Introduction to the Theories and Varieties of Modern Crime in Financial Markets

Introduction to the Theories and Varieties of Modern Crime in Financial Markets explores statistical methods and data mining techniques that, if used correctly, can help with crime detection and prevention. The three sections of the book present the methods, techniques, and approaches for recognizing, analyzing, and ultimately detecting and preventing financial frauds, especially complex and sophisticated crimes that characterize modern financial markets.

The first two sections appeal to readers with technical backgrounds, describing data analysis and ways to manipulate markets and commit crimes. The third section gives life to the information through a series of interviews with bankers, regulators, lawyers, investigators, rogue traders, and others.

The book is sharply focused on analyzing the origin of a crime from an economic perspective, showing Big Data in action, noting both the pros and cons of this approach.

Provides an analytical/empirical approach to financial crime investigation, including data sources, data manipulation, and conclusions that data can provideEmphasizes case studies, primarily with experts, traders, and investigators worldwideUses R for statistical examples

• Preface
• Prologue
• Acknowledgments to the First Edition
• Mr X Anonymous Interview
  • Biography
• Nick Leeson: Interview
  • Biography
• I: Short History of Financial Markets
  • Chapter 1A: Historic Perspective of Financial Markets
    • Abstract
    • 1 Background
    • 2 Antiquity
    • 3 Medieval Period
    • 4 Modern Era
  • Chapter 1B: A History of (Non)violence
    • Abstract
    • 1 Background
    • 2 Ancient Times
    • 3 Dutch Period
    • 4 Early Securities Fraud
    • 5 Revolution in Crime
    • 6 Outlook
  • Chapter 1C: Financial Markets in the Technology Era
    • Abstract
    • 1 The Second Industrial Revolution
    • 2 Outlook
• II: Origin of Crime on Wall Street
  • Chapter 2A: From Error to Fraud, Misconduct, and Crime
    • Abstract
    • Outlook
  • Chapter 2B: Moral Hazard and Financial Crime
    • Abstract
    • 1 Background
    • 2 Wage Structure in the Financial Services
    • 3 Effect of Externalities
    • 4 From Moral Hazard to Financial Crime
    • 5 Outlook
  • Chapter 2C: Model Risk
    • Abstract
    • 1 Background
    • 2 Origin of Model Risk
    • 3 Derivative Valuation as an Expectation
    • 4 Model Failures in Incomplete Markets: Focus on Correlation
    • 5 Model-Related Behavior
    • 6 Model Risk, Misconduct, and Financial Crime
    • 7 Outlook: Measuring and Limiting Model Risk
  • Chapter 2D: Criminal Organizations
    • Abstract
    • 1 Background
    • 2 Italian Groups
    • 3 Gendai Gokudo: Modern Gangsters
    • 4 American La Cosa Nostra
    • 5 Russian-Speaking Groups
    • 6 New Waves of Organized Crime in Finance
    • 7 Outlook
• III: Typologies of Crime on Financial Markets
  • Chapter 3A: Insider Trading
    • Abstract
    • 1 Background
    • 2 Overview of Insider Trading
    • 3 Outlook
  • Chapter 3B: Ponzi Schemes
    • Abstract
    • 1 Background
    • 2 Qualitative Features
    • 3 Quantitative Features
    • 4 Outlook
  • Chapter 3C: Pump and Dump—Market Manipulation
    • Abstract
    • 1 Background
    • 2 Trade-Based Manipulation Economics
    • 3 Dark Pools
    • 4 Derivatives and Manipulation
    • 5 Outlook
  • Chapter 3D: Rogue Trading
    • Abstract
    • 1 Background
    • 2 Historic Overview
    • 3 Jerome Kerviel Case
    • 4 Tackling Rogue Trading
    • 5 Outlook
  • Chapter 3E: Initial Public Offerings
    • Abstract
    • 1 Background
    • 2 Fake IPOs
    • 3 Pre-IPO Scams
    • 4 Emerging Exchanges
    • 5 IPOs and Risk of Litigation
    • 6 Outlook
  • Chapter 3F: Mis-Selling
    • Abstract
    • 1 Background
    • 2 Derivatives Involved in Financial Malpractice
    • 3 Toxic Credit Products
    • 4 Structured Investment Products
    • 5 Structured Products to Retail Costumers
    • 6 Mis-Selling and Valuation Issues
    • 7 Outlook
  • Chapter 3G: Money Laundering in Financial Markets
    • Abstract
    • 1 Background
    • 2 The Industry of Money Laundering
    • 3 Mechanism of Money Laundering on Markets
    • 4 New Financing Tools and Money Laundering
    • 5 Major Cases Involving Reputed Institutions
    • 6 Outlook
• IV: Modern Financial Crime
  • Chapter 4A: Hedge Funds
    • Abstract
    • 1 Background
    • 2 Origins of Fraud in the Hedge Fund Industry
    • 3 Hedge Fund Risk Assessment
    • 4 Shaving Assets
    • 5 Misrepresentation of Returns
    • 6 Money Laundering
    • 7 Market Manipulation
    • 8 Hedge Fund Performance Metrics and Their Issues
    • 9 Fraud Indicators
    • 10 Outlook
  • Chapter 4B: Emerging Markets and Financial Crime
    • Abstract
    • 1 Background
    • 2 Privatization in the Eastern Bloc
    • 3 Financial Market Integrity
    • 4 Commodities and Energy Markets
    • 5 Outlook
  • Chapter 4C: From Terrorism Financing to Terror’s Economy
    • Abstract
    • 1 Background
    • 2 Mechanisms
    • 3 Terrorism Financing and Financial Markets
    • 4 Outlook
  • Chapter 4D: Cybercrime
    • Abstract
    • 1 Background
    • 2 Impact of Cybercrime on Markets
    • 3 Cybercrime and Securities Fraud
    • 4 Cybercrime as a Systemic Risk
    • 5 Outlook
• Epilogue
• Bibliography
• Index