Types of Fraud Schemes and Top Techniques to Avoid Them

By Dr. Matthew Loux and Derek Loux  |  07/07/2025

Fraud is an ever-evolving issue that impacts individuals, corporations, and governments. Sadly, it can result in financial loss, data breaches, and brand damage.

Fraud also sometimes has legal repercussions. Fraudsters use deceptive techniques to exploit victims, often relying on advanced technology or social engineering tactics to perpetrate a crime.

Common Types of Fraud 

Fraud schemes can take many forms. They include:

• Identity theft
• Investment fraud
• Online scams
• Insurance fraud
• Corporate fraud

Identity Theft

Identity theft is one of the most prevalent fraud schemes today. Criminals steal personal information such as:

• Your Social Security number
• Bank account information
• Credit card numbers
• Health records

This type of personal information can be used for personal gain or other nefarious purposes.

Some common methods of identity theft include:

• Phishing attacks – Phishing attacks may involve sending emails with fake package delivery, IRS notices or bank account alerts urgently requesting the receiver to act quickly transfer money. Other phishing attacks involve creating fake social media profiles to direct message victims and trick people into sending money.
• Data breaches – Cybercriminals infiltrate business databases, exposing millions of individuals’ personal information. They also exploit corporate data such as financial and customer data and proprietary information.
• Card skimming – Illegal devices are places on ATMs or payment terminals to collect card information so that criminals can make fraudulent transactions. According to the FBI, this skimming technique costs customers and financial institutions more than $1 billion annually.

A Notorious Identity Theft Case

In 2017, members of the Chinese People’s Liberation Army hacked into the credit reporting agency Equifax, exposing the personal information of 148 million Americans. The breach included:

• Names
• Home addresses
• Phone numbers
• Dates of birth
• Social Security numbers
• Driver’s license numbers
• Credit card numbers

This unprecedented case of identity theft resulted in a $700 million settlement with the Federal Trade Commission, the Consumer Financial Protection Bureau, and 50 states. Equifax faced stock price losses, public scrutiny, legal consequences, a lack of consumer trust, and pressure for more strict regulations to protect data.

Protecting against fraud schemes requires strong passwords, credit monitoring services, and multi-factor authentication.

Investment Fraud

Investment fraud occurs when individuals or companies deliberately deceive their investors. They encourage their victims to make financial decisions based on manipulated or false information.

Types of Investment Fraud

There are various types of investment frauds. They include:

• Ponzi schemes – This type of investment fraud involves paying returns to early investors using funds from newer investors. One of the most well-known cases of investment fraud was the Bernie Madoff Ponzi scheme. Madoff defrauded investors out of billions of dollars.
• Pump-and-dump schemes – For this type of fraud, criminals inflate stock prices through misinformation, selling shares for profit before the price collapses.
• Relationship investment schemes – Scammers make unsolicited contact via text message or social media, trying to build trust and convince a victim to invest or donate money.

Online Scams

The digital era has increased the prevalence of online fraud, ranging from fake e-commerce websites to romance scams. Some of the most common types of online scams include: 

• Tech support scams – Fraudsters impersonate a company’s tech support agents, claiming that there is a serious problem such as a virus with the victim’s computer. They insist on payment to eradicate it or request remote access to the computer. With this access, they can install malware or steal the victim’s banking credentials. 
• Romance scams – Scammers build phony online profiles and fake a romantic interest in a person to emotionally manipulate them into sending money. These criminals may request that the victim send them gift cards or money or share their credit card information. Romance scams cost victims billions through cryptocurrency, wire transfer, gift card, or the transfer of funds.
• Fake ecommerce websites – Fraudulent sites are set up to sell counterfeit products or fail to deliver purchases. Millions of people fall victim to fake e-commerce websites that prey on victims who seek good deals with online shopping. 

Insurance Fraud

Insurance fraud costs businesses billions of dollars annually, with scammers filing fraudulent claims to receive payouts. With some insurance companies, fraud can cause premiums to increase, the cost of goods to increase, and lost business revenue. 

Types of Insurance Fraud

Insurance fraud is an ongoing problem in many areas. It can take different forms, such as:

• Health insurance fraud – Providers may exaggerate diagnoses or bill an insurance company for an expensive procedure. Providers may also bill the insurance company for a procedure that was not performed or submit multiple bills for the same medical procedure.
• Auto insurance fraud – Criminals stage accidents, fake car thefts, or exaggerate damage or injuries after a collision. They may also lie about where they reside to obtain a better premium.
• Disaster fraud – Some criminals exaggerate their losses from natural disasters when filing claims with insurance companies. They may also seek to help others recover from a disaster by promising repairs and accepting money from victims, but never perform the repairs.

Corporate Fraud

Corporate fraud involves deceptive practices and fraudulent behavior that violates ethical business standards and financial regulations. Investopedia defines corporate fraud as “illegal activities undertaken by an individual or company that are done in a dishonest or unethical manner. Often, this kind of business fraud is designed to give an advantage to the perpetrating company or individual.”

Common Forms of Corporate Fraud

• Financial statement fraud – Companies intentionally manipulate financial data to mislead investors.
• Insider trading – Insider trading seeks to exploit confidential information to help criminals gain an unfair market advantage. Insider trades include buying or selling a security in breach of a duty or trust on non-public information. These actions may also involve using insider information to one’s advantage in buying or selling a stock.   
• Misrepresentation of assets – Misrepresentation involves falsifying market valuations to secure loans or attract investors.
• Embezzlement – Embezzling involves stealing money or property by someone entrusted with its care. In cases of embezzlement, the crime is perpetrated by someone who has a fiduciary responsibility to the organization.

Major Scandals Linked to Corporate Fraud

Corporate fraud has plagued industries for decades, with some cases causing billions in losses and shaking investor confidence. Some of the most infamous corporate fraud cases have involved:

• HealthSouth (now Encompass Health Corporation®)
• Bernie Madoff
• FTX

HealthSouth

Under the supervision of CEO Richard Scrushy, HealthSouth over-exaggerated its profits by $2.7 billion. This fraud was exposed in 2003, resulting in legal consequences and monetary losses.

Bernie Madoff

Former NASDAQ chairman Bernie Madoff is notorious for his fraudulent behavior in the world’s largest Ponzi scheme, which cost investors around $64.8 billion. He promised investors preposterous returns  and duped newer clients into funding their predecessors. He was eventually caught in 2008 and sentenced to 150 years in prison.

FTX

Sam Bankman-Fried set up a cryptocurrency exchange called FTX. It collapsed in 2022 and was banned after reports of mismanagement of customer funds.

Bankman-Fried was accused of funneling customer funds into his hedge fund, Alameda Research, which resulted in massive losses for investors. He was convicted on numerous counts of fraud, and the company went bankrupt.

Fraud Prevention

Fraudsters have numerous ways to impersonate people and companies, so it's important to stay vigilant and understand the warning signs. However, you can protect yourself from criminals if you:

• Safeguard sensitive data
• Remain aware of phishing scams
• Set up alerts on credit cards
• Monitor security when making online purchases
• Stay aware of current fraud trends
• Conduct due diligence before investing
• Secure devices and personal networks
• Validate requests for money or sensitive personal information
• Report claims that appear misleading or false
• Create strong passwords
• Use two-factor authentication
• Limit the sharing of personal information

Safeguard Sensitive Data

Cyber criminals are always on the lookout for sensitive information. Consider using a virtual private network (VPN) for accessing your online bank accounts or other sites involving your personal or financial information.

Remain Aware of Phishing Scams

Phishing scams can involve fraudsters posing as employees of well-known companies using fake emails, direct messages, or phone calls to collect sensitive information. Never click on any links in unsolicited emails or direct messages, and be wary of unsolicited phone calls asking for an upfront payment.

Set Up Alerts on Credit Cards

Checking your bank statements and credit card spending regularly helps you to identify fraudulent activity early. Notify your financial institutions about any unauthorized charges and contact your local police department if necessary. 

Monitor Security When Making Online Purchases

To mitigate the chances of getting scammed by a fake ecommerce website, only shop on verified and safe sites. Make sure you are using secure payment methods and do not use public Wi-Fi networks to send money.

Stay Aware of Current Fraud Trends

Education is always the best weapon against scam artists. Be sure to read articles from trustworthy sites like security expert websites and also read police department notices and news stories to remain alert about the latest scams.

Conduct Due Diligence Before Investing

Before making any kind of investment, be sure to conduct your due diligence before you send money. Check the company’s financial records, news stories about the company, and any other information relevant to your investment.

Secure Devices and Personal Networks

Make sure your computer’s operating system and applications have the latest updates and software patches. Also, regularly change the passwords for household devices and your home Wi-Fi as an additional security measure against virus and malware attacks.

Validate Requests for Money or Sensitive Personal Information

Scammers posing as government agency officials or fake charities are becoming more common. Confirm the legitimacy of any claims that seem suspicious. 

Report Claims That Appear Misleading or False

You should always report potential fraud and reach out to potential victims to help them with reporting to their bank, credit card company, mortgage company, or local, state, or federal authorities. With early reporting, attempts made by criminals can be mitigated, stopping them from harming others.

Create Strong Passwords

Create complex passwords and do not use the same password for multiple sites. The best passwords use a mix of uppercase and lowercase letters, numbers, and symbols to help prevent unauthorized user access.

Use Two-Factor Authentication

Two-factor authentication (2FA) requires two different methods of accessing an account. This security technique adds an extra layer of security to online accounts and may reduce the risk of identity fraud.

Limit Personal Information Sharing

Be cautious about sharing any information over the phone, email, or social media to anyone claiming to be a company representative. Restricting where you share information helps to prevent criminals from accessing your data.

Ultimately, the best protection against fraud is for consumers and organizations to remain alert and educated. Frauds are constantly evolving as criminals get more creative.

However, cultivating a culture of security – both physical and digital – will help you significantly reduce your risks. Also, encourage conversations revolving around fraud awareness with your coworkers, relatives, and peers.

The Bachelor’s Degrees in Criminal Justice at AMU

For adult learners interested in preventing and investigating consumer scams and other types of crimes, American Military University (AMU) offers both an online Bachelor of Arts in Criminal Justice and an online Bachelor of Science in Criminal Justice. In addition, students can also choose one of several concentrations to suit their professional needs.

Both degree programs offer a wide variety of courses taught by expert instructors. These courses include U.S. law enforcement, criminal investigation, criminology, and criminal law. Other courses involve topics such as digital forensics, criminal profiling, and crime analysis.

For more information, visit our criminal justice degree program page.

Note: Both degree programs are not designed to meet the educational requirements for professional licensure or certification in any country, state, province or other jurisdiction. These programs have not been approved by any state professional licensing body and do not lead to any state-issued professional licensure.

Encompass Health Corporation is a registered trademark of Encompass Health.