Control fraud

Control fraud

Control fraud occurs when a trusted person in a high position of responsibility in a company, corporation or state uses their powers to subvert the organization and to engage in extensive fraud for personal gain.

The concept of control fraud is based on the observation that the CEO of a company is uniquely placed to remove the checks and balances on fraud within a company, such as through the use of selective hiring. These tactics can position the executive in a way that allows him or her to engage in accountancy fraud and embezzle money, hide shortfalls or otherwise defraud investors, shareholders, or the public at large. An example would be when a company publishes accounts showing massive profits, whereas in reality it is insolvent. This will cause the stock to rise beyond its actual value, and those exercising the control fraud will cash in their stocks before the reality is known by others.[1] Additionally, companies can lobby for changes in the law to weaken regulation, and this can extend the fraud.

Control fraud can also occur in a political situation, for example by the leader of a country who can use their position to embezzle public funds and turn the country into a kleptocracy.

Examples of control fraud include Enron, the Savings and loan crisis, Fannie Mae/ Freddie Mac, Lehman Brothers and Alt-A "liar loans" and Ponzi schemes such as that of Bernard Madoff.

Control fraud, a term coined by William K. Black, refers to the fraud or the person perpetrating the fraud.

See also


External links

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