followers, was sentenced to 11 years in prison in the U.S. for committing wire fraud, money laundering and identity theft. The assistant director of the Los Angeles FBI office, Kristi K. Johnson, said he was “among the most high-profile money launderers in the world.”

Abbas made his claim to fame bragging on social media about his wealth. But his riches weren’t won through an honest day’s work. Instead, Abbas accumulated his wealth through business email compromise (BEC) scams. The FBI also believes he facilitated large-scale transactions for North Korea, including a scheme in 2019 to launder $13 million stolen by North Korean hackers from a bank in Malta. The Gucci Master’s scams amounted to more than $24 million in losses. (See “Hushpuppi: Notorious Nigerian fraudster jailed for 11 years in US,” BBC News, Nov. 8, 2022 and “‘He Got Burnt’: How One of Instagram’s Biggest Fraudsters Was Brought Down,” by Charlotte Lytton, Vice, Nov. 8, 2022.)

Jennifer Liebman is assistant editor for Fraud Magazine. Contact her at jliebman@ACFE.com.

Anna Brahce is editorial assistant for Fraud Magazine. Contact her at abrahce@ACFE.com.

[See sidebar: “Most scandalous fraudsters: Where are they now?”.]