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Home » Consumer Information » White Collar Crime » Financial Crimes

Corporate Fraud

Corporate Fraud has become such a major issue that President George W. Bush created a special task force to fight against it. Aside from the task force, the FBI is the top government agency responsible for investigating corporate fraud crimes. This type of fraud includes tactics such as misdirecting funds, claiming corporate assets are worth more than they actually are, intentionally misrepresenting the amount of profit that has been earned in any quarter, lying the about the expenses the corporation must pay or debts it is faced with, and creating false trades to increase the value of company stock.

Any act a corporation participates in that is directly in violation of the Internal Revenue Code (IRC) is considered to be corporate fraud.

Accounting schemes

One oft the primary methods used by those who commit corporate fraud is to falsify accounting records. This is done by changing data to make it appear that a company has more revenue and closes more annual sales than it actually does. The goal is to make the company look profitable in an attempt to entice new investors, merge with or sell to another company or artificially raise the stock price. In recent history, this type of fraud has become more common, with subprime lenders creating misleading records about their actual worth.

Stock fraud

It has become a growing practice for some corporations to falsify the date that stock options were made available to top executives. The date is changed to a time when the stock price was lower, so that the current stock price then becomes even more valuable. This allows executives to purchase stock for far less than it is actually worth at the current market rate. It creates a larger profit margin for the executives, and decreases the stock value for all other share holders.

FBI investigations

The FBI investigates three types of corporate fraud:

  • Any financial related data that has been falsified, including data that is improperly recorded by the accounting department, trading issues that are done in an attempt to make the company appear to have more profit and transactions that are illegally performed to cover up negative financial information about the corporation.
  • Activities such as insider trading, back dating stock options for top executives, kickbacks and any act that involves transactions that are performed by members of a corporation, but are designed to appear otherwise.
  • Attempts to cover up any of the crimes listed above while the corporation is under investigation.

Corporate fraud can be one of the most lucrative forms of white collar crime. When corporate executives misrepresent the value and stock of their company in order to make more money, it can be very costly for other corporations, investors and stock holders that fall victim to the fraud, and bad for the general economy.