国际英语新闻：Charts offer best way to find financial fraud

BEIJING, April 26 -- American financial giant Goldman Sachs has been charged with fraud over one of the subprime investment products it created and sold. The only surprise in finding fraud in the subprime products area is that it has taken so long to bring the charges. Investors have been bringing allegations of deceptive subprime product descriptions to courts throughout 2009. More fraud charges in relation to the creation and sale of these products are probably under development.

Unfortunately, fraud and financial markets go hand in hand which is why strong financial market regulators and regulations are required. However, the investors cannot afford to rely only on regulators for protection. Investors must take action to protect themselves against fraud in the market. Fraud comes in many forms, and the global financial crisis quickly exposed many cases of fraud which had been undetected by the conventional analysis of financial fundamentals.

The collapse of US company Enron in 2001 was a good example of fraud that was undetected by conventional analysis. Those investors who do not learn from history and doomed to repeat it. So many of the recent frauds follow the same patterns as the Enron fraud.

Just weeks before its suspension from trading and after a near 80 percent fall in its share price, Enron was hailed by American business magazine Fortune and financial analysts as "one of the most innovative US companies". The Enron share price was to fall to 26 cents, down from $100. This unrelenting downtrend had been in place for eleven months. Who should investors believe? The chart or financial analysts?

The audit reports showed a clean bill of health. When the share price had fallen by around 70 percent a respected analyst declared that the company was financially sound and a wonderful buying opportunity. After a short rally from $30, the downtrend returned, closing six weeks later at $0.26. The long-term downtrend showed the market did not believe the company reports or the financial analysts. In 2002 the truth emerged as the full extent of the fraud was revealed.

Investors should listen to the behavior of the market when there is a contradiction between market activity and financial reports.