The Failure to Protect the Public From Securities Fraud – Part I

shutterstock_186211292If someone broke into your home and stole hundreds of thousands of dollars of your possessions you expect that person to go to jail. But what if the consequence was merely to pay a fine and a court ordered bar from breaking into homes. Would you be alright with that outcome? Could such an approach really stop or even deter criminals? Could you imagine lawmakers arguing with you that the key to preventing more burglaries is to inform homeowners about locking their doors and windows and installing alarms – but not jail. If such an approach sounds silly then why have we accepted this approach to securities fraud.

The primary defense to preventing securities fraud is simply to “bar” the person from the securities industry and to instruct him or her to stop committing fraud. For many recidivist fraudsters, being barred from the industry is merely part of the career plan. Often times being barred from the industry merely frees the fraudster from the shackles of having to conceal their fraud within the confines of industry supervision. After being barred fraudsters are often in a perfect position to continue stealing from investors. Think about it – they have been industry trained, have spent years learning their craft, and have established many contacts and industry connections that they can now utilize for their post-industry frauds.

Yet regulators and lawmakers seemingly fail to grasp the very simple principal that those who commit securities fraud need to go to jail – period. Recently, the Senate presented findings of the Senate Special Committee on Aging concerning investigations gold investment scams targeting Florida seniors. The hearing clearly exposed how securities regulators, in this case the Commodity Futures Trading Commission (CFTC), has no ability to prevent securities fraud and protect the investing public.

When it comes to securities fraud, most of the debate focuses on irrelevant points such as whether there are enough laws and regulations to prevent fraud or whether or not the regulators are adequately funded. These debates largely ignore the fact that we are throwing the majority of caught fish back into the sea and then wondering where we’re going wrong.

During the hearing Sen. Bill Nelson (D-FL) noted that Congress investigated gold scams since at least 1983. Yet there is no sign of progress in preventing fraud. Securities fraud continues to occur because lawmakers have no understanding of the criminal mind and instead cling to the false belief that investor education will prevent securities fraud.

To Be Continued in Part II where it is shown that some senators believe that an education alone approach would provide safety to the investing public.  These senators promote the education approach even though a former fraudster testifies that it is government agencies failure to instill fear into fraudsters that their actions have criminal repercussions that has resulted in no progress in investor protection.  The attorneys at Gana LLP are experienced in representing investors in court and securities arbitration to recover their investment losses. Our consultations are free of charge and the firm is only compensated if you recover.