What Is Fraudulent Activity? Types, Warning Signs, and Penalties

Fraudulent activity is any deliberate deception used to take someone else’s money, property, or legal rights. Consumers reported losing more than $12.5 billion to it in 2024, and both federal and state law treat it as a serious offense, with prison sentences reaching 30 years for the worst cases and civil penalties that can exceed the original loss.¹

What Legally Counts as Fraud

Not every lie is fraud in a courtroom. A legal fraud claim needs several things at once, and missing any one of them sinks the case.

There has to be a false statement about something material — important enough to influence the decision at hand. Puffery about how comfortable a car seat is probably won’t clear that bar. Lying about whether the car has a salvage title almost certainly will.

The person making the statement has to have known it was false, or at least been reckless about whether it was true. Lawyers call this scienter. The practical meaning is simpler: honest mistakes don’t count. Federal mail fraud prosecutions, for example, require proof that the defendant intentionally devised a scheme to defraud and used the mail or a private carrier to carry it out.²

The victim has to have actually believed the statement, with a reasonable basis for believing it, and must have lost money or property as a result. A deception that costs you nothing may be unethical, but it usually won’t support a legal claim.

One boundary worth noting: when someone in a position of trust — a trustee, financial advisor, or attorney — misrepresents or withholds material information, the victim doesn’t have to prove intent to deceive. The fiduciary relationship itself creates the duty, and courts call this constructive fraud. Even silence can be enough when a duty to disclose exists.

Common Types of Fraudulent Activity

Identity Theft and Credit Card Fraud

Identity theft happens when someone uses your personal information — a Social Security number, a birth date, account credentials — to open accounts, file tax returns, or take out loans in your name. Credit card fraud is a close cousin, with stolen numbers used for purchases or cash withdrawals, often through skimming devices attached to legitimate card readers at gas pumps and ATMs. The two frequently overlap after a data breach.

Wire Fraud and Online Scams

Wire fraud covers any scheme to defraud that uses electronic communications — phone calls, emails, text messages, or online platforms — across state or international lines. The base penalty is up to 20 years in federal prison. When the scheme targets a financial institution or exploits a presidentially declared disaster, the maximum rises to 30 years and a $1,000,000 fine.³

Phishing emails and spoofed websites impersonate banks, government agencies, or retailers to pull passwords and account numbers out of victims. Once a scammer has those credentials, an account can be drained in minutes. The amount you can be held liable for depends sharply on your payment method and how fast you report.

For a credit card, federal law caps your liability for unauthorized charges at $50, no matter when you report.⁴ Most major issuers waive even that as a matter of policy.

Debit cards are riskier. Report an unauthorized transfer within two business days, and your maximum loss is $50. Between two business days and 60 days after your statement arrives, the cap rises to $500. Miss the 60-day window entirely, and you could lose everything taken from that point forward.⁵ That timing gap is the single most expensive mistake debit card holders make.

Insurance Fraud

Policyholders and providers both commit insurance fraud. Consumer schemes range from staging accidents to inflating repair estimates after a real one. On the provider side, healthcare professionals bill for services never performed or unbundle procedures to charge more. Insurers maintain dedicated investigation units that look for patterns across providers and claimants.

Securities Fraud

Securities fraud includes lying about a company’s financial health, insider trading, and pump-and-dump schemes that inflate stock prices so insiders can sell at a profit. Federal Rule 10b-5 makes it illegal to use any deceptive practice in connection with buying or selling securities, including misleading statements or omissions of material facts.⁶ The SEC enforces these rules through civil actions and referrals for criminal prosecution.

Tax Fraud

Filing a false tax return or making fraudulent statements to the IRS is a federal felony carrying up to three years in prison and a $100,000 fine.⁷ Even without criminal charges, the IRS can impose a civil fraud penalty equal to 75% of the underpayment caused by the fraud, on top of the taxes owed plus interest.⁸

Social Security Fraud

Making false statements to obtain Social Security benefits is a felony punishable by up to five years in prison. Healthcare providers, claimant representatives, and current or former Social Security Administration employees who take part in fraudulent benefit determinations face an enhanced maximum of ten years.⁹

Warning Signs

Unsolicited requests for personal information through phone calls, texts, or emails are the most reliable red flag. Legitimate companies almost never ask for passwords or full account numbers through those channels unprompted. High-pressure demands insisting you pay immediately or lose a valuable opportunity are built to short-circuit judgment; the urgency is the scam. Any promise of guaranteed high returns with no risk should end the conversation, because that combination doesn’t exist in legitimate investing.

Payment method is another tell. Requests for gift cards, wire transfers, or cryptocurrency should raise immediate suspicion, because those transactions are nearly impossible to reverse. No legitimate business or government agency will ask you to pay a debt or fee with gift cards.

Older adults are a specific target, and the exploitation often comes from someone they trust — a caregiver, family member, or advisor. Financial institutions filed over 155,000 suspicious activity reports related to elder financial exploitation in a single recent year, involving more than $27 billion in reported suspicious transactions.¹⁰ Warning signs include sudden changes in spending, unexplained withdrawals, a new person steering financial decisions, and confusion about recently signed documents. If you suspect an older adult is being exploited, Adult Protective Services in your area is the primary point of contact, along with the financial institution handling the suspicious transactions.

Criminal and Civil Penalties

Federal fraud sentences vary with the scheme and the dollar amounts involved. Mail fraud and wire fraud each carry a baseline of up to 20 years in prison.² When those schemes target a financial institution, the maximum climbs to 30 years and a fine of up to $1,000,000. Bank fraud under its own statute carries the same 30-year maximum and $1,000,000 fine.¹ Judges often combine prison time with fines, forfeiture of fraud proceeds, and supervised release. A fraud conviction also creates a permanent record that effectively bars employment in banking, securities, insurance, and healthcare.

Beyond prison and fines, federal courts are required to order restitution for fraud victims in most cases. Under the Mandatory Victims Restitution Act, a convicted defendant must repay the full value of property lost or destroyed, cover medical costs if the fraud caused physical harm, and reimburse lost income, including wages lost cooperating with the investigation and prosecution.¹¹ For covered offenses, restitution is not discretionary; the court must impose it regardless of ability to pay.

Victims can also sue independently. Civil fraud uses a lower standard of proof — preponderance of the evidence rather than beyond a reasonable doubt — so cases that don’t produce criminal charges can still succeed in civil court. Successful plaintiffs may recover compensatory damages for their actual losses plus, in egregious cases, punitive damages. The criminal and civil tracks run independently, so a victim can collect restitution through one and additional damages through the other.

How Long Prosecutors Have to File Charges

Federal prosecutors don’t have unlimited time. The default statute of limitations for federal crimes is five years from the date the offense was committed.¹² For fraud affecting a financial institution — bank fraud, and mail or wire fraud schemes aimed at banks — prosecutors get a full ten years.¹³ Civil deadlines vary by state and fraud type, but many start running from the date the victim discovered (or reasonably should have discovered) the fraud, not the date it occurred.

These deadlines matter for victims too. The longer you wait to report, the harder it becomes for prosecutors to build a case before the clock runs out.

What to Do If You’ve Been Defrauded

Before you contact anyone, pull together what you have: dates and amounts of suspicious transactions, names or aliases involved, and copies of all communications, including emails, texts, and screenshots of websites. For online scams, record the specific URLs and email addresses used. A clean timeline helps investigators move faster.

Where you file depends on the fraud. For most consumer scams, the Federal Trade Commission accepts reports at ReportFraud.ftc.gov. For internet-based crimes — phishing, online auction fraud, business email compromise — file with the FBI’s Internet Crime Complaint Center. The IC3 complaint form asks for your contact information, details about the loss, account information and transaction amounts, and whatever you know about the person responsible.¹⁴

If someone has stolen your identity, IdentityTheft.gov builds a personalized recovery plan with pre-filled dispute letters and step-by-step instructions. For tax-related identity theft — someone filing a return using your Social Security number — the IRS uses a separate process built around Form 14039. For suspected Medicare or Medicaid fraud, the Department of Health and Human Services Office of Inspector General runs a dedicated hotline and complaint portal.¹⁵ Local police should also receive a report, especially when you know the perpetrator or when physical theft was involved. A police report number strengthens disputes with banks and creditors.

Filing with more than one agency is normal and often necessary. Each report feeds a different database, and patterns invisible to any single agency become clear once the data is combined.

Protecting Yourself Going Forward

Federal law lets you place a free security freeze on your credit reports with each of the three major bureaus. A freeze stops new creditors from pulling your report, which effectively blocks anyone from opening accounts in your name even if they have your Social Security number. You can lift the freeze temporarily when you need to apply for credit and refreeze afterward, at no cost.

Check bank and credit card statements monthly for charges you don’t recognize. For debit cards, speed is everything: reporting within two business days limits your liability to $50, while waiting past 60 days can leave you responsible for the full amount stolen.⁵ Credit cards carry a flat $50 cap regardless of timing, and most issuers waive even that.⁴

Use unique passwords for financial accounts, turn on two-factor authentication wherever it is offered, and treat any unsolicited request for personal information as suspicious until proven otherwise. None of this is complicated. Skipping it is how most people end up on the wrong side of a fraud statistic.

If You Know About Fraud From the Inside

Federal law pays people to report fraud, particularly when government money is involved. Under the False Claims Act, a private individual can sue on behalf of the government against a company or person defrauding a federal program. If the government joins the case, the whistleblower receives between 15% and 25% of the recovery. If the government declines to intervene and the whistleblower pursues the case alone, the share rises to between 25% and 30%.¹⁶ These cases are especially common in healthcare and defense contracting.

The SEC runs a separate whistleblower program for securities fraud, with awards of 10% to 30% of monetary sanctions collected in enforcement actions that exceed $1,000,000.¹⁷ Both programs protect whistleblowers from retaliation, and employers who fire, demote, or harass them face additional liability.

1
Office of the Law Revision Counsel. 18 U.S. Code 1344 – Bank Fraud
2
Office of the Law Revision Counsel. 18 USC 1341 – Frauds and Swindles
3
Office of the Law Revision Counsel. 18 USC 1343 – Fraud by Wire, Radio, or Television
4
Office of the Law Revision Counsel. 15 USC 1643 – Liability of Holder of Credit Card
5
Office of the Law Revision Counsel. 15 USC 1693g – Consumer Liability
6
eCFR. 17 CFR 240.10b-5 – Employment of Manipulative and Deceptive Devices
7
Office of the Law Revision Counsel. 26 U.S. Code 7206 – Fraud and False Statements
8
Office of the Law Revision Counsel. 26 U.S. Code 6663 – Imposition of Fraud Penalty
9
Office of the Law Revision Counsel. 42 USC 408 – Penalties
10
National Credit Union Administration. Interagency Statement on Elder Financial Exploitation
11
Office of the Law Revision Counsel. 18 U.S. Code 3663A – Mandatory Restitution to Victims of Certain Crimes
12
Office of the Law Revision Counsel. 18 U.S. Code 3282 – Offenses Not Capital
13
Office of the Law Revision Counsel. 18 USC 3293 – Financial Institution Offenses
14
Internet Crime Complaint Center (IC3). Frequently Asked Questions
15
Office of Inspector General. Fraud
16
Office of the Law Revision Counsel. 31 USC 3730 – Civil Actions for False Claims
17
U.S. Securities and Exchange Commission. Whistleblower Program – Notices of Covered Action