World Library  
Flag as Inappropriate
Email this Article

Control fraud

Article Id: WHEBN0029441521
Reproduction Date:

Title: Control fraud  
Author: World Heritage Encyclopedia
Language: English
Subject: William K. Black, Fraud, Criminology, Principal–agent problem, Causes of the Great Recession
Collection: Corporate Crime, Criminology, Fraud, White-Collar Criminals
Publisher: World Heritage Encyclopedia

Control fraud

Control fraud occurs when a trusted person in a high position of responsibility in a William K. Black to refer both to the acts of fraud and to the individuals who commit them.


  • Concept 1
  • Examples 2
  • See also 3
  • References 4
  • Notes 5
  • External links 6


The concept of control fraud is based on the observation that the CEO of a company is uniquely placed to remove the checks and balances on fraud within a company such as through the use of selective hiring and firing. These tactics can position the executive in a way that allows him or her to engage in accountancy fraud and embezzle money, hide shortfalls or otherwise defraud investors, shareholders, or the public at large. A control fraud will often obtain "investments that have no readily ascertainable market value",[1] and then shop for appraisers that will assign unrealistically high values and auditing firms that will bless the fraudulent accounting statements.[2]

Some control frauds are reactive in the sense that they turn to fraud only after concluding that the business will fail.[3] Opportunistic control frauds, by contrast, are attracted to a criminogenic environment where it is harder to detect fraud, e.g., as a result of deregulation.[4]


An example would be when an insolvent company publishes accounts showing massive profits. This will cause the stock to rise beyond its actual value, and those exercising the control fraud will cash in their stocks before the reality is known by others.[5] Additionally, companies can lobby for changes to weaken the law or accompanying regulation. This can be particularly effective with large campaign contributors like Charles Keating, who with other control frauds in the United States League of Savings Institutions, was able to get his own people placed on the board of the primary regulatory agency, the Federal Home Loan Bank Board (FHLBB). With the assistance of people like Speaker of the House Jim Wright and the Keating Five, he was able to convert Lincoln Savings and Loan Association into a Ponzi scheme, making millions for himself, while suppressing the investigative and regulatory functions of the FHLBB. Eventually, the Ponzi collapsed, as all Ponzis must, but with a massive cost to the taxpayers and unsecured investors.

Control fraud can also occur in a political situation, for example by the leader of a country who can use their position to embezzle public funds and turn the country into a kleptocracy.

Examples of control fraud include Enron, the savings and loan crisis, and Ponzi schemes such as that of Bernard Madoff.

See also




  1. ^ Black (2005, p. 2)
  2. ^ Black(2005, pp. 51, 251, 253)
  3. ^ Black (2005, pp. 5, 7, 8, 60, 282)
  4. ^ Black (2005, pp. 5, 7, 8, 11, 37-38, 61)
  5. ^ Black (2005) The best way to rob a bank is to own one

External links

  • Schneier on Security: Control fraud
  • When Fragile becomes Friable: Endemic Control Fraud as a Cause of Economic Stagnation and Collapse William K. Black
  • Bill Moyer's journal: William K. Black: CSI Bailout
  • Bo SunExecutive Compensation and Earnings Management under Moral Hazard,
  • Bill Black testifies re: Lehman Brothers
This article was sourced from Creative Commons Attribution-ShareAlike License; additional terms may apply. World Heritage Encyclopedia content is assembled from numerous content providers, Open Access Publishing, and in compliance with The Fair Access to Science and Technology Research Act (FASTR), Wikimedia Foundation, Inc., Public Library of Science, The Encyclopedia of Life, Open Book Publishers (OBP), PubMed, U.S. National Library of Medicine, National Center for Biotechnology Information, U.S. National Library of Medicine, National Institutes of Health (NIH), U.S. Department of Health & Human Services, and, which sources content from all federal, state, local, tribal, and territorial government publication portals (.gov, .mil, .edu). Funding for and content contributors is made possible from the U.S. Congress, E-Government Act of 2002.
Crowd sourced content that is contributed to World Heritage Encyclopedia is peer reviewed and edited by our editorial staff to ensure quality scholarly research articles.
By using this site, you agree to the Terms of Use and Privacy Policy. World Heritage Encyclopedia™ is a registered trademark of the World Public Library Association, a non-profit organization.

Copyright © World Library Foundation. All rights reserved. eBooks from Project Gutenberg are sponsored by the World Library Foundation,
a 501c(4) Member's Support Non-Profit Organization, and is NOT affiliated with any governmental agency or department.