In the first section of his epic poem, “The Divine Comedy,” Dante is led on a journey through the nine circles of hell. Each successive circle represents progressively more heinous sins committed by both historic figures and some of his contemporaries. The eighth circle of hell is reserved for those guilty of fraud. The circle is subdivided into 10 separate ditches, or Bolgia, representing various types of fraud: seducers, flatterers, simonists, sorcerers, unscrupulous politicians, hypocrites, thieves, deceivers, schismatics and falsifiers.
Though 700 years have passed, Dante’s list of fraud holds up fairly well. Had Dante written “Inferno” today with financial fraud in mind, perhaps the eighth circle would have looked more like this:
A consolidation of seducers and flatterers into one category translates easily into the modern-day promoters of financial frauds. The promoter lures the potential victim in with promises of wealth, security or unrealistic success. Every fraudulent financial scheme needs a salesman to convince victims to participate.
The vacuum created by combining the seducers and flatters opens up a special place in the eighth circle for those who defraud the elderly. Schemes used against such groups frequently include telemarketing, whereby a perpetrator preys on the courtesy of the victims and uses coercion or threats to gain information that can be used for financial gain.
Simony involves the sale of church offices for gain. While such offices are no longer in high demand, fraudulent charities are still used to take advantage of the generous. The Federal Trade Commission provides a comprehensive checklist to review before donating to an unknown charity.
The sorcerers today are the accountants who conjure up fraudulent financial statements for personal or corporate gain. According to the Association of Certified Fraud Examiner’s (ACFE) 2014 Report to the Nations on Occupational Fraud and Abuse, while financial statement fraud represented only 9 percent of fraud cases reported, the median losses of those cases was $1 million or five times the amount of the median loss in other types of occupational fraud.
The unscrupulous politicians in “Inferno” reflect the modern-day corruption described in the Report to the Nations. These frauds include conflicts of interest, bribery and economic extortion. During 2014, corruption cases represented over one-third of the cases of occupational fraud reported and resulted in median financial losses of $200,000.
Dante’s hypocrites were punished by wearing what appeared from the outside to be golden robes, but which were lined with lead. This distinction between appearance and reality can be seen in the prevalence of any number of online frauds in which a victim believes the perpetrator to be something which he or she is not.
Theft has survived unscathed over the centuries, though it is no longer just highway robbery or picking a pocket. Today’s fraudsters have new ways of robbing companies including the theft of intellectual property. The pervasiveness of this form of theft is manifested in single purpose law firms specializing only in IP litigation.
Here we find the perpetrators of Ponzi schemes. Like Dante’s deceivers, these perpetrators (by business design or business evolution) provide false information to investors for personal gain. Our investigations have found that this deception often begins when investments no longer produce a return sufficient to pay investors or when opportunities to invest fall short of cash raised. In either situation, the choice to deceive by continuing to pay returns to an old investor from a new investor’s funds is to commit fraud against both parties.l
Dante might replace those who would cause divisions with those who would use their connections to commit fraud. Affinity fraud is characterized by attracting investors through commonalities shared by the perpetrator and the victims. A review of the SEC website reveals recent schemes perpetrated against Dominican and Brazilian immigrants, the Asian and Latino communities, African-American churchgoers and even the Persian-Jewish Community in Los Angeles. Trust is an important element of fraud and is easily found within ethnic and religious communities.
Counterfeiting is not a relic of the past. Recently, there have been widespread reports regarding those who have counterfeited the lives of others through identity theft. Identity theft is difficult to avoid and can require years to recover from the financial fallout. While high-profile, high-volume data thefts are most commonly reported, a study reported by the ACFE indicated that in 60 percent of the cases reviewed, the theft was committed by a friend, family member or acquaintance of the victim.