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FBI Releases Its Financial Fraud Report Highlighting Corporate Fraud Cases, As Well As An Increase In Securities And Commodities Fraud Cases

Posted in Criminal Charges in Securities Cases, Trends

On Monday, February 27, 2012, the FBI released its latest Financial Crimes Report to the Public, which provides a snapshot of the issues on which it has focused. The Bureau stated that in fiscal year 2011, corporate fraud cases resulted in 242 indictments or informations and 241 convictions. During the same period, the FBI’s securities/commodities fraud cases resulted in 520 indictments or informations and 394 convictions.  According to the Bureau’s Blog entry (available on DOJ’s website here), the report covers the period from October 1, 2009 to September 30, 2011. It discusses the various fraud schemes, outlines emerging trends, and describes what the FBI has accomplished in these cases.

The FBI states that corporate fraud cases are "[o]ne of the Bureau’s highest criminal priorities." It has "focused its efforts on cases which involve accounting schemes, self-dealing by corporate executives, and obstruction of justice," but noted that the "majority of corporate fraud cases pursued by the FBI involve accounting schemes designed to deceive investors, auditors, and analysts about the true financial condition of a corporation or business entity." With respect to self-dealing by corporate insiders, the FBI highlighted activities such as insider trading, kickbacks, the misuse of corporate property for personal gain, and tax violations related to self-dealing. The Bureau’s successes in this are included cases involving the subprime-related corporate fraud investigation regarding Beazer Homes (the SEC’s related case is discussed here), a subprime-related conspiracy committed by senior executives at Colonial Bank and Taylor, Bean & Whitaker (here), and the Galleon Group insider trading cases (here).

The FBI identified an increase in securities and commodities fraud cases, which the Bureau said were the result of investors looking for alternative investment opportunities in the often volatile market. The FBI also emphasized "the development of new schemes and trends," which includes "securities market manipulation via cyber intrusion, the increase in commodities fraud, the continued rise of Ponzi schemes, and foreign-based reverse merger market manipulation schemes." The Bureau went as far as to identify various types as investment fraud schemes, including: affinity fraud (where the perpetrators and victim share similarities, often religion or ethnic identity), pyramid schemes, Prime Bank investment fraud, advance fee fraud, promissory notes (issued by little-known or nonexistent companies), Foreign Currency Exchange or "Forex" fraud, and precious metals fraud. The FBI also discussed market manipulation or "pump-and-dump," schemes, as well as broker embezzlement and late-day trading.

The report also discusses other topics, such health care fraud, mortgage fraud, financial institution fraud. The Report also offers tips on how the public can protect itself from the financial crimes described in the Report.