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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

Isn’t it time to  subscribe to all my work via e-mail, RSS feed, on Twitter or Facebook? Do your friends, family, and colleagues a favor and get them to do the same. Thanks!

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.


  • Peter S.

    “Trust but Verify” isn’t that Congressman Frank’s line?

    • LD


      I am not so sure about that.

      From my standpoint, that was the line utilized regularly by Ace Greenberg, then CEO of Bear Stearns regarding the oversight of each and every trading book inside that once venerable firm.

      Bear Stearns had a number of “bond cops” whose job it was to check the accuracy of the daily marks for each trader’s positions. In fact, if you thought there were mismarks or other questionable dealings within a trading book, the firm would pay you a percentage of the mismark in order to raise your hand and bring the situation to the attention of “the cops.”

      It was a unique system. Ultimately though, long after I left the Bear and after Ace had been dethroned by Jimmy Cayne, the firm believed that its own BS did not stink and as they say the rest is history.

      The simple fact is back then and even today TRUST but VERIFY remains a good policy.

  • Rob Phillips

    I was happy to see the reference to TRAC. Syracuse University is a fine school in my slightly biased opinion. ; )

    However, their numbers are very disheartening in a time when fraud is so rampant. You’d think prosecutions would be like shooting fish in a barrel.

  • Bill

    Доверяй, но проверяй

    Russian proverb quoted by Ronald Reagan.

  • Peter S.

    The full version of the OIG’s investigative report on the matter, issued to the agency on August 8, 2011, has not been posted online (we just submitted a Freedom of Information Act request seeking the full version).”
    Michael, stop wasting your breath filing SEC FOIA request. The reports, highly redacted by the very Commission being investigated, are useless even when given. In the case that I brought to your attention, they would not even provide you with the public filings on EDGAR we requested for fear that if I know that they know (I have them anyway) – well, it all comes tumbling down. Investigative reporting and whistle-blowing are the only methods available to date to hold the former SEC Director of Enforcement guilty of perjury in his March 2009 deposition in Boston dealing with matters involving SEC OIG Report PI-09-38. The fraud that I reported to the SEC OIG has never been exposed. And you are right in your last communication with me, that all the entities that I have tried to date to expose the extraordinary corruption has failed to follow through – or has flat out refused to open up the can of worms – and that includes The Project On Government Oversight! Regurgitating the OIG’s findings does nothing! I am preparing to go public – 100 million mutual fund investors will have my back- I have nothing left to lose. I have some former dirty regulators (SMC) and the board of director’s (stunningly some are still on the board “advocating” for over $100 billion of mutual fund shareholders retirement savings) stone cold dead in the water. My moral dilemma is no longer an issue for me, if the SEC doesn’t care that I go public – than God speed.

    • Donna Vogt

      I also am aware of a large fraud – 14.9 billion of which I whistle blew to the appropriate authorities but are not getting investigated apparently. This fraud is ripping off America and we wouldn’t have huge deficits if these frauds were prosecuted. Is everyone who is suppose to uphold the law getting paid? I would like you to contact me. 262-707-0946




        I wasn’t sure if you finished your last sentence the way you meant to.

        Did you possibly mean to say:

        “Is everyone who is suppose to uphold the law getting paid off?”

        This would make perfect sense to me, because I think that everyone who is supposed to be upholding the law are in some ways or another being paid off with bribes and benefits that come in many many creative forms besides greenbacks.

        I too am a whistleblower who is preparing to go public with my own story.

        My life has been ruined and now my patience is being tested by the SEC and our broken justice system.

        Did anybody see the special on the CBS 60 minutes television report by reporter Steve Kroft?

        It aired on December 4 or 5th of 2011, and was titled “PROSECUTING WALL STREET”

        The truth about how ineffective the DOJ has been in prosecuting a single CEO or CFO under the Sarbanes-Oxley Act.

        It’s interesting to listen to the interview and questions posed by Steve Kroft to the Director of the DOJ enforcement division “Lenny Breuer”.

        Well…Breuer spews exactly the type of bullshit answers anybody would would expect him to give.

        His answers were nothing but a bunch of empty words, that ended with some fairytale hope like “stay tuned”…”investigations are ongoing”.

        I support change. I support government transparency and accountability.


        ~ FREMEN GUARD ~

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