5 ways to prevent discount and warranty fraud

These frauds can undermine your business partnerships and lead to significant financial losses

How is your company competing in the global economy? Are you offering special discounts to specific customers to attract new business or deepen existing relationships? Do you support your products with a robust warranty replacement program? You may not realize it, but these common practices of highly successful companies may be the means by which your company is being robbed blind. 

If your company’s products are in high demand, then you are a tempting target for two kinds of sophisticated fraud schemes aimed at finding and exploiting weaknesses in your discount and warranty programs. Both discount fraud and warranty fraud are on the rise—with large dollar amounts in play—and even the most vigilant of companies have become victims.

Companies offering post-sale support are prime targets for these schemes and cannot overlook this major threat. For example, in 2007, Nortel Networks won a $10 million judgment against two domestic companies it accused of a warranty fraud scheme. Nortel alleged that the companies claimed to be operating a telecommunications network under a Nortel warranty agreement and fraudulently received replacement parts from Nortel at no charge. Defendants falsely told Nortel that hundreds of parts were defective and that they needed replacement parts for their own network systems—only to turn around and resell the parts to third parties.  

Discount and warranty fraud cause lasting damage.

Contributing Author

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Richard Nelson

Richard J. Nelson is a partner at Sideman & Bancroft LLP in San Francisco, where he specializes in litigation and government investigations. Mr. Nelson often...

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Contributing Author

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Erica Brand Portnoy

Erica Brand Portnoy is an associate at Sideman & Bancroft in San Francisco where she works with the firm’s Brand Integrity and Innovation Group. Her...

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