Concept of Control Fraud
– Control fraud is based on the observation that the CEO of a company can remove checks and balances on fraud.
– CEOs can engage in accountancy fraud, embezzlement, and defraud investors and shareholders.
– Tactics like selective hiring and firing can position the executive to engage in fraud.
– Control frauds obtain investments with no ascertainable market value and manipulate appraisers.
– Some control frauds are reactive, while others are attracted to criminogenic environments.
Examples of Control Fraud
– Insolvent companies publishing false accounts to manipulate stock prices.
– Lobbying for changes in laws and regulations to weaken oversight.
– Political leaders embezzling public funds and turning countries into kleptocracies.
– Examples of control fraud include Enron, savings and loan crisis, Sam Bankman-Fried, and Ponzi schemes.
– Charles Keating and the United States League of Savings Institutions as an example of control fraud.
Related Concepts
– Graft (politics)
– Moral hazard
– Principal-agent problem
– Regulatory capture
References
– Black, William K. (2005). ‘The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry’.
– Black (2005, pp. 51, 251, 253)
– Defining kleptocracy: A first step toward victory. 21 November 2017.
– Black, William K. (2005). ‘The Best Way to Rob a Bank Is to Own One’.
– Black (2005, pp. 5, 7, 8, 60, 282)
External Links
– Schneier on Security: Control fraud
– Black, William K. (19 December 2005). ‘When Fragile becomes Friable: Endemic Control Fraud as a Cause of Economic Stagnation and Collapse’ (PDF).
– Bill Moyers journal: William K. Black: CSI Bailout
– Executive Compensation and Earnings Management under Moral Hazard, Bo Sun
– Bill Black testifies re: Lehman Brothers Source: https://en.wikipedia.org/wiki/Control_fraud
This article relies largely or entirely on a single source. (December 2013) |
Control fraud occurs when a trusted person in a high position of responsibility in a company, corporation, or state subverts the organization and engages in extensive fraud for personal gain. The term "control fraud" was coined by William K. Black to refer both to the acts of fraud and to the individuals who commit them.