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Has the crisis made derivatives fraud worse?
31 December 2009
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.
Read more:
[fraud]
[derivatives]
[exchange-traded derivatives]
[futures]
[options]
[Bernard Madoff]
[Ponzi]
[Lehman Brothers]
[Ken Farrow]
In the financial markets, recessions have a way of bringing out the worst in people. Or perhaps uncovering the bad that was already there.
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 traders strive to recoup big losses and...
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