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The document discusses various types of frauds and scams, including dishonesty, credit card fraud, identity theft, Ponzi schemes, and market manipulation. It also outlines some countermeasures to fraud such as following the money trail and maintaining clean accounting and auditing practices.

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0% found this document useful (0 votes)
121 views32 pages

WPS PDF Document

The document discusses various types of frauds and scams, including dishonesty, credit card fraud, identity theft, Ponzi schemes, and market manipulation. It also outlines some countermeasures to fraud such as following the money trail and maintaining clean accounting and auditing practices.

Uploaded by

Kidusanabe
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Frauds, 

Scams and Financial 
Euphoria
Jack Lang

***Health Warning***
DO NOT TRY THIS AT HOME
You will meet strange new people and change your life….not for the better

Its easy to steal. Its much harder to enjoy the proceeds…
Frauds and Scams
• Straightforward dishonesty
– False accounting
• Insider abuse 
– False goods
– False customer claims
– Credit cards etc: Attacks and counter measures
– Identity theft
– Long firm
– Con tricks
• System weaknesses
– Telco fraud
– Hack attack: blackmail – DoS attacks
• Unreal Maths
– Ponzi schemes
– Lotteries
– Financial Euphoria
• Inside trading and market manipulation
– Insider trading: Guinness,  and others
– Boiler room schemes
– Money laundering: layering
• Institutional fraud
– Enron, false customer numbers, churn
• Countermeasures
– Follow the money

• This list is not exhaustive! 
– “Searching For Evil” http://www.lightbluetouchpaper.org
– http://www.cl.cam.ac.uk/~rnc1/talks/080306‐searching.pdf
Dishonesty
• Most likely attack
– Insider with authorised access
• False accounting
– Spoof invoices
– Spoof purchases
– Spoof bank orders etc
– Poor control: Leeson etc
– Countermeasures: 
• Cleanliness: 
– Double entry  book‐keeping; asset register; purchasing 
system
– Separation of front and back‐office functions
– 2 signatures for critical functions (e.g. cheques)
• Good control systems and audit
– Locks & keys: password control
– Vet staff & have good staff relations
– Risk assessment for critical jobs
– Corporate culture
• Unusual behaviour patterns
– Unsocial hours, expensive tastes
Credit Cards
 Overall cost of fraud
– Spain 0.01%
– UK 0.2%
– USA 1.0%
– BUT for certain sites, customer not present – 40%
 Motivation – who gets the reward?
– Huge hype “Evil Hackers”
• Employment for security types
– No case of fraud resulting from online or mail
interception!
• Getting sense from mail is hard
– Real problem: crooked end systems
 Many ways to collect or generate valid card
numbers
– “Shoulder surfing” – video camera
– Garage security cameras
– External hacking end systems more for show than
practicality
Dishonest merchants
• Fake goods
– Medicines 
– Fashion goods
– Tickets
– Jewelry 

• Non‐existent goods
• Lock‐ins
– Service agreements, supplies,  mortgages
Dishonest customers
• False customer claims and repudiation
• “I did not order these goods”
• “You did not ship me the goods I ordered”
– Countermeasures:
• Audit
– Secure audit trails

• Stolen credit cards
– Countermeasures:
• Check card before shipping
– e.g. $1 transaction end to end
• Check ship address is card address
Credit Cards 
• Originally fraud risk borne by banks
• Introduction of mail order and telephone (and web) order (MOTO) risk for 
transactions with the cardholder not present passed to merchant.
• MOTO have lower floor limits, and in delivery only to cardholder address 
– Not possible to check addresses for e‐delivery, or overseas or services like Worldpay)
– 40% fraud for some sites
– Paypal fraud
• Traditional frauds:
– Stolen cards
– Pre‐issue
– Identity theft
Credit Cards
• Evolution of forgery
Attack Countermeasure
Simple copy Hologram

Alter embossing Check mag strip

Emboss mag strip # TDC

Make up strip CVV, CVC

Skimming Intrusion detection

Free Lunch
False Identity
• Legend: 
• e.g. Giles Stanley Murchison
– Date of Birth ‐> Birth certificate ‐>Passport
– Passport + Utility Bill ‐> Bank Account
– Bank Account ‐> Credit Card

– ‐> NHS record, Employment benefit

– Email address (e.g Hotmail, NetIdentity) 
– Telephone entry

• Long Firm Fraud
Stolen identity

– Credit card + pin
– Bank account + Utility Bill 
(fake)
– Online trail

• Phishing
– Please enter your bank/card 
details....

– Fake banks
Mule Recruitment
• Mule recruitment
• Receive money into bank account; remit by 
non‐repudiable route, e.g Western Union
• Proportion of spam devoted to 
recruitment
• shows that this is a significant bottleneck
• Aegis, Lux Capital, Sydney Car Centre, etc, 
etc
• mixture of real firms and invented ones
• Only the vigilantes are taking these down
• impersonated are clueless and/or 
unmotivated
• Long‐lived sites usually indexed by Google
419 Frauds “Nigerian letters”

• http://www.419eater.com/
Con tricks

• Setup
– Select the mark
– Establish credibility

• Hook and Bait
– Small steps 
– Greed and desire

• Sting
– Special limited time offer…
– Things are not what they seem…

• Shut‐out
– Exit route
Overpaid cheques
• You sell some goods on Ebay etc
• Or are told you have won a prize/lottery
• You are sent a cheque for too much
• You send a refund
• The original cheque bounces...bank claims back 
the money
System weaknesses

– Hack attacks: 
• blackmail –
• DoS attacks
• Industrial Espionage
– Over rated!

– Google Ad Hacks
• Privila Inc
– Junk content (interns)
– Google ads and job ads
Telco Frauds
• Internal (examples):
– Illicit provisioning
– Illicit routing
– Suppression of billing data
– False credits to customer accounts
– Changing class of service to make a prepaid phone look like a post paid and avoid 
decrementation.

• External:
– Subscription fraud including id theft or lie
– Commmission fraud
– T'ing in or clip on (connecting a handset toi someone else's line)
– Direct Inward System Access (eg hacking through a PBX to get an onward line
– Cloning (now possible in GSM and very dangerous in a roaming situation
– Redirection
– Using the phone for a false identity
• Export scam
• Billing issues: BT have over 30,000 products!
– You are probably paying the wrong amount for your phone call
Unreal Maths

• Ponzi schemes
– Named after Carl Ponzi, who collected $9.8 
million from 10,550 people ( including ¾ of the 
Boston Police Force ) and then paid out $7.8 
million in just 8 months in 1920 Boston by 
offering profits of 50% every 45 days.
• Much older
– Pay early investors from later capital
– Pyramid selling (Multi‐Level 
Marketing)
• MM
• Albania
• Chain letters
• Money parties
More Maths
• Lotteries
– Tax on the poor and the ignorant
• How Casanova made his money
• Not all promoters are honest!

• Financial Euphoria
– Tulipmania (1637)
– South Sea Bubble (1720)
– Railways (1849)
– Radio and Aeroplanes (1920)
– Dot.Com
• J.K. Galbraith
Inside trading and market manipulation

• Insider trading: Guinness, and others
– Market illiquid for small stocks or large orders
• “Upstairs market”
– What is a “fair market”?
• Anonymity and disclosure: 
– Pre‐trade
– Post‐trade
• Chinese walls (and whispers)
– Money laundering: 
– Layering
– Getting it into and out of the banking system
• Bureau de Change & offshore banks
• Disguise as legitimate business
• Boiler room schemes
Fraud?
Cambs firm slated over share hike
BAD PRESS has hit Cambridgeshire varicose veins firm DioMed. 
The company, which is listed on the U.S. Nasdaq exchange, has become a target for the New York Post. 
The paper claims the company, originally a spin‐out from Generics Group at Harston, is enjoying an 
unwarranted hike in its share price following the efforts of a stock promoter who has a large holding 
stashed away in the Cayman Islands. 
"DioMed is exactly the sort of stock that should send any normal person fleeing the room at the mere 
mention of its name: suspect auditor (Andersen in the U.S.), offshore accounts, weird product, teeny‐
weeny revenues, board members with back stories ‐‐ this stock's got it all, the complete package," the 
New York Post says. 
DioMed's share price has risen more than 200 per cent to $7 this year, the greatest gain of any listed stock 
on Wall Street in this period.

CEN 27th Mar 2002
Institutional & Governmental fraud

• False assurances
– Enron
– BP Golden Share
– Murdoch

• Bad statistics
– Unemployment, hospital waiting lists
– Telco/cable customer numbers, churn
– Web‐site clicks, adverts

• Euphoria
– 3G Telco licences
– Privatisations 
Countermeasures

• Caution
– If something is too good to be true, it probably is!
– RISK ASSESSMENT

• Cleanliness
– 2‐person working/separation of function
– Conventional double‐entry bookkeeping
– Audit
– Culture

• Follow the money
– Hard to make it disappear 

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