Larry C. Adams, CPA
Certified Public Accountant
Certified Fraud Examiner
Phoenix, Arizona USA
July 2007 Fraud
Adduce, Backstop, OLAF,
Stonewall, Up to Snuff, and Vishing
to baseball, a prime bank fraudster uses a backstop to prevent wild
pitches from traveling out of the playing field,
and allows the game to continue.
Fraud In Other Words
and Uncensored Street Slang
by Larry C. Adams, CFE, CPA, CIA, CISA
To cite pertinent examples, persuasive
reasons, or conclusive information. To provide additional evidence or
analysis as a means of proof in a case or argument. Adduce is a Middle
English adaptation of the Latin verb “adducere” that means to lead to, or
The Russian navy sold a training ship built in 1965 to Greek
interests for use as a floating bar and discotheque. After the Greek bar
went bankrupt, the vessel was resold to Russian interests in 1998 for use
as a casino. The new Russian owners insured the vessel for US$1.8 million,
and the value was to be raised to US$2.5 million when the casino opened.
The ship sank in 1999 after an explosive device was detonated below the
vessel’s waterline. The ship owners sued the marine insurance company for
US$1.8 million. In 2004, a justice in the High Court of London found that
at least three of the documents adduced by the owners as proof of value
weren’t genuine. The real value was between US$100,000 and US$150,000. The
insurance company didn’t have to pay the claim because the valuation
presented by the ship owners was a material misrepresentation.
Hugo Tiberg, “Fraud and Sinking Ships in Marine
Insurance,” Juridicum, Department of Law, Stockholm University, Sweden,
HTs%20bidrag%20till%20Bills%20festskrift.pdf, April 28, 2007.
A cover story used by a fraudster that can
be verified by a paper trail or phone call. A backstop is created as a
barrier to prevent detection. A backstop might include false business
addresses, phone numbers, and references to keep the cover believable when
it is checked out. A backstop is a precaution that can be used in case of
an emergency when anything in the scam goes wrong.
Many prime bank fraudsters are career cons who have been convicted
previously convicted of fraud. Prime bank scammers seem to operate within
an extensive network, using each other to broker or solicit investments in
high-yield investment program (HYIP) schemes, to backstop some fraudulent
claim, or to help create a “plausible deniability” defense. Fraudsters
use the term “prime bank” in their solicitations to deceive investors into
believing one of the top 100 international banks is participating in the
deal. The U.S. Securities and Exchange Commission actively investigates
and prosecutes prime bank fraud as securities fraud.
Sometimes fraudsters create backstops to commit mortgage fraud to
finance the purchase of residential or commercial property.
Undercover investigators, informants, and corporate espionage
specialists might use a backstop while they are gathering information
about a case.
In the sport of baseball, a backstop is a fence or barrier behind
home plate. It prevents wild pitches from traveling out of the playing
field, and allows the game to continue.
F. W. Rustman, Jr., CIA Inc.: Espionage and the
Craft of Business Intelligence, Brassey’s Inc., Washington, D.C., 2002,
The European Anti-Fraud Office is an
independent investigation service that fights fraud and cross-border
crime. OLAF is an acronym of its French name, Office européen
de Lutte Antifraude. Created in 1999, OLAF is funded by European taxpayers
and is based in Bruxelles, Belgium.
OLAF covers activities concerning the detection and
monitoring of fraud in the customs field, misappropriation of subsidies,
and tax evasion. It fights against corruption and any other illegal
activity harmful to the financial interests of the European Community
(EC). OLAF isn’t a “secret service” or a police force, but it has been
useful in uncovering large-scale smuggling and fraud in areas in which
lucrative sources of illicit profit exist, such as cigarettes, alcohol,
and olive oil.
In one case, OLAF investigators cooperated with Italian
law enforcement from 2005 to 2007 to detect citrus fruit fraud and arrest
45 suspects. The fraudsters received 50 million euros in financial aid
from the European Union to remove fresh lemons, grapefruit, oranges,
mandarins, and clementines from the market and process the fruit into
concentrated juice. Most of the fraudsters’ fruit was fictitious. One of
the suspect juice processors claimed to have sold large quantities of the
juice to firms in Spain and France; however, the buyers were nonexistent.
The buyers’ addresses listed on the company records turned out to be
apartment blocks, a museum, a parking lot, a hardware store, and a retired
farmer who never received any juice.
April 28, 2007.
A practice that involves a swap of services
or products between companies, and the swap has no real economic benefit
for either company. Round-tripping also is known as a “Lazy Susan Deal,” a
“hollow swap,” or a “wash.” In a round-trip deal, company A invests in
company B, but at the same time, company B buys products or services from
The U.S. Attorney’s Office filed charges against executives of
Suprema Specialties, Inc. in New Jersey for generating US$700 million in
round-tripping revenue from 1998 to 2002. False paperwork created sales of
cheese products to the customer, then from the customer to the vendor, and
finally from the vendor back to Suprema.
Global Crossing Ltd., a telecommunications company, used round-tripping
from 1997 to 2001 to sell assets and then buy them back to pump up its
revenue by several hundred million dollars. Global Crossing filed for
bankruptcy in 2002.
The U.S. Securities and Exchange Commission (SEC) brought charges
in 2002 against former officers of Unify Corp., a computer software
company in Sacramento, California. Unify engaged in round-tripping
repeatedly by providing funds to customers, so they could purchase
products from the company with no reasonable expectation that the
customers would ever repay the funds. The transactions produced no
economic benefit to shareholders,
and were done solely to inflate Unify’s reported revenue and deceive
investors. Unify overstated revenue by 61 to 150 percent per quarter. The
chief executive officer sold his shares of stock for an $8.2 million
profit and failed to promptly disclose the stock sales. In the first two
months of 2002, the SEC opened 49 new cases about financial reporting
“SEC Brings Financial Fraud Charges Against
Executives at Three Northern California Software Companies,” May 20, 2002,
www.sec.gov/news/press/2002-71.htm. Special thanks to James Feldman in San
To hold up the progress of an investigation
by supplying distorted testimony, evasive answers, denials, innuendo, or
irrelevant information. To persistently refuse to cooperate with an
investigation. To refuse to testify. To refuse to handover requested
material until every available legal challenge has been exhausted. To
create obstructions or employ delaying tactics. Stonewall is a late 19th
century term meaning to put up an immovable barrier.
Many of the targets of the 1989 skimming and inventory fraud
investigation of the Crazy Eddie consumer electronics stores chose to
stonewall the investigation by lying to government investigators in
depositions and interviews.
In the early 1970s, U.S. President Richard Nixon
stonewalled and refused to cooperate when he realized the plot of the
Watergate investigation was being uncovered by journalists for The
Washington Post - Bob Woodward and Carl Bernstein.
Jay Robert Nash, Dictionary of Crime: Criminal
Justice, Criminology, & Law Enforcement, Paragon House, New York, 1992,
Up to Snuff
A person who is sharp and not easily
fooled. A person who is knowledgable, keen and wise. In this phrase, snuff
is an English adaptation of the Norwegian adjective “snu,” that means
cunning, crafty, or shrewd. Up to snuff implies the person is capable and
efficient. A person who is up to snuff is in good condition mentally and
Today, up to snuff is used to describe anything that is
at an acceptable level of quality. The phrase is used often in a negative
sense, such as, “The company’s financial records and disclosures aren’t up
to snuff and might be a symptom of fraud.”
John Mordock and Myron Korach,
“Common Phrases and Where They Come From,” The Lyons
Press, Guilford, Connecticut, 2001, page 140.
A scam that obtains private information by
using a Web-based telephone service, VoIP (Voice over Internet Protocol).
The fraudster sells the information, holds it for ransom, or uses it to
make unauthorized cash withdrawals or purchases.
Vishing starts with a fraudster sending an urgent e-mail to thousands of
prospective victims. The e-mail appears to come from a real financial
institution, credit card issuer, or other business. The e-mail provides a
phone number for customer service and asks the recipient to call. When the
number is dialed, it leads the caller through a series of bogus
voice-prompted menus that ask the caller to enter their account number,
password, Social Security number,
personal identification number (PIN), and other personal information over
The fraudster can be located in another country. A
majority of phishing scams are linked back to Eastern European countries.
Vishing scams might follow the same pattern. Some callers might be
reluctant to provide information to someone with a foreign accent, so the
fraudster might use an acceptable voice, generated by computer software or
recorded voice samplings.
Some vishing fraudsters contact prospective victims
directly by telephone instead of e-mail. To give the “vics” a false sense
of security, the phony calls might be initiated by “live” persons who
already have a few bits of personal information about the customers.
VoIP service is inexpensive for the fraudster,
especially for global long distance calls. To thwart caller ID services, a
fraudster can mask the VoIP number he’s calling from, so it’s hidden or
has the proper phone number prefix for a legitimate business. Unlike
telephone landlines, anonymous VoIP accounts can be quickly set up and
canceled. Fraudsters also can hack into computers and use the VoIP
accounts of legitimate users. It is difficult to track the fastmoving
Consumers can protect themselves by ignoring the
vishing e-mails and hanging up on unsolicited phone calls. Consumers
should only call the security or customer service numbers provided on
their real bank statements or credit card statements.
A phishing scam also starts by sending an e-mail to potential
victims, but the phish-mail instructs them to click on a hyperlink, that
connects the victims to a fraudulent copy of Web site and asks them to key
in personal information.
“Something Vishy: Beware Aware of a New Online
Scam,” Federal Bureau of Investigation, Feb 23, 2007,
Copyright 2007 Larry C. Adams. All rights reserved.
|This article is in the
July/August 2007 issue of Fraud Magazine,
the Journal of the Association of
Certified Fraud Examiners.
Magazine Article Archive