December 29, 2009 / 10:46 PM / in 8 years

FACTBOX: 10 big U.S. financial scandals of 2009

(Reuters) - The year of the Ponzi scheme will be followed by heightened regulation and more aggressive prosecutions, experts say. As 2010 approaches, regulators and prosecutors are scrambling to uncover and pursue more fraudsters, while lawmakers seek to close regulatory gaps and give officials more resources.

Here is a summary of 10 of 2009’s notorious financial scandals:

MADOFF: The top headline-grabbing financial scandal in 2009 was Bernard Madoff’s breathtaking $65 billion Ponzi scheme. While the fraud came to light in 2008, Madoff was sentenced to 150 years in prison in June. U.S. District Judge Denny Chin described Madoff’s crimes as “extraordinarily evil” and said that Madoff’s was “not merely a bloodless crime that takes place on paper but one that takes a staggering human toll.”

GALLEON & RAJARATNAM: Sri Lankan-born billionaire Raj Rajaratnam was the most prominent of some 20 individuals to face charges in the biggest U.S. hedge fund insider trading case on record. A grand jury accused the Galleon hedge fund founder of using a network of company insiders to tip him off to information that netted $20 million in illegal profits between 2006 and 2009. Rajaratnam pleaded not guilty to the charges in the case, which has ensnared employees of some of America’s best-known companies, including IBM.

UBS & TAXES: In February, Swiss banking giant UBS agreed to pay $780 million to settle criminal charges that it helped American clients evade taxes using concealed in offshore accounts. A U.S.-Swiss agreement reached in August forced the disclosure of 4,450 American holders of secret UBS accounts, opening cracks in Switzerland’s bank secrecy laws.


* In June, billionaire Texas financier Allen Stanford was indicted for an alleged $7 billion Ponzi scheme centered on fraudulent certificates of deposit issued by his offshore bank on the Caribbean island of Antigua. He has pleaded not guilty. The Miami Herald reported this week that U.S. authorities are investigating millions of dollars contributed by Stanford and his staff to lawmakers.


* With Madoff having set the bar so high -- or low -- for Ponzi schemes, a $3.65 billion scam might not sound like a lot. A federal jury found Minnesota businessman Tom Petters guilty this month of using one of his companies to bilk investors who thought he was using their money to buy consumer electronics for resale to retailers such as Costco Wholesale Corp.


* Stung by a federal judge’s rejection of a $33 million settlement with Bank of America Corp, the Securities and Exchange Commission in October demanded a jury trial on its claims that the bank misled shareholders about $3.6 billion in bonuses paid to Merrill Lynch & Co employees before the companies merged on January 1. U.S. District Judge Jed Rakoff was disturbed that the SEC did not require the bank to disclose the names of executives and lawyers who vetted the bonuses.


* In June, the SEC charged Angelo Mozilo, the former chief executive of mortgage lender Countrywide Financial, and two other former Countrywide executives with fraud for allegedly misleading investors about the quality of Countrywide’s loans, including tens of billions of dollars of risky subprime and adjustable-rate mortgages. Countrywide had been the largest U.S. mortgage lender before being sold to Bank of America.


* The financial products unit of insurance giant American International Group Inc became the poster child for Wall Street crassness when it was revealed in March that its employees were to get $165 million in retention bonuses after taxpayers pledged up to $180 billion to keep AIG afloat. U.S. pay czar Kenneth Feinberg later vowed to limit bonuses at the unit, which caused most of the insurer’s losses and threatened the global financial system.


* Banks continued to strike deals with state securities regulators over their marketing of auction-rate securities as safe and liquid investments. The market for the securities froze in February 2008 following the credit crunch, leaving thousands of investors unable to tap their accounts. The latest to cut a deal was Wells Fargo Investments, a unit of Wells Fargo, which agreed in November to repay clients $1.3 billion.


* In November, two former Bear Stearns hedge fund managers were found not guilty of fraud in the first major prosecution stemming from the implosion of a major financial firm. Ralph Cioffi and Matthew Tannin had managed two funds consisting mainly of mortgage-backed securities. When the funds collapsed in 2007, investors lost $1.6 billion. Despite the setback, the SEC said it would proceed with its civil case. (Reporting by Dan Margolies; Editing by Tim Dobbyn)

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