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White-Collar Fraud Expected to Increase as Recessionary Economy Continues

Posted On: January 16, 2009 by Marc Neff

An economic recession necessitates many changes in the home, in the marketplace, and in Government. For corporate executives, however, the profitability targets of their respective corporations do not change. According to a recent article in Business Week, recessionary times create incentives for corporate execs to cheat, or commit fraud in order to create the perception that they are continuing to meet corporate goals for their shareholders; not meeting revenue and earning targets would likely result in the firing of the executive. The article cites to data from the National White Collar Crime Center, which shows that during the most recent economic recessions (Savings and Loan, 1990, and Internet bust, 2000), white-collar fraud arrests increased by 52% and 25% respectively over the following two-year period.

The New Year began with the first major case of corporate accounting fraud of this recession when Satyam Computer Services, an outsourcing company out of India, was discovered to have a $1 billion discrepancy on their accounting statements. The company had planned to buy-out two Indian construction companies which would have fixed the discrepancy on the company’s balance sheet; however, due to the recession, the company was unable to complete the deal. Nevertheless, the company was portrayed on their financial statements as if the deal had been completed, leading to the $1 billion discrepancy in assets. More notable, but similar, instances of fraud occurred following the last recession, with companies such as Enron, WorldCom, and Tyco being revealed as having “cooked-the-books”.

A web-conference conducted by Deloitte Financial Advisory Services’ Anti-Fraud Consulting Service resulted in a finding that nearly two-thirds of the corporate executives who participated expected an increase in uncovered fraudulent practices during this recession. As corporate executives fight to show that they can manage a corporation successfully in an economic downturn in order to keep their jobs, executives face the “fraud triangle”, or the pressure, opportunity, and rationalization to commit fraud, says Donna Epps from Deloitte. Fraud is much harder to spot when the economy is good because a company can more easily cover their tracks. Currently, the regulatory systems in place are antiquated and may even be corrupted by the fact that some regulators may have even aided the corporations in circumventing the rules. In an effort to create a new regulatory system, more conducive to spotting white-collar fraud, the U.S. Government Accountability Office recommends creating a comprehensive system with clearly defined goals.

According to the FBI, corporate fraud investigation involves the following activities:

(1) Falsification of financial information, including:

(a) False accounting entries;

(b) Bogus trades designed to inflate profit or hide losses; and,

(c) False transactions designed to evade regulatory oversight.

(2) Self-dealing by corporate insiders, including:

(a) Insider trading;

(b) Kickbacks;

(c) Backdating of executive stock options;

(d) Misuse of corporate property for personal gain; and,

(e) Individual tax violations related to self-dealing.

(3) Obstruction of justice designed to conceal any of the above-noted types of criminal conduct, particularly when the obstruction impedes the inquiries of the SEC, other regulatory agencies, and/or law enforcement agencies.

The Law Offices of Marc Neff has successfully represented corporate and business executives, professionals, public officials, and others who have been or could have been charged with a variety of white collar federal crimes such as money-laundering-racketeering.php”>RICO, tax fraud, mail fraud, bank fraud, money laundering, etc., for over twenty years. During times in which federal investigations of corporate fraud are at a heightened level, it is important to obtain the assistance of experienced counsel should you come under investigation, or believe that you soon will. For a confidential consultation, please contact Marc Neff by phone at (215) 563-9800 or email Marc@nefflawoffices.com

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Posted in: Federal White Collar Crime