In-Depth Fraud Case Study: Red Flags, Prevention, and Key Lessons

This case study examines a fraud case involving Mr. Thow, who was found guilty of defrauding clients by persuading them to invest in non-existent schemes. The analysis identifies red flags such as instability in personal life, unusual work habits, reluctance to disclose documents, and opulent lifestyle. It also highlights the importance of scrutinizing documentation, transaction frequencies, and counterparties. Lessons learned emphasize the need for investors to thoroughly check investments and investment advisors' backgrounds. The study further discusses broader organizational factors that contribute to fraud, including unstable business environments, rapid expansion, and inadequate employee training. Paying attention to these factors and maintaining ethical management practices are crucial for preventing fraud and mitigating financial risks. Desklib provides resources and solved assignments to aid in understanding such cases.

Running head: FRAUD 1
Fraud
Name:
Institution:
Date:

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Facts of the case summary
On March 4th 2010, Mr. Thow pled guilty of twenty counts of fraud charges. The
former investment adviser was facing the charges after bilking his clients out of millions of
dollars. He persuaded his clients to invest in non existent schemes that included shares in a
Jamaican Bank and an initial public offer. He also advised his clients to borrow money,
mortgage their homes or liquidate their mutual investment. All these investors paid money to
Thow personally (Coenen, 2008,p.56). The security regulations commission ruled that Thow
was culpable of defrauding millions from hundreds of people when he was a senior vice
president of Berkshire Investment Group Inc.
Red flags and symptoms in a fraud
That's just the flag "instability in your personal life" - that's something you never
think about. It also sounds like the idea that the criminal past is far from determining a
fraudster. Close attention should be paid to persons who work in the most unusual way for
longer than the prescribed ones. For example people who have a weak personal moral code or
who do not consider themselves obliged to comply with internal corporate and other rules
("us the law not written "). Most of all, tend to justify the act of fraud. This was also a case
with Mr. Thow. In the risk group, employees who reluctantly disclose even controlled
documents to managers, not to mention those who without enthusiasm share their experience
with specialists to fulfill their job duties and who are not satisfied with their job, or suddenly
goes on vacation.
The expert in sphere of counteraction to swindle and on the following is accented.
Despite the fact that "greed is greed" , the difference in the fraud of superiors who perform

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managerial functions in organizations is still there - the whole thing is in a new level of greed
and arrogance. "Success for this category of thieves almost always comes down to financial
concepts".
It is impossible not to delve into the gaps in the documentation: lost or modified
documents; certificate of completion of documents backdating; lack of available documents
in the original; documents contradicting each other, doubtful signatures on documents.
Interested persons should not leave aside the scope of remittances(Pickett, 2007). During the
time of transactions, the unsettling transaction frequency, the strange sums of calculations
(we pay attention to inscribing a large number of rounded numbers), an unclear counterpart.
This is another red flag.
For an individual it is not easy to notice a red flag unless the person you are dealing with has
a past record of criminal offence. Mr. Thow’s clients never suspected he was a fraud.
However, they would have questioned his opulent lifestyle(Young & Nusbaum, 2006,p.107).
Lessons Learned
For a new investor , a god advise would be to thoroughly check on the investment
being proposed to ascertain whether it is legit or not. Also, a new investor is supposed to look
into the criminal records or past of an investment advisor together with the firm that he/she is
representing.
conclusion
One should pay attention to the positioning of the company in a competitive
environment. Of course, given the general decline in production and the crisis in the industry,
there is nothing criminal in that a single company achieves great success, but this can be
evidence of a number of illegal problems (Cascarino, 2012,p.234). Moreover, to fraud can

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lead to bad debts and a shortage of working capital (you must also get out). Red flags of
financial condition : business in an unstable sphere of the economy; high concentration of
business along with a small number of consumers; rapid expansion, especially not properly
planned; deterioration in the quality of profits; the company is dragged into heavy litigation;
reduction in the sale of reserves, low forecasts of future sales(O’Gara,2004,p.56). The same
and about the set of service firms and their constant change.The management should give a
proper example of behavior. It is necessary to establish an adequate system for training and
improving the skills of employees, otherwise fraud can arise as an attempt to cover up
working failures caused by incompetence of personnel (Young & Nusbaum, 2006).

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References
Cascarino, R. (2012). Corporate Fraud and Internal Control + Software Demo. Hoboken:
Wiley.
Coenen, T. (2008). Essentials of corporate fraud. Hoboken, N.J.: John Wiley & Sons.
O'Gara, J. (2004). Corporate fraud. Hoboken, NJ: J. Wiley & Sons.
Pickett, K. (2007). Corporate fraud. Hoboken, N.J.: John Wiley & Sons.
Young, M., & Nusbaum, J. (2006). Accounting irregularities and financial fraud. Chicago,
IL: CCH.