Fraud Finders: Volume 003
How financial investigators go from an allegation to initiating a criminal case—plus real cases of business owners who made bad and allegedly unlawful decisions to hide their true financial condition.
Auditors don’t just check the math—they follow the money, expose deception, and, sometimes, bring down criminal enterprises. Early in my career, I learned that understanding fraud isn’t something you get from a textbook. You have to live it.
I’ve spent 34 years in financial federal criminal investigations, another four as a Senior Forensic Auditor, and a fair bit of time before that in law school, where I learned how to argue about everything, including lunch options.
In this issue, I’ll break down how a financial allegation becomes an criminal investigation. Plus, we’ll look at real-world fraud cases, including business owners who used false documents to hide their true income.
Fraud leaves a money trail. The key is knowing where to look.
As a reminder—
Lessons From The Field: Personal case insights and lessons
Fraud Finders: What’s happening in the world of fraud
Before we go any further: this is not legal advice. If you need legal advice, go find yourself a lawyer—not some guy on the internet that used to chase fraudsters.
Lessons from the field:
How Allegations Becomes a Criminal Cases
So, in our last edition, I did my duty as the “officer of the day” and had a great conversation with an informant who provided some information of an alleged financial crime.
From there, I would create something called an Information Item — basically, a formal way to record what the informant told me. Then, I would start checking public records, financial databases, and law enforcement systems to see if anything supported their story.
If the allegation looks promising, I take it to my boss and show them what I found. I let them know I’m interested in working the investigation. Over the years, I got pretty good at identifying strong cases, but a lot of times, investigations got handed off to other agents. That can happen for a bunch of reasons — my case load was already too busy, or the investigation needed to be worked by a specialty group, like our narcotics, organized crime, or cybercrime unit.
Personally, I always tried to juggle two active investigations (which is normal in a financial crime agent’s inventory), with one extra ready in case something fell through. Timing is everything in this line of work.
If I can convince my boss that there’s "meat on the bone" — meaning the case has real potential — the next step still isn’t automatic. Upper management has to review it and officially open what's called a Primary Investigation. Only then is the case really mine to work.
At this next stage, a Primary Investigation gives me access to more tools, like:
Consensual monitoring (recording conversations with permission)
Mail covers (tracking mail without opening it)
Requesting tax returns
But even at this stage, there’s one big rule: I can't reach out to third parties — meaning I can’t contact the subject’s clients, vendors, banks, or even hint to them that they’re under investigation. During this stage and even in active subject investigations, we have strict disclosure laws that protect taxpayer information, even from other law enforcement agencies.
Sometimes, the person being investigated starts to get suspicious. How does that happen? Usually, it’s because the informant (who might be angry or frustrated) lets something slip. But most informants prefer to stay anonymous, and honestly, anonymous tips can be just as valuable as ones with names attached.
If everything goes smoothly and I gather more evidence, I can then request to upgrade the case from a Primary Investigation to a Subject Criminal Investigation. That’s when I’m allowed to use even bigger tools, like subpoenas and contacting third parties.
But hold on — there's still one last big decision to make: Will this be an administrative or a grand jury investigation?
Most, but not all, tax-related cases start out as administrative investigations, where summons are available to be issued to third parties including accountants, banks, and financial institutions, among other custodians of records. I refer this type of investigation as an “in house” operation where the agency attorneys provide legal support to the case agents during the entire investigation. Once the investigation is finalized in a Special Agents Report, criminal charges are referred to the United States Attorney, who takes control of the investigation.
If the subject investigation is initiated as a Grand Jury investigation, it is assigned to a Department of Justice Assistant United States Attorney at the onset, and yes, the disclosure laws are still in place but with specific exceptions to certain disclosures. Another big difference in a grand jury investigation is the ability to work with other agencies and issue a grand jury subpoena for information and testimony, a very powerful legal tool.
Even though an investigation starts as an administrative case, a grand jury investigation can be requested during, or even after the administrative investigation, by the agent showing that the grand jury would be more efficient in developing relevant facts within a reasonable period of time.
I am now off to the races.
Fraud Finders:
What’s Happening in the World of Fraud?
If you want to stay informed, keep an eye on your local Department of Justice (DOJ) press releases—a source of real-world case studies on what not to do. Here are a few recent gems:
The Owner of a Hotel, Bar, and Liquor Store Sentenced to One Year in Prison
Even tax cheats want to know how much money they’re really making. In this case, a business owner kept two sets of books:
One set showed the real income and expenses.
The other set made the business look like it earned a lot less.
The owner handed over the fake records to her accountant, who unknowingly used the false records to prepare their tax returns. In the end, it caught up with them — and they were sentenced to a year in prison.
Principals in Aerospace Startup Indicted on Fraud Charges
According to the indictment, some former leaders of a startup company were trying to raise more than $2 billion. They only managed to raise about $250 million in loans and investments — but the way they did it was the real problem.
To convince people to give them money, they allegedly:
Lied about having big government contracts (they didn’t).
Faked financial statements — including one that showed a fake $6 billion escrow account.
Made up false claims about their technology.
All of that added up to serious fraud charges.
Defendant Indicted his Gambling Debt as Business Expenses
Here’s a creative (but illegal) move: the owner of an insurance salvage company allegedly paid off his sports gambling debts using his company’s bank accounts. How? He listed his bookmakers — yes, the people running his bets — as vendors for his business.
And it gets even messier: those same bookmakers had earlier pleaded guilty to running an illegal sports betting operation.
Crime pays… until it doesn’t.
Final Thoughts
Fraud never really changes—just the methods. Keep learning, stay skeptical, and if something seems off, follow the money. And for those still convinced they can outsmart auditors, regulators, and investigators? Well, I’ll be reading about them in the next round of DOJ press releases.
Until next time-