The Deloitte Forensic Center and its Reorganization Services Group has produced the findings of a report that studied the correlation between bankruptcy and fraud. The primary question examined was whether the increased scrutiny that follows a company's bankruptcy filing leads to more incidents of fraud claims as compared to companies that have not filed bankruptcy. The report is available here.
Among its findings:
· Companies filing for bankruptcy protection are three times more likely than non-bankrupt companies to face enforcement action by the SEC relating to alleged financial statement fraud. · Companies that were issued financial statement fraud-related SEC Enforcement Releases were more than twice as likely to file bankruptcy protection as those not issued one. · Approximately one in seven financial statement fraud SEC Enforcement Releases issued to companies that filed for bankruptcy protection were issued prior to their bankruptcy filings. These situations may provide a warning signal of potential bankruptcy filing. · Bankrupt companies receiving SEC Enforcement Releases were twice as likely as non-bankrupt companies to have more than 10 alleged financial statement fraud schemes – and at least 1.5 times more likely to have six to 10 alleged fraud schemes than non-bankrupt companies.
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