What scheme involves pledging the same collateral to multiple lenders without their knowledge?

The correct answer is double-pledging collateral, which refers to the illegal act of using the same asset or collateral to secure loans from more than one lender simultaneously, without informing the lenders involved. In this scheme, the borrower deceives multiple lenders by providing the same piece of collateral to secure different loans, creating an appearance of legitimate borrowing while deeply complicating and misleading the lending entities.

This practice is particularly problematic because it exposes lenders to greater risk; they believe that they hold a secured interest in the collateral when, in fact, their claim may be compromised due to the existence of multiple claims to the same collateral. This fraud can lead to significant financial losses for the lenders when the borrower defaults, as they may find themselves in a position where they cannot recover the entire amount owed due to competing claims on the collateral.

The other concepts mentioned, such as sequential borrowing, sham loans, and linked financing, do not accurately encapsulate the specific act of double-pledging collateral. Sequential borrowing might involve taking out loans in a chronological manner, but does not imply deceit regarding collateral. Sham loans can refer to false loan arrangements with no real expectation of repayment, and linked financing typically suggests a connection between different financing transactions, rather than the unethical reuse of collateral.