Ongoing Fraud on Wall Street

wall street fraud

From accounting fraud to insider trading, there’s no denying the ongoing presence of Wall Street fraud in the modern financial world. Wall Street fraud is a practice that’s been around since Wall Street’s induction as a financial hub, and where large sums of money are found, so are people willing to exploit that resource.

Despite its major status, Wall Street is swimming with bad actors. But what are some current threats of fraud plaguing Wall Street? This article highlights current Wall Street fraud threats to help you stay aware.

1. Accounting Fraud

One of the most prevalent issues of fraud occurring on Wall Street is accounting fraud. Accounting fraud is an illegal practice where a company alters its financial statements to manipulate its financial health, typically by hiding profits or losses.

Some common forms of accounting fraud include the following:

  • Off-balance sheet transactions
  • Financial statement manipulation
  • Falsifying financial records
  • Overstating or understanding revenue
  • Unrecorded expenses

2. Insider Trading

Insider trading is another relevant Wall Street fraud issue common in the modern financial hub. This process occurs when someone buys or sells a stock security in breach of a fiduciary duty or relationship of trust. The individual has access to confidential, “insider” information that benefits them financially and has often been “tipped” information that they then misappropriate.

Insider trading is an issue because it undermines investor confidence and eliminates fairness in the stock securities market. Despite being illegal, insider trading is still frequent on Wall Street.

3. Ponzi Schemes

Ponzi schemes are notoriously fraudulent, where a fraudster promises high returns with little to no risk to investors. After securing trust, the fraudster uses investor funds to pay off earlier investors, allowing the fraudulent individual or organization to appear profitable and financially sustainable. The Ponzi scheme falls apart when investors no longer participate in the process.

Ponzi schemes have occurred frequently on Wall Street throughout the history of the financial center, with Bernard Lawrence Madoff behind the largest Ponzi scheme in history. Madoff was previously the chairman of the NASDAQ stock exchange, showing how high fraud goes on Wall Street.

4. Market Manipulation

Another fraudulent activity highly prevalent on Wall Street is market manipulation, which involves manipulating the stock market by inflating or deflating the price of a specific market or security to benefit the fraudster. Market manipulation strategies include the following:

  • Buying and selling to oneself to create the illusion of trading activity in the process of “wash trading.”
  • Intentionally spreading false information about a security
  • Creating fake market demand

Market manipulation is no stranger to Wall Street, home to many major manipulation plots.

Protect Your Finances With Smith, Stohlman, James & Gardere

Wall Street fraud is an undeniable issue, and Wall Street is packed with bad actors who take advantage of the financial hub. However, fraud goes far beyond Wall Street and is a risk for anyone managing their finances. Smith, Stohlman,  James & Gardere, P.A. provide essential accounting services to help you protect your finances and mitigate damage caused by fraud. Contact us today to learn how Smith, Stohlman,  James & Gardere, P.A. can help.