Bill Black — Countering Chinese Accounting Control Fraud and Predation Against U.S. Investors

Accounting control frauds target creditors and shareholders as their primary intended victims. Their primary weapon of fraud and predation is accounting. The art is to inflate assets and understate liabilities, which overstates capital and income. White-collar criminologists, economists, accounting academics, and regulators have explained the ease with which the CEOs running control frauds are able to suborn supposed “controls” (auditors, appraisers, attorneys, and credit rating agencies). The art is to suborn, not destroy, supposed ‘controls’ so that they will “bless” the CEO’s frauds, lending their reputation as supposedly independent professionals to aid the CEO in defrauding creditors and defrauding and predating on shareholders. The CEOs leading the fraud and predation can even use their ability to hire and fire the key officers at these supposed independent professional controls to generate a “Gresham’s” dynamic within their profession. George Akerlof, in his famous 1970 “lemons” article that led to award to him of the Nobel Prize in Economics in 2001, first named that perverse dynamic. Akerlof explained how it worked....

New Economic Perspectives
Countering Chinese Accounting Control Fraud and Predation Against U.S. Investors
William K. Black | Associate Professor of Economics and Law, UMKC