Internal Auditing: Stock Market and Fraud

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Definition of fraud: It is the conscious intention to steal or cause an individual to lose or give up something that is rightfully theirs. Stock Fraud: When brokers or people in the stock market influence or make investors buy stock based on false information which is a major violation of the laws put in place in order to protect us from these scandals and in usual cases, it results into a loss for investors. The main targets of stock market investment fraud are seniors. In the market it is estimated that there is a loss of about 40 billion dollars every year and 1 to 3 billion from that amount is from microcap fraud. What is a microcap stock fraud? It’s a form of security fraud involving stocks of microcap companies which are generated mostly from penny stocks. The people who are responsible for fraudulent activities may get jail time but, they can never repay the people that lost their fortunes, their pensions or their homes and there is no way to know until it is too late. As we saw in the ENRON and WorldCom case, when the frauds were detected, people lost their jobs and pension plans. The company was unable to pay off the damage that it had created due to this fraud and many people suffered from it. The cost of fraud to a company cannot fully be determined because of the fact that even though it is detected, a lot of the evidence may be hidden or unable to be retrieved due to the fact that many schemes are done through outside personal accounts. TYPES OF STOCK OR SECURITY FRAUD: There are many types of stock or security fraud because this can be done in many different ways. The following are the most common types of security fraud. Corporate Fraud is an individual or a corporation’s willingness of illegal wrongdoings i... ... middle of paper ... ...calls, fax, etc. Below are some important “Red Flags” to consider: - If its sounds too good to be true, it is. - Guaranteed returns do not exist. - Beauty isn’t everything. - Pressure to send money right away. Suggestions: It is important for a company to control fraud risks in any departments whether it is internal fraud or stock fraud. It’s important to put controls in place to protect company reputation and assets. Works Cited http://www.winning-stock-trading-fundamentals.com/stock-market-fraud.html http://www.whistleblowingprotection.org/?q=node/32 http://www.youtube.com/watch?v=ydq9ZhMYbxw http://www.whistleblowingprotection.org/?q=node/32 https://www.sec.gov/investor/pubs/avoidfraud.htm http://www.investopedia.com/terms/c/corporate-fraud.asp Article: KPMG forensic: Fraud risk Management- Developing a Strategy for prevention, Detection and Response.

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