Legal Definitions - long-firm fraud

Long-firm fraud is a sophisticated type of commercial deception where individuals establish a seemingly legitimate business with the specific intent of defrauding suppliers. The perpetrators operate the business for a period, often making small, timely payments to build a good credit history and reputation within an industry. Once a significant level of trust and creditworthiness has been established, the fraudsters place large orders for goods or services on credit, knowing they have no intention of paying. They then abscond with the goods, sell them quickly, or simply disappear, leaving the suppliers with substantial financial losses.

Here are some examples to illustrate long-firm fraud:

• Imagine a company called "Global Tech Distributors" opens for business. For eight months, they consistently order small quantities of computer components from various electronics manufacturers and pay their invoices promptly. This builds a strong credit rating and positive relationships with suppliers. After establishing this trust, "Global Tech Distributors" places massive orders for high-value processors, graphics cards, and memory modules from multiple manufacturers, all on 60-day credit terms. Once the goods are delivered, the company directors vanish, the office is found empty, and the valuable electronics are quickly sold off, leaving the manufacturers with millions in unpaid invoices. This is long-firm fraud because the fraudsters meticulously built a credible business facade and credit history over time before executing the large-scale theft.

• Consider a newly established construction firm, "Apex Structures Ltd." They successfully bid on a few minor building projects and consistently purchase materials like lumber, cement, and plumbing supplies from a local wholesaler, "BuildRight Supplies," always settling their accounts on time for over a year. Impressed by their reliability, "BuildRight Supplies" extends a substantial credit line to "Apex Structures Ltd." Leveraging this trust, "Apex Structures Ltd." then places an enormous order for specialized, high-cost steel beams and industrial-grade machinery, claiming it's for a major new development. As soon as the materials and equipment are delivered, "Apex Structures Ltd." sells them to a third party at a discounted rate and the company directors disappear, leaving "BuildRight Supplies" with a massive unpaid bill. This exemplifies long-firm fraud as the fraudsters used a prolonged period of legitimate-looking transactions to gain the supplier's confidence before committing the fraud.