Get the Mob Out of Microcaps
By Lynn Duke
Well, someone has finally said it, out loud and on the record -- a very official record, in fact: Scam artists in the securities
industry aren't afraid of getting caught. Why not? Because the punishment, which is almost always a fine, is simply considered part of the overhead, and it's only payable when the money hasn't been hidden far enough offshore to avoid the fine altogether.
Bradley W. Skolnik, president of the North American Securities Administrators Association and Indiana Securities
Commissioner, recently told a House subcommittee that the only way to effectively deter fraud on Wall Street is to add
mandatory jail time to the punishment. Skolnik said this is particularly true if regulators hope to stem the spread of organized crime's role in manipulating financial markets.
"While we can't tell you exactly how big the problem of the Mob on Wall Street is, we can tell you how to best fight it: by
bringing more criminal prosecutions. The prospect of serious jail and prison time is the only way to deter these calculating,
cold-blooded, recidivist criminals. Anything less could be viewed as just a cost of doing business," Skolnik testified.
In recent years, state securities regulators have averaged about 300 criminal convictions annually. Skolnik said many of those cases could have carried harsher penalties if the SEC had been free to add federal charges. As the law now stands, the SEC must conduct a separate investigation before bringing charges of its own -- even if individuals have been successfully prosecuted at the state level. Skolnik is proposing that Congress allow the SEC to rely on state actions, whether an administrative enforcement ruling or a criminal conviction, as the "basis for pursuing appropriate remedies under federal law." Not only does this raise the stakes for scam artists, it makes much more efficient use of a limited resource -- state and federal investigators and prosecutors.
At the heart of Skolnik's testimony was a ruse familiar to Stock Detective readers: the pump and dump. He explained to
legislators, in some detail, how these schemes are handled and how it was a natural market for organized crime. Crime families obtain large chunks of microcap stocks very cheaply, say $0.50 per share, and funnel them through a mob-controlled brokerage, where brokers peddle them to unsuspecting investors. The price gets pumped to $5 or $10 a share, the "pumpers" dump, and the innocent investors are left with worthless paper.
According to Skolnik, thinly traded microcap stocks offer organized crime an efficient, almost effortless, and low-risk venue for huge profits. And organized crime families are often the only ones with enough money and enough reach (through
quasi-brokerage firms they control) to make the pump and dump work. "Why would a company go to the Mob for help?
Because the mob guys have the cash and the wherewithal to make it happen," Skolnik said.
Perhaps, the most interesting part of Skolnik's testimony was an accompanying chart showing the movement of brokers among a number of firms under regulatory scrutiny in recent years. These included Stratton Oakmont, Broadchild Securities, and Investors Center First Jersey Securities -- all of which had been shut down by regulators.
Skolnik was adamant in his call for stiffer penalties as the only sure way, and the only fair way, of collaring these criminals.
"Think about it: Someone steals your car... they go to prison. A con artist steals the money your parents saved for retirement, and they get fined. That's not right," Skolnik said. "We need to change our collective mindset about white-collar crime. Make no mistake: Securities fraud is not a victimless crime. It destroys lives just as surely as street crime does."
Skolnik continued, "Yes, the Mob is making inroads on Wall Street. To fight it, and other forms of organized crime, we need to bring more criminal actions. If we don't, a cancer will grow on our securities markets, which could have very serious and
perhaps very dire consequences. We need to put these crooks in prison."
Cheers
Voluntary Disclosure: Strong Buy : Long and Short Term
Cheers
Voluntary Disclosure: Strong Buy : Long and Short Term
