Bush administration was too lax in policing Wall Street?

December 27, 2008

WASHINGTON (ChattahBox) — As much of the financial news is being dominated by bailouts and the $50 billion Ponzi scheme that Bernard L. Madoff is accused of running, federal officials are on pace this year to bring the fewest prosecutions for securities fraud since at least 1991, according to data, compiled by a Syracuse University research group using Justice Department figures. Federal officials are bringing far fewer prosecutions as a result of fraudulent stock schemes than they did eight years ago, making the federal government something of a paper tiger in investigating securities crimes.  The new data, raises further questions about whether the Bush administration has been too lax in policing Wall Street, by loosening enforcement measures, cutbacks in staffing at the Securities and Exchange Commission, and a shift in resources toward terrorism at the FBI.

According to the report there were 133 prosecutions for securities fraud in the first 11 months of this fiscal year, 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. The S.E.C. seemed to be a big part of this dropoff in prosecutions.  The SEC’s 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. The economic collapse of the last few months has brought intense scrutiny of the S.E.C. amid accusations that it failed to foresee and prevent the collapse of one major financial institution after another as a result of risky overinvestment in mortgage-backed securities. Also consider since 1999 there were a number of people who looked into Bernard Madoff’s operations and came away with serious suspicions of impropriety. In 2005 independent financial fraud investigator Harry Markopolos sent a long memo about Madoff’s fund to the SEC. The title of the memo was: The World’s Largest Hedge Fund is a Fraud. Needless to say the SEC failed to act on the information. The F.B.I., which frequently investigates stock fraud cases either on its own or in partnership with the S.E.C., has also had a sharp decline in the number of white-collar cases it has brought in the last several years — partly a reflection of a huge shift in staffing and resources to counterterrorism operations since the Sept. 11 attacks

While the SEC could not provide numbers of its own on criminal cases arising from its investigations, 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. The S.E.C.’s own data suggests that the agency has put increasing emphasis on using non-criminal means, like civil fines and what are known as deferred prosecution agreements, in dealing with allegations of wrongdoing. The number of SEC cases handled through civil or administrative remedies has grown from 503 in 2000 to 636 this year. President-elect Barack Obama has named Mary Schapiro, head of the Financial Services Regulatory Authority, to lead the S.E.C, and he has promised an overhaul of the agency and other financial regulatory offices to provide tougher oversight.


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