* Regulators, prosecutors seen boosting efforts
* Lawmakers expected to push on with regulatory reforms
By Dan Margolies
WASHINGTON, Dec 29 The year of the Ponzi scheme
will be followed by heightened regulation and more aggressive
prosecutions, experts say, as U.S. officials respond to past
Bernard Madoff's massive $65-billion fraud grabbed most of
the headlines in 2009, but other schemes that paid early
investors with money from new victims came to light as the
recession dried up new money and Madoff-inspired vigilance
boosted awareness. [ID:nN29191668]
As 2010 approaches, regulators and prosecutors are
scrambling to uncover and pursue more fraudsters, while
lawmakers seek to close regulatory gaps through legislation and
give enforcement officials more resources.
John Coffee, a law professor at Columbia University, said
the Securities and Exchange Commission became a significantly
tougher enforcement agency in 2009 and will probably issue lots
more criminal referrals next year.
"The brief era of light-touch regulation... is gone,
apparently," he said.
Big-time Ponzi cases brought by the SEC in 2009 included
one against Texas financier Allen Stanford, who was accused of
masterminding a $7-billion Ponzi scheme through his offshore
bank on the Caribbean island of Antigua. He was also indicted
on criminal charges and has pleaded not guilty.
Former SEC Chairman Harvey Pitt, who headed the agency from
2001 to 2003, said the scams underscored the failure of the
regulatory system to provide the checks and balances needed to
deter financial misconduct and to detect it early.
"I think this has been an incredibly difficult year," he
told Reuters Television. "We've seen a lot of financial
scandals, a great deal of misconduct, an economic meltdown and
a concerted push now for meaningful regulatory reform."
Coffee said civil and criminal cases in the pipeline will
result in monetary penalties in 2010 but probably will involve
"people lower in the food chain."
While the SEC filed 664 civil complaints in the past fiscal
year -- and has pledged to maintain an aggressive enforcement
regime in 2010 -- few major criminal actions related to the
financial meltdown were brought by the Justice Department --
and some it did bring fizzled out.
In November, a jury acquitted two former Bear Stearns hedge
fund managers of fraud in the first major prosecution arising
from the collapse of mortgage-backed securities.
And just a few weeks later, a U.S. judge tossed out
criminal and civil charges against Broadcom Corp's BRCM.O
co-founder Henry Nicholas III and former Chief Financial
Officer William Ruehle in a stock options backdating case.
The failed prosecutions do not bode well for other
high-level prosecutions or civil settlements, Coffee said.
"I'm fairly dubious we're going to see any CEOs. I don't
think the evidence has been developed."
For William Black, a white-collar criminologist at the
University of Missouri-Kansas City and a senior financial
regulator during the savings and loan crisis two decades ago,
the real scandal of 2009 was "the failure to even have an
indictment, much less a conviction, of any of the major senior
insiders at the nonprime lending specialists."
"And the second biggest scandal... would be the regulators
that didn't bark," he said. "You can't get effective criminal
prosecutions on any large scale against sophisticated frauds of
this nature without very effective regulators."
In a bid to restore investor confidence, President Obama in
May signed the Fraud Enforcement and Recovery Act, aimed at
cracking down on the kinds of mortgage fraud and predatory
lending that triggered the financial crisis.
Congress is expected to pass additional legislation early
in 2010 to overhaul the financial regulatory system and give
the SEC and other watchdog agencies more resources and
authority to police shadowy corners of the financial markets.
"I'd say there will be new people, more money and a sense
of urgency about needing to project a strong cop on the beat,
if only to increase and restore confidence in the markets,"
said David Martin, a securities lawyer at Covington & Burling.
(Reporting by Dan Margolies; Editing by Tim Dobbyn)