Types of Financial Fraud

Before You Send Money

Pause and ask yourself:

• Am I being pressured to act immediately?
• Am I being asked to keep this confidential?
• Is someone requesting payment by wire transfer, cryptocurrency or gift cards?
• Have I independently verified this request using a trusted phone number?
• Have I spoken with my financial advisor or a trusted family member?

If any answer gives you pause, stop and verify before sending money.

The term “financial fraud” encompasses any type of intentional deception or misrepresentation designed to unlawfully obtain money, property, sensitive information or other material benefits. It includes schemes that exploit trust, technology and regulatory gaps, and it can be carried out against individual consumers, businesses or financial institutions. 

Various types of financial fraud have the potential to undermine the public’s trust in financial systems, inflict both financial and emotional devastation on individuals and families, and cost the economy billions of dollars annually. According to Federal Trade Commission (FTC) data, consumers reported losing more than $12.5 billion to fraud in 2024 alone, a 25% increase over 2023. 

Common characteristics of financial fraud include promises of high returns with low risk, an urgency to take immediate action, and requests for financial or personal information that bypass normal safeguards. Types of financial fraud can involve tactics such as phishing and spoofing or rely on high-tech tools such as artificial intelligence (AI) to fool unsuspecting victims using realistic emails, websites, images and even voices. Fraudsters often impersonate trusted entities, such as a financial institution or government agency, exploit data breaches and use personal data to execute fraudulent schemes.

Examples of common types of financial fraud include identity theft, bank fraud, payment fraud, tax fraud, financial statement fraud (including Ponzi, pyramid and “pig butchering” schemes), investment fraud, mortgage fraud, credit card fraud, wire fraud, account takeover, cyber fraud, imposter scams and romance/relationship scams.

Understanding Identity Theft

Identity theft occurs when a fraudster steals and uses another person’s personal information for financial gain. Some of the most valuable personal information includes Social Security numbers, credit card details and login credentials, but even more readily available data such as your address, mother’s maiden name and workplace can be used for identity theft. 

Criminals often engage in fraudulent activity in order to gain access to personal information. Examples of this behavior include data breaches, phishing emails, spoofed websites, malware and even physical theft of mail or documents. Once they gain access to this information, scammers can use it to open new accounts, make unauthorized purchases, commit insurance fraud or file fraudulent tax returns. 

Potential signs of identity theft include:

• Unexplained credit card charges
• Unfamiliar accounts or inquiries on credit reports
• An unexpected denial of credit
• A sudden drop in your credit score
• Alerts from your bank about suspicious activity
• Missing mail, particularly bills or financial statements
• Calls from creditors for unknown debts

Consider taking the following fraud prevention steps to help protect yourself from identity theft:

• Regularly review your bank, credit card and investment statements, and quickly report unauthorized transactions.
• Request annual copies of your credit report from the three main credit bureaus, Equifax, Experian and TransUnion, and look for unfamiliar accounts or inquiries.
• Use strong, unique passwords for each account and change them regularly; a reputable password manager can help you generate and securely store your passwords. 
• Implement multifactor authentication on all accounts, especially those involving money or sensitive data. 
• Avoid sharing sensitive information unless you initiated the contact and verified the recipient. 
• Install and regularly update antivirus software on all devices. 
• Only use secure Wi-Fi networks for financial activities. 
• Enable fraud detection and transaction alerts with your bank and other financial institutions. 

If you suspect your identity has been compromised, the FTC’s IdentityTheft.gov site walks you through tailored recovery steps, including placing fraud alerts, freezing credit and working with financial institutions to resolve unauthorized accounts. For more everyday safeguards, see Protect Yourself From Financial Fraud.

Exploring Tax Fraud and Its Implications

Tax fraud involves intentionally falsifying information on a tax return to claim a refund, reduce tax liabilities or commit other financial crimes. A common scam involves fraudsters using an individual’s personal information to file a fraudulent tax return early in the tax season before that person has a chance to file. The fake return often uses false income, withholdings and credits to claim a large refund, which is then directed to an address or account controlled by the fraudster. The legitimate taxpayer frequently realizes the fraud when their actual return is rejected as a duplicate.

Other forms of tax fraud can include hiding income in offshore accounts, inflating deductions, falsifying business expenses or promoting abusive tax shelters that promise outsized tax savings. Fraudsters may also pose as tax authorities or “tax experts” to collect personal financial information, which they later use in other schemes.

The legal consequences of committing tax fraud can be severe. Civil penalties can be up to 75% of the underpaid tax plus interest, and criminal penalties can result in significant fines and imprisonment, especially in cases of willful fraud. In addition, those found to have engaged in tax fraud often face reputational harm and heightened scrutiny from tax authorities.

To avoid falling victim to tax fraud — and to reduce your risk — it’s important to use a reputable tax preparer, carefully review your returns before signing, and file electronically with the IRS through secure channels. Be wary of refund schemes that seem too good to be true or anyone promising unusually large “guaranteed” refunds, and report suspected fraud to the IRS quickly.

Creative Planning’s overview of the 2026 IRS Dirty Dozen Tax Scams offers additional detail on current tax‑related schemes targeting taxpayers and businesses.

Ponzi and Pyramid Schemes: A Closer Look

A Ponzi scheme refers to the fraudulent practice of paying investment returns to earlier investors using the funds of newer investors, rather than using legitimate investment returns. The organizer typically promises consistent, above‑market performance and may initially deliver matching returns, creating an illusion of success. These schemes eventually collapse when fewer new investors join the “fund” or when requested withdrawals exceed the rate of new investment. 

Pyramid schemes require participants to recruit others, with earnings paid primarily from recruitment fees rather than product sales. While some programs present themselves as multilevel marketing opportunities, regulators may consider them illegal pyramids if rewards are driven more by recruitment than by genuine demand for any underlying product or service.

Red flags that could indicate a Ponzi or pyramid scheme include:

• “Guaranteed” high returns with little or no risk
• Difficulty withdrawing funds or frequent excuses for delays
• Consistent positive performance regardless of market conditions
• Secretive or overly complex strategies that are hard to understand
• Unregistered investments or unlicensed sellers
• Pressure to recruit others or reinvest earnings instead of taking withdrawals

The best way to avoid falling victim to a Ponzi or pyramid scheme is to remember that if an investment sounds too good to be true, it probably is. Before investing, verify the investment manager’s registrations with the SEC or state regulators and conduct your own independent research. Don’t give in to high-pressure sales tactics or limited-time offers.

Exploring “Pig Butchering” Investment Scams

One of the fastest‑growing forms of financial fraud today is known as a “pig butchering” scam — a scheme in which criminals spend weeks or months building trust with a victim before persuading them to make increasingly larger investments through fraudulent platforms.

These scams often begin with an innocent‑looking text message, social media contact, dating app conversation or message through a platform such as WhatsApp or Telegram. The fraudster develops a personal relationship, sometimes blending elements of romance or friendship, before introducing what appears to be a highly profitable investment opportunity, frequently involving cryptocurrency or other alternative investments.

Victims are typically directed to professional‑looking investment websites or apps that display impressive gains. They may even be allowed to withdraw a small amount of money initially to build confidence. Once larger sums are invested, withdrawals are denied, additional “fees” or “taxes” are requested and the platform ultimately disappears. In many documented cases, victims lose hundreds of thousands or even millions of dollars before realizing the accounts were fraudulent.

Common warning signs include:

• Unsolicited messages, often via social media, texting or apps like WhatsApp or Telegram, that turn into ongoing personal conversations
• Investment opportunities introduced through personal relationships rather than established financial institutions
• Consistently high returns with little or no apparent risk
• Requests to send money by wire transfer or cryptocurrency
• Pressure to act quickly or keep the investment confidential
• Investment platforms that can’t be independently verified or lack clear regulatory oversight

Before making any investment outside your normal financial relationships, independently verify the opportunity and discuss it with a trusted financial advisor. Legitimate investment opportunities should withstand careful due diligence and never require secrecy or urgency.

Romance and Relationship Scams

Romance and relationship scams are closely related to “pig butchering” schemes, but the focus is often more squarely on emotional manipulation. Fraudsters build online relationships over weeks or months before requesting money or introducing what appears to be an investment opportunity. Victims are often encouraged to keep the relationship private and may be gradually isolated from friends and family, making it harder for others to spot warning signs.

Warning signs can include:

• Refusing to meet in person or constantly offering excuses
• Requesting secrecy or asking you not to tell family or friends
• Asking for wire transfers, cryptocurrency or gift cards, often for supposed emergencies
• Introducing “can’t lose” investment opportunities as the relationship deepens

If you’ve never met the person in real life, or if they repeatedly ask for money or investment funds, it’s wise to pause, talk to someone you trust and verify details independently. As the FTC and other agencies emphasize, you should never send money or gifts to someone you haven’t met in person, no matter how compelling the story may sound.

Creative Planning’s article on romance scams and financial fraud provides additional insight into these emotionally driven schemes and how to help protect yourself and loved ones.

The Threat of Business Email Compromise

Business email compromise (BEC) refers to a type of targeted cyber fraud where scammers use fake or compromised emails to impersonate corporate executives, vendors or partners. Through email communication, they trick employees into transferring funds, sharing sensitive data or changing payment details. BEC impacts companies of all sizes, and occurrences often result in significant losses of assets and cash flow.

This type of fraud is often conducted using website domain spoofing, account takeovers using phishing tactics, fake invoices and urgent wire requests. AI is frequently used to clone executives’ voices or generate realistic images and videos via phone calls and video chats, making fraudulent requests feel more convincing. 

To avoid falling victim to BEC, businesses can:

• Implement multifactor authentication for email and key systems
• Conduct employee training on phishing scams, BEC warning signs and safe email practices
• Require separation of duties and dual approval for significant financial transactions
• Verify any changes in vendor or payment details through known, independent contacts
• Use advanced email security protocols and threat detection tools 

For more details on phishing and related cyber fraud, explore Creative Planning’s resource on online and offline phishing scams.

Emerging Risks: AI Voice Cloning and QR Code Scams

Recent advances in AI have made it possible to convincingly replicate a family member’s or colleague’s voice from just a few seconds of audio. Fraudsters may use voice cloning in “urgent” phone calls or voice messages, claiming a loved one is in trouble and needs immediate funds. Before wiring money based on an emergency call, it’s critical to independently verify the request using a known phone number or by asking a question only that person would know the answer to.

QR code scams are another emerging threat. Criminals may place fraudulent QR codes on parking meters, utility bills, restaurant menus or fake delivery notices, redirecting you to malicious websites or payment portals. To reduce your risk, check that QR codes appear legitimate and belong to the expected business, and avoid entering sensitive information or making payments on sites you haven’t independently verified.

Legal and Preventative Measures Against Financial Fraud

Financial fraud has become one of the fastest growing and most financially damaging crimes affecting consumers and businesses today. Fortunately, much of it can be curtailed by robust legal frameworks and proactive fraud prevention strategies. If you believe you’ve fallen victim to financial fraud, the first step is to report the fraud to your financial institutions and the relevant government and law enforcement agencies. Acting quickly may help limit losses and prevent further misuse of your information.

You can report suspected fraud to:

• The FTC – Report consumer scams and fraud at reportfraud.ftc.gov
• FBI Internet Crime Complaint Center (IC3) – Report cyber-related fraud, BEC and investment scams (including pig butchering) at ic3.gov
• Securities and Exchange Commission (SEC) – Report investment and securities fraud via the SEC’s tip and complaint portal
• Consumer Financial Protection Bureau (CFPB) – Report issues involving banks, credit cards and consumer financial products at consumerfinance.gov/complaint/
• Local police, state attorneys general and the IRS – Report identity theft, tax fraud and mail fraud to the relevant authorities

To help prevent personal fraud and identity theft, you may want to: 

• Regularly monitor all accounts and credit reports 
• Place a freeze or fraud alert on your credit when appropriate 
• Use strong, unique passwords and consider a password manager 
• Enable multifactor authentication on all accounts 
• Remain skeptical of unsolicited requests for personal or financial information 
• Verify emails and links before opening or clicking them
• Avoid sending wire transfers, gift cards or cryptocurrency to unknown parties 
• Install reputable antivirus software on all devices and keep it up to date

On the relationship side, consider designating a trusted contact with your financial institutions. This gives firms someone they can reach out to if they suspect financial exploitation while still protecting your privacy.

To prevent financial fraud at your business, it can be helpful to:

• Conduct regular fraud prevention and cyber awareness training for employees
• Implement separation of duties and dual approval requirements for financial transactions
• Use advanced email and endpoint security tools
• Maintain incident response plans and consider cyber insurance
• Employ a layered approach combining technology, processes and human awareness
• Conduct periodic risk assessments and stay informed about emerging threats

If you’re unsure whether an email, phone call, investment opportunity or money request is legitimate, contacting your Creative Planning advisor before you act can be one of the most effective safeguards. A brief conversation often provides the perspective you need to avoid a costly mistake.

For organizations looking to strengthen detection and internal reporting, Creative Planning’s article on why hotlines are essential for workplace fraud detection offers additional ideas.

Next Steps

Financial fraud has the potential to wreak significant havoc on the financial security of both individuals and businesses, and recent technological advances are making it easier than ever for fraudsters to take advantage of unsuspecting victims. Fortunately, there are meaningful steps you can take to protect yourself and your business from financial scams. Remaining vigilant, slowing down before you send money and building simple safeguards into your daily routine can make a substantial difference.

At Creative Planning, we strive to educate clients on the risks of financial fraud so that they can protect themselves and their loved ones. We can support you by reviewing your accounts, enabling advanced security protections and identifying additional strategies to help safeguard your financial future. 

If you’d like to learn more about how Creative Planning can help protect your wealth and integrate fraud awareness into your broader financial plan, please schedule a call with a member of our team.