Corporate fraud is defined as the dishonest or illegal activities conducted by an individual or a company, and they are geared to benefit the individual or company that is committing these activities (FBI, 2016). When one talks about fraud, he or she means any form of deception that is used by a person for personal gain or to create loss for another person or the company.
There are many forms of corporate fraud such as: Account takeover, Application fraud, Betting scams, Cheque fraud, Over stated profits, False accounting, Insurance fraud, Intellectual property fraud, and Fake invoice scams. There are surveys, which are regularly conducted in order to provide accurate estimates of the cost of fraud to the existing businesses and society. According to a research that was conducted by the Association of Certified Fraud Examiners, they stated that nearly half of all small and medium sized businesses have experienced some form of fraud at some point in their business.
It is estimated that for each business that has experienced a form of corporate fraud, it undergoes a loss of about $114,000 (KHANNA & KIM, 2015). There have been many cases of corporate fraud. Large companies such as Enron and Worldcom have experienced corporate fraud through overstating the earnings that the company has received and creating limited partnerships to hide the incurring debts that the companies had at the time of the corporate frauds.
In an article that was published in the CNBC News on February 5th 2016 by Nate Raymond it showed that a former lawyer with Fox Rothschild law firm was found guilty of insider trading. The former partner at the law firm Herbert Sudfeld, learned about the merger Harleysville Group Inc. with Nationwide Mutual Insurance from his client. He then bought shares of Harleysville two days before the merger, and after the merger, Harleysville’s stock rose by 85 percent (Raymond, 2016). The former lawyer gained a profit of $ 75,530 when he sold his shares. He was found guilty of security fraud and making false statements and he is facing a maximum sentence of 25 years.
Reaction and Analysis
Corporate fraud is a crime that can be committed easily by employees of a company. In most cases, people who commit this form of crime do it because of greed. They want to benefit financially at all costs. In corporate fraud, the perpetrators of crime utilize illegal activities such as stealing, illegal trading, security fraud, and investment fraud. It has negative effects on businesses and corporations. It can lead to the collapse of a company involved in corporate fraud such as the case of Enron, loss of jobs, loss of savings and reduction of share values. If corporate fraud goes unchecked, it can lead to collapse of a country’s economy. For instance, the collapse of Enron led to the collapse of various countries’ economies such as the USA, UK, and Australia.
In this case, Herbert used insider information that was provided to him in confidentiality to buy shares, and then …