Control fraud

Control fraud

Control fraud occurs when a trusted person in a high position of responsibility
in a company, corporation, or state
subverts the organization and engages in extensive fraud for personal gain.

The concept of control fraud is based on the observation
that the CEO of a company is uniquely placed
to remove the checks and balances on fraud within a company
such as through the use of selective hiring.

These tactics can position the executive in a way
that allows him or her to engage in accountancy fraud and embezzle money,
hide shortfalls or otherwise defraud investors, shareholders, or the public at large.

An example would be when an insolvent company
publishes accounts showing massive profits.

This will cause the stock to rise beyond its actual value,
and those exercising the control fraud will cash in their stocks
before the reality is known by others.

Additionally, companies can lobby for changes in the law
to weaken regulation, and this can extend the fraud.

Control fraud can also occur in a political situation,
for example by the leader of a country who can use their position
to embezzle public funds and turn the country into a kleptocracy.

Examples of control fraud include Enron, the savings and loan crisis,
Fannie Mae/Freddie Mac, Lehman Brothers and subprime mortgage crisis
and Ponzi schemes such as that of Bernard Madoff.

Control fraud, a term coined by William K. Black,
refers to the fraud or the person perpetrating the fraud.