Nearly 70 percent of the companies singled out by the Securities and Exchange Commission for financial fraud between 2000-2007 experienced a decline in stock prices, while more than half of that number suffered a 50 percent or higher drop in share prices, according to a new study released by the Deloitte Forensics Center.
The study, titled “Ten Things About the Consequences of Financial Statement Fraud,” also showed that in addition to stock price declines, the 352 companies cited for financial statement fraud by the SEC restated their financials (54 percent), delisted from primary stock exchanges (32 percent), experienced securities class-action litigation cases (24 percent) or filed for Chapter 11 bankruptcy protection (18 percent).
The Deloitte study analyzed 61 different fraud schemes — some of which took place independently and simultaneously within some organizations — including: aiding and abetting, asset misappropriation, bribery and kickbacks, improper disclosures, manipulation of accounts receivable, and revenue recognition.
The center’s findings indicated that the more fraud schemes alleged to exist at an organization, the larger were the securities litigation settlements. The average settlement for companies with six to 10 alleged fraud schemes was $312 million, compared to $777 million for companies with 11 or more schemes.
Revenue recognition manipulation continues to be the largest single category of financial statement fraud schemes, representing 38 percent of the schemes identified in the study from 2000 to 2007.
