Predicting Fraud by Investment Managers

William Gerken and Stephen Dimmock

No 2011-WP-09, NFI Working Papers from Indiana State University, Scott College of Business, Networks Financial Institute

Abstract: We test the predictability of investment fraud using a panel of mandatory disclosures filed with the U.S. Securities and Exchange Commission (SEC). We show that past regulatory and legal violations, conflicts of interest, and monitoring have significant power to predict fraud. Avoiding the 5% of firms with the highest ex ante predicted fraud risk would allow an investor to avoid 29% of fraud cases and over 40% of the total dollar losses from fraud. We examine the ability of investors to implement fraud prediction models based on the disclosure filings, and suggest changes in SEC data access policies that could benefit investors.

Keywords: Fraud; Investment Fraud; Operational Risk; SEC; Disclosure; Form ADV (search for similar items in EconPapers)
JEL-codes: G2 G20 G28 K2 K22 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2011-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Journal Article: Predicting fraud by investment managers (2012)
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