Crime & Federalism

Every lawyer I know who litigates against the SEC uses the same cliche, "It's like taking candy from a baby, Mike."  A new book discusses how SEC younglings treated Bernie Madoff: 

Stanford International Bank was a Ponzi scheme.  The SEC investigated Stanford International Bank for three (count 'em, three!) years.  Nothing happened.  Finally some bloggers decided to do some research. 

Bloggers get results:

HOUSTON (Reuters) - Federal agents entered the Houston office of Stanford Financial Group on Tuesday, according to a Reuters eyewitness on the scene.

About 15 people, some wearing jackets identifying them as U.S. marshals, entered the lobby of Stanford's office in the Houston Galleria area, the eyewitness said.

Houston-based Stanford Financial Group, which says it oversees more than $50 billion of assets, is being investigated by U.S. regulators, according to a person familiar with the matter.

More here.  The Keystone Cops at the SEC, after epically failing for three years, are finally "stopping" this fraud:

Stopping what it called a “massive ongoing fraud,” the Securities and Exchange Commission on Tuesday accused Robert Allen Stanford, the chief of the Stanford Financial Group, of fraud in the sale of about $8 billion of high-yielding certificates of deposit held in the firm’s bank in Antigua. Also named in the suit were two other executives and some affiliates of the financial group.

What a joke.  Once the work hit the streets that Stanford Financial Group was a scam, people demanded the return of their money.  The free market killed Stanford.  The SEC has stopped nothing. 

It took bloggers less than 3 weeks to do what the SEC couldn't do in 3 years.  It's time to abolish the SEC.

First Madoff.  Then Agape World.  Now Stanford International Bank?  Details here.  UPDATE: Tom Kirkendall has an interesting post entitled, "Houston's Madoff?"  Stanford International Bank is indeed looking like Madoff Investments.

Where was the SEC?  If you owned the SEC, would you keep it in business?  Wouldn't you at least fire the executives? 

This is the best post about blogging you'll read all year:

If Harry Markopolos had taken all of his evidence about Bernie Madoff and put it on a blog, instead of submitting it to the SEC, there's a good chance that would have been the end of Madoff right there. All the time Markopolos was talking to the WSJ, trying to get them to run a story about Madoff, would have been much better spent setting up an anonymous Wordpress blog and just putting the information and analysis out there himself.

UPDATE: There's also this great comment:

I agree - A success story in the same general category is durhamwonderland.blogspot.com. It cataloged the brouhaha between the Duke lacrosse team and Mike Nifong.

The mainstream media (including the soon-to-be bankrupt New York Times) was willing to sacrifice three innocent boys at the altar of Political Correctness.  K.C. Johnson stopped the human sacrifice.

Entrepreneur.com recently wrote a favorable profile on Agape World, which has now been revealed as a Ponzi scheme. 

Does Entrepreneur.com even investigate companies before giving them the Hot 100 stamp of approval?  How many investors did Agape fleece because of Entrepreneur's favorable press coverage?

Here is the link to the favorable profile.  I wonder if Entrepreneur.com will admit to its negligence; or simply disappear the story from the Internet?   For the truth's sake, I took a screen shot.

A Long Island, New York businessman was arrested for perpetrating a $380 million Ponzi scheme.  I did some research, and came across some interesting information.  People were on message boards asking about Agape World.  Here was one (unedited) post:

Has anyone invested with Agape World Inc? They provide bridge loans, and offer investors 13-14% returns.?
When my brother was telling me about it, it sounded kinda fishy and risky.
What also turned me off is that the guy who told my brother about it told him that he's made
1mil just investing. He also mentioned that he gets a percentage out of people he signs up.
Sounds like a pyramid or mlm, scheme whatever you want to call it.

Can anyone provide any info on this company. I've done searches on the web and can't find anything.
The only info I've found has been in yahoo answers and those posts could've been posted by someone from
Agape.

As is the case with most Ponzi schemes, investors let their greed get the best of them.  If you read the responses to the post, however, you'll note that people in the Internet were telling the poster to stay away from Agape.  This is further proof that freedom of information, rather than the SEC, is the best defense against scammers.

Interestingly, people were shilling for Agape World on online message boards.  Here was a post from another message board:

I know the guy Brad who is one of the fund managers. They are very good but picky. They only fund 50-55 deals a year. I work with them on the other side raising money for the bridge loans. They they like your deal it will fund! They are the real deal!

That poster was, of course, attacked by skeptical posters.  I wonder, though, whether that poster was an overly enthusiastic victim, or a co-conspirator?  I hope authorities, unlike Agape's investors, do their due diligence.  This means researching message boards for clues into the scope of Agape.  Start issuing subpoenas to determine who said what about Agape - and when.

Another couple of dozen people lost everything:

A New York businessman sought by federal authorities in connection with a suspected $380 million Ponzi scheme has been arrested and charged with one count of mail fraud.

The businessman, Nicholas Cosmo, founder of Agape World in Hauppauge, surrendered at the Long Island Rail Road train station in Hicksville, N.Y.

He was taken in handcuffs to the United States Postal Inspection Service in Hicksville Monday night.

Who here has ever had to worry about paying bills?  I have.  What sort of feeling is that? 

Imagine we could take that feeling and put it into a pill.  We then forced people to take that pill.  The difference is that, with our special pill, the pain would never go away.  Until the person died, he'd feel that misery of wondering, "Will I be able to afford my electric bill?  Will I be able to eat this month?  Will I be able to pay my medical bills?"

If we gave that pill to thousands of people, how many years in prison would we deserve? 

According to a Washington Post columnist, not many:

Wall Street's elite are dropping as fast as the financial markets they work in. As investors sort through the trail of financial wreckage left by Bernard L. Madoff, arrested for a $50 billion Ponzi scheme that may be the largest ever, federal prosecutors are preparing to charge him formally with crimes that could land him in prison for the rest of his life. In June, federal prosecutors in Brooklyn, N.Y., charged former Bear Stearns hedge-fund managers Ralph Cioffi and Matthew Tannin with lying to investors about their funds' true value and prospects. And in September, the FBI revealed that it is investigating the people who ran Fannie Mae, Freddie Mac, Lehman Brothers and AIG, all of which were casualties of this year's market meltdown.

Given today's economic climate, it's hard to feel any pity for these guys. Their reprehensible conduct has crippled the nation's financial system and will cost investors and taxpayers billions. But if you believe that the punishment should fit the crime, a bit of sympathy may be what they deserve. Really.

We punish criminals for the psychological damage they do to victims.  It's possible to rape someone without physically harming him or her; it's the damage to their psyche that we punish.  Some people never get over that stuff.  When you ruin a life, you do serious time.  And that's how it should be.

How many lives has Madoff ruined?  And we're not just talking about psyches, here, either.

If you're old and can't work, how will you pay your medical bills?  If you've saved enough money, you'd be able to afford drugs and healthy food that will extend your life by years.  If you lost your money, you'd die years sooner.

If I went around murdering old people, how many years in prison should I face?  Just a few? After all, they're almost dead, anyway.  Right?

Few would agree.  Yet can anyone rationally argue that Madoff has not shaved years off of numerous lives?  No. 

So the issue isn't whether Madoff is a killer.  He is.  So he should be punished as we'd punish any mass murderer.  Moreover, we need to deter others from killing old people.

Later in the column the author shows an astounding ignorance of criminals.  He writes:

For example, a relatively short prison term -- years, not decades -- can be enough to deter prospective financial fraudsters.

I have a conscience.  You probably do, too.  If we didn't, most of us would gladly defraud people out of millions - not billions - of dollars for five years in federal prison.  For a billion dollars, I would gladly spend 5 years in federal prison.  I may even agree to ten.  Federal prisons are full of drug dealers and fraudsters.  Gang rapes are usually the stuff of state prison.  I'd come out older, but I'd never work another day.  Plus, I could probably read a book each day.

If you put the choice to most people, many would take a guarantee of prison if it meant they could make millions of dollars.  With criminals, there is no guarantee they will get caught.  Most get away with it.

So why is it rational to assume that someone who isn't guaranteed prison would not cheat people out of millions?  It's not.  Moreover, once you realize that Wall Street is loaded with the vilest people you'll ever meet, lengthy prison sentences are the only answer.

If it were up to me, every case against Wall Street crooks would be filed in state court.  You couldn't pay me any amount of money to do prison time in New York state prison.  Imagine, then, the deterrence state prison would have on Wall Streeters.