Go to main navigation
275 Madison Avenue, 35th Floor, New York, New York 10016
Free Consultation | 24/7 212-227-8877 212-227-8877

Predicting the Fraud Risk of CEOs and CFOs

An interesting new study crossed my desk the other day. Three researchers conducted a study of “off-the-job” behaviors of chief executive officers and chief financial officers at companies subject to fraud claims by the Security and Exchange Commission and compared them to their counterparts at similar companies that had no reported fraud. The purpose of the study was to determine patterns and differences between each set of CEOs and CFOs. A total of 218 chief executives were studied and 109 from companies of each type were compared.

The study collected data about two types of off-the-job behaviors of chief executives:

  • Personal ownership of luxury goods
  • Prior criminal or other legal records, such as traffic violations

The amount of personal luxury goods owned by chief executives had no relation to their propensity to commit fraud themselves. However, the study found that executives with greater personal ownership of luxury goods were more likely to create a business environment that overlooked other employees’ fraud and financial reporting errors.

More significantly, the study found that chief executives with a prior legal record off the job were more likely to commit fraud on the job. Of the 109 chief executives from companies with SEC fraud claims, 12 had been charged with felony drugs, domestic violence and/or a serious traffic violation. Of the other 109 chief executives from companies with no history of fraud claims, no chief executive had anything worse than minor traffic tickets.

Although the sample size was relatively low, the study seems to suggest that CEOs and CFOs with less regard for the law in their private lives would be more likely to commit fraud in their corporate lives.

If you are a victim of fraud or misappropriation, seek legal advice to protect your rights and those of your business.

Leave a Reply

Your email address will not be published. Required fields are marked *