Introduction
Fraud refers to a course or act of deception, perversion, concealment, or omission of truth so as to have an unfair or unlawful advantage. It can also be described as an act that can induce a person to part with or surrender a valuable item or legal right that can lead to any injury. According to most countries, willful fraud is a criminal offense that carries severe punishments or penalties. Similar to murder, wilful fraud is not bounded by the statute of limitations ( Le Maux & Morin, 2011) . Nevertheless, negligence or incompetence in the proper management of any business or the reckless wastage of assets that are owned by a company is not often regarded as a fraud. For instance, stock market speculation is not normally regarded as a fraud. The paper will seek to analyze fraud and the fraud triangle using Lehman Brothers Scandal.
Statistics
In 2007, according to the Fortune Magazine, Lehman Brothers had been ranked the most admired security firm in the world. However, in September 2008, the firm filed for bankruptcy. The firm had $619 billion in debt and $639 billion in assets. It was the largest filing of a bankruptcy scenario in the history of the country. Its assets were bigger than all other bankrupt giants such as Enron and WorldCom. The collapse was quite intense because it was the fourth largest investment firm in the country and led to the loss of over 26000 employees globally ( Hermalin & Weisbach, 2012) . Its collapse intensified the impact of the great financial crisis that swept through the US in 2008. The erosion of the market capitalization was more than $10 trillion and was the largest monthly decline on record in the country. They quickly dived into the subprime mortgage market, a decision that was fatal to the survival of the firm.
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Fraud Triangle
The fraud triangle is a concept designed to evaluate the reasons behind a decision to take part in a fraud. It is described in three stages: opportunity, pressure, and rationalization. Pressure on the individual is often the first stage. It described the motivation that led to the management at Lehman Brothers to commit the fraud. The pressure was due to the collapse of the housing market. In 2003 and 2004, there was a housing boom in the country, and the company attained five mortgage lenders. However, when the housing market began a lengthy nose dive in 2007, there were many defaults in subprime mortgages ( Swedberg, 2010) . The company lost its leverage and became highly susceptible to the deteriorating market conditions. The losses in the housing industry exerted a lot of pressure on the main stakeholders to come up with moves that can hide their imminent failures.
The second step is often the opportunity to commit the crime. It is the means through which the executives at Lehman Brothers decided to defraud their company. It is the stage where the suspects saw a clear path through which they could take advantage of their position in the company to commit the fraud. It is highly likely that the senior management in the company believed that their actions would remain hidden. The management attempted to solve their financial challenges in “secret.” The management decided to conceal over $50 billion worth of loans disguised as sales ( Le Maux & Morin, 2011) . The company was allegedly believed to have sold Cayman Island Banks toxic assets with the assumption that they would ultimately be rebought. The decision made Lehman Brothers create an impression that their toxic assets had reduced by $50 billion while they cash had increased by over $50 billion. The main players in the fraud were Ernst & Young, the Lehman executives, and the firm’s auditors.
The third step is rationalizing the crime. It is a cognitive phrase that requires the individuals who commit the crime to justify their actions in a manner that does not deflect their moral compass. The top executives at Lehman Brothers were given hefty rewards, and they argued that heir action was aimed at stabilizing their firm. The CEO, Richard Fuld, explained that he had only received $310 million in compensation over seven years, but the real figure was more than $485 million ( Swedberg, 2010) . The executives had showed repeated violation of the fundamental banking regulations while providing false documents. The fraud was only discovered when the firm filed for bankruptcy. However, the executives were not prosecuted due to “lack of evidence.” The collapse of the firm had global effects on the financial markets.
Conclusion
The paper has analyzed fraud and the fraud triangle using Lehman Brothers Scandal. It has explained how the fraud was committed, the effects, and the aftermath of the financial crisis. The collapse of the Lehman Brothers affected the US stock market for years, and some of its effects are evident in the current society. The collapse had a multiplier effect because of the financial crisis of 2008. However, fraud occurs in the daily activities and not just in firms. Some of the real life examples are when a person reports to the bank to report fraud because of some purchases that may be available on the credit card that the owner did not make ( Hermalin & Weisbach, 2012) . Also, there are cases where some people drive their cars over a cliff so that it can appear as an accident so that they can receive money through insurance fraud. Furthermore, some people are suspected of fraud because some of the data they provide regarding research studies seem to be falsified or made up.
References
Hermalin, B. E., & Weisbach, M. S. (2012). Information disclosure and corporate governance. The Journal of Finance , 67 (1), 195-233.
Le Maux, J., & Morin, D. (2011). Black and white and red all over: Lehman Brothers' inevitable bankruptcy splashed across its financial statements. International Journal of Business and Social Science , 2 (20).
Swedberg, R. (2010). The structure of confidence and the collapse of Lehman Brothers. In Markets on Trial: The Economic Sociology of the US Financial Crisis: Part A (pp. 71-114). Emerald Group Publishing Limited.
