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