Hearing about these giant fraud cases, especially the ones you talk about in class often like Enron; I always wonder how they are caught, or even how long it takes. As an example from a while back, but still seen as one of the largest Ponzi schemes in history the Madoff Fraud Case. This case took a while for the SEC to catch onto what was going on. As we learned in class the SEC is out there in the financial industry to keep the stock market fair and honest. The SEC authority is given by congress and allows them to bring in civil enforcement against companies or individuals breaking any type of SEC rule. Things like bribery, invalid information, or illegal trading are things that they are on the look out for. All this information I knew but
…show more content…
When they are looking for fraud cases they pay close attention to earnings because they can be so easily manipulated. They are at the bottom after expenses, raw materials, etc. so you shift a couple of things around and just like that your earnings per share suddenly is good. Even by small amounts, it can lead to higher stock prices; which is obviously against SEC rules and would be considered fraud. They also pay very close attention to earning results. Wall street loves predictable and smooth results. But a company who always exceeds this expectation, there is often something wrong about this. We all know that markets go up and down, because that’s how the economy works. So if almost all of your months are up months this company needs to be closely looked at, because that’s almost impossible, even if they company is really good. When looking at the company’s records you want to make sure they are appropriate adjustments, instead of shifting things around to make them look better, this is misleading to investors and would be breaking many SEC rules. A classic and somewhat easy way to raise your short-term earnings, and making your company look a lot better than they actually are is unnecessarily capitalizing normal expenses. This would shift this expense to the balance sheet and the company would count this as an asset for multiple years to
When they are looking for fraud cases they pay close attention to earnings because they can be so easily manipulated. They are at the bottom after expenses, raw materials, etc. so you shift a couple of things around and just like that your earnings per share suddenly is good. Even by small amounts, it can lead to higher stock prices; which is obviously against SEC rules and would be considered fraud. They also pay very close attention to earning results. Wall street loves predictable and smooth results. But a company who always exceeds this expectation, there is often something wrong about this. We all know that markets go up and down, because that’s how the economy works. So if almost all of your months are up months this company needs to be closely looked at, because that’s almost impossible, even if they company is really good. When looking at the company’s records you want to make sure they are appropriate adjustments, instead of shifting things around to make them look better, this is misleading to investors and would be breaking many SEC rules. A classic and somewhat easy way to raise your short-term earnings, and making your company look a lot better than they actually are is unnecessarily capitalizing normal expenses. This would shift this expense to the balance sheet and the company would count this as an asset for multiple years to