CyberSecurity Month: How Easy is Major Financial Fraud?

An unfortunate truth of the financial industry seems to be that if someone can commit fraud, someone probably will. And, as technology continues to improve, the possibility of getting away with it is increasing.  Peregrine Financial made headlines this July when their CEO confessed to defrauding customers for over 19 years.

Shortly after the story broke, Wall Street Journal released an investigation into the series of crimes. “Financial frauds are shocking when they come to light and one of the first questions usually raised is ‘why couldn’t investors/regulators have seen this?’” We decided to look at what they found, and explore how similar crimes can be avoided.

Attention to Detail

Russ Wasendorf Sr., CEO of Peregrine Financial, continually defrauded customers using techniques as simple as “[forging] bank statements and bank correspondence using Adobe Photoshop, scanners, Excel and printers…” These home-made forgeries were simple and easy to produce, but were more than enough to fool financial regulators for almost two decades.

Regulators are likely to face tough questioning from lawmakers on Wednesday [July 25^th] how the fraud went on so long without being detected.

"Who is minding the store,?" House Agriculture Chairman Frank Lucas plans to ask in an opening statement. "What we need is regulators doing their job."

How could this have been avoided? Both Reuters and WSJ attest that regulators were following all of the standard requirements and regulations for approving these forged statements. Unfortunately, the problem seems to lie in the fact that those regulations aren’t written with fraud in mind. We’re not saying that every financial regulator should assume they are being duped, but greater attention to detail would not necessarily be a bad thing.

Next week, we'll continue looking at the major factors in this case.

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