The financial turmoil of the past year has focused the attention of the derivatives markets on counterparty risk, but what about the risk of fraud? Siân Williams asks whether the downturn has led to a financial crime wave.
In the financial markets, recessions have a way of bringing out
the worst in people. Or perhaps uncovering the bad that was
Several cases of fraud involving derivatives –
Bernard Madoff’s Ponzi scheme being by far the
grandest – have come to light since the collapse of
Lehman Brothers in September 2008.
It is very hard to quantify this while investigations are
still continuing. It is harder still to tell whether frauds
have been caused by the stressful market conditions of the
credit crunch, or rather were there all along, and have been
revealed by those conditions.
Certainly, in some cases, as investors have moved money out
of the markets and firms have deleveraged, crimes have been
exposed. Sometimes this has happened because tough conditions
meant books were scrutinised more carefully.
At the same time, more frauds may be being committed, as
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