What’s at stake in the SEC’s budget

“While five years sounds like a long time to complete an investigation, the complexity of securities fraud cases and problems with staffing an investigation when higher priorities demand attention makes it all too possible for a case to slip between the cracks,” says Peter Henning in The New York Time’s Dealbook. Henning, a law professor at Wayne State University, was writing about a fraud case that was dismissed by a federal judge in Texas because the Securities and Exchange Commission failed to file its suit within the statute of limitations. For some reason, the SEC let its investigation into the case go dark for a two-year period, and only came back to it after the company in question — Microtune — announced it was investigating itself in public filings. Henning says we can expect more of the same if the SEC’s budget is cut by Congress. “A budget cutback, or even a budget freeze, while the S.E.C. is in the midst of dealing with its new responsibilities for drafting and enforcing rules governing the securities derivative markets and hedge funds may mean the enforcement division will have to drop investigations, or at least slow some of them down, while it deals with other issues.”

SEC brings charges against promoters of fake global warming company

The Daily Caller says the Securities and Exchange Commission has filed civil fraud charges against seven people associated with a London-based company called CO2 Tech that said it was fighting global warming. Really, according to the SEC, the company was a sham that was used as a vehicle for a pump-and-dump scheme orchestrated by a Costa Rican company called Red Sea Management. In all, the SEC says the defendants raked in nearly $7 million in illegal profits by manipulating CO2 Tech’s share price through false press releases, manipulative trading and other techniques. Among other things, the releases claimed nonexistent relationships with legitimate companies, including Boeing Co. Named in the suit are Jonathan Curshen; David Ricci and Ronny Salazar, from Costa Rica; Ariav Weinbaum and Yitzchak Zigdon of Israel; Robert Weidenbaum and Michael Krome. Federal prosecutors have also brought criminal charges against everyone in the group except Ricci.

SEC sues the ‘Amish Madoff’

A Securities and Exchange Commission case against 77-year-old Monroe Beachy, who the agency says lost nearly half the $33 million his investors — mostly Amish — put in over 25 years, has earned him the nickname “Amish Madoff.” NPR says “Beachy is accused of fraud because he told investors that their money was going into safe, secure government securities — when in fact he was pouring much of it into far riskier investments and then lying about the losses he was racking up.” | More from the Washington Post

Stanford sues those who prosecuted and investigated him

R. Allen Stanford, indicted and held without bail for securities fraud since 2009, has sued U.S. prosecutors and FBI agents for “abusive law enforcement.” He claims they launched a civil case against him only to gain information about the criminal case and to prevent him from using his money and wealth to aid his defense, according to Bloomberg. Neither the SEC or the FBI had any comment though several law experts told the news service that Stanford’s suit faces an uphill battle.

Enron whistleblower not impressed with new financial reform rules

Sherron Watkins told the New York Society of CPA’s that new rules giving financial rewards to whistleblowers will have little effect because the SEC lacks the “bad cop” culture of the Justice Department and that the agency goes after easy cases to increase their success rates, according to CFO Magazine. She also said most would-be whistleblowers will figure out that they’ll ultimately make more money by keeping quiet — because being labeled a whistleblower will make it hard to get another corporate job. ”She has a good point,” says Jason Zuckerman, a lawyer who represents whistleblowers, in the article. “High-level corporate people who are aware of fraud would probably earn more over their careers if they kept their jobs rather than blowing the whistle.”

Chinese laws impede investigations of U.S.-listed companies there

Stock fraud suits against Chinese companies trading on U.S. financial markets often prove difficult, says Reuters, because the companies “have been able to hide behind a thicket of Chinese laws to avoid significant liability — in large part because evidence in these matters often resides in China, where basic litigation tasks such as gathering evidence are exceedingly difficult.”

Did ‘sophisticated’ Madoff victims deserve their fate?

The New York Times raises the question and notes that for much of the 20th century, securities laws were based on a philosophy of disclosure, rather than buyer beware. The trustee in the Bernard Madoff case, Irving Picard, though, is taking a different approach. “His theory was that ‘net winners’ — those who took out more dollars than they invested — had profited from the fraud, even if they did not know it was going on. If Mr. Picard deems such an investor unsophisticated, he is asking for the return of net winnings paid out over a six-year period before the fraud was revealed,” says the Times. But for sophisticated investors who made money, like Fred Whilpon, owner of the New York Mets, Picard is seeking not only the gains but any original capital they withdrew — arguing not that they knew they were being scammed, but that they should’ve known.

Can Corporate America police itself? No, says MarketWatch

Pfizer Inc. (NYSE:PFE), Tyco International Ltd. (NYSE:TYC), Citibank (NYSE:C) and others met with the Securities and Exchange Commission last fall to talk about whistleblower provisions in the new financial reform laws. Not surprisingly, says Reuben Guttman at MarketWatcth, they were looking to water down the rules. But, he adds: “What these companies have in common is that they each have been involved in a massive corporate scandal that victimized consumers or shareholders. Had a whistleblower come forward early, their wrongful conduct could have been averted.” 

SEC officials who missed the Madoff scandal now in high-paying private jobs

“Several former senior officials at the Securities and Exchange Commission who had the power and tools to stop Bernie Madoff in his criminal tracks — yet ignored warnings for nearly two decades — have moved on to lucrative law-firm partnerships,” says the New York Post. The paper reports they’ve gone from $200,000 or so a year at the SEC to more than $2 million in their new private sector jobs. They’ve got a list.

Looking for a budget increase, SEC warns that its technology is outdated

Congressional Republicans have threatened to reign in the Securites and Exchange Commission’s budget, which has ballooned in recent years. But according to ReutersChairwoman Mary Schapiro says that the SEC is unable to keep up with trading that happens “at the speed of light.” She said some Wall Street firms spend more on technology costs than the SEC spends on its entire operating budget, and that without an increase in funds to pay for new monitoring systems, their power to catch swindlers will dwindle.