March 2007 Fraud Terminology Topics
Silent Second, Malfeasance, Misfeasance, Nonfeasance, CCF License Fraud, Scare Quotes, Phantom Regulator, Cammer, and "Just the facts, Ma'am"
 

Suspicious Activity Reports (SARs) about
mortgage fraud increased 35% in 2006.
 

Fraud In Other Words
Professional Jargon and Uncensored Street Slang
by Larry C. Adams, CFE, CPA, CIA, CISA

 

Silent Second
A mortgage fraud scheme in which the buyer of a house does not disclose that he obtained a second loan prior to the closing of the real estate transaction. The second note is kept silent if the buyer does not have enough of his own money for the full down payment required by the primary lender. The homebuyer is motivated to secretly obtain additional cash from the seller of the property, a friend, or another source. A side agreement for a silent second loan is created outside of escrow. In order to conceal the existence of the second loan from the primary lender, the buyer doesn’t list the second loan on the settlement sheet. The homebuyer lists the whole down payment as his own money. The buyer and secret second lender don’t record the second mortgage on public records. The unreported loan would not appear on the buyer’s credit reports. The primary lender believes the borrower has invested his own money in the down payment; otherwise, the primary mortgage would not be granted. Any additional extension of debt to the borrower might put the repayment of the primary loan at risk. Most primary lenders prohibit a second mortgage unless it is disclosed to, and approved by, the primary lender in writing before the closing settlement. A real estate owner who is refinancing his property might attempt to use a silent second to qualify for a higher dollar primary loan. If a primary loan is a federally insured or sponsored, a buyer who did not disclose the second loan could face fines of US$2,000 to US$5,000 plus two to five years in prison. State fines and penalties could apply too. A real estate agent or broker who recommends or cooperates in the creation of a silent second could face criminal prosecution too. Mortgage fraud is a material misstatement, misrepresentation, or omission relied upon by a lender or underwriter to fund, purchase, or insure a loan. Suspicious Activity Reports (SARs) are submitted to the Financial Crimes Enforcement Network (FinCEN) of the United States Department of the Treasury. The number of SARs submitted about mortgage loan fraud increased 35 percent in 2006.
“Operation Quick Flip,” Federal Bureau of Investigation, December 14, 2005, www.fbi.gov/page2/dec05/operationquickflip121405.htm.

 

Malfeasance, Misfeasance, Nonfeasance
Malfeasance is an unlawful or wrongful act, especially by a corporate or public official. Malfeasance is the unjust performance of some act the person had no right to do, or that he had contracted not to do. The U.S. government recovered a record US$3.1 billion in fraud and malfeasance paybacks in 2006, and 72 percent of the paybacks were from the healthcare industry, according to The New York Times. The U.S. Sarbanes-Oxley Act of 2002 increased the penalties for corporate malfeasance. Misfeasance is a lawful act performed in a wrongful or injurious manner. Misfeasance can be a breach of fiduciary duty over company funds or property by a company’s directors or managers. Misfeasance by a public official can be the excessive, malicious, or negligent exercise of statutory powers. Nonfeasance is the failure to act when an obligation to act existed. Nonfeasance is a refusal to perform a legal duty without an adequate excuse.
“Medicaid Whistle-Blower Law Goes into Effect January 1,” December 26, 2006, www.forbes.com/forbeslife/health/feeds/hscout/
2006/12/26/hscout600472.html.

 

CCF License Fraud
More than half of all driver licenses issued in South Africa since 1998 were issued in an irregular manner. The CCF (credit card format) license is a multi-purpose smart card intended to function as a driver license, passport, biometric identity document, and bank credit card.

The CCF license replaces the easily forged, paper ID book, but some applicants bought new counterfeit CCF licenses. Other applicants encountered government employees who demanded bribes or threatened to withhold official services. At some testing centers, applicants were not tested as prescribed or not tested at all; eye tests were not done; and licenses were approved by unauthorized examiners. Fraudulent licenses from other countries were converted to the new CCF format. Many motorists didn’t convert to the new format because of the 12-hour waiting lines, or they could not afford the application fee of 200 South African Rand (ZAR) (US$28.62). To earn enough money for the fee, a person works 49 hours at the minimum wage of 4.10 Rand. The Eastern Cape is notorious for its high accident rate and has become a haven for license fraud. The South African Police Service and the Joint Anti-Corruption Task Team are conducting investigations. The names of persons with invalid licenses are provided to financial institutions, short-term insurers, and the Road Accident Fund (RAF), a public entity that pays compensation for injuries. Banks that issued loans to finance vehicles can file charges against illegally licensed persons. Insurance companies can deny claims or bring fraud charges against illegally licensed motorists who already filed accident claims. Three-and-a-half million drivers with invalid CCF licenses might avoid prosecution if they provide information about corrupt officials and practices at 360 testing centers. Drivers with invalid licenses could lose their jobs.
Lizel Steencamp, “South Africa: Fraud shock for illegal drivers (Half of all S.A. drivers using illegal licences),” News 24, South African Press Association, May 15, 2005.
Images: ROBOT, Winter 1998, http://www.transport.gov.za/library/
docs/robot/1998/p12-13.html

 

Scare Quotes
Quotation marks used for purposes other than to identify a direct quotation. In written documents, scare quotes can be used to express disagreement with words inside the quotes, to call the words into question, or to signal that the words are intentionally misused. For example: One man’s fraud is another man’s “justice.” Another example might signal jury bias or jury tampering: The “impartial” jury took less than ten minutes to find the defendant guilty. During an interview, a witness might provide tips about a case by using hand gestures for the conversational equivalent of scare quotes. Those finger quotes or air quotes mimic the appearance of quotation marks. Sometimes scare quotes are called sneer quotes.
Jennifer Roback Morse, “The High Cost of Bad Ideas about Money,” National Catholic Register, January 26, 2003.

 

Phantom Regulator
A phantom regulator tries to lure unsuspecting overseas investors into buying worthless penny stocks from unlicensed brokers or sending money in response to an advance fee scheme. A fraudster creates the name of a phony regulatory agency for a scheme, such as the “Regulatory Compliance Commission,” “International Exchange Regulatory Commission,” or “Global Securities Information Center.” Each of these had official-looking Web sites that listed addresses and phone numbers in the United States, but none of them had any relation to real regulatory agencies or organizations. Some bogus Web sites use “-gov” instead of “.gov” in their domain name and e-mail addresses. Typically, a phantom regulator claims to be based in the United States because the U.S. securities markets are among the safest in the world. Sometimes a white-collar grifter sets up a small temporary call center designed to provide validation for the scheme. There are several red flags that indicate a regulator is bogus. (1) The phantom regulator endorses or approves of an investment opportunity, stock, or company. Real regulators enforce laws and don’t approve any deal. (2) The bogus regulator tells investors they can pay a fee to release restricted shares of stock. This is a variation of an advance fee scheme. (3) Internet search engines find little or no information about the imitation regulator. (4) Investors are likely dealing with a fake regulator if they talk with other regulators and they never heard of it. (5) Investors can’t find the phony regulator listed on Web sites of real regulators such as the U.S. Securities and Exchange Commission (www.sec.gov) or the International Organization of Securities Commissions (www.iosco.org).
“NASAA Warns Investors to Beware of Phantom Regulators: Con Artists Posing as U.S. Regulators Go Global to Lure Investors,” North American Securities Administrators Association, www.nasaa.org, July 28, 2005.

 

Cammer
An individual who sits in the audience of a movie theater and uses a small video recording device, such as a camcorder or video camera, to create an unauthorized copy of the motion picture. A skilled cammer can sell the master copy of an illegally recorded movie for US$2,000 to a distributor who mass-produces counterfeit digital video discs (DVDs) for immediate sale to consumers within hours. Pirated movies also are posted on the Internet for downloading. A cammer attended the movie premiere of “The DaVinci Code” in Guam and illegal copies were available at the street markets of London two days later. The movie industry lost US$18 billion worldwide to movie piracy in 2005.
Mike Hughlett, Chicago Tribune, “Piracy of New-Release Movies Rises, but the Industry Fights Back,” Arizona Republic, August 27, 2006, page E7.

 

Just the Facts, Ma’am
“Just the facts, ma’am” is a phrase falsely attributed to actor Jack Webb, who portrayed his fictional character Sergeant Joe Friday, badge 714, of the Los Angeles Police Department. Jack Webb created the very popular “Dragnet” radio and television shows that originally were broadcast from 1949 to 1959 and 1966 to 1970, and are now available on DVDs and syndicated TV reruns. Whenever Sergeant Joe Friday was rapidly interviewing female informants and suspects in an investigation, his actual dialogue in the scripts was “All we want are the facts, ma’am” or “All we know are the facts, ma’am.” In 1953, comedian Stan Freberg created hilarious Dragnet spoofs such as “Little Blue Riding Hood” and sold millions of 45 rpm (revolutions per minute) and 78 rpm phonograph records. Little Blue Riding Hood exclaimed, “Why Grandma, what big ears you’ve got!” Sergeant Wednesday replied, “All the better to get the facts. I just want to get the facts, ma’am.” The audiences, newspapers, and magazines truncated Stan Freberg’s satirical line to, “Just the facts, ma’am.” Freberg’s clever story was re-released on compact disc in 2004. And that’s how the phrase became part of American pop culture. Like a fact-based police report from Joe Friday, a certified fraud examiner’s report should contain only information based on data that is sufficient and relevant to support the facts, conclusions, opinions and recommendations related to the fraud examination.
“Just the Facts,” www.snopes.com/radiotv/tv/dragnet.htm, December 27, 2006.
Image: en.wikipedia.org/wiki/Joe_Friday

 

ã Copyright 2007 Larry C. Adams. All rights reserved.
 

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