Last week, I had the pleasure of attending a webinar hosted by PK Law Member and President of the CLM Maryland Chapter, Patricia Lambert, and Marci De Vries of Fraudsniffr, entitled “What’s New in Fraud: Social Media, Cryptocurrency, and other new developments.” The presentation analyzed the significant increase in digital fraud in underwriting and claims over the past few years, as well as how to identify and prevent digital fraud.
One of the most common ways digital fraud is perpetrated is by hiding income in worker’s compensation and tort claims where the claimant alleges they can no longer work due to an injury. In recent years, there has been a dramatic increase in workers who resign and enter the “Gig Economy,” allowing them to continue to earn money without reporting the income. Claimants may assert that they are no longer able to work due to an injury, but continue to earn income working as an influencer, self-care product distributor, live-streamer or participating in a myriad of unregulated work places like ghost kitchens or pop-up markets. Operating a “side hustle” can also cause minor injury aggravations that can prolong healing. In casualty claims, a gig business can be used to inflate loss of income special damages.
The increased use of crypto-currency and “cyber-currency” (e.g. Venmo or CashApp) has also presented difficulties in claims handling. It allows fraudsters to hide cash and presents difficulties in tracking revenue. If there is no recorded purpose for a transaction, how can you verify business income vs. other sources? While the federal government instituted taxation and record-keeping rules in December 2021 for cyber-currency, only transactions more than $600 are required to be reported as a regular cash transaction.
One of the most effective ways to counter digital fraud is by tracking exposed social media data trails. The most candid place where people self-report is often their own social media. People will often post self-promotion for products and services, which can reveal their participation in the gig economy. Other clues to hidden income can be deciphered through posts relating to crypto-currency usage, video game rankings/hours played, and business registrations.
Regardless, it is important to understand the rise of digital fraud and how it can affect underwriting and claims. As our world plunges further and further into the digital economy, these lessons will certainly be worth remembering.
Sean Harding is an Associate in the firm’s General Litigation Group where he focuses his practice on commercial litigation and insurance defense and coverage. Prior to joining PK Law Mr. Harding was a litigation associate representing insurers, boards of education, small businesses, and a Fortune 500 company in contractual disputes, personal injury matters, alternative dispute resolution, employment matters and business tort litigation. He can be reached at 410-769-6146 or firstname.lastname@example.org.