By Lisa Riordan Seville
What did the DEA learn from its battle with the Medellin and Cali cartels?
Read full entry »A looming cut to the federal financial crime agency’s budget could cripple state and local investigations that depend on transactions monitored...
Read full entry »Tom DeLay, the former U.S. House majority leader, was found guilty Wednesday of laundering corporate money into political donations during the 2002 elections, reports the Austin American-Statesman. DeLay, 63, at one time one of the most powerful men in Washington, was charged with money laundering and conspiracy to commit money laundering. He faces a possible sentence of five to 99 years in prison and a maximum $10,000 fine on the money laundering charge, and two to 20 years in prison and a $10,000 fine on the conspiracy charge.
Prosecutors argued that DeLay conspired to launder corporate money into political donations as the first step in creating a GOP majority in the Texas House. The state later redrew its congressional districts to favor Republicans, which prosecutors said bolstered DeLay's hold on his leadership post in Washington. State law prohibits corporations from giving donations to candidates directly or indirectly. Prosecutors believe the DeLay case is the first such criminal charge ever filed over the state's century-old law on corporate contributions in state political races.
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On April 1 and April 2, 2009, the Center on Media, Crime and Justice and McCormick Foundation hosted a specialized reporting institute, "How Do they get Away With it? Tracking Financial Crime in the New Era."
Twenty-One fellows from around the country joined panelists and speakers such as: Patrick Carroll, Supervisory Special Agent, FBI, New York Office, Sam Antar, Former CFO, Fast Eddie's, Peter Turecek, Senior Managing Director, Business Intelligence & Investigations, Kroll and Walter Ricciardi, Former SEC Deputy Chief, Division of Enforcement.
Access the program brochure here.
Researchers at John Jay College compiled a research guide of the most relevant contacts in the financial industry. Download a copy of the guide.
Before the sub-prime crisis captured national attention, a reporter for The Charlotte Observer noticed a strange pattern while compiling a list of foreclosed homes in North Carolina’s Mecklenburg County -- clusters were concentrated in new developments and they wondered if faulty loans were behind the trend.
The year-long investigation led to The Charlotte Observer’s four-part series, “ Sold a Nightmare.” Lawmakers in North Carolina passed new mortgage regulations in response to the series and federal and criminal investigations of Beazer are underway.
Understand how the reporters investigated this fraud. Read the case study here.
Read live blogging from the conference.
Articles by conference fellows:
MSNBC
"Regulators Struggle to Contain Foreclosure Fraud" by John W. Schoen
SACRAMENTO BEE
"Ponzi Schemes Flourish with Vulnerable Victims, Underfunded Watchdogs" by Andrew McIntosh
"Ponzi Scheme Perpetrators Exploit Some Common Misperceptions" by Andrew McIntosh
Graphic: "Red Flags for Ponzi Schemes" by Andrew McIntosh
"Massive real estate losses hidden at California bank " by Andrew McIntosh
"Jerry Brown donations tied to businessmen" by Andrew McIntosh
"$2 million settles kickback " by Andrew McIntosh
"Brown returns $52,500 to donors" by Andrew McIntosh
VOICES OF SAN DIEGO
"A Staggering Swindle: How Could it Happen in 2008?" by Kelly Bennett and Will Carless
BLOOMBERG
"Stanford Coaxed $5 billion as SEC Weighed Powers" by Alison Fitzgerald and Michael Forsythe
Appearances/Articles
Professor William Black (panelist) discussing financial fraud on the Bill Moyers Journal and interviewed in Barrons.
Panelist William D. Cohan, author of "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street" interviewed by The Crime Report.
Conference Handouts:
Resource Guide: Reporting on Financial Crime
Case Study: The Charlotte Observer
Prof. William Black Power Point: Accounting Fraud
More Reporting Resources (generously submitted by panelist Elaine Carey, Senior VP of Control Risks)
The lobbyist database from the Center for Responsive Politics (OpenSecrets) is great and easy to use. It links directly to pdf filings and lets you see if someone is a registered lobbyist, who they are registered with, and who they lobby. You can also see how much they make from each client.
The Environmental Working Group’s farm subsidy database is a great way of calling out politicians who complain about “government handouts” and then take tons of money in farm subsidies for their ranches and farms.
People frequently don’t think about state donations, but they can be incredibly important when looking to see if someone is buy influence at the state level. The National Institute on Money in State Politics is a great way to start when looking to see if someone is giving a ton at this level. You should always check out the state’s own website too, as they sometimes have more complete information.
The Federal Register lets you see copies of notices and actions published by federal agencies - helpful when looking to see if someone has been sanctioned, for instance.
FedSpending.org lets you see what groups have received federal grants and contracts.
The EPA has a good website that lets you check to see if a company/facility is EPA compliant or if there have been any enforcement actions taken against it.
WikiFOIA is a website that compiles information about open records availability en each state. It can help you find out what information is available and links to a “letter generator” for each state that conforms to that state’s open records laws.
The Center for Public Integrity compiles financial disclosure statements for state legislators. This is a good way to see who they’ve worked for, where they hold directorships, what they hold stock in, etc. It also has a rundown of various disclosure requirements for different states.
Video from the Conference
Video 1: Did white collar crime and fraud trigger the economic meltdown?
Video 2: Were regulators asleep?
Video 3: Did journalists miss the story?
Read full entry »The number of people caught trying to sneak cash in and out of the U.S. is skyrocketing, with “hot money” being detected in diaper boxes, money belts, underwear, baby clothes, bras, and candy boxes, ther Boston Herald reports. Nationally, seizure totals have soared by 50 percent, from about $50 million to $75 million, between 2005 and 2008, says the Customs and Border Protection agency.
Between June 1 and Aug. 12, 35 seizures totaling $856,119 have been made in New England. “We do not know why there is such a huge increase in the number of seizures this past summer,” said an agency spokesman. Speculation ranges from tighter overall inspections at border crossings to a growing number of people trying to ferret money overseas due to recession and economic tumult. Funneling hot money is a vital law enforcement concern because it is often connected to drugs and global terrorism, said John Pike, director of the military and security Web site globalsecurity.org. “Drug dealers and terrorists are going to try to use cash because it’s much more difficult for law enforcement to trace their activities,” he said. “If they are operating through the banking system it’s too easy to track. Cash is hard to trace and it’s easy to spend.”
Read full entry »On Friday, the FBI announced indictment charges Robert Allen Stanford, the sole shareholder of the Houston-based Stanford Financial Group and other affiliated companies, with defrauding investors who purchased approximately $7 billion in certificates of deposit administered by Stanford International Bank, an offshore bank located on the island of Antigua.
Charges against Stanford, along with four other individuals, include conspiracy to commit mail fraud, mail fraud and securities fraud, wire fraud, obstructing an investigation by the Securities and Exchange Commission (SEC), and conspiracy to commit money laundering.
Resources for tracking financial crime, including material from the McCormick Foundation/John Jay Specialized Reporting Institute on Financial Crime, 2009.
Read full entry »In a New York Times op-ed, two experts write that the asset forfeiture being pursued in the case of Ponzi schemer Bernard Madoff is the exception, not the rule, in criminal cases. "Lawbreakers are rarely forced to give up the proceeds of their crimes," write Charles A. Intriago, a former prosecutor who publishes a website on asset forfeiture, and Robert A. Butterworth, a former Florida attorney general. They write, "Most people would assume...the government routinely seizes the assets of criminals and returns them to victims. After all, criminals should not have ill-gotten houses, cars and yachts waiting for them when they finish their sentences. But the reality is that the government’s focus on seizing Mr. Madoff’s assets for restitution is unusual."
They write that criminals amass hundreds of billions of dollars in cash and goods from illegal activities each year. Various laws give government the authority to seize those ill-gotten assets, but the Department of Justice "has to overcome a culture in which prosecutors focus on the arrest and conviction of individuals to the exclusion of the broader targets, entire criminal organizations, Intriago and Butterworth say. "For too long government has been unwilling to take back the wealth that criminals have stolen from taxpayers," they write. "We can no longer afford to ignore the opportunities offered by our under-enforced asset forfeiture laws."
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Lydia Rosner, Danny Kessler and Panelist Sam Antar; Photo by John Martin, of the Columbia School of Journalism
On April 1-2, 2009, the McCormick Foundation and John Jay Center on Media, Crime and Justice held a two day Specialized Reporting Institute on covering financial crimes. Entitled "How Do They Get Away With It? Tracking Financial Crime in the New Era," the conference and workshops featured panelists including former SEC regulators, FBI agents, economics professors and even a white-collar crook.
Below are resources from the conference, including links to The Crime Report's live-blogging of both days, articles by conference fellows, case studies and materials handed out to attendees. Stay tuned for more photos and video of the event.
Live-Blogging the Conference: Day 1 and Day 2
Articles by conference fellows:
MSNBC
"Regulators Struggle to Contain Foreclosure Fraud" by John W. Schoen
SACRAMENTO BEE
"Ponzi Schemes Flourish with Vulnerable Victims, Underfunded Watchdogs" by Andrew McIntosh
"Ponzi Scheme Perpetrators Exploit Some Common Misperceptions" by Andrew McIntosh
Graphic: "Red Flags for Ponzi Schemes" by Andrew McIntosh
VOICES OF SAN DIEGO
"A Staggering Swindle: How Could it Happen in 2008?" by Kelly Bennett and Will Carless
BLOOMBERG
"Stanford Coaxed $5 billion as SEC Weighed Powers" by Alison Fitzgerald and Michael Forsythe
ROCHESTER DEMOCRAT AND CHRONICLE
"County Probe Widens Into Politics" by Gary Craig
THE CLEVELAND PLAIN DEALER
"Ponzi Schemes Seem to Proliferate in Tough Economic Times" by Alison Grant
Appearances/Articles
Professor William Black (panelist) discussing financial fraud on the Bill Moyers Journal and interviewed in Barrons.
Panelist William D. Cohan, author of "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street" interviewed by The Crime Report.
Conference Resources:
Resource Guide: Reporting on Financial Crime
Case Study: The Charlotte Observer
Prof. William Black Power Point: Accounting Fraud
More Reporting Resources (generously submitted by panelist Elaine Carey, Senior VP of Control Risks)
The lobbyist database from the Center for Responsive Politics (OpenSecrets) is great and easy to use. It links directly to pdf filings and lets you see if someone is a registered lobbyist, who they are registered with, and who they lobby. You can also see how much they make from each client.
The Environmental Working Group’s farm subsidy database is a great way of calling out politicians who complain about “government handouts” and then take tons of money in farm subsidies for their ranches and farms.
People frequently don’t think about state donations, but they can be incredibly important when looking to see if someone is buy influence at the state level. The National Institute on Money in State Politics is a great way to start when looking to see if someone is giving a ton at this level. You should always check out the state’s own website too, as they sometimes have more complete information
The Federal Register lets you see copies of notices and actions published by federal agencies - helpful when looking to see if someone has been sanctioned, for instance.
FedSpending.org lets you see what groups have received federal grants and contracts.
The EPA has a good website that lets you check to see if a company/facility is EPA compliant or if there have been any enforcement actions taken against it.
WikiFOIA is a website that compiles information about open records availability en each state. It can help you find out what information is available and links to a “letter generator” for each state that conforms to that state’s open records laws.
The Center for Public Integrity compiles financial disclosure statements for state legislators. This is a good way to see who they’ve worked for, where they hold directorships, what they hold stock in, etc. It also has a rundown of various disclosure requirements for different states.
Read full entry »On April 1, University of Missouri Professor William Black, a former regulator who now teaches economics and law, spoke on a panel about money laundering and the shadow economy at the McCormick Foundation/John Jay Conference on Financial Crimes. Two days later, Black appeared on the Bill Moyers Journal to discuss fraud in the financial sector.
Black, the author of The Best Way to Rob a Bank is to Own One, isn't one to mince words: he talked to Moyers about major banks creating "Ponzi-like schemes," and accused Treasury Secretary Timothy Geithner of engaging in a cover up to keep the American people from learning the real scope of the losses caused by the meltdown.
And now Bill Black is ready to answer your questions. Click here to ask him about liar's loans, rating agency fraud, the lessons of the Savings and Loan crisis, and anything else you wanted to know about the financial meltdown but were afraid to ask.
**How Did They Get Away With It? On April 1-2, the John Jay Center on Media, Crime and Justice and the McCormick Foundation held a two-day Specialized Reporting Institute on covering financial crimes. Click here for reports and resources from the conference.
Reply to this thread with your questions. The Crime Report will alert you when Professor Black has posted his answers.
Read full entry »
William D. Cohan knows Wall Street. The former North Carolina newspaper reporter spent 17 years working at white shoe firms like JP Morgan and Lazard Freres before becoming an author. The New York Times called his first book, The Last Tycoons: The Secret History of Lazard Freres & Co., “epic,” and his newest tome, House of Cards: A Tale of Hubris and Wretched Excess on Wall Street is already garnering praise for its “riveting” account of the collapse of Bear Stearns.
Cohan spoke with The Crime Report’s Julia Dahl about the fine line between risk and racket in the financial sector.
The Crime Report: Do you see what happened at Bear Stearns or Lehman Brothers as financial crime or just risk taking?
William Cohan: There are people who feel that to knowingly manufacture and sell these toxic securities around the globe, while at the same time getting these huge compensation packages, is tantamount to criminal behavior.
When I worked on Wall Street, by and large I found that most people are just doing what they’re rewarded to do. If you’re rewarded to manufacture and sell mortgage-backed securities, that’s what you’re going to do. At the higher level, Jimmy Cayne [former Bear Stearns CEO], who I quote in the book, said he wasn’t smart enough, he wasn’t good enough to know what was going on in the fixed income division in the risks that the firm was taking.
TCR: Do you buy that?
Cohan: I believe that he believes it. But I can’t imagine how that could be true. On the one hand, he was a broker, he wasn’t ever an expert in these things. On the other hand, he certainly was an expert in how much he was getting paid year after year, and the fact that he was worth more than $1 billion in his own stock, the only Wall Street CEO who was. So, for him not to be knowledgeable about what was going on at the firm, how the firm was making money and the risks it was taking, is…a sin of omission that is sort of hard to defend. And if that was the case, why wouldn’t the board of directors have someone in there who does understand the risks the firm was taking?
TCR: Is that negligent, not having someone at the helm that understands?
Cohan: It’s negligent. Whether it’s gross negligence, whether it’s criminal, I don’t think our justice system is set up to investigate things like that.
TCR: Do you think that in the wake of all this the justice system might try to set itself up to more adequately investigate and prosecute these matters?
Cohan: My gut tells me things like this do not get investigated, that they’re too complex, that tying it back and winning a conviction -- which is really what it’s all about, right? -- it’s too hard to track.
TCR: Doesn’t it seem like a cop out to just say they’re too complex, we’re not even going to try?
Cohan: I think they think they’re trying. You’ve got the indictments of Matthew Tannin and Ralph Cioffi [Bear Stearns hedge fund managers], and you’ve got the three grand juries investigating the Lehman guys. But then all of a sudden comes Madoff, Stanford and these other guys that you have to investigate, where there’s real fraud, real losses. [Cases like those are] indictable and convictable and you can win guilty pleas.
Trying to go after [former Bear Stearns co-President] Warren Spector because he failed to properly supervise what the hedge funds were doing, and he built up this fixed income manufacturing business that had all this risk in it, [will be very difficult] unless there are emails that say, “I’m taking this absurd risk, but I don’t give a shit because I’m making a lot of money” – and Warren Spector is way too smart to write an email like that.
On the other hand…if I had access to the emails and the documentary evidence and I was a prosecutor, I would try to do it. For a lot of these prosecutors it’s a revolving door, and they want to be in private practice. What’s the best plum for a prosecutor? It’s to get a job at one of these Wall Street law firms, or being general counsel to a Wall Street firm,
TCR: So going after Wall Street doesn’t exactly help a prosecutor’s career path.
Cohan: That’s correct.
Use The Crime Report to find information and resources on white collar crime. Click here to read what Cohan and other panelists had to say at the McCormick Foundation/John Jay Conference on Financial Crimes.
Read full entry »
On the second day of the McCormick Foundation's Specialized Reporting Institute of Financial Crimes, the talk turned to reporting financial crimes.
Julia Dahl reports live from John Jay.
1:48 p.m. Cohan said: "Wall street has always been a dangerous place, firms have been coming in and out of business forever...we still need a capital market system, and that's what Wall Street does best, provides capital and allocates capital to anyone willing to pay for it. That's the heart of the capitalist system, without that you can't have a functioning society."
David Shapiro , of John Jay, said, "I believe anti-trust is the way to go."
Cohan said that "securitization isn't going to go away...It's like any innovation that Wall Street comes up with: it's fine until it's not."
1:43 p.m. Elaine Carey, of Control Risks, suggested looking at insurance companies as instruments of money laundering; Cohen said that "the next big thing you all should be looking at are private equity groups."
1:26 p.m. The day's final session was a working group with William Cohan, author of "House of Cards: The Tale of Hubris and Wretched Excess on Wall Street," Stephen Handelman, and David Shapiro.
Cohan spoke about writing books about Wall Street, the people that worked there, "and the messes they got themselves into."
"It was very interesting to write a book where everybody knows the ending," said Cohan, "but what they didn't know was why."
Cohan said his book is "as much a moral history as investigative journalism." With the book now finished, he said "there is no question in my mind that [Bear Sterns] in fact did do this to themselves."
He told several stories of the "infuriating" process of requesting (and rarely receiving) documents from the SEC. "They're supposed to get back to you in 20 business days," said Cohan. On one of his requests, Cohen didn't hear back for three years. Cohen said he was also "stunned" that members of Congress wouldn't release information they'd gathered in the lead-up to questioning Wall Street titans.
"In this whole financial crisis that has taken such a toll on the world economy, there have been two people indicted...and no documents released," said Cohan. "In the case of Bear Stearns, a number of lawsuits have been quietly settled...with no explanation."
"The Wall Street army seized on the innovation [of securitizing debt], and sold the innovation as long as they could," said Cohan.
Cohan explained the mentality of Wall Street with the proverbial frog in boiling water scenario: "It's easy in retrospect to see that this was a bubble, but it's never easy to see, when you're going through it, that it's a bubble."
12:11 p.m. The panelists walked fellows through the BRB Publications, Inc. website, which is an online portal to public records.
Wenske said that upwards of 80 percent of resumes have mistakes or exaggeration on them. She said to set up an account with the National Student Clearinghouse, which has transcripts and enrollment information for many U.S. colleges (not including, among others, Harvard).
11:42 a.m. Joelle Scott walked fellows through FINRA's website to see if the broker or firm has ever been involved with arbitration. She said that after the Allen Stanford story broke, Corporate Resolutions ran a test to see whether, if they'd been backgrounding Stanford, they would have found red flags. Just by using FINRA, they found that Stanford's company has been involved in seven arbitrations alleging fraud, and lost four of them. The company was sanctioned by FINRA for, among other things, misrepresenting certificates of deposit.
"Allegations of fraud are rarely normal course of business," said Scott. "A lot of companies that are investment companies, we'll see sometimes they were fined $5,000 - $10,000 for violating a trading rule past a certain hour. If it happened once it's normal course of business. But if it's one guy who's done this five times, he's trying to do something shady."
Kayla Boorady suggested looking up an investment advisor's Form ADV, which an advisor that manages more than $25 million must file with the SEC. She pointed out that Bernie Madoff's ADV form was all-but blank, which is a red flag.
11:21 a.m. Kristen Wenske walked the fellows through the Florida Department of State's website, showing them how to look up annual corporate reports and background corporate officers. Joelle Scott suggested reporters look at officers' LinkedIn or Zoom profiles, which she called great places to "brag."
One participant said that www.internic.net was a good site to look up who has registered for domain names and websites.
Kayla Boorady suggested using www.archive.org, which allows you to look at websites back to about 1997.
10:52 a.m. The final workshop, "Following the Money: Using Public Databases to Detect Fraud," was moderated by Joelle Scott, Kayla Boorady and Kristin Wenske of Corporate Resolutions.
10:12 a.m. Deborah Potter introduced a case study: "Sold a Nightmare," a 2007 Charlotte Observer series about mortgage fraud and foreclosures that "had as much to do with the builder as it did the borrower."
The investigation found that no one in the county, state or federal government was tracking foreclosures. After the series ran, the FBI opened an investigation into the mortgage fraud laid out in the stories, and Beazer Homes USA eventually fired an officer for attempting to destroy documents.
Read full entry »
How did they get away with it? That is the question at the heart of today’s conference on financial crimes at John Jay College of Criminal Justice. Twenty-one journalists from across the nation were selected as fellows to attend this McCormick Foundation Specialized Reporting Institute.
Julia Dahl reports live from the event.
5:14 p.m. Sassen said that, "the idea of a subprime mortgage is a fine thing, giving a modest income household the chance to get a house, but that is very different from financializing them."
She ended by saying that she hoped the audience of journalists would take away "the extent to which it's not enough to just look at fraud, but also to look at risky instruments."
Voigts spoke about new technology helping expand some of the riskier financial products and complicating enforcement.
William Black said "[these instruments] were sold on [the idea] that they were going to reduce risks...We have to find out what went wrong. It's as if after planes crashes, we say that what went wrong is really very technical, so let's not look at it. Planes don't come down a lot precicely because we don't take that approach. Our stress testing in the financial sphere is farcical."
4:41 p.m. Panelist Peter Turecek , senior managing director of Kroll, said that it can be more difficult to catch criminals who initially intend to perpetrate fraud, as opposed to people who fall into it trying to bolster numbers, because they tend to cover their tracks fastidiously.
Panelist Jan Voigts, a supervising examiner at the Federal Reserve Bank of New York, advised journalists on the hunt for money laundering to ask financial institutions "do they know their customers? How do they verify their customers are who they say they are?"
Panelist Saskia Sassen, professor of sociology at Columbia University, spoke about her work on shadow banking, which she said "is legal, it's just a problematic legality." She showed a slide illustrating the exponential growth of credit-default swaps, which grew from approximately $ 1 trillion in 2001 to more than $60 trillion in 2007 -- "more than total GDP."
"They were sold as derivatives but meant to be insurance, but they weren't regulated like insurance," said Sassen. "Here we have the making of a bomb, really, within the law. This isn't about fraud, this is within the law."
3:59 p.m. The day's final panel, "Penetrating the Shadow Economy: Money Laundering and Other Abuses," was moderated by David Brotherton, department chair and professor of Sociology at John Jay.
Panelist William Black, Associate Professor of Economics and Law at the University of Missouri, Kansas City, laid out the mortgage fraud landscape and how the massive number of fraudulent loans make it practically impossible for the FBI to investigate more than a small percent.
"In fiscal year 2007, there were 50,000 criminal referrals [from banks regarding bad mortgages] to the FBI," said Black. "By fiscal year 2008, it was 63,000. But the FBI is clearing just 400 - 500 cases a year. Do you see how absurd that is? They've been overrun."
The picture is even bleaker, said Black, when you factor in that "we think they discover fraud less than 25 percent of the time."
Black spoke about Fitch, one of the smaller rating agencies, who looked at loan files and found "evidence of fraud in nearly every file."
"Can you go after the ratings agency for fraud?" asked Black. "I think you can."
3:03 p.m. Randall LaSalle, Associate Professor of Economics at John Jay, said journalists need to get used to using "the f-word": fraud.
"What is the definition of fraud?" LaSalle asked the audience. "Fraud starts with a false statement or false representation."
He went on to talk about how law enforcement needs to develop specialized tactics to deal with financial crimes: "The fundamental difference between street and white collar crime is that when someone robs a bank, we know a bank’s been robbed, the issue is who did it. With white collar crime, it’s exactly the opposite. We know the person, but we don’t know if it’s a crime yet."
2:48 p.m. Former Chicago Tribune reporter Elaine Carey, who now works as a private investigator for Control Risks, spoke about how journalists might go about digging up the next Madoff or Stanford in their own city:
"Look at a company's culture, that’ll give you a clue where to poke further." If the CEO is preaching "hard work and being honest, but he goes out and buys $1,000 shower curtains" that sends a message to the people working for him.
Carey said most material fraud perpetrators are middle aged white males. "Ask yourself, who has access? It's not the guy in the mail room." White collar criminals, she said, "rationalize. They think, I'm owed it because I didn't get that promotion. Or, I'm not hurting anyone, I'm taking from a company, not a person. A lot of people divorce the two in their mind in order to justify what they're doing."
Carey also said that "most significant frauds go 18 months before they're uncovered," often by a whistleblower.
Panelist Josh Rosner, managing director of Graham, Fisher & Co., discussed the importance of "questioning assumptions" about the market: "We're calling this a housing crisis, but it's really a credit market crisis." He also said that "cyclical shifts in social policy are the periods in which one really needs to look and see if standards held in prior cycles continue to hold."
2:23 p.m. After lunch (fried plantains! Spanish rice!), the first of three journalism workshops commenced, this one entitled "Investigating Fraud: From Wall Street to Main Street."
Panelist Sean Haran, Former Deputy Chief of the Business Crimes and Securities Fraud Section of the U.S. Attorney's Office, Eastern District, said that there was "a symbiotic relationship between enforcement and regulation and the press," and that he'd personally opened cases after reading about something "strange or fraudulent."
Haran has not worked on the Madoff case, but spoke about what he "expects" is happening in that ongoing investigation: "I suspect they were able to build a case [against auditor David Friehling] on some specific misstatements he made. They don't have to necessarily prove that he knew the scope of the fraud. The way to make a federal case is to build a wedge. I suspect there is a lot of pressure on that auditor right now. I suspect his lawyer is telling him to go talk to his wife and think about whether he wants to go to jail for 15 or 20 years, or if he wants to talk to law enforcement about what he knew and when he knew it."
"I like to share information with the press -- when I can," said Haran.
1:55 p.m. Keynote speaker Walter Ricciardi, who was the Deputy Director of the SEC between 2004-2006, reminisced about starting work at the SEC's Boston office in 2004 and realizing there was no searchable database of ongoing investigations.
"The division gets thousands of tips every day and it’s not humanly possible for them to follow up on every one -- dark secret," said Ricciardi.
Ricciardi was asked why the SEC doesn't work more closely with the Department of Justice, and said, "the SEC and the criminal authorities do work quite closely. A lot depends on DOJ policy and how strongly they want to pursue white collar crime. For a while there were no resources there. But the vast majority of the cases that the U.S. Attorneys bring are usually referred by the SEC.
"When I was running Boston, there was a matter we called the U.S. Attorney about and he said he didn't have the resources, so we tried the case. I didn't get a 'stat,' but we put in jail a very bad person who the local attorney didn't have the resources to put away."
Speaking of resources, Ricciardi said that while he was at the SEC he was told not to publicly state he lacked resources to pursue the cases he wanted it. "I was told, we have Katrina, we have a war, don't be crying about resources -- do the best with what you can."
12:29 p.m. When asked how journalists might go about interviewing criminals, Sam Antar said, "Everybody who you interview has an agenda. A lot of people will give you false or tainted information and it’s your job as a journalist to sort it out. The most important thing you should learn is skepticism. Don’t always trust your sources."
Antar was also asked what motivated him to speak so openly about his crimes. He answered, "I'll give you three responses: I'm redeemed and I want to educate the public; I want to brag; or I'm creating a wall of false integrity..."
Panelist Deirdre McAvoy, Deputy Chief of the Criminal Division (White Collar) in the U.S. Attorney’s Office, Southern District of New York, NY., was asked where prosecutors draw the line between stupidity and illegality, specifically relating to the issuance and bundling of bad mortgages.
McAvoy said, "It all comes down to intent. At the end of the day, if an individual committed fraud, we still have to make a determination of whether the individual was willful in doing it …That is a very hard judgment call…there are many cases I’ve investgated where technically fraud was committed, but we decided not to prosecute because we didn’t believe they had the intent to defraud."
Panelist Barry Koch, Associate General Counsel at JP Morgan Chase, said that "the only reason most [financial] crimes are being reported today is because of the bad economy."
12:03 p.m. Jock Young, Distinguished Professor of Criminology at John Jay, discussed the similarities between upper and lower class criminals, particularly how they fit into the notion of the American Dream and their “prioritization of ends over means.”
“Bernie Madoff is a bit of a conundrum for criminologists who are used to peering down the class structure,” said Young. “He’s the wrong class, the wrong ethnicity, the wrong age. I’m not one for a general theory of crime, but there are some parallels.” Young used the example of a street con, with the victim, the con man, and the shill – who he compared to chief compliance officers.
“What has occurred part in the world of finance is that these are cultures that are very, very into risk, cultures that constantly verge on the edge of legitimacy…The only other group of people who go near the edge all the time and often go over is the military.”
11:29 p.m. Sam Antar, former CEO of Crazy Eddie, Inc., who now runs writes a blog on white-collar fraud, didn't mince words in his opening statement:
“My name is Sammy Antar and I’m a crook,” said Antar. “The only reason why I’m here is because I got caught.”
“Capitalism is based on trust," said Antar. "Guess what, criminals love trust, too. Trust gives us the initiative to commit our crimes. Criminals consider your humanity as a weakness to be exploited in the execution of our crimes…You can steal more with a smile than you can with a gun.”
“Most accounting students learn about internal controls in one six-hour auditing course,” said Antar who says education is key to catching white-collar criminals.
As he stepped down, Antar said, “check your pockets.”
10:58 a.m. The second panel, Crime in the Corner Office, was moderated by AARP financial columnist and former Washington Post reporter Martha Hamilton.
Hamilton referred to her recent piece in the Columbia Journalism Review which discussed her view that there was good reporting in the lead-up to the financial meltdown, but that “nobody was able to really pull it all together.”
10:13 a.m. David Shapiro, Assistant Professor of Economics at John Jay, discussed investigative accounting.
“It’s not an accident that Ponzi schemes occur in environments like this,” said Shapiro. “For better or for worse many of the people who make the most money make it by betting on the success or failure of various institutions.”
Shapiro used the example of John Paulson, founder of the hedge fund Paulson & Co., who, according to a recent Reuters article, took home near $2 billion in 2008.
“The way to approach a story like this is not to marvel at John Paulson’s genius at making so much money, but to find out how he knew to make that bet,” said Shapiro. “We have to step back from idolizing people because they got rich quick.”
Shapiro, who repeatedly reminded the audience that he was not accusing Paulson of anything untoward, then went on to discuss his theory of “alpha fraud.”
“When somebody tells you’re they’re doing way better than the market, that’s a yellow flag,” Shapiro said. “Anybody who does way better than the market on a consistence basis, you have to be a genius, a seer, or you get inside information. Did Paulson use public information? If he did, and came to this great wealth, how come so many of us lost so much money?”
9:51 a.m. Patrick Carroll, Supervisory Special Agent in the FBI’s New York Office, took the podium and discussed the work his office does on exposing frauds like Madoff’s.
“They were always there and I think they will always continue to be there,” said Carroll. “The question is, how do we figure out when one’s going on?”
Solomon Wisenberg, a partner at Barnes & Thornburg, LLP, and co-chair of the White Collar Crime Defense Practice Group, introduced his blog, Letter of Apology, which is focused entirely on white-collar crime.
“There’s a never-ending effort by the business community to eviscerate the regulatory framework,” said Wisenberg.
“When I read a story that SEC has been investigating this and I don’t see in the same story the DOJ is looking at it, I think what’s wrong?” he said. “I don’t want to say that anybody who runs afoul of SEC regulations is a criminal. You can clearly violate SEC rules and not be guilty of fraud. However…the only difference is in the criminal context you’ve got to have willfulness.
“If the SEC is looking at something, my view is the minute they see a serious red flag, somebody on the criminal side needs to be brought in. The problem is that the examiners are not trained to think criminally, to think, wait, what’s going on here?”
9:29 a.m. The first panel, entitled “The Casino Economy: Tackling Ponzi Schemes,” was moderated by Dean Starkman, Managing Editor of the Columbia Journalism Review’s The Audit.
“My take is that there is kind of a struggle over how to explain what’s happened,” said Starkman. Some people see the vast instances of fraud as the “unfortunate but inevitable action of a system that lost control of its risk modeling.” But Starkman himself sees the crisis itself as being “amplified by massive amounts of wrongdoing.”
Starkman said that wrongdoing in the financial sector can be broken down to the “specific and the systemic.” He calls the Madoff affair an instance of a specific fraud, and the problems in the mortgage industry and on Wall Street as more systemic.
9:11 a.m. On the sixth floor of John Jay’s Tenth Avenue building, today’s conference began with opening remarks by John Jay President Jeremy Travis and CMCJ Director Stephen Handelman.
“We’re really blazing a new path,” said Handelman. “We’ve been living with white collar crime and bubbles throughout our history…The question before us this time was whether the swindling, the Ponzi schemes we saw were an element that was central…or whether it was the automatic and natural effect of having a bubble mentality. We’ll also focus on whether journalists missed the story.”
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Crooked cash cropped up at a Bronx, New York City ATM, the Riverdale Press reported. A local resident, Steven Scher, 62, made a $100 withdrawal and didn't notice the police stamps or intricate pattern of markings on the twenty dollar bills.
Read the Riverdale Press story here.
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Attorney
McDermott Will & Emery
Los Angeles
(310) 551-9397
Sanders’ practice concentrates on securities litigation, white collar criminal defense and representation of clients in investigations by the Securities and Exchange Commission, including insider trading cases. Sanders was a federal prosecutor in Chicago and Los Angeles and also worked as an attorney with the SEC in those two cities. As a prosecutor, he was involved in more than 40 federal criminal trials, including cases involving stock market manipulation, insider trading, RICO offenses and bribery of public officials.
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