Misconduct and Fraud by Investment Managers

Finance & Quantitative Methods Research Data, 2018, DOI/10.13023/nsjd-rk62.

52 Pages Posted: 21 Aug 2018

See all articles by Stephen G. Dimmock

Stephen G. Dimmock

Nanyang Technological University - Division of Finance

Joseph Farizo

University of Kentucky - Department of Finance & Quantitative Methods

William Christopher Gerken

University of Kentucky - Finance

Date Written: June 25, 2018

Abstract

We document the prevalence and variety of frauds committed by investment managers. We show that prior legal and regulatory violations, conflicts-of-interest, and monitoring disclosures available via the Security and Exchange Commission’s Form ADV are useful for predicting fraud. Additional tests show that fraud by rogue employees is more predictable than firm-wide fraud, but both types of fraud are significantly predictable. We revisit the fraud prediction model of Dimmock and Gerken (2012) and test its performance out-of-sample (using fraud cases discovered since that article’s publication). We find the model has significant predictive power for the out-of-sample cases. To encourage additional research in this area, we have made the data used in this chapter publicly available.

Keywords: Fraud, Investment Fraud, Investment Advisors, Investment Advisers, Operational Risk, Regulation, Disclosure, Form ADV

JEL Classification: G2, G20, G28, K2, K22

Suggested Citation

Dimmock, Stephen G. and Farizo, Joseph and Gerken, William Christopher, Misconduct and Fraud by Investment Managers (June 25, 2018). Finance & Quantitative Methods Research Data, 2018, DOI/10.13023/nsjd-rk62.. Available at SSRN: https://ssrn.com/abstract=3228688

Stephen G. Dimmock

Nanyang Technological University - Division of Finance ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

Joseph Farizo

University of Kentucky - Department of Finance & Quantitative Methods ( email )

Lexington, KY 40506
United States

HOME PAGE: http://www.josephfarizo.com

William Christopher Gerken (Contact Author)

University of Kentucky - Finance ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States

HOME PAGE: http://www.willgerken.com

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