Deloitte report studying link between bankruptcy and fraud available

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.