Payment Fraud ExamplesSmall Businesses & Enterprises Alike Can Fall Victim to Payment Fraud
High-Profile Examples of Payment Fraud, Ripped Right From the Headlines
It’s tempting to think that payment fraud is only a problem for eCommerce merchants who don’t take cybersecurity and payment security seriously. But, that’s far from the case.
Even SMBs with excellent security practices and large enterprises with massive risk management teams will routinely fall victim to payment fraud. This is because, at the end of the day, a payment is only as safe as its least-secure participant (i.e. the cardholder, in most cases).
Don’t believe me? Just check out these anecdotal examples below:
From cryptocurrency to healthcare, no industry is immune from payment fraud. Still not convinced, though? Maybe a few ripped-from-the-headlines examples might help. Check out these high-profile cases below so that you know what you’re really up against.
Payment Fraud
In this guide, we take a look at what payment fraud is, how it works, and how it impacts merchants. We’ll also share tips and best practices you can use to identify, detect, and prevent these tactics from harming your business.
FTX’s Historic Collapse
Once the world’s third-largest cryptocurrency exchange, FTX faced insolvency risks in early November 2022 when Changpeng Zhao, a major FTX investor and the CEO of rival exchange Binance, announced that he would sell his holdings in FTX Token (FTT), FTX’s utility token.
Due to low trading volume, FTT declined in value by more than 80%. In a panic, customers withdrew nearly $6 billion from the exchange. Unable to fulfill withdrawal requests, FTX declared bankruptcy on November 11.
FTX founder and CEO Sam Bankman-Fried was then arrested in the Bahamas and later extradited to the US. Following an investigation, it was revealed that FTX failed to segregate client assets from firm assets, and instead illegally allowed Alameda Research, FTX’s proprietary trading affiliate, to access client funds.
According to a press release from the US Department of Justice, Bankman-Fried “...misappropriated billions of dollars of customer funds deposited with FTX, defrauded investors in FTX of more than $1.7 billion, and defrauded lenders to Alameda [Research] of more than $1.3 billion.”
In total, he stole roughly $8 billion from over 1 million former clients. After a high-profile, one-month criminal trial before judge Lewis A. Kaplan in the District Court for the Southern District of New York, Bankman-Fried was found guilty on “two counts of wire fraud, two counts of conspiracy to commit wire fraud, one count of conspiracy to commit securities fraud, one count of conspiracy to commit commodities fraud, and one count of conspiracy to commit money laundering.”
In March 2024, he was sentenced to 25 years in federal prison, and was told to pay $11 billion in court-ordered restitution.
New York Man Sentenced to 12 Years in Prison for $660 Million Healthcare Payment Fraud
In February 2024, 54-year-old Mathew James, a resident of East Northport, was sentenced by the Eastern District of New York to 12 years in prison after a jury convicted him of “health care fraud, conspiracy to commit health care fraud, wire fraud, and aggravated identity theft.”
According to a press release from the US Department of Justice, James operated several third-party medical billing companies that provided back-office billing services to physicians’ offices throughout the US. Specifically, his companies would submit insurance claims, handle appeals, and contest denials on behalf of doctors’ offices, “earning a percentage of the amount paid by the insurance companies.”
However, James fraudulently “billed for procedures that were either more serious or entirely different than those his doctor-clients performed.” He also made calls to insurance companies, where he impersonated patients to either appeal denied claims or ask for more reimbursement for approved claims, “resulting in tens of millions of dollars in additional reimbursement to his doctor-clients and from which he received a percentage of the fraudulent proceeds.”
As a result of these fraudulent practices, James secured over $600 million in payments from health insurance companies. As part of his sentence, he is required to pay $336 million in court-ordered restitution.
Lithuanian National Extradited After $100 Million Phishing Scheme
Between 2013 and 2015, Lithuanian national Evaldas Rimasauskas orchestrated an elaborate business email compromise scheme that defrauded Facebook and Google out of more than $100 million combined.
Rimasauskas's approach was deceptively simple but brilliantly executed. He established a fake company impersonating Quanta Computer, a legitimate Taiwan-based manufacturer that actually conducted business with both tech giants. Using forged invoices, contracts, and corporate documents complete with fake executive signatures and embossed seals, he sent convincing phishing emails to employees at Facebook and Google who regularly processed multimillion-dollar transactions with vendors.
The scheme unraveled when both companies detected the fraud and alerted authorities. Rimasauskas was arrested in Lithuania in March 2017 and extradited to the United States, where he pleaded guilty to wire fraud. He was sentenced to five years in prison and ordered to forfeit approximately $49.7 million. Both Facebook and Google recovered the bulk of their losses, but the case exposed vulnerabilities in even the most sophisticated corporate payment systems.
