Federal and state officials are patting themselves on the back for Operation Broken Trust, a nationwide effort to target investment fraud schemes.
The operation resulted in the filing of 231 criminal cases and 60 civil enforcement actions. Many people got jail time, some as long as 20 years.
Operation Broken Trust was about catching bad guys, but it was also an attempt to prove to the public that it is not just the big-name Wall Street firms and bankers that have snookered investors and consumers.
"Fraud by well-known companies or high-profile executives gets the biggest headlines, but other scams are equally devastating to hardworking families and retirees," said Robert Khuzami, director of the Securities and Exchange Commission's Division of Enforcement. "Victims want justice and don't much care who the fraudster is or how unique the fraud."
I want to feel excited about the announcement, but I can't shake the feeling more should be done to prevent financial fraud before people lose money.
It's commendable that authorities are nailing some of the scoundrels who swindle people in some of the ugliest ways. One scheme victimized deaf investors. But even after securing convictions, victims rarely get back much -- if any -- of their money. By the time law enforcement officials catch up with the criminals, they've spent the money.
Under Operation Broken Trust, the authorities said the estimated losses in the criminal cases totaled nearly $8.3 billion. In the civil actions the figure was $2.1 billion. This particular sweep found more than 120,000 victims.
President Obama established the federal Financial Fraud Enforcement Task Force, which ran Operation Broken Trust, with the intent of preventing another major financial crisis. Everybody was so pleased with themselves that more than 20 federal agencies, 94 U.S. attorneys' offices plus state and local partners had joined forces to nab people who dared to cheat naive investors.
Khuzami said Operation Broken Trust showed that law enforcement officials are going to pursue fraud wherever it occurs. To prove this point, officials bundled all these cases together to show us they are doing something to protect investors. It all sounds proactive. However, in many cases the fraud didn't start recently. Some of the scams began well before the latest financial scandals.
Attorney General Eric Holder said the arrests and convictions send a strong message. "Cheating investors out of their earnings and savings is no longer a safe business plan," he noted. "We will use every tool at our disposal to find you, to stop you, and to bring you to justice."
Pardon my skepticism, but I doubt any criminal was shaken by the big announcement. Despite all the law enforcement efforts, proactive protection is sadly still up to investors.
Holder was right when he said investors have to be alert for all kinds of financial fraud and take appropriate action to protect themselves.
One of the biggest ways to do this is to check out a promoter's claims. Sadly, scammers know and rely on the fact that many of their victims never bother to do any investigation before they invest. In some cases, a quick check to see if someone is licensed to sell securities in your state will uncover a con. If someone says your investment will be low risk but with a high return, run. That's a huge red flag that you are about to be scammed.
Last spring, the Financial Fraud Enforcement Task Force launched StopFraud.gov. But have you even heard about the site?
StopFraud.gov is a roundup of resources from a wide range of federal agencies with anti-fraud tips for consumers. There's also a link for people to report various fraudulent activity from identity theft to mortgage scams to retirement schemes.
While the website is OK, more money and personnel resources need to be funneled into holding workshops for investors where they live and socialize. Advertise more. After all, that's how the promoters reach people.
Although criminal prosecution is crucial, busting the scammers after the fact just isn't enough. The victims are still left with their losses.