detect the fraud BY 65547672 3. How to detect the fraud? There are many ways to detect the fraud . They can simply be divided into two categories One is quantitative analysis,another is qualitative analysis.
In quantitative analysis,the sample is fifty thousand investment company which issued form ADV , form ADV is required to issue to SEC when the investment company’s client number more than 15 people or the size of asset under management is larger than $ 25 million , if you did not issue the document or it is not correctly answered or you hide he truth,the SEC will dismissed the document from the investment company which want to register so they can not run their business . ln the statistical model, if the investment company in 2001 to 2010 occurs fraud incident ,the dependent variable will equal one.
And in a fraud event,the possible property of factor which cause a fraud incident set as dummy independent variables . For example,the document will ask the person in charge whether involved in civil or criminal violation of the law in the past ten years,the dummy variable equal one if the answer is yes otherwise zero; hether the firm’s affiliates has previously been accused of fraud, dummy variable equal one if the answer is yes otherwise zero. Use these more than two thousand samples which occurs fraud incident to do a regression in statistic and do a student-t test.
Finally, if these dummy variables are significantly different from zero in the student-t test,we can use these indicators as our guidance,The test results showed that the indicaoors of the company in violation of regulations, civil or criminal violation of the law, the investment company recommend securities in which it has n ownership interest or serves as an underwriters or has any other sales interests, the company employs a registered representatives of a broker-dealer agents , registered investment company act of 1940 were significantly different from zero in a student t-test.
So we think these indicator are important signals when we detect the fraud. In qualitative analysis,there is some indicators for your underlying investments to see if there might be a investment trap , here are the five investment trap danger signals : 1 When an investment adviser or investor entrust managers of investment ompany or investment company to invest,they have custody of these funds: Choose an investment company which have an independent custodian bank specialized in investment adviser when buying funds or doing discretionary,the risks of investing funds into a financial fraud are highly decreased. 2)A good return for investment seems immutable good and almost unbelievable and it did not fluctuate with the market : No volatility,regardless of how the market volatile the underlying asset has been able to maintain a good performance , it should be in doubt what is their olding positon of portfolio. (3) Complicated investment strategy : Claimed that the usage of futures,options and other investment vehicles or some strategy which is difficult to understand can earn a stable ,long-term rate of return. Investment adviser recommend to you exclusively will not help : Claiming that only a certain amount of funds are received or some sectors of people, but this is not necessarily related to the quality and performance . 5 Someone did not personally examine the investment product in detail but believe in the middleman : Friend or nvestment targets are also very important. Some indicators to detect fraud Quantitative 1.
Violation of regulations. 2. Civil or criminal violation of the law. 3. Recommend securities which it has ownership. 4. A registered representatives of a broker-dealer agents. 5. Registered investment company act of 1940. Qualitative 1. Having the custody of client’s funds. 2. 1mmutable good return. 3. Complicated investment strategy. 4. Exclusively recommendation. 5. Did not personally examine the investment product in detail.