Posts filed under “Regulation”

Security Fraud Prosecutions Down 87% Since 2000

Some toothless watchdog:

This year, the S.E.C. has brought the fewest number of securities fraud prosecutions since 1991. That’s according to the data that the Transactional Records Access Clearinghouse (TRAC), a research group at Syracuse University, has amassed.

Soft on White Collar Crime, by the Numbers:

• 2008 had 133 prosecutions for securities fraud (thru Dec 1)  versus 437 cases in 2000, a 70% drop. Form the peak of 513  in 2002, prosecutions are down by 74%;

•  S.E.C. investigations that led to Justice Depart prosecutions for securities fraud dropped from 69 in 2000 to just 9 in 2007, a decline of 87%.

• Non criminal prosecutions (i.e., fines) for white collar crimes increased –  from 503 in 2000 to 636 in 2008 –  a 26.4% increase.

• “Deferred prosecution agreements” — essentially an agreement not to prosecute, so long as the accused stays out of further trouble;

NYT Excerpt:

“Federal officials are bringing far fewer prosecutions as a result of fraudulent stock schemes than they did eight years ago, according to new data, raising further questions about whether the Bush administration has been too lax in policing Wall Street.

Legal and financial experts say that a loosening of enforcement measures, cutbacks in staffing at the Securities and Exchange Commission, and a shift in resources toward terrorism at the F.B.I. have combined to make the federal government something of a paper tiger in investigating securities crimes.

There were 133 prosecutions for securities fraud in the first 11 months of this fiscal year. That is down from 437 cases in 2000 and from a high of 513 cases in 2002, when Wall Street scandals from Enron to WorldCom led to a crackdown on corporate crime, the data showed.

At the S.E.C., agency investigations that led to Justice Department prosecutions for securities fraud dropped from 69 in 2000 to just 9 in 2007, a decline of 87 percent, the data showed.

Federal officials took issue with some of the data compiled by the Syracuse group and said that they had maintained a strong commitment to rooting out fraud and abuse in the stock markets. While the S.E.C. could not provide numbers of its own on criminal cases arising from its investigations, Scott Friedstad, the deputy director of enforcement at the commission, said the numbers did not reflect “the reality that I see on the ground.”

Once again, we must point to our philosophical dispute with those who believe that markets can police themselves.

There is no such thing as Markets that “self-regulate.” Its the humans that require rules, regulations, supervision — not the markets. The phrase “self-regulate” is a non sequitur, a nonsense buzzword repeatedly by mindless parrots.

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Source:
Federal Cases of Stock Fraud Drop Sharply
ERIC LICHTBLAU
NYT, December 24, 2008

http://www.nytimes.com/2008/12/25/business/25fraud.html

Category: Bailouts, Legal, Markets, Regulation

Office of Thrift Supervision: Asshat Central

I am trying to figure out who is the biggest jerk in this story. It is a challenge, given the collection of utter clowns and ne’er-do-wells that run that office.

First, you have some moron who helped cost the taxpayers a hundred large ($100B) back in the 1980s. How this idiot ever ended up in a position of responsibility in any regulatory agency again is beyond my comprehension. There are some who would point to all government regulation as the root cause, but crony capitalism and the disbelief in and and all regulations is what leads to putting someone so unsuitable in this position of authority.

Second, you have to wonder about just how frickin’ dumb the idiots who run the office of Thrift Supervision have been the past 8 years. These were the clowns that blamed Schumer for the collapse of Indy Mac, after backdating their capital levels.  As you will see below, if the OTS weren’t incompetant boobs, Indy Mac should have been shut down months before their run!

That the OTS is run by such half-wits and morons, that they blamed a US Senator — for having the temerity to ask how much money the criminally incompetant managers running Indy Mac were going to cost the taxpayer — rather than their own inadequate supervision. (BTW, the answer to Schumer’s question was about $9 billion).

Recall that when James Gilleran took over the Office of Thrift Supervision, he took a chainsaw to a stack of regulations to symbolize how his agency was going to “cut red tape” for thrifts (a.k.a. S&Ls), which were heavily involved in mortgage lending. The ideologue in him declared: “Our goal is to allow thrifts to operate with a wide breadth of freedom from regulatory intrusion,” Gilleran said in a 2004 speech.

Nice work.

This wasn’t mere malfeasance by Gilleran — as we have been repeatedly noting, it was nonfeasance — the intentional failure to perform a required legal duty or obligation.

As for the FBI, the division in charge of enforcement, after sounding the warning bell, subsequently made a “strategic alliance” in 2007 with the Mortgage Bankers Association (MBA) the trade association for (then) major industry players like IndyMac and Countrywide Financial. Imagine if the FBI division in charge of organized crime set up a joint venture with the Cosa Nostra. That’s what this was the equivalent of at the FBI.

It all comes back to the radical deregulatory philosophy we discussed Sunday:  Appoint cabinet level people who share that same belief system, who think government can never work — and voila! –  this is what you get.

Anyone who thinks that really bad behavior in the corporate world needs no proscribing should not be put in charge of Regulatory agencies.

Excerpts after the jump . . .

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Category: Corporate Management, Legal, Markets, Regulation

1st Madoff-Related Suicide Hits the Tape

Won’t be the last one, either: Thierry Magon de La Villehuchet, who ran a fund that invested with Bernard Madoff, was found dead at his Madison Avenue office today, a New York City police officer at the scene said. The death appeared to be a suicide, he said. De la Villehuchet, 65, was a founding…Read More

Category: Hedge Funds, Legal, Markets, Regulation

What Does Regulation Regulate?

Here’s one of the simple truisms that gets lost in the political (i.e., bumper sticker) discussions. Don’t regulate the free markets! Don’t interfere with innovation! Don’t stifle incentives! What bullshit. One of the best ways to win a debate is to control the language used. This was one of the elements George Orwell was discussing…Read More

Category: Bailouts, Legal, Regulation

Regulating After the Fact

Tom Toles: via Washington Post

Category: Bailouts, Humor, Markets, Regulation

Madoff Red Flags Were There All Along

In 2001, reporter Erin Arvedlund wrote an article for the financial weekly Barrons that was skeptical of Bernard Madoff’s strategy and performance on Wall Street. She questioned how Madoff was able to offer good returns. She talks with Steve Inskeep about the impetus for her story and what she learned in the process.

Morning Edition, December 18, 2008

Category: Financial Press, Legal, Regulation, Video

Audit Interview: Jack Dolan

Columbia Journalism Review interviews the Miami Herald reporter whose series we have highlighted here many times. JD: I expected there would be some criminal histories. There’s gonna be a few pot possessions and stuff like that. The law said that they were supposed to screen brokers for crimes involving fraud, dishonesty, and “moral turpitude”, which…Read More

Category: Financial Press, Legal, Regulation

SEC Ignored Detailed 2005 Complaint re: Madoff

What follows is the Harry Markopolos complaint to the SEC, circa November 2005, identifying 29 red flags that Madoff was a fraud. This highly detailed complaint was filed regarding the apparent Fraud at Madoff Securities. It was ignored by the Christopher Cox SEC, which was too busy concocting schemes to dismantle the SEC rather than…Read More

Category: Hedge Funds, Legal, Regulation

Cost of Banks

Consider that one year ago Royal Bank of Scotland paid US$100 billion for ABN Amro. That seemingly impossible amount would now buy: Citibank $22,5 billion (74% down) Morgan Stanley $10,5 billion (-72%) Goldman Sachs $21 billion (-67%) Merril Lynch $12,3 billion (-77%) Deutsche Bank $13 billion (-71%) Barclays $12,7 billion (-71%) And still leave $8…Read More

Category: Bailouts, Credit, M&A, Regulation

Hedge Fund Partners vs Managed Account Investors

Today’s NYT (and Monday’s WSJ) each have articles which compare Madoff investors with those of recent $400 million dollar hedge fund fraud Bayou Group. I believe this misunderstands the applicable law of partnership, fraud, and investing. Hedge fund investors are limited partners, and as such, they have a fiduciary duty to their other partners. Regardless…Read More

Category: Hedge Funds, Legal, Regulation