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<DIV><FONT size=2>
<DIV class=timestamp><EM><STRONG><FONT size=5>The New York
Times</FONT></STRONG></EM>:</DIV>
<DIV class=timestamp> </DIV>
<DIV class=timestamp>December 25, 2008</DIV>
<DIV class=kicker></DIV>
<H1><NYT_HEADLINE type=" " version="1.0">Federal Cases of Stock Fraud Drop
Sharply </NYT_HEADLINE></H1><NYT_BYLINE type=" " version="1.0">
<DIV class=byline>By <A title="More Articles by Eric Lichtblau"
href="http://topics.nytimes.com/top/reference/timestopics/people/l/eric_lichtblau/index.html?inline=nyt-per">ERIC
LICHTBLAU</A></DIV></NYT_BYLINE><NYT_TEXT>
<DIV id=articleBody>
<P>WASHINGTON — Federal officials are bringing far fewer prosecutions as a
result of fraudulent stock schemes than they did eight years ago, according to
new data, raising further questions about whether the Bush administration has
been too lax in policing Wall Street.</P>
<P>Legal and financial experts say that a loosening of enforcement measures,
cutbacks in staffing at the Securities and Exchange Commission, and a shift in
resources toward terrorism at the <A
title="More articles about the Federal Bureau of Investigation."
href="http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_bureau_of_investigation/index.html?inline=nyt-org">F.B.I.</A>
have combined to make the federal government something of a paper tiger in
investigating securities crimes.</P>
<P>At a time when the financial news is being dominated by the $50 billion <A
title="More articles about Ponzi schemes."
href="http://topics.nytimes.com/top/reference/timestopics/subjects/f/frauds_and_swindling/ponzi_schemes/index.html?inline=nyt-classifier">Ponzi
scheme</A> that <A title="More articles about Bernard L. Madoff."
href="http://topics.nytimes.com/top/reference/timestopics/people/m/bernard_l_madoff/index.html?inline=nyt-per">Bernard
L. Madoff</A> is accused of running, federal officials are on pace this year to
bring the fewest prosecutions for securities fraud since at least 1991,
according to the data, compiled by a <A
title="More articles about Syracuse University"
href="http://topics.nytimes.com/top/reference/timestopics/organizations/s/syracuse_university/index.html?inline=nyt-org">Syracuse
University</A> research group using Justice Department figures. </P>
<P>There were 133 prosecutions for securities fraud in the first 11 months of
this fiscal year. That is down from 437 cases in 2000 and from a high of 513
cases in 2002, when Wall Street scandals from <A
title="More articles about Enron."
href="http://topics.nytimes.com/top/news/business/companies/enron/index.html?inline=nyt-org">Enron</A>
to WorldCom led to a crackdown on corporate crime, the data showed. </P>
<P>At the S.E.C., agency investigations that led to Justice Department
prosecutions for securities fraud dropped from 69 in 2000 to just 9 in 2007, a
decline of 87 percent, the data showed.</P>
<P>Federal officials took issue with some of the data compiled by the Syracuse
group and said that they had maintained a strong commitment to rooting out fraud
and abuse in the stock markets. While the S.E.C. could not provide numbers of
its own on criminal cases arising from its investigations, Scott Friedstad, the
deputy director of enforcement at the commission, said the numbers did not
reflect “the reality that I see on the ground.”</P>
<P>“We are as committed as ever to vigorous enforcement efforts,” he said. </P>
<P>But a number of investor advocates and securities lawyers who are critical of
the S.E.C.’s recent performance say they will be anxiously watching the incoming
Obama administration to see what steps it may take to restore the agency’s
battered credibility and re-establish it as a watchdog against corporate abuse.
</P>
<P>President-elect <A title="More articles about Barack Obama"
href="http://topics.nytimes.com/top/reference/timestopics/people/o/barack_obama/index.html?inline=nyt-per">Barack
Obama</A> has named <A title="More articles about Mary L. Schapiro."
href="http://topics.nytimes.com/top/reference/timestopics/people/s/mary_l_schapiro/index.html?inline=nyt-per">Mary
Schapiro</A>, head of the Financial Services Regulatory Authority, to lead the
S.E.C, and he has promised an overhaul of the agency and other financial
regulatory offices to provide tougher oversight. </P>
<P>“I think the S.E.C. has completely fallen down on the job,” said Jacob H.
Zamansky, a New York lawyer who specializes in representing investors who have
lost money in fraud cases. “They’re more interested in protecting Wall Street
than protecting investors. The new administration has to do a complete overhaul
of the S.E.C.”</P>
<P>The F.B.I., which frequently investigates stock fraud cases either on its own
or in partnership with the S.E.C., has also had a sharp decline in the number of
white-collar cases it has brought in the last several years — partly a
reflection of a huge shift in staffing and resources to counterterrorism
operations since the Sept. 11 attacks, officials said.</P>
<P>David Burnham, co-director of the Syracuse research group, which is known as
the Transactional Records Access Clearinghouse, or TRAC, said the decline in
stock fraud prosecutions growing out of the F.B.I. “really is no surprise. It’s
a reflection of a choice that was made right after 9-11 to move investigators
into terrorism, and this is the cost of that. </P>
<P>“Maybe it’s the correct call,” he added, “but with both the F.B.I. and the
S.E.C., the federal government is really the only place that does white-collar
crime on a systematic basis.” </P>
<P>The economic collapse of the last few months has brought intense scrutiny of
the S.E.C. amid accusations that it failed to foresee and prevent the collapse
of one major financial institution after another as a result of risky
overinvestment in mortgage-backed securities.</P>
<P>“As an overheated market needed a strong referee to rein in dangerously risky
behavior, the commission too often remained on the sidelines,” <A
title="More articles about Arthur Levitt Jr.."
href="http://topics.nytimes.com/top/reference/timestopics/people/l/arthur_jr_levitt/index.html?inline=nyt-per">Arthur
Levitt</A>, who served as chairman of the S.E.C. during the Clinton
administration, told the Senate Banking Committee in October.</P>
<P>The Madoff scandal, now under investigation by federal prosecutors in
Manhattan, has ratcheted up criticism even further.</P>
<P><A title="More articles about Christopher Cox."
href="http://topics.nytimes.com/top/reference/timestopics/people/c/christopher_cox/index.html?inline=nyt-per">Christopher
Cox</A>, chairman of the S.E.C., ordered an internal investigation last week
into what he said were the agency’s “multiple failures” to investigate credible
allegations of wrongdoing by Mr. Madoff.</P>
<P>The S.E.C.’s own data suggests that the agency has put increasing emphasis on
using non-criminal means, like civil fines and what are known as deferred
prosecution agreements, in dealing with allegations of wrongdoing. The number of
S.E.C. cases handled through civil or administrative remedies has grown from 503
in 2000 to 636 this year.</P>
<P>Critics of the S.E.C. also attribute the decline in criminal cases to
shortages in staffing and resources in the agency’s investigative units, policy
changes that have reduced the authority of investigators to pursue cases on
their own, and a “revolving door” phenomenon that has led investigators to leave
the agency for high-paying jobs in the industry that they once helped to
monitor. </P>
<P>“It’s been awful,” Sean Coffey, a former fraud prosecutor in New York who now
represents investors in securities litigation, said of the S.E.C.’s recent
enforcement record. The agency has “neutered the ability of the enforcement
staff to be as proactive as they could be. It’s hard to square the motto of
investor advocate with the way they’ve performed the last eight years.”</P>
<P>Mr. Coffey said he believed the declining number of stock fraud prosecutions
is partly a result of the backlash the Bush administration experienced after its
aggressive pursuit of corporate crime following the Enron collapse in 2002,
which led to the creation of a national task force on corporate wrongdoing.</P>
<P>In the last few years, he said, “the administration has been sending the
message that we’re going to loosen the binds on the market to compete in the
global marketplace, and they’ve pulled the throttle back on prosecutions because
it wasn’t politically necessary
anymore.”</P></DIV></NYT_TEXT></FONT></DIV></BODY></HTML>