The Committee of Sponsoring Organizations of the Treadway Commission (COSO) released a study, “Fraudulent Financial Reporting: 1998-2007: An Analysis of U.S. Public Companies”. The study examined nearly 350 financial statement fraud allegations investigated by the SEC over a ten-year period. Among other interesting conclusions, the study results showed that:
· Financial fraud affects companies of all sizes, with the median company having assets and revenues just under $100 million.
· The median fraud was $12.1 million. More than 30 of the fraud cases each involved misstatements/misappropriations of $500 million or more.
· Revenue frauds accounted for over 60 percent of the cases.
· 26 percent of the companies engaged in fraud changed auditors during the period examined compared to a 12 percent rate for companies with no fraud.
· News of an SEC or Department of Justice investigation resulted in an average 7.3 percent abnormal stock price decline. News of an alleged fraud resulted in an average 16.7 percent abnormal stock price decline in the two days surrounding the announcement.
· Companies engaged in fraud often experienced bankruptcy, delisting from a stock exchange, or asset sale.
· In nine out of ten cases the SEC named the Chief Executive Officer and/or Chief Financial Officer for alleged involvement. Within two years of the completion of the SEC investigation, about 20 percent of CEOs/CFOs had been indicted, and over 60 percent of those indicted were convicted.