5.3 Financial Frauds

Financial frauds are unlawful acts committed by individuals or organisations to gain through deception and unethical practices. Often these acts cause losses to individuals, companies and the country’s economy, depending on the scale of the fraudulent operation. Following are the types of frauds that are common these days.


  • Forgery

Forgery is the act of duplicating signatures and creating fake documents. 

  • Phishing

Phishing is obtaining sensitive personal information of unsuspecting individuals by baiting them with rewards, prizes, lottery winnings, free subscriptions, etc. It is generally done through e-mail.

  • Vishing

Vishing is similar to phishing. The mode of operations is through phone calls.

  • Debit and Credit Card Cloning

Fraudsters install magnetic strip readers in ATMs and Point of Sale (POS) terminals to obtain sensitive financial information about the card. They use this information to transact and withdraw money.

  • Spyware and Ransomware

Fraudsters gain access to sensitive personal and financial information stored on computers by dispatching hidden spyware and ransomware programs. Unsuspecting victims download these programs that are disguised as legitimate e-mail attachments or files from the internet.

While frauds victimising individuals are rampant, here’s a case of an organisation that ran a large-scale fraud that adversely impacted the country’s financial structure.


The Saradha Group operated massive Ponzi schemes where it promised its investors abnormally high returns through its chit funds. Ponzi schemes where money is obtained from new customers as investments are paid to older customers as returns or settlements. No fruitful investments take place, and the cycle of funding continues until the bubble bursts. Thousands of unsuspecting investors, especially from the lower-economic backgrounds in rural West Bengal, had invested in the schemes with hopes of future wealth creation. In April 2013, the schemes collapsed with around Rs. 2500 crores received from approximately 17 lakh investors. Eventually, the Chairman of the group, Mr Sudipto Sen, and few others were arrested under several criminal charges.

 Protecting your wealth from fraud is critical. We will elaborate on some of the fraud prevention measures in the next chapter.