New study estimates that on average 10 percent of public companies commit securities fraud each year

A new study,published by a professor of finance at the University of Toronto, reveals that 10 percent of public companies are committing securities fraud which is damaging 1.6 percent of equity value each year equal to about $830 billion in 2021. The study is published in the Review of Accounting Studies this month. The authoir, Alexander Dyxk and his colleagues foung that it is difficult to determine the exact amount of actual fraud and also difficult to prosecute fraud as you must prove intent. In addition, the term fraud is used in different ways so the mere definition is hard to pin down. Securities law says fraud “to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under whisch they were made, not misleading.”

The amount of undetected fraud is even more difficult to determine because so much of it is hidden by the companies and unreported. In addition, auditors might catch the fraud but not report it for various reasons. The findings in this study show that 10% of large corporations are committing misrepresentation, an information omission or another misconduct that can leard to securities fraud claims settled for at least $3 million. This finding, however, is at the low end of the pervasiveness of corporate fraud found in the literature, according to the study itself. The study found that “two out of three corporate frauds go undetected. ”

Jeffrey Newman is a whistleblower lawyer who handles cases in the Security and Exchange whistleblower program as well as False Claims Act cases. He can be reached at Jnewman@NewmanShapiro.com or at 978-880-4758