The Impact
The research conducted through forensic finance has significant real-world implications for legislation and rule-making in the financial sector. By uncovering the complexities of financial fraud and unethical market practices, their findings offer valuable insights that inform regulatory bodies like the U.S. Securities and Exchange Commission about vulnerabilities within financial systems. This research helps shape the development of new regulations and enforcement strategies aimed at preventing fraud, enhancing market integrity, and protecting investors.
Moreover, their work serves as a critical resource for lawmakers seeking evidence-based solutions to address emerging challenges in the financial landscape. Compared to other finance papers, forensic work has similar citations and SSRN downloads, and more media and Securities and Exchange Commission (SEC) citations. Along with prominent examples of industry reform and awareness, this highlights the potential for real-world impact. By laying out commonalities in research themes, questions, methods, and approaches across fields that may at first seem disparate, we hope to encourage more investigation of incentives and mechanisms in darker corners of finance.
Figure 5: SEC Citations and Press Mentions
This figure shows the comparison of SEC citations and press mentions between forensic finance and other papers. A paper is categorized as being forensic finance if it uses forensic words at least 20 times or at least 10 times with at least one usage in the title or abstract. The circles (squares) show the average SEC citations (press mentions) of papers published between year 𝑡 −4 and 𝑡, i.e. 5-year rolling averages. The data points lie on 𝑡 = 𝑃𝑟𝑖𝑜𝑟 𝑌𝑒𝑎𝑟𝑠 on the left represent the average citations of papers published between 2000 and 2015. Red represents forensic finance papers, while grey represents all other papers in the sample. The SEC citations are collected from both proposed and final SEC rules released between 2007 and April 2023. Press citations are obtained from Altmetric and include news articles from various media outlets. Both SEC and press mentions are collected in 2023.
Real-World Examples
Final rules established by the SEC citing relevant Forensic Work by Professor John M. Griffin
Use of Derivatives by Registered Investment Companies and Business Development Companies (2020)
Summary:
The Securities and Exchange Commission (the “Commission”) is adopting a new exemptive rule under the Investment Company Act of 1940 (the “Investment Company Act”) designed to address the investor protection purposes and concerns underlying section 18 of the Act and to provide an updated and more comprehensive approach to the regulation of funds' use of derivatives and the other transactions the new rule addresses. In addition, the Commission is adopting new reporting requirements designed to enhance the Commission's ability to effectively oversee funds' use of and compliance with the new rule, and to provide the Commission and the public additional information regarding funds' use of derivatives. Finally, the Commission is adopting amendments under the Investment Company Act to allow leveraged/inverse ETFs that satisfy the rule's conditions to operate without the expense and delay of obtaining an exemptive order. The Commission, accordingly, is rescinding certain exemptive relief that has been granted to these funds and their sponsors.
Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds (2020)
Summary:
The OCC, Board, FDIC, SEC, and CFTC are adopting amendments to the regulations implementing section 13 of the Bank Holding Company Act. Section 13 contains certain restrictions on the ability of a banking entity and nonbank financial company supervised by the Board to engage in proprietary trading and have certain interests in, or relationships with, a hedge fund or private equity fund. These final amendments are intended to provide banking entities with clarity about what activities are prohibited and to improve supervision and implementation of section 13.
Applications by Security-Based Swap Dealers or Major Security-Based Swap Participants for Statutorily Disqualified Associated Persons To Effect or Be Involved in Effecting Security-Based Swaps (2019)
Summary:
Pursuant to Section 15F(b)(6) of the Securities Exchange Act of 1934 (“Exchange Act”), as added by Section 764(a) of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), the Securities and Exchange Commission (“Commission”) is adopting Rule of Practice 194. Rule of Practice 194 provides a process for a registered security-based swap dealer or major security-based swap participant (collectively, “SBS Entity”) to make an application to the Commission for an order permitting an associated person that is a natural person who is subject to a statutory disqualification to effect or be involved in effecting security-based swaps on behalf of the SBS Entity. Rule of Practice 194 also provides an exclusion for an SBS Entity from the prohibition in Exchange Act Section 15F(b)(6) with respect to associated persons that are not natural persons. Finally, Rule of Practice 194 provides that, subject to certain conditions, an SBS Entity may permit an associated person that is a natural person who is subject to a statutory disqualification to effect or be involved in effecting security-based swaps on its behalf, without making an application pursuant to the rule, where the Commission, the Commodity Futures Trading Commission (“CFTC”), a self-regulatory organization (“SRO”), or a registered futures association has granted a prior application or otherwise granted relief from the statutory disqualification with respect to that associated person.
Nationally Recognized Statistical Rating Organizations (2014)
Summary:
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and to enhance oversight, the Securities and Exchange Commission (“Commission”) is: adopting amendments to existing rules and new rules that apply to credit rating agencies registered with the Commission as nationally recognized statistical rating organizations (“NRSROs”); adopting a new rule and form that apply to providers of third-party due diligence services for asset-backed securities; and adopting amendments to existing rules and a new rule that implement a requirement added by the Dodd-Frank Act that issuers and underwriters of asset-backed securities make publicly available the findings and conclusions of any third-party due diligence report obtained by the issuer or underwriter. The Commission also is adopting certain technical amendments to existing rules.