White Collar Crime Stains Financial Markets
LINDA WERTHEIMER, host:
Financial regulators are coping with a growing number of fraud cases. Since word of the Bernard Madoff scandal began to spread, the Securities and Exchange Commission has announced several investigations into schemes that bilked investors of billions or maybe simply hundreds of millions of dollars. To talk about what looks like a white collar crime wave, we spoke to Forbes executive editor Neil Weinberg. Welcome to the program.
Mr. NEIL WEINBERG (Forbes Magazine): My pleasure.
WERTHEIMER: Are there more fraud cases under investigations now or does it just seem like that?
Mr. WEINBERG: I don't think there is any question, there's more coming to light right now. While there's a lot of white collar fraud all the time, it is cyclical and what you find is very often that when the markets go up you don't have people asking too many questions, and when they go down you see a wave of fraud come to light.
WERTHEIMER: So do you think there is more to come?
Mr. WEINBERG: No question there is more to come. Obviously we've had a huge boom in investment management. We've had hundreds and hundreds of hedge funds, which are very lightly regulated, open shop over the last few years. And now what we're going to find is a lot of these ill-regulated or poorly regulated institutions don't have the money that they claim they had or that they weren't investing in the things they claim they were investing in. So you're going to see an increasing number of insolvencies, including among the fraudsters among us.
WERTHEIMER: Now, in the Allen Stanford case and the Bernard Madoff case, warnings were given to regulators, in some cases years ago. Why didn't the financial industry watchdogs deal with them?
Mr. WEINBERG: You know, you have lot of problems here, one is that the financial industry watchdogs are often acting more like a lapdogs. To some extent they're boosters for the industry as well as overseers of the industry. If you look at the Securities and Exchange Commission, it's a large bureaucratic government organization. It's run by lawyers. It tends to act often like bean counters and not ask critical questions.
You know, some years ago I was actually talking to the head of inspections for the SEC and I asked him: When you find that there are problems with money management farms, mutual funds and so on, why don't you let the public know what problems you find? And his answer was: If we were to reveal this type of information, we would not receive the cooperation we need from the companies that we're regulating. And this is, you know, an absurd sort of argument. Since when do cops need to ask robbers or potential robbers for permission to do an investigation?
WERTHEIMER: You know, one of the industry watchdogs is the Financial Industry Regulatory Authority, which was chaired by Mary Schapiro. She has been appointed by President Obama to be head of the Securities and Exchange Commission. Can we expect tougher enforcement from her, considering what her experience has been?
Mr. WEINBERG: I think you're going to find tougher enforcement simply as a function of the fact that we're in a time when people are mad as hell. But what you'll find - the problem with Mary Schapiro is that she is yet another industry insider, and one of the problems I have with the SEC is that it is forever run by insiders in the industry. While it is supposed to be an investor protection organization, there's very little evidence at the top that that is the case.
WERTHEIMER: Thanks very much
Mr. WEINBERG: My pleasure.
WERTHEIMER: Neil Weinberg is a Forbes executive editor and he is co-author of the book "Stolen Without A Gun."
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