"The perception that white-collar crime is victimless has been changing since Enron." Joe Borg.
by Lawrence C. Melton, Esq., [email protected]
THE HAYES LAW FIRM, www.dhayeslaw.com
According to state enforcement officials, there has been a definite increase in the penalties for securities fraud cases all across the country. Recent corporate scandals, such as Enron and Worldcom, and high-profile insider trading convictions, such as the one involving Martha Stewart, have drawn attention to securities fraud and white collar crime. Joe Borg, director of the Alabama Securities Commission in Montgomery and president of NASAA said "The perception that white-collar crime is victimless has been changing since Enron." See Hansard, Sarah, Judges cracking down on securities fraud, InvestmentNews, June 18, 2007.
Since 2002, there has been an upward trend in the number of convictions and the length of sentences for securities fraud violators. The figures are not yet available for 2006 and 2007, but many speculate a continuation of the upward trend. The North American Securities Administration Association compiled the following statistics:
3,635 administrative, civil and criminal enforcement actions were taken by state securities regulators in 2004-05. That was a 23% increase from the 2,964 actions taken during the 2002-03 period. The number of criminal convictions rose some 32% to 351 in 2004-05, from an estimated 200 the year before.
See Hansard, Sarah, Judges cracking down on securities fraud, InvestmentNews, June 18, 2007.
Colorado: The trend is visible in Colorado, as it is all across the country. Fred Joseph, commissioner of the Colorado Division of Securities explained:
The judicial system is more sensitized to the issue now. Before, the guy walking into a 7-Eleven with a gun and walking out with $400 would be put away for 10 or 15 years, while the guy who stole $1 million would be sentenced to four years or maybe two years probation. All of a sudden judges just became more aware that this is a crime. Id.
Texas: Judge Barbara Lynn of the U.S. District Court for the Northern District of Texas in Dallas recently sentenced Gregory Sester to 40 years in jail for securities fraud. Mr. Sester, his sister, Deborah, and son, Joshua implemented a Ponzi scheme that scammed members of evangelical Christian communities in Texas, California, Florida and Ontario of $58 million. Denise Crawford of the Texas Securities Commission said: "Baby boomer judges really don't like securities fraud. It's showing in the length of sentences handed down by state and federal courts in Texas, which is good: They're supposed to have a deterrent effect." Id.
"A Ponzi scheme is a term generally used to describe an investment scheme which is not really supported by an underlying business venture. The investors are paid profits from the Principal sums paid in by newly attracted investors. Usually those who invest in the scheme are promised large returns on their principal investments. The initial investors are indeed paid the sizable promised returns. This attracts additional investors. More and more investors need to be attracted into the scheme so that the growing number of investors on top can get paid. The person who runs this scheme typically uses some of the money invested for personal use. Usually the pyramid collapses and most investors not only do not get paid their profits, but also lose their principal investments." In re Randy, 189 B.R. 425, 437 n.17 (Bkrtcy N.D. Ill. 1995).
Pennsylvania: On May 26, 2007, a federal district judge in Pittsburgh sentenced former registered representative Jamin Epstein of Kovack Securities to 41 months in prison and $214,000 in restitution for unauthorized withdrawals from variable annuities he had sold.
North Carolina: In April of 2007, a North Carolina court sentenced financial adviser Joe Jones to 20 years in state prison for securities fraud. Jones had defrauded hundreds of victims of more that $8.6 million dollars in connection with a Ponzi scheme.
New Mexico: On May 3, 2007, a New Mexico state district court sentenced Michael Robert Soutar to 18 years for securities fraud. He had concealed prior criminal convictions from investors. Bruce Kohl, director of the regulation and securities division in New Mexico says the harsh sentences are partly due to sympathy for elderly victims.
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