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Federal regulators are requesting Terraform Labs and its co-founder Do Kwon be fined $5.3 billion for defrauding investors, shortly after the two parties were found liable for a multi-billion-dollar fraud.
According to a court filing from April 19, the U.S. Securities and Exchange Commission requested Kwon and Terraform pay roughly $4.7 billion in disgorgement and prejudgment interest for their role in 2022’s Terra-Luna collapse….Continue reading….
Source: SEC suggests $5.3 billion fine for Do Kwon, Terraform Labs | The Block
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The illegal act of obtaining (or the attempt of obtaining) a certain amount of currency in accordance with a contract that promises the later exchange of equated assets, which ultimately never arrive, is a type of fraud, known as commodities fraud. Alternatively, the term can relate to: the failure of registering in an exchange; the act of deliberately providing falsified information to clients; the action of executing transactions with the sole purpose of making a profit for the payee; the theft of client funds.
The detection of fraudulent activities on a large scale is possible with the harvesting of massive amounts of financial data paired with predictive analytics or forensic analytics, the use of electronic data to reconstruct or detect financial fraud. Using computer-based analytic methods in particular allows for surfacing of errors, anomalies, inefficiencies, irregularities, and biases which often refer to fraudsters gravitating to certain dollar amounts to get past internal control thresholds.
These high-level tests include tests related to Benford’s Law and possibly also those statistics known as descriptive statistics. High-level tests are always followed by more focused tests to look for small samples of highly irregular transactions. The familiar methods of correlation and time-series analysis can also be used to detect fraud and other irregularities.
Participants of a 2010 survey by the Association of Certified Fraud Examiners estimated that the typical organization loses five percent of its annual revenue to fraud, with a median loss of $160,000. Fraud committed by owners and executives were more than nine times as costly as employee fraud. The industries most commonly affected are banking, manufacturing, and government.
Although elements may vary by jurisdiction and the specific allegations made by a plaintiff who files a lawsuit that alleged fraud, typical elements of a fraud case in the United States are that:
- Somebody misrepresents a material fact in order to obtain action or forbearance by another person
- The other person relies upon the misrepresentation
- The other person suffers injury as a result of the act or forbearance taken in reliance upon the misrepresentation
To establish a civil claim of fraud, most jurisdictions in the United States require that each element of a fraud claim be pleaded with particularity and be proved by a preponderance of the evidence, meaning that it is more likely than not that the fraud occurred.
Some jurisdictions impose a higher evidentiary standard, such as Washington State’s requirement that the elements of fraud be proved with clear, cogent, and convincing evidence (very probable evidence), or Pennsylvania’s requirement that common law fraud be proved by clear and convincing evidence.
The measure of damages in fraud cases is normally computed using one of two rules:
- The “benefit of bargain” rule, which allows for recovery of damages in the amount of the difference between the value of the property had it been as represented and its actual value;
- Out-of-pocket loss, which allows for the recovery of damages in the amount of the difference between the value of what was given and the value of what was received.
Special damages may be allowed if shown to have been proximately caused by defendant’s fraud and the damage amounts are proved with specificity. Some jurisdictions may permit a plaintiff in a fraud case to seek punitive or exemplary damages. Beyond legislation directed at preventing or punishing fraud, some governmental and non-governmental organizations engage in anti-fraud efforts.
Between 1911 and 1933, 47 states adopted the so-called Blue Sky Laws status. These laws were enacted and enforced at the state level and regulated the offering and sale of securities to protect the public from fraud. Though the specific provisions of these laws varied among states, they all required the registration of all securities offerings and sales, as well as of every U.S. stockbroker and brokerage firm. However, these Blue Sky laws were generally found to be ineffective.
To increase public trust in the capital markets the President of the United States, Franklin D. Roosevelt, established the U.S. Securities and Exchange Commission (SEC). The main reason for the creation of the SEC was to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities and corporate reporting. The SEC was given the power to license and regulate stock exchanges, the companies whose securities traded on them, and the brokers and dealers who conducted the trading.
The falsification of documents, known as forgery, and counterfeiting are types of fraud involved in physical duplication or fabrication. The “theft” of one’s personal information or identity, like one finding out another’s social security number and then using it as identification, is a type of fraud. Fraud can be committed through and across many media including mail, wire, phone, and the Internet (computer crime and Internet fraud).
Given the international nature of the web and ease with which users can hide their location, obstacles to checking identity and legitimacy online, and the variety of hacker techniques available to gain access to PII have all contributed to the very rapid growth of Internet fraud. In some countries, tax fraud is also prosecuted under false billing or tax forgery.
There have also been fraudulent “discoveries”, e.g., science, where the appetite is for prestige rather than immediate monetary gain. A hoax is a distinct concept that involves deliberate deception without the intention of gain or of materially damaging or depriving a victim.
Legal Dictionary: fraud”. Law.com.
Basic Legal Concepts”. Journal of Accountancy. October 2004. Archived from the original on 25 December 2018. Retrieved 18 December 2013.
California Civil Jury Instructions: 1900. Intentional Misrepresentation”. Judicial Council of California. Archived from the original on 28 December 2013. Retrieved 27 December 2013.
The Difficulty of Proving Financial Crimes”. DealBook. Archived from the original on 1 August 2020. Retrieved 23 May 2020.
Fraud Litigation in Pennsylvania” (PDF). Stradley. Archived (PDF) from the original on 31 July 2020. Retrieved 23 May 2020.
California Criminal Jury Instructions: 1804. Theft By False Pretense”. Judicial Council of California.
How cybercriminal communities grow and change: An investigation of ad-fraud communities”.
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