Financial Times Guide to How the Stock Market Really Works, 5th Edition

8

Fraud and sharp practice

Most of the world’s financial regulators do their best to prevent outright fraud, but fail to control endemic sharp practices in the financial services industry. For instance, for the investor who loses money, it may be small consolation that the loss was due to sharp practice such as ‘misselling’ rather than outright fraud. This chapter explores the problems and offers guidance on how to avoid such losses, and looks at the following:

• Grand fraud versus petty fraud
• What regulators can and can’t do
• 25 years of misdeeds: from Milken to Madoff
• Sharp practice – pensions misselling
• False accounting on a grand scale – Enron and WorldCom
• The naughty noughties

Grand fraud versus petty fraud

Financial regulation is very ...