Can supervisor reminders help prevent fraud in the mutual funds sector
| Date | 29 July 2024 |
| Pages | 483-498 |
| DOI | https://doi.org/10.1108/JFC-04-2024-0138 |
| Published date | 29 July 2024 |
| Author | Hussein Al-Zyoud,Eric Zengxiang Wang,Shahid Ali,Weiming Liu |
Can supervisor reminders
help prevent fraud in the
mutual funds sector
Hussein Al-Zyoud and Eric Zengxiang Wang
Faculty of Business, Athabasca University, Edmonton, Canada
Shahid Ali
University of Swat, Khyber Pakhtunkhwa, Swat, Pakistan, and
Weiming Liu
Faculty of Business, Athabasca University, Edmonton, Canada
Abstract
Purpose –This study is based on the enforcement record from Canada’s natural mutual fund regulator.
This record documenteda small subset of mutual fund dealers who had beendisciplined for their misconduct
from 2007 to 2014. The purposeof this paper is to determine what factors contribute to mutual fund dealers’
time to first financial fraudoffense. The longer the time to fraud, the healthier the mutual fund industryand
the bettera mutual fund dealer’s career.
Design/methodology/approach –Based on the belief that adversity reveals true character, the study
approaches a mutual dealer’s career success from human capital, socio-demographic and organizational
sponsorshippoints of view by measuring dealers’success as their time from career beginningto first instance
of financial fraud. Ordinary leastsquare regression analysis was used to identify if those factors, including
provision of supervisor reminders, gender, position and penalties, are related to career success within the
Canadian mutualfund regulatory framework. The research is basedon a small sample of mutual fund dealers
who had been disciplinedfor their misconduct from 2007 to 2014.
Findings –The study finds that a supervisor’s reminders positively contribute to the career success of a
mutual fund dealer in the form of extendingtheir time to fraud. As well, being female is an adverse factor to
career successeven when both female and male dealersreceived about the same level of supervisorreminders.
It also finds thatbeing in a management position has no association with time to fraud.
Originality/value –The study establishes the statisticallysignificant positive relationship between time
to fraud and supervisor’s reminders for mutualfund dealers. At the same time, it shows that human capital
and access to organizational resources, measured by being in a management position, have no significant
relation to when fraud is committed. This result indicates the value of continuing education for all mutual
fund dealers,both inexperienced and experienced.
Keywords Mutual fund, Perpetrators, Frauds, Canada
Paper type Research paper
1. Introduction
In Canada, the mutual fund industry in Canada is a significant component of the country’s
financial sector, playing a crucial role in helping Canadians achieve their investment goals and
retirement savings. By the end of 2023, the total net assets held by 120 Canadian mutual fund
companies amounted to US$1,900bn [Canadian Investment Regulatory Organization (CIRO),
2024]. These companies represent a diverse range of financial institutions, including banks,
asset management firms, insurance providers and investment companies. Each firm typically
provides a variety of mutual fund products catering to different investment objectives, risk
Fraud in the
mutual funds
sector
483
Journalof Financial Crime
Vol.32 No. 2, 2025
pp. 483-498
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-04-2024-0138
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
levels and asset classes. This diversity enables Canadian investors to choose from a broad
selection of mutual funds that align with investors’financial goals and preferences.
Government agencies at the provincial and territorial levels, including securities
commissions, oversee the regulation of investment funds and securities in Canada. The
Canadian Securities Administrators (CSA) is a designated voluntary organization comprised of
these provincial organizations; it works to coordinate, enhance and harmonize capital market
regulations across the country. In certain provinces, the regulation of the mutual fund industry
is delegated to the Mutual Fund Dealers Association of Canada (MFDA [1]), a non-
governmental agency. In those provinces, mutual fund dealers are required to become MFDA
members. The MFDA is responsible for setting regulatory standards, conducting compliance
audits, investigating complaints and taking necessary enforcement actions. As a self-
regulatory organization, MFDA can impose financial sanctions (generally three times the
profits/losses) and suspend professional activities, including a permanent ban from the
investment industry. Suspension and permanent ban can have severe consequences on an
offender’scareer.Forexample,Ng et al. (2005) show that work experience, length of
employment and gender are important predictors of salary, promotion and career satisfaction.
Fraudulent activities in the mutual fund industry can take various forms, including
misrepresenting investment strategies, unauthorized trading, Ponzi schemes, insider
trading, market manipulation and others. Enforcement records against financial fraud in
Canada are depicted as in Figure 1.
Figure 1.
Number of fraud
cases closed from
2002 to 2022
JFC
32,2
484
Get this document and AI-powered insights with a free trial of vLex and Vincent AI
Get Started for FreeStart Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting