Although check use is down, check fraud is up by about 12%. Check fraud can include nearly anything from a small floated check to an extensive million-dollar fraud. Keep reading to learn about some of the most infamous check frauds of the last few years.
1. Big Losses in Texas
Between 2004 and 2006, Texas entrepreneur Jeff Woodward engineered a check kiting scheme between four bank accounts for his motorsports and car dealership businesses. Every day, Woodard or his associates deposited bad checks in one or more accounts and drew money from other accounts.
Woodward signed about half of the checks and instructed his employees to sign the other half. Ultimately, the checks were for a total $114 million, which led to $1.6 million in losses for the banks. Woodard was sentenced to four years in federal prison, five years of supervised release, and was ordered to pay $2.5 million in restitution.
2. Hot Checks in Cleveland
In Cleveland, three young women ran a check kiting scheme for $165,000, which led to $120,000 in losses for banks. The women convinced other people to open new checking accounts. Then, they deposited bad or counterfeit checks into the accounts and withdrew large amounts of cash at a local casino before the banks realized the checks were bad.
Ultimately, the women deposited checks on 31 different occasions before getting caught. Their case was investigated by the FBI with help from the Ohio Casino Control Commission and prosecuted by the Assistant U.S. Attorneys.
3. Trouble from the Inside
Often, fraud starts inside of financial institutions. In one case, a financial advisor who had been with Vanguard for 23 years stole passwords and wrote checks from inactive or dead account holders. Generally, these abandoned investment accounts are turned over to state treasurers for distribution to next of kin or the original account holders, but Scott Capps wrote checks from these accounts to his brother-in-law and other co-conspirators.
In 2013, he actually doubled his income with these fraudulent checks and used the money to invest in real estate. After discovering the issue, Vanguard covered all the customer losses and brought charges against the perpetrators.
4. Fraud at the Top
Even chief executive officers of major corporations can put banks at risk with kiting schemes. In 2008, the CEO of Synergy Brands, Inc. wrote over $1.3 billion in bad checks through Signature Bank, Capital One Bank, and several Canadian banks. The checks were sent to Canadian companies that wrote checks in corresponding amounts to other companies also controlled by him.
While the scheme was active, the bad checks artificially inflated Synergy’s account balances, and the CEO and his co-conspirators booked millions of dollars in fake accounts receivables and revenue. At the same time, they also inflated values for the company’s filings with the Security and Exchange Commission (SEC). When the kiting scheme eventually fell to the ground, Synergy went bankrupt, losing investors a lot of money in the process, and the banks lost over $26 million dollars.
5. Shopping and Stealing Locally
In Sacramento County, George Pappadopoulos wrote approximately $195,345 in bad checks. He primarily wrote these checks to 38 small businesses in the Sacramento area, hitting many of them more than once. The ensuing losses were so significant that one business was forced to lay off employees. The Papadopoulos family was already well known for crime in the area, as his parents were convicted of insurance fraud for burning down their house in the 1990s.
For this scam, Papadopoulos received 20 years and four months in federal prison and was ordered to pay restitution to the victims. The judge lengthened his sentence due to a prior conviction for battery in 1993.
6. From Nigeria to Florida with “Love”
A scam artist from Nigeria reached out to an 80-year old woman in Florida. He strung along the woman romantically and convinced her to give him money. Then, he drew her into a check fraud scandal. Scam artists often target elderly or widowed people and leverage love to draw them into the scam.
Essentially, he contacted businesses and requested services. Then, he sent the victims a fake check for over the amount of the services, and he asked them to send the change to his agent in Florida (the 80-year old woman).
When police found the woman, she had $10,000 in cash and cashier’s checks. She claimed that she had only received and sent money to the Nigerian man and that she hadn’t personally taken any funds. One victim lost $4,300, but ultimately, they were able to recoup everything but $218 in fees.
How to Protect Against Check Fraud Scams
Check fraud scams happen all the time. Sometimes, they’re for a few hundred dollars, and in other cases, they can involve millions or even a billion dollars. To protect your financial institution, you need tools that can flag suspicious checks, look for troubling patterns, and work hard to keep your bank safe.
At SQN Banking Systems, we strive to make fraud protection easy for our clients. To learn more about our services, contact us today.