Study Estimates 10% of Public Companies Commit Securities Fraud

A recent study found that approximately 10% of U.S. public companies committed securities fraud in recent years, erasing about 1.6% of equity value per year (about $830 billion in 2021). The study has resonated far and wide, rattling investors, C-suites, boards of directors, lawyers and compliance personnel. The study further concluded that only about one-third of these frauds are ever reported.

The author of the study, Professor Alexander Dyke, commented in a recent New York Times story, “What people don’t get is how widespread the problem of corporate fraud is.” Dyke also believes that given how pervasive fraud is within public companies, that it is almost certainly even more common in privately held companies, particularly in the world of crypto, which are subject to far less scrutiny from regulators and law enforcement.

Critics were quick to pounce on what they believe is a too-loose definition of “fraud” that subsumes accounting violations that might not meet the bar of intent required to prove fraud in a court of law. But by any measure, fraud infects far too many corporate cultures and harms not only investors and employees (just ask the former employees of FTX, Theranos and Nikola) but also the integrity of the securities markets more broadly.

We will watch with interest to see whether and how the SEC, the CFTC and state and federal law enforcement bodies respond to this revelation. Will they obtain and devote the resources needed to bring these corporate malefactors to heel and protect investors? We are optimistic that they will but will be keeping a close eye.

If you are an investor who believes you have been defrauded by a public or private company’s fraudulent conduct, or if you are a corporate insider who has evidence of securities fraud being committed within your company (or former company) and may be interested in becoming a whistleblower, contact a securities fraud attorney at The Galbraith Law Firm by calling 212.203.1249 or emailing kevin@galbraithlawfirm.com for a free confidential consultation.