For Financial Shenanigans and Fraud
Howard Schilit's book on financial shenanigans details seven accounting gimicks, five of which inflate current earnings at the expense of future earnings. There is a nice interview with Howard Schilit in which he explains that
"accounting trickery is used to cover up problems that are there or to inflate earnings and make it look like the company is making more money than it really is. And greed comes in of course-accountants put a positive spin on things to impress investors and keep the stock price up."
I have previously described these type of accounting frauds as formally similar to ponzi schemes. But if that is so, then why doesn't the SEC prosecute accounting frauds as Ponzi schemes? Why aren't all accounting frauds prosecuted the same way?
The law of due diligence has two basic tools to defeat fraud: either the scammer has not registered with the proper regulators and so is selling unregistered securities, illegal business opportunities, or unregistered franchises, or the scammer has jumped through the regulatory hoops but has mislead the public in disclosing their financial status. Ponzi schemes are prosecuted as the sale of unregistered securities, see for example the SEC complaint in the 12dailypro scheme. Accounting frauds, such as NetEase, are not prosecuted as the sale of unregistered securities and instead are treated as false and miselading statements which the public are deemed to have relied upon.
