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Apr 18, 2018 by |

Whistleblowers Help Curb Fraud

Fraud is far too common within the financial services industry, and victims of dishonest behavior by financial professionals need to consult with a California whistleblower attorney to understand the options available to them for pursuing a remedy.

Unfortunately, identifying and proving that fraud has occurred can be difficult in most circumstances. There are, however, some cases where clear evidence of wrongdoing is provided by a whistleblower. A whistleblower is usually someone with insider knowledge, such as a current or former employee, who speaks up about wrongdoing that was observed at a particular firm or organization.

Evidence provided by whistleblowers can be instrumental in proving fraud, which can make it easier for financial institutions to be held accountable for wrongdoing. That’s not all whistleblowers do either. According to recent studies, when a whistleblower has made reports of wrongdoing, this has a long-term impact on the firm that was reported.

Studies Show Whistleblowing Makes a Long-Term Impact

A recent study published in Science Daily discussed the long-term effect of whistleblowing and looked at a total of 317 different publicly-traded firms that had been the subject of whistleblower complaints from 2003 to 2010. 

Once the researchers determined which firms previously had whistleblower complaints against them, they looked at how likely it was for those firms to have misrepresented financial statements going forward. Their rates of misrepresentation were then compared with control firms, or similar firms with substantially the same profiles but who hadn’t had whistleblower complaints made.

The research found that the firms who had whistleblower complaints made were far less likely to engage in aggressive financial management practices or to engage in tax management practices focused on aggressively reducing tax liability.  Those firms targeted by whistleblowers also had far less irregularities in their accounting practices. 

The whistleblower, in other words, served as a deterrent to a variety of bad financial behaviors moving forward. The research also revealed that the behavior of the firm was still changed for at least two full years after the initial whistleblower complaints were made. This suggests that the management of firms that were the target of whistleblowers tends to be much more cautious and much more reluctant to push the boundaries of acceptable standards.

It is likely that firms that have been the target of a whistleblower expect increased scrutiny on the part of regulatory agencies, including the Securities and Exchange Commission. Because this can prompt these financial services firms to be more cautious, the whistleblower could actually end up having a beneficial impact for investors by reducing aggressive accounting practices. This could, in turn, lead to investors believing more in the integrity of the firm and thus becoming more confident that financial reports are accurate.

Of course, any firm could be engaged in inappropriate business practices that put clients at risk. A California whistleblower attorney can provide help to those who suspect they may have been victimized by wrongdoing on the part of brokers or others involved in selling investments. Contact Evans Law Firm online or call 415-441-8669 for a free initial consultation today.

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