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Prosecutions of Financial Frauds at 20 Year Low

Posted by Larry Doyle on November 30, 2011 5:02 PM |

I am not surprised to learn that financial frauds are being prosecuted at a rate which puts them at a 20-year low.

When the “truth is confined to secretive, fearful whispers” as I highlighted in my commentary the other day, then those who profit from the accompanying lack of transparency and integrity will swing for the fences. In fact, that is exactly what the financial services industry did for a protracted period. They are fighting tooth and nail to maintain that status quo.

The lax regulatory environment and ineffective legal maneuverings are a reflection of efforts — or lack thereof — that originated and grew during both Democratic and Republican regimes. 

Why aren’t prosecutors and regulators now more engaged in pursuing and prosecuting cases of fraud? Well, as I shared in response to a reader just today:


On both your points, the fact is the rule of the law and the risks borne by the United States citizens were long ago relegated to a distant second place—if that—in an attempt to save the world’s financial system from going over the proverbial cliff.

While the losses in our global banking system were once projected to be in the $4 trillion range, the greatest risk to the system now is the systemic risk centered on the failures of a wide array of counterparties, primarily European banks, which have started to see a run on liquidity via depositors. The swaps line highlighted by today’s coordinated central bank intervention are a vehicle for the global banks to access $$$ which they need BADLY.

While the fairness and integrity questions do mean a LOT to you, me, and a whole host of others who thought we were playing by the rules which define capitalism….well, we should all forget about those rules for now and the foreseeable future.

I have firsthand experience that real justice and protecting the public welfare takes a backseat to protecting the liquidity and solvency of our financial institutions.

Michael Smallberg at The Project on Government Oversight lays out a fabulous and detailed review on this topic today in writing, TRACking the Decline in Criminal Prosecutions for Financial Fraud. Smallberg highlights:

The Transactional Records Access Clearinghouse (TRAC) recently reported that federal criminal prosecutions for financial institution fraud are at a 20-year low. This grim news comes at a time when everyone from Wall Street protestors to federal judges is questioning the government’s enforcement efforts.

It’s now been over two years since Congress passed the Fraud Enforcement and Recovery Act (FERA), which provided DOJ and other agencies with significantly enhanced resources to investigate and prosecute financial fraud. Shortly FERA was enacted into law, President Obama created an interagency task force to coordinate these efforts.

These initiatives have certainly produced some flashy headlines. But the actual data on criminal prosecutions are much less impressive. Granted, the statistics alone do not tell us much about the complexity or quality of the cases that have been investigated and prosecuted by the federal government in recent years. However, the numbers are a starting point for oversight in government enforcement efforts and they raise some questions.

The greatest question in terms of our efforts here at Sense on Cents centers on the topic of how not to get entangled in the frauds and predatory practices that are promoted throughout our nation.

Our financial regulatory system is WAY BEHIND THE CURVE, and the CFPB (Consumer Financial Protection Bureau) is just getting started in terms of its ability to protect investors and consumers in our nation. Given that reality, I implore people to question aggressively where risks lie in the investment and consumer financial products and services being pitched to you everyday.

Those who pitch products will always play the “trust me” card. Sense on Cents strongly recommends that you play the “TRUST but VERIFY” card in return.


Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.


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