A fraudster is a person who knowingly lies or conceals the truth to get someone else to act on the deception, usually for financial gain. What separates a fraudster from an ordinary liar is intent: the law requires proof that the person knew their statements were false and wanted a victim to rely on them. Consumers reported losing more than $12.5 billion to fraud in 2024, with investment scams and imposter schemes driving the largest share of those losses.1Federal Trade Commission. New FTC Data Show a Big Jump in Reported Losses to Fraud to $12.5 Billion in 2024
The Legal Definition of a Fraudster
The law treats fraud as deliberate deception, and it draws the line in two places depending on who is bringing the case.
In a civil fraud lawsuit, the victim sues the fraudster for money damages. To win, the victim generally has to prove that a false statement was made, the person making it knew it was false, the statement was meant to get the victim to act, the victim did act in reliance on it, and the victim suffered financial harm as a result. Most courts require this proof to meet the “clear and convincing evidence” standard, which is a higher bar than an ordinary lawsuit but lower than what prosecutors face in criminal cases.
Criminal fraud is prosecuted by the government and requires proof beyond a reasonable doubt. The elements shift in an important way: criminal statutes often don’t require the government to show the victim actually relied on the lie or suffered a loss. Many federal fraud charges only ask whether the defendant devised a scheme to defraud and took a step to carry it out. Under 18 U.S.C. 1001, knowingly and willfully making false statements or concealing material facts in any matter involving the federal government is a crime punishable by up to five years in prison, whether or not anyone was actually fooled.2Office of the Law Revision Counsel. 18 USC 1001 – Statements or Entries Generally
Why People Become Fraudsters
Criminologist Donald Cressey built one of the most widely used frameworks for understanding fraud: the fraud triangle. Three conditions usually converge before someone crosses the line.
- Pressure. Something creates a financial need the person feels they can’t resolve honestly: personal debt, a gambling habit, a spouse losing a job, or impossible performance targets at work. What matters is that the person treats the problem as unshareable.
- Opportunity. The person has access to assets and sees a gap in oversight that makes theft possible. Weak internal controls, missing audits, and excessive trust all create openings.
- Rationalization. The person convinces themselves the act is acceptable: “I’ll pay it back,” “the company owes me,” “no one will get hurt.” That mental step lets someone who still thinks of themselves as moral commit a deeply dishonest act.
All three conditions usually have to be present. That’s why effective fraud prevention doesn’t just lock down access; it also watches pressure and listens for the rationalizations that signal trouble.
Warning Signs Someone Is a Fraudster
Fraudsters rarely look like criminals. In workplace settings especially, the person committing the fraud is often long-tenured and well-trusted, which is exactly what gives them access and cover. Research on white-collar offenders consistently finds low conscientiousness, low agreeableness, poor self-control, and frequent narcissistic traits: an inflated sense of entitlement, confidence that they’re smarter than the systems built to catch them, and little empathy for the people they’re stealing from.
The Association of Certified Fraud Examiners has tracked the same six behavioral red flags across every edition of its occupational fraud research going back to 2008:
- Living beyond their means. Expensive cars, vacations, or homes that don’t match someone’s salary are the single most common indicator.
- Financial difficulties. Personal debt, divorce, or medical bills can push someone toward fraud when combined with opportunity and rationalization.
- Unusually close relationships with a vendor or customer. This often signals kickback arrangements or billing schemes.
- Unwillingness to share duties or take time off. Fraudsters who’ve built a scheme around their role can’t let anyone else look at the books.
- Increased irritability or defensiveness, especially when routine financial questions are met with hostility.
- A “wheeler-dealer” attitude. People who consistently push ethical boundaries in small ways and take pride in cutting corners are statistically more likely to commit fraud.
None of these flags alone prove fraud. Plenty of people live beyond their means without stealing. But when several appear together in someone with access to money or assets, the pattern deserves a hard look.
How Fraudsters Operate
Most fraud starts with trust-building. A fraudster who opens with an aggressive cold pitch is far less dangerous than one who spends weeks or months establishing credibility before making a move. The most successful schemes feel completely ordinary right up until they don’t.
Impersonation is the most commonly reported tactic. Fraudsters pose as government agencies, banks, tech companies, or family members to create urgency and override your judgment. Imposter scams topped all fraud categories reported to the FTC in 2024, while investment scams produced the highest total losses at $5.7 billion. Job scams nearly tripled between 2020 and 2024, with reported losses jumping from $90 million to $501 million.3Federal Trade Commission. Top Scams of 2024
Social engineering, the practice of manipulating people into handing over sensitive information, runs through nearly every scheme. Whether it’s a phishing email dressed up as a password reset or a phone call claiming your Social Security number has been compromised, the goal is to bypass critical thinking by triggering fear, greed, or time pressure. Fraudsters probe constantly for the emotional response that gets you to act before you think.
How Fraudsters Justify What They Do
One uncomfortable fact about fraud: most perpetrators don’t see themselves as criminals. Criminologists Gresham Sykes and David Matza identified five “techniques of neutralization” that offenders use to keep a self-image as basically moral people while doing deeply immoral things.
- Denial of responsibility: “I had no choice.”
- Denial of injury: “Nobody was really hurt,” common in corporate fraud where the perpetrator tells themselves a big organization can absorb the loss.
- Denial of the victim: “They had it coming,” reframing the crime as justified payback.
- Condemning the condemners: “The people judging me are worse.”
- Appeal to higher loyalties: “I did it for my family.”
These rationalizations usually come before the fraud, not after. By the time someone has a convincing internal story about why stealing isn’t really stealing, the behavioral guardrails have already come down.
What Happens to Fraudsters Under Federal Law
Federal fraud charges carry severe prison terms, and prosecutors have a wide menu of statutes to choose from depending on how the scheme was carried out. Wire fraud under 18 U.S.C. 1343 and mail fraud under 18 U.S.C. 1341 each carry up to 20 years in prison, rising to 30 years and a $1 million fine when a financial institution is the target.4Office of the Law Revision Counsel. 18 USC 1343 – Fraud by Wire, Radio, or Television5Office of the Law Revision Counsel. 18 USC 1341 – Frauds and Swindles Bank fraud under 18 U.S.C. 1344 carries up to 30 years and up to $1 million in fines.6Office of the Law Revision Counsel. 18 USC 1344 – Bank Fraud Identity fraud under 18 U.S.C. 1028 carries up to 15 years, or 20 if it facilitates drug trafficking or violence.7Office of the Law Revision Counsel. 18 USC 1028 – Fraud and Related Activity in Connection With Identification Documents
Prosecutors routinely stack charges. A single Ponzi scheme can generate wire fraud, mail fraud, and bank fraud counts at the same time because one scheme can run through emails, mailed statements, and bank transfers. On top of prison time, federal courts must order convicted fraudsters to pay restitution to their victims under the Mandatory Victims Restitution Act, covering property, medical expenses, lost income, and the costs victims incur from participating in the prosecution.8Office of the Law Revision Counsel. 18 USC 3663A – Mandatory Restitution to Victims of Certain Crimes The government can also seize assets acquired through fraud, either as part of a criminal sentence or through a separate civil forfeiture action against the property itself.9United States Department of Justice. Types of Federal Forfeiture
If You’ve Been Targeted
Report it quickly. Fast reporting improves the odds of recovering lost funds and helps law enforcement see patterns across cases. The FTC takes fraud reports at ReportFraud.ftc.gov, where your report enters a database shared with civil and criminal law enforcement agencies worldwide.10Federal Trade Commission. ReportFraud.ftc.gov For internet-related fraud, including phishing, online shopping scams, and cryptocurrency schemes, file an additional complaint with the FBI’s Internet Crime Complaint Center at ic3.gov.11Federal Bureau of Investigation. The Cyber Threat Also contact your state attorney general’s office and, if money was taken from a bank account or credit card, your financial institution immediately.
You may be able to recover part of a loss through the theft loss deduction under IRC Section 165. The deduction is available when the loss results from conduct that qualifies as theft under your state’s criminal laws, the loss isn’t reimbursed by insurance or other means, and you have no reasonable prospect of recovering the stolen funds.12Taxpayer Advocate Service. IRS Chief Counsel Advice on Theft Loss Deductions for Scam Victims You must claim the deduction in the tax year you discovered the fraud, not the year it happened. For personal losses, each theft loss is deductible only to the extent it exceeds $500, and your total net casualty and theft losses must exceed 10% of your adjusted gross income.13Office of the Law Revision Counsel. 26 USC 165 – Losses One timing note: the Tax Cuts and Jobs Act suspended the personal theft loss deduction for tax years 2018 through 2025, limiting it to federally declared disasters. That restriction expired at the end of 2025, so starting with the 2026 tax year, fraud victims can again deduct personal theft losses without a disaster declaration.14Congressional Research Service. Expiring Provisions in the Tax Cuts and Jobs Act (TCJA, P.L. 115-97)