In 2022, there was an 84% increase in check fraud cases compared to the previous year, rising from 250,000 to over 460,000 reported cases.
The pandemic disrupted normal business operations, leading to a rise in remote and online transactions, which greatly contributed to increased fraud. Criminals exploited economic uncertainties and increased financial distress during the pandemic, targeting relief checks and stimulus payments.
Additionally, reduced physical bank visits and checks being processed remotely made it easier for fraudsters to counterfeit and manipulate checks, contributing to the surge in check fraud cases.
Diving deeper into the problem, this article will explore the ten most common types of check fraud that have emerged or intensified in the US post-COVID era.
Let’s get started!
1. Check Kiting
Check kiting is a form of financial fraud that involves writing a check from one bank account and depositing it into another, even though there are not enough funds in the first account to cover the check.
The idea is to take advantage of the time it takes for banks to process checks, creating an illusion of having more money than actually available.
Here’s a simple example:
Person A has two bank accounts, Account 1 and Account 2. Account 1 has $10, and Account 2 has $0. Person A writes a check for $100 from Account 1 and deposits it into Account 2.
Before the bank realizes that Account 1 doesn’t have enough money to cover the $100, Person A quickly writes another check from Account 2 for $100 and deposits it into Account 1.
For a brief moment, it looks like both accounts have $100, even though there’s only $10 in total.
Case Study: The Premier Healthcare $59 Million Check Kiting Scandal
Harold Sosna, 67, the former president of an Ohio healthcare management company, Premier Healthcare Management, admitted to a $59 million check kiting fraud that targeted banks in western Pennsylvania and Ohio, including S&T Bank and First Financial Bank.
In this scheme, Sosna wrote checks between different bank accounts under his control to falsely inflate the account balances. This made it seem like there was a lot of money in these accounts, allowing checks that should have bounced to be cleared.
From May 15 to May 18, 2020, Sosna circulated over $118 million through these accounts, although this money didn’t actually exist. It was like taking loans from the banks without proper authorization. He managed to do this with 203 checks, causing S&T Bank to lose $59.24 million.
Sosna’s actions were discovered, and he faced a possible sentence of up to 30 years in prison and a fine of $1 million.
2. Card Cracking
Card cracking is a type of financial fraud that typically involves a fraudster and an unknowing or willing participant.
A fraudster contacts someone, often through social media, and convinces them to participate in a scheme to make quick money.
The fraudster asks for the person’s bank account information, including debit card details and online banking credentials.
Once they have the information, the fraudster deposits fake checks into the person’s account.
These checks initially appear to clear, making it seem like the account has more money. The fraudster quickly withdraws or transfers the funds from these fake checks before the bank realizes they are fraudulent.
When the bank discovers the fake checks, they reverse the deposit, leaving the account holder responsible for the full amount.
The account holder is often left with overdrawn accounts and potential legal trouble while the fraudster walks away with the money.
Here’s an example:
Imagine someone named Alex who gets a message on social media from someone claiming they can help make quick money.
The fraudster convinces Alex to provide his bank account details to deposit a check. They deposit a fake check for $2,000 into Alex’s account and ask Alex to withdraw $1,800 and send it to them, promising Alex can keep the rest.
Alex does so, but a few days later, the bank realizes the check is fake and takes back the $2,000, leaving Alex not only out of $1,800 but also owing $200 to the bank if his account doesn’t have enough funds to cover the reversal.
Case Study: The Hamilton County Card Cracking Scheme
Desco Strickland and Skylor Franklin of Cincinnati, Hamilton country, led a large-scale card cracking check fraud scheme targeting Fifth Third Bank and Wesbanco.
The masterminds behind this scam recruited people on social media, promising them a way to make easy money. They instructed these recruits to deposit old or possibly stolen checks, each up to $6,000, into their bank accounts. Once these checks were deposited, the recruits were told to quickly withdraw up to $500 before the bank could realize the checks were not legitimate.
This fraudulent activity took place from September to December 2020. The total loss from these activities amounted to about $65,000, but the actual amount of fraudulent deposits was nearly $200,000.
The situation escalated when police were called to a bank where a recruit was trying to deposit a fraudulent check. Strickland and Franklin were found nearby with multiple cheque books and ATM cards linked to the compromised accounts. Banks soon became aware of this fraud and started flagging the account numbers involved in the case.
3. Counterfeit Checks
Counterfeit check fraud happens when someone creates a fake check or alters a real one to look like it’s from a legitimate account. The check might seem real like it’s from a trusted business or person, but it’s actually fake.
The scammer usually tries to deposit these fake checks or gives them to others, hoping they’ll be cashed or deposited before the bank finds out they’re not real. When people or businesses cash these checks, they might give the scammer cash, only to find out later that the check was fake and they’ve lost their money.
Case Study: The Quincy Million-Dollar Counterfeit Check Fraud
Hui Zhang, a 41-year-old man from Quincy, was arrested and charged with bank fraud involving approximately 114 counterfeit checks amounting to over $1 million.
From June 2020 to May 2022, Zhang allegedly engaged in a scheme where he opened fraudulent bank accounts under false identities. Into these accounts, he deposited over $1 million worth of counterfeit checks.
Once these checks were deposited, Zhang’s next move was to convert these fraudulent funds into cash. He did this by withdrawing hundreds of thousands of dollars from these accounts through ATM transactions.
Zhang’s fraudulent activities eventually caught the attention of federal investigators, leading to his arrest. He was identified partly due to a distinctive tattoo on his left hand, which was visible in the surveillance footage from ATM withdrawals.
Additionally, investigators linked him to the crime through digital evidence, as he used a consistent IP address for both opening the fraudulent bank accounts and depositing the counterfeit checks.
As a result of these actions, Zhang was charged with a potential sentence of up to 30 years in prison, five years of supervised release, and a fine of up to $1 million or twice the gross proceeds of the fraud.
Also Read: How Can Advanced Technology Speed Up Check Fraud-Related Investigations?
4. Stolen Checks
Stolen check fraud happens when someone steals actual physical checks either from mail, an individual or a business and then uses them to get money or pay for things.
The thief might forge the signature on the check or alter it to change the amount or the payee. They then cash the check or use it to buy stuff, pretending it’s theirs.
The person or business who owns the checks usually doesn’t know they’re missing until they see the unexpected transactions on their account, by which time the thief might have already taken the money.
This type of fraud exploits the trust and security typically associated with mailed checks and can result in substantial financial losses for victims.
Case Study: The $24 Million Postal Stolen Check Fraud Conspiracy
In Charlotte, North Carolina, postal worker Nakedra Shannon, along with his co-conspirators Donnell Gardner and Desiray Carter, was involved in a stolen check fraud.
Shannon worked at a postal processing center and used her position to steal checks from the mail. These checks included regular mail checks and U.S. Treasury checks.
The trio then sold these stolen checks online. They used a messaging app called Telegram, where Carter managed a channel named “OG Glass House” to advertise these checks for sale. The money earned from selling these stolen checks was split among them. They made hundreds of thousands of dollars from this illegal activity.
Their operation ran from March 2021 to July 2023. During this time, they managed to steal checks totalling more than $24 million. This included over $12 million in checks they posted for sale and over $8 million in stolen U.S. Treasury checks.
After an investigation, all three were arrested and charged with conspiracy to commit financial institution fraud and theft of government property.
5. Check Washing
Check washing, or chemical alteration, is a type of financial fraud where the details on a written check are altered to benefit the person committing the fraud. This is done by using chemicals to remove or erase the ink that was originally used to write the check.
This type of fraud takes advantage of the physical nature of checks and the ease with which ink can be manipulated.
Here’s a simple example of check washing:
Imagine you write a check to pay your friend $100. You fill in your friend’s name as the recipient and the amount of $100. A fraudster gets hold of your check. They use chemicals to erase the name of your friend and the amount you wrote.
After erasing the original details, the fraudster writes their own name or someone else’s as the recipient and increases the amount, say, to $1,000.
If the bank doesn’t catch the alteration, the fraudster can successfully cash the check for the altered amount, causing you a loss of more money than you intended to pay.
Case Study: The Needham Check Washing Scheme
A man from Needham, Massachusetts, became a victim of a sophisticated check-washing scam. The case unfolded when the resident sent a $100 check to his nephew in California.
However, the nephew never received the check. After a while, the man noticed that the check was cashed for a much larger amount, $35,743, not by his nephew but by a business selling gold and other coins.
The discovery of the fraud was accidental. The Needham man, while routinely checking his bank account, noticed the strange transaction.
Upon realizing the check’s alteration, he contacted his bank and the police. The police were able to apprehend the perpetrator and the suspect, identified as Gabriel Jaramillo from California.
The critical error made by Jaramillo was using the altered check to purchase gold coins, for which he provided his personal email address. This led to the delivery of the coins to the original check owner’s address, triggering an email notification about the package’s delivery.
The Needham resident alerted the police, who then strategically positioned themselves at his residence and the UPS shipping facility. Jaramillo’s attempt to collect the package at the UPS facility became the moment of his capture.
During interrogation, he admitted to finding the check in an overflowing mailbox and using fuel injector fluid in a dimly lit room to wash the check, a method chosen to avoid sunlight, which could damage the check during the process.
Jaramillo was subsequently charged with multiple offenses, including identity fraud and attempted larceny.
6. Mobile Deposit Check Fraud
Nowadays, many banks have a feature where you can take a picture of the check with your phone using their app, and the money gets deposited into your account. This is called ‘mobile deposit.’
Mobile deposit check fraud occurs when criminals use mobile banking applications to deposit fraudulent checks into a bank account and then quickly withdraw the money before the bank identifies the checks as fake.
This type of fraud has become more prevalent with the rise of mobile banking, exploiting the convenience and speed of digital check deposits.
Case Study: The Indianapolis Mobile Banking Check Fraud Case
In Indianapolis, small business owners Robb Fine and Harold Wilson fell victim to mobile deposit check fraud, collectively losing thousands of dollars.
Fine and Wilson found checks they had sent for business purposes stolen right from their mailboxes. The thieves altered these checks, changing payee names and addresses, and then deposited them using mobile banking apps.
For instance, checks initially made out to vendors were fraudulently altered to pay unknown individuals like Michael King, Martwon Rowe-Williams, and Hannah Ivey. The alterations were blatantly fraudulent, with visible differences in type font and obvious signs of tampering, yet the banks accepted these checks.
Wilson’s business experienced a more harmful form of this fraud, where the thieves created entirely new checks using the business’s information and altered the payee names and payment amounts.
Even checks without Wilson’s signature were processed and cashed by his bank. This fraud not only affected their business accounts but also their personal ones. In one instance, a check for $63 was stolen from Wilson’s home mailbox and altered to $1,000 before being cashed.
7. Check Identity Theft
Identity check theft is a type of fraud where someone illegally gets your personal information and uses it to create or cash checks. They could find this information by stealing your mail, going through your trash, hacking into your online accounts, or through data breaches.
This can mean they’re spending your money or creating debt in your name without you knowing it.
Case Study: Arrington Jaylun Gardner Identity Check Theft Case
In Mobile, Alabama, a 22-year-old, Arrington Jaylun Gardner, was involved in a Check Identity Theft case. This scheme led to losses of over $125,000 for the victims.
Gardner led a ring that stole checks from the U.S. mail, altered them, and then deposited them at various banks.
They used the personal information of businesses and individuals without their consent. Gardner and his team used social media to recruit people who had bank accounts.
These recruits provided their account details and debit cards, which were then used to further the fraudulent activities.
In July 2022, federal agents searched Gardner’s apartment. They found a large number of altered and stolen checks, counterfeit IDs, tools for making fake checks, stolen vehicles, and cash. They also discovered that Gardner had used stolen identities to buy luxury cars, causing significant financial losses.
Gardner was sentenced to 102 months in prison and ordered to pay substantial restitution. He pleaded guilty to bank fraud and aggravated identity theft.
Also Read: 3 Check Fraud Investigation Software That Can Help Banks In Fighting Check Fraud
8. Check Forgery
Check forgery is the illegal act of altering, creating, or signing a check without the authorization or knowledge of the account holder. This can involve changing the name of the payee, the amount on the check, or fraudulently signing someone else’s name to cash or deposit the check.
Case Study: The Jing Ma Check Forgery Case
A woman named Jing Ma from the suburbs became a victim of a check forgery case, losing $40,000. This all started when Jing Ma closed her checking and savings accounts at BMO Harris Bank on June 16.
The bank was supposed to send her the money from these accounts through the cashier’s checks in the mail. She got the first check, which was about $2,000, on June 22.
But the big check from her checking account, which was for $41,530.06, never arrived.
When she called the bank, they told her the check had already been cashed. Jing Ma was shocked because she knew she hadn’t cashed it.
The bank showed her a copy of the cashed check, and she saw that the signature wasn’t hers and even her name was spelt wrong. Later on, she found out that someone else had taken the check and cashed it.
9. Fake PayCheck Fraud
Fake paycheck fraud involves creating and using fake payroll checks, often as part of a broader scheme to defraud financial institutions or government programs.
This type of fraud typically includes forging payroll documents to make fraudulent claims for financial gain, such as loans or relief funds.
Case Study: COVID-19 Relief Fraud Involving Fake Paychecks
Brandon Casutt, a 52-year-old man from Henderson, Nevada, deceitfully acquired over half a million dollars in loans from the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program.
Casutt falsely applied for more than $5.7 million in loans through the Small Business Administration (SBA) and its lenders, claiming them for two entities under his control.
He managed to secure a $350,000 PPP loan for a business named Sky DeSign and a $150,000 EIDL loan for a charity named Skyler’s CF Foundation. However, both these entities were fraudulent, with no actual employees or payroll.
With the PPP loan money, Casutt created and cashed numerous bogus payroll checks, averaging $8,330 each, under the guise of “pandemic pay” or “back pay,” distributing them to himself, his family, and friends.
The proceeds were then funneled back into his control, and he used this money to buy a $400,000 house in Henderson.
In August 2020, Casutt pleaded guilty to wire fraud and money laundering. He was sentenced to two years and four months in prison and was ordered to pay back over $200,000.
10. Fake Employment Check Fraud
Fake employment check fraud targets job seekers by offering them seemingly legitimate job opportunities. The scam typically involves a fraudster posing as an employer who sends the victim a check to cover initial job-related expenses, such as office supplies.
The victim deposits a check, only to discover later that it is fake. Before the check bounces, they are often told to send part of the money to a specified account and keep the rest of their payment.
The victim is left owing the bank the amount of the fraudulent check.
Case Study: Miranda Owens’ Fake Employment Check Fraud
Miranda Owens, a graduate of Cottey College in Nevada, Missouri, became a victim of fake employment check fraud when she applied for a remote job.
After submitting her job application, Owens received a job offer from the fraudster, who posed as an employer from a well-respected company.
The fake employer sent Owens a check, purportedly for purchasing office supplies for her new remote job. Owens deposited the check into her bank account.
Once the check was deposited, the scammer instructed Owens to transfer money. Initially, she was told to use Zelle to purchase office supplies from a company, which she later discovered was nonexistent.
The transaction through Zelle was blocked, a fortunate occurrence, but the scammer quickly adapted, instructing Owens to withdraw $4,500 and convert it into Bitcoin.
Owens was directed to send this amount to the supposed supply company via a Bitcoin machine in a convenience store in Kansas City, Kansas.
After completing the Bitcoin transaction, Owens realized that she had been scammed. The job offer was fake, and the check she had deposited was counterfeit. This realization came with the understanding that she was now responsible for the amount of the fake check she had deposited, totalling nearly $5,000.
Addressing the Gravity of Check Fraud in the Post-COVID Era with ScanWriter
In the post-COVID era, the threat of check fraud looms larger than ever. The sophistication of fraudulent schemes has increased, making it crucial for banks and financial institutions to adopt advanced tools for effective fraud prevention, detection and investigation. In this context, ScanWriter emerges as a pivotal solution in bolstering check fraud investigation efforts.
ScanWriter can help banks fight check fraud in the following ways:
- Speedy Check Scanning: ScanWriter enables banks to scan checks rapidly, enhancing the efficiency of fraud detection processes. It can check and capture data from up to 12 checks per page, and process over 1000 checks in less than an hour.
- Swift Data Extraction: ScanWriter can efficiently extract data from all types of forms, documents, pictures, and bank records. It can process both the front and back of the check and handle cases with 500 to a 100,000 check images. Furthermore, it can read both handwritten and printed checks, and recognize different fonts and layouts with ease.
- Enhanced Accuracy: ScanWriter has a dual screen preview feature that displays the check on one side and the data collected from it on the other, enabling swift error detection and improved accuracy.
- Advanced Data Sorting: Designed to meet the specific needs of financial institutions, ScanWriter offers superior data sorting capabilities to spot anomalies, trends, and patterns. It can collect and organize the data from checks into excel sheets, allowing users to create rules to present data in formats of their choice.
- Automated Anomaly Detection: ScanWriter’s automated process accurately identifies irregularities, aiding in the quick discovery of suspicious transactions. The tool creates automated visualizations based on Benford’s Law, making it easier for examiners to identify potential fraud.
- Comprehensive Financial Data Analysis: ScanWriter offers a transparent and all-encompassing view of your financial transactions.
So, what are you waiting for? Embrace the advanced investigation capabilities of ScanWriter and safeguard your institution from the complexities of modern-day check fraud.
Schedule a free demo and witness how this innovative tool can fortify your defenses against the surge in check fraud cases.