Financial Crimes & Fraud Investigation Flashcards

What is 'embezzlement'?

Answer: Misappropriation of assets by someone entrusted with them

Embezzlement is a form of financial fraud where a person who is entrusted with assets (such as an employee) misappropriates those assets for personal gain.

What is 'check kiting'?

Answer: Floating checks between accounts to artificially inflate balances

Check kiting involves exploiting the float time between depositing a check and its clearance, moving funds between accounts to create the illusion of a balance that doesn't exist.

In a Ponzi scheme, how are returns paid to earlier investors?

Answer: From funds collected from newer investors

In a Ponzi scheme, returns paid to earlier investors come directly from capital contributed by newer investors rather than from any genuine investment profit, making the scheme unsustainable.

What distinguishes a Pyramid scheme from a Ponzi scheme?

Answer: In a Pyramid scheme, participants are required to actively recruit new members to earn returns

In a Pyramid scheme, participants earn money by recruiting new members, who then recruit others, whereas in a Ponzi scheme a central operator collects and redistributes funds without requiring participant recruitment.

What is 'wire fraud' under federal law?

Answer: Using electronic communications to execute a fraudulent scheme

Under 18 U.S.C. § 1343, wire fraud is the use of interstate electronic communications—such as phone calls, emails, or wire transfers—to execute or further a scheme to defraud.

What is 'asset forfeiture' in the context of financial crime investigations?

Answer: The legal process by which government seizes assets connected to criminal activity

Asset forfeiture is a legal tool that allows law enforcement to seize assets—such as cash, property, or vehicles—that are connected to or derived from criminal activity, even before a criminal conviction in civil forfeiture cases.

Which type of financial document is most commonly subpoenaed during a fraud investigation to trace the flow of funds?

Answer: Bank statements and financial records

Bank statements and financial records are the most critical documents in fraud investigations because they provide a verifiable record of fund movement, deposits, withdrawals, and transfers.