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Regulators Step Up Actions Against Securities Fraudsters

Securities fraudsters take note: State and federal regulators are watching you.

Crimes involving securities fraud have skyrocketed in recent years. In 2010, the Financial Industry Regulatory Authority (FINRA) brought 1,173 disciplinary actions related to securities fraud and levied fines totaling $41.1 million. FINRA also ordered almost $8 million in restitution to harmed investors. Some 14 firms were expelled from the securities industry in 2010, with 270 individuals barred and 407 suspended from associating with FINRA-regulated firms.

In December 2010, a nationwide operation organized by the Financial Fraud Enforcement Task Force netted enforcement actions against 310 criminal defendants and 189 civil defendants for investment and securities fraud schemes that harmed more than 120,000 victims throughout the country. The operation, called Operation Broken Trust, entailed more than $8.3 billion in estimated losses for criminal cases and estimated losses of more than $2.1 billion for civil cases.

The increase in incidents connected to securities fraudsters recently propelled FINRA to launch its Office of Fraud Detection and Market Intelligence (OFDMI). In 2010, OFDMI referred more than 500 matters involving potential fraudulent conduct to the Securities and Exchange Commission (SEC) or other federal law enforcement agencies for further investigation. Among the top issues cited for investigation: Ponzi schemes, private placements and insider trading.

More evidence of the new crackdown on securities fraudsters is happening in New York. As reported Jan. 30 by Investment News, Manhattan District Attorney Cyrus Vance Jr. says he intends to seek much harsher penalties, including mandatory prison time, for individuals convicted of major securities fraud.

According to the Investment News article, Vance plans to call on the state Legislature to change the Martin Act, New York’s securities fraud statute, to allow him to impose prison sentences of as long as 8-1/3 years to 25 years for frauds involving more than $1 million. The law imposes no minimum prison sentence, regardless of the money involved.

In the coming year, Vance says he will make broader use of the Martin Act to prosecute investment frauds and Ponzi schemes involving investment funds, fraud schemes created by broker/dealers and the manipulation of commodities and commodity futures.

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