The institutional context of financial fraud in a post-transition economy: The Quaestor scandal
| Date | 01 January 2020 |
| DOI | 10.1177/1477370819874436 |
| Published date | 01 January 2020 |
| Subject Matter | Articles |
https://doi.org/10.1177/1477370819874436
European Journal of Criminology
2020, Vol. 17(1) 31 –49
© The Author(s) 2019
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DOI: 10.1177/1477370819874436
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The institutional context
of financial fraud in a
post-transition economy:
The Quaestor scandal
Csaba Györy
Hungarian Academy of Sciences, Hungary
Eötvös Loránd University, Hungary
Abstract
The article will analyse the greatest Hungarian securities fraud to date: the Quaestor scandal.
Quaestor was a holding of several companies, including one of Hungary’s biggest investment
adviser and brokerage firms, which went into bankruptcy in early 2015. Later investigations
uncovered a massive fraud with an estimated loss close to €500 million to investors, mainly caused
by affiliated companies overselling their bonds many times over the limit set by the securities
regulator. Using theoretical approaches from comparative political economy, economic sociology
and organizational theory, the article will analyse how the institutional context of economic
action on the financial markets was conductive to the fraud. Two major factors in particular will
be emphasized: the political economy of finance, especially the underdeveloped nature of financial
markets and the lack of a retail investor class; and the relative scarcity of capital.
Keywords
Financial crime, organizational crime, organizational theory, transitional economies
Introduction
In this article I will put forward the theoretical argument that the political economy and
institutional setting of financial markets, which is unique for every economy, is an impor-
tant determinant of the incidence, form and modalities of financial fraud. The continuing
evolution or sudden change of institutions in which financial markets are embedded
also greatly determines how the form and modalities of fraud change over time. The
Corresponding author:
Csaba Györy, Institute of Legal Studies, Centre for Social Sciences, Hungarian Academy of Sciences, Faculty
of Law, ELTE University, Tóth Kálmán utca 4, 1097 Budapest, Hungary.
Email: gyory.csaba@tk.mta.hu
874436EUC0010.1177/1477370819874436European Journal of CriminologyGyöry
research-article2019
Article
32 European Journal of Criminology 17(1)
institutional setting defines fraud in this sense, I will argue, because it creates distinct
incentives and opportunities to commit financial crimes. This theoretical claim might
prove to be a useful theoretical framework for an empirical comparative study of corpo-
rate fraud, especially whether the similarities and differences in the political economy,
and the opportunity structures these create, result in distinctive fraud patterns being more
prevalent in certain countries than in others. This article intends to prove the viability of
this theoretical framework as an explanatory tool via a case study.
The article will use a theoretical framework inspired by new institutionalism in eco-
nomic sociology, as well as comparative political economy. Though a considerable
amount of scholarship exists in these fields on corporate fraud (for example, Dobbin and
Zorn, 2005; Milhaupt and Pistor, 2008; Mizruchi and Kimeldorf, 2005), criminology has
rarely utilized this rich literature to explore the connection between the institutional con-
text and financial crime (but see Keane, 1995). This is despite the fact that such an
explanatory frame could be a valuable addition to corporate crime research, which his-
torically has concentrated either on individual action within the corporation, such as
individual motivations (Agnew et al., 2009; Coleman, 1987; Passas, 1983; Paternoster
and Simpson, 1996; Shovel and Hochstedler, 2006) and opportunities to engage in cor-
porate crime (Benson and Simpson, 2009; Benson et al., 2009), on intra-organizational
factors such as culture (Apel and Paternoster, 2009; Kramer, 1982; Vaughan, 1983), or
on macro-structural determinants such as the criminogenic nature of capitalism or the
state–corporate crime nexus (for a critical overview of corporate crime research and its
interdisciplinary connections, see Almond and Van Erp, 2018). Likewise, it could also
provide the link between comparative studies and theoretical approaches that do reflect
on the influence of outside dynamics on organizational action such as competition (Wang
and Holtfreter, 2012), the drive to higher profits (Conklin, 1977; Passas, 1983) or the
economic cycle (Simpson and Rorie, 2016).
The theoretical frame applied in this article is also distinct from critical criminology
approaches. Although these do provide an integrated theoretical account of the intercon-
nectedness of empirically existing institutions and financial crimes (Snider, 1993, 2000;
Prechel, 2015), in line with their broader theoretical alignment they tend to overempha-
size the role of power relations and underemphasize the relative autonomy of legal and
economic (market) processes from political processes and the mutual feedback loop that
exists between them (Edelman and Stryker, 2005). Meanwhile, theoretical takes on cor-
porate crime in general that concentrate on the criminogenic nature of capitalism (Punch,
2000; Tombs and Whyte, 2007), although providing valuable insights into temporal vari-
ations of capitalism and crime, may not sufficiently thematize the coexisting varieties of
contemporary capitalism and their effect on corporate crime.
A theoretical approach to corporate crime informed by economic sociology and political
economy might be better equipped to account for such differences and variations in market
microstructure and in the unique incentives and opportunities these provide for corporate
fraud, and lend themselves better to comparative analysis. In this sense, the present article
constitutes a departure from dominant criminological approaches to corporate crime.
The article will be based on a case study: the Quaestor scandal, the largest corporate
fraud in Hungary to date. The fraud, which ultimately generated a loss of €500 million
to investors, was uncovered in 2016 after going on for almost two decades. The
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