Sunday, April 11, 2010
Less than 7% of corporate fraud cases are uncovered by the Securities and Exchange Commission (SEC), based on an academic study of 216 instances of criminal behavior by companies. The analysis (“Who Blows the Whistle on Corporate Fraud?”) determined the group most responsible for uncovering corporate malfeasance was employees, or whistleblowers. They accounted for 17% of cases, while short sellers ranked second (14.5%), analysts third (13.8%) and the SEC only fourth at 6.6%.
When it comes to fraud cases in the health care industry, whistleblowers discovered 41% of corporate wrongdoing.
Whistleblowers aren’t entirely driven by a sense of justice. The Federal False Claims Act entitles them to 15%-30% of the money recovered when the fraud is committed against the government, such as with Medicare.
-Noel Brinkerhoff
Whistle-Blowers Find More Corporate Fraud Than Regulators, Study Finds (by Will Deener, Dallas Morning News)
Who Blows the Whistle on Corporate Fraud? (by Alexander Dyck, Adair Morse, and Luigi Zingales, Journal of Finance) (pdf)
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