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Financial Felons: With each down market the bad guys get caught
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After the crash of 1987 we got headlines of Insider trading cases like Ivan Boesky or Junk Bond king Michael Milkin that made millions off exchanging tips during the merger mania of the late ‘80s. Investment banks and brokerages were not exempt, Drexel Burham closed their doors and I can’t forget Crazy Eddie, remember his ads? If you lived in the New York or in the New Jersey area you would remember his fraud as the electronic king that bilked millions from share holders ran off to Israel only to be returned and do some jail time. I would be remiss to not mention the penny stock originator of Pump and Dump Bob Brennan of First Jersey Securities who went bankrupt in 1987.
After the crash of 2001 we got the white collar gang of the 90’s Dennis Kowlowski of Tyco, Bernie Ebbers of WorldCom (Ouch this one hurt me), Skilling with Enron and many more. In 1999 a Broker/Dealer A.R. Baron was accused of defrauding $75 million between 1991 to 1996 in penny stock scams that were far reaching in the investment community.
Fast forward to the crash of 2008 which really brought out scams that we are still living with. Today we have the world’s largest Ponzi scheme Bernie Madoff (approximately $21.1 Billion), the Stanford Group from Texas (approximately $6 billion) and in our own back yard Arthur Nadel of Sarasota ($360 million). Federal prosecutors on October 16 2009 and again last week brought charges against a hedge fund the Galleon group for insider trading that will no doubt be the largest in some time ($40 million).
After each market crash the scams come to the surface and the market cleanses itself once again. Each crash exposes similar fraud and that’s scary, same wine different bottle. The reason for bringing these similarities to light is they could have been avoided. Not just because the warning signs such as Harry Markopolos going to the SEC several times with a theory the math for Madoff doesn’t add up. The SEC has had a long time standing policy of hiring lawyers to do most of the investigating of suspected fraud. They hire lawyers and kids out of colleges with high GPA’s and there is a need for them. But to prevent this from happening again you need industry professionals who have been in the trenches with substantial experience. If the SEC wants to get its tarnished reputation back you put together teams of lawyers and experienced professionals to go in and do their audits. Are you listening Ms. Schapiro?
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