FBI Financial Crimes and Money Laundering Flashcards

What is the defining characteristic of a Ponzi scheme?

Answer: Paying returns to earlier investors using capital from newer investors rather than actual profits

A Ponzi scheme pays earlier investors using funds contributed by new investors, creating the illusion of legitimate investment returns while generating no actual profit from investment activity.

How does a 'pump and dump' securities fraud scheme operate?

Answer: Inflating a stock's price through false promotional statements, then selling shares at the peak before the price collapses

In a pump and dump scheme, fraudsters artificially inflate (pump) a stock's price using misleading promotions, then sell (dump) their own shares at the peak, causing the price to collapse and leaving other investors with significant losses.

How does the FBI distinguish 'mortgage fraud for profit' from 'mortgage fraud for housing'?

Answer: Industry insiders conspiring to steal equity or obtain fraudulent loans versus borrowers misrepresenting information to qualify for a loan

Mortgage fraud for profit involves industry insiders such as appraisers, agents, and lenders conspiring to fraudulently obtain loan proceeds, while mortgage fraud for housing involves borrowers misrepresenting income or assets to qualify for a mortgage they otherwise couldn't obtain.

What is 'wire fraud' under 18 U.S.C. § 1343, and what must prosecutors prove?

Answer: A scheme to defraud using interstate wire communications such as phone, internet, or television

Wire fraud requires proof of a scheme to defraud and the use of interstate wire communications (phone calls, emails, internet, radio, or TV) in furtherance of that scheme; the wire communication need not be the fraudulent act itself.

What is a 'bust-out' fraud scheme?

Answer: Establishing credit, maximizing credit lines through purchases or cash advances, then defaulting without payment

A bust-out scheme involves establishing or hijacking credit accounts, deliberately running up maximum credit limits through merchandise purchases or cash advances, then defaulting on all payments while converting the obtained assets to cash.

What is 'advance fee fraud' (commonly known as a 419 scheme)?

Answer: Tricking victims into paying fees in advance for a promised large financial reward that never materializes

Advance fee fraud (named after Section 419 of the Nigerian Criminal Code) tricks victims into paying upfront fees for taxes, legal costs, or processing in exchange for a promised larger sum—such as an inheritance or lottery prize—that never exists.

Why does the FBI classify elder financial fraud as a priority investigation area?

Answer: Elderly individuals often have significant accumulated savings, may be cognitively vulnerable, and frequently underreport victimization

The FBI prioritizes elder financial fraud because seniors often have substantial retirement savings, may be more trusting or cognitively susceptible to manipulation, and frequently fail to report victimization due to embarrassment or fear of losing independence.