Thursday, June 6, 2013

Wall Street Behind Bars

MarketWatch has interviewed five Wall Street felons, including Bernie Madoff and Sam Antar, former Chief Financial Officer of Crazy Eddie, for a special report about their crimes and their views on what they all seem to see as unfair financial markets. MarketWatch found the results from its special report discouraging.

"MarketWatch found that insider trading may be one of the most common crimes on Wall Street and one of the least prosecuted. .............It discovered that the problem for retail investors goes far beyond a failure of regulators to identify insider-trading violations. The financial criminals we spoke with said that not only do many investors routinely skirt insider-trading laws, but the explosion of computerized high-speed trading in recent years has made the situation even more unfair for the retail investor..........Bottom line: The markets aren’t fair for retail investors."

Following a few quotes by these white-collar criminals. First, Bernie Madoff, serving 150 years for orchestrating the biggest Ponzi scheme in history on the position of the individual investor:

"The individual investor is the last person that has any information. The average investor is coming up against professional financial firms, hedge funds and the professional trader, and it’s easy to be scared out of the market."

Then on MarketWatch' question how an investor knows his money is really in the account:

"Ask for your money back periodically. What investors should do is periodically ask for your money back, whether it’s at a hedge fund or other investment firm. They will try to stop you by saying you can’t come back if you take it out, but you will likely always be able to go back. Ask for all your money back about every two years to make sure [a firm is] legitimate. If my clients had done this with me, I would have been caught sooner."

Then, Jeffrey Southard, former investment broker, serving 15 years for defrauding investors. He said:

"I feel that insider trading happens a lot more than the SEC or the Financial Industry Regulatory Authority can detect or monitor. In fact, it is impossible for the SEC or Finra or any other regulator to stop the so-called gray area of insider trading."

Dennis Herula, ex- stockbroker and hedge-fund manager, serving 16 years for defrauding investors:

"The markets aren’t fair to retail investors, particularly with the advent of computerized high-speed traders as competition. It’s like fighting a war with spears against the Air Force."

 Wendy Feldman, a former Wall Street broker, who served nearly 2 years for wirefraud:

"I don’t know anyone who is successful who did not do some form of insider trading. It is looked at as a victimless crime. I have information you don’t have. It’s like a VIP pass at a club, but it is illegal......

The markets have never been fair, and they will never be fair. There always is someone who will have a competitive edge. I don’t know why people expect the markets to be fair. It is about clout and access."

Finally, Sam Antar, former CFO of Crazie Eddie Inc., a New York electronics retailer that was in effect a criminal enterprise. Antar now teaches FBI agents how to spot white-collar crimes.

"... audits give retail investors a false sense of security. The term “audit,” as it is currently used, is a fraudulent term. It is meant to convey a sense of confidence in the financial reports. Audits are not designed to find fraud.....

The problem with insider trading is it is very difficult to police. Most of it is basically invisible. Meanwhile, the Securities and Exchange Commission basically abrogated its obligation to prosecute sophisticated financial fraud where companies, financial or nonfinancial, have manipulated their books and records."

I guess this sums it all up from the guys who should know: the markets aren't unfair to individual investors.

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