4 ms·

>It actually gave me the impression that avoiding the ire of the SEC is relatively easy if you set your mind to committing fraud without getting caught. I assu

by kahnjw 9y ago

>It actually gave me the impression that avoiding the ire of the SEC is relatively easy if you set your mind to committing fraud without getting caught. I assure you, it is only possible to avoid risk if you're a small fish and extremely careful. For instance, you have a good chance of getting away with skimming a neighborhood stock fund you setup. If you are managing or receiving millions of dollars in investment, you can bet anything fishy will show up on the SECs radar at some point. Most people with large sums of money don't get where they are by being stupid with it, and if they are the victims of fraud, they know where to go. While the SEC can't bring criminal charges, they have top notch investigators. Once they smell the fish, they won't stop until the entire scheme is unraveled. I can't speak directly to the observation you made, but I personally know a high up SEC investigator, and he obsesses about the most minute details of the cases he works on and lives to take on the toughest cases possible. My guess is distribution of cases the SEC prosecutes are very heavy tailed. There are many dumb cases that are very easy to find and prosecute that involve 10s to 100s of thousands of dollars. Think skimming, ponzi schemes etc. The more sophisticated and larger cases are also more risky (for the fraudster), harder to execute, and much more rare. That might explain your observations.

ta76567656 9y ago
What about Madoff though? In 1999, financial analyst Harry Markopolos had informed the SEC that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. According to Markopolos, it took him four minutes to conclude that Madoff's numbers did not add up, and another minute to suspect they were likely fraudulent.[73] After four hours of failed attempts to replicate Madoff's numbers, Markopolos believed he had mathematically proved Madoff was a fraud.[74] He was ignored by the SEC's Boston office in 2000 and 2001, as well as by Meaghan Cheung at the SEC's New York office in 2005 and 2007 when he presented further evidence. He has since co-authored a book with Gaytri Kachroo (the leader of his legal team) titled No One Would Listen. The book details the frustrating efforts he and his legal team made over a ten-year period to alert the government, the industry, and the press about Madoff's fraud. https://en.wikipedia.org/wiki/Bernard_Madoff#Investment_scandal https://en.wikipedia.org/wiki/Bernard_Madoff#Investment_scan...
- kahnjw 9y ago
  1. A sufficiently large distribution will contain outliers. 2. Where is Madoff now?
  - ta76567656 9y ago
    1. Enron? WorldCom? The entire real estate bubble collapse that blindsided the country, including the SEC and other regulators? 2. Madoff was caught because his scheme fell apart, not due to any SEC or other government action.
    - kahnjw 9y ago
      Maybe you didn't carefully read my original post. I'm not claiming the SEC has a perfect record in finding frauds before the hurt anyone (that would be nearly impossible). I am pointing out that getting away with fraud is extremely difficult. Eventually, you'll get caught, the SEC will uncover everything, and you'll be broke forever. From op: >...avoiding the ire of the SEC is relatively easy if you set your mind to committing fraud without getting caught. This statement is mostly what I was responding to. Here is a thought experiment. For the sake of this experiment lets say our economy is perfectly competitive. If all an entity had to do to get away with fraud was "set your mind to not getting caught," then every entity that participated in the economy would be committing fraud because it is in their best interest. That sounds wrong, probably because it is. White collar criminals don't plan on getting caught, they do everything they can to get away with their crimes. To me, that qualifies as setting their mind to not getting caught. Well, they get caught anyway. The companies you bring up (enron, worldcom, madoff) are outliers in the world of securities fraud. they achieved unprecedented levels of success and then failure. Using these cases are counterpoints to an argument that financial crimes are hard to get away with seems silly to me. After all, none of these frauds were successful in the end, instead, people ended up in prison.
      - zaphos 9y ago
        Even if it's relatively easy to not get caught, you can't be sure exactly how easy it is, and the downside is catastrophic. So no, I don't think every entity in your thought experiment would be committing fraud. Only ones that knew for sure exactly how easy it is and that they would not get caught for sure. And those ones, by definition, would never be caught so the public would never know ...
c3534l 9y ago
The counterpoint to that is Bernie Madoff, who was a big fish and careless and by the time he was caught there was an orgy of evidence against him. I think it has more to do with low-hanging fruit than anything else. That doesn't mean SEC investigators aren't diligent and hardworking, but you need to leave behind evidence. Very few schemes struck me as particularly creative frauds, it's like the most obvious stuff you can think of: either just pocketing money or lying to investors like a dumbass, or simple schemes involving capitalizing expenses, or over-payment scams. No Repo 105 or any sophisticated Enron stuff like that. It's like if you studied cyber security in school, and all the big fish are falling because they set their password to hunter5 or got phished.
- kahnjw 9y ago
  What I'm hearing is "avoiding the ire of the SEC is relatively easy" because "Bernie Madoff." IMO that is naive. He is an outlier. Sort of like saying committing mass acts of terrorism is easy because 911.
  - c3534l 9y ago
    Also, actual SEC filings. But fine, here's a paper: https://business.illinois.edu/accountancy/wp-content/uploads/sites/12/2014/11/Audit-2010-Dyck-Morse-Zingales.pdf https://business.illinois.edu/accountancy/wp-content/uploads... I can't find it now, but I do recall the SEC itself putting the number of frauds they uncovered in the low single digits. I might ask my SEC friend himself what percentage of the iceberg he thinks is uncovered.
    - kahnjw 9y ago
      I have asked him this. Paraphrasing his words: eventually, the SEC investigates virtually all securities frauds. Some cases are dropped if the act was criminal in nature and the FBI or law enforcement wants it, other cases are dropped if the suspect is deceased or fled, and of course there are cases where leads go cold and the case is back burnered. The point is, fraud is risky, and it isn't easy. You basically have to be willing to give up your life as you know it. Sometimes I wonder whether fraudsters have an internal dialogue about whether it is worth the risk. And for the fraudsters who aren't psychopaths the guilt of defrauding friends and people who trust you must be enormous. Sounds like a stressful day job that I won't ever be entertaining.

by kahnjw 9y ago

ta76567656 9y ago

What about Madoff though? In 1999, financial analyst Harry Markopolos had informed the SEC that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. According to Markopolos, it took him four minutes to conclude that Madoff's numbers did not add up, and another minute to suspect they were likely fraudulent.[73] After four hours of failed attempts to replicate Madoff's numbers, Markopolos believed he had mathematically proved Madoff was a fraud.[74] He was ignored by the SEC's Boston office in 2000 and 2001, as well as by Meaghan Cheung at the SEC's New York office in 2005 and 2007 when he presented further evidence. He has since co-authored a book with Gaytri Kachroo (the leader of his legal team) titled No One Would Listen. The book details the frustrating efforts he and his legal team made over a ten-year period to alert the government, the industry, and the press about Madoff's fraud. https://en.wikipedia.org/wiki/Bernard_Madoff#Investment_scandal https://en.wikipedia.org/wiki/Bernard_Madoff#Investment_scan...

kahnjw 9y ago
1. A sufficiently large distribution will contain outliers. 2. Where is Madoff now?
- ta76567656 9y ago
  1. Enron? WorldCom? The entire real estate bubble collapse that blindsided the country, including the SEC and other regulators? 2. Madoff was caught because his scheme fell apart, not due to any SEC or other government action.
  - kahnjw 9y ago
    Maybe you didn't carefully read my original post. I'm not claiming the SEC has a perfect record in finding frauds before the hurt anyone (that would be nearly impossible). I am pointing out that getting away with fraud is extremely difficult. Eventually, you'll get caught, the SEC will uncover everything, and you'll be broke forever. From op: >...avoiding the ire of the SEC is relatively easy if you set your mind to committing fraud without getting caught. This statement is mostly what I was responding to. Here is a thought experiment. For the sake of this experiment lets say our economy is perfectly competitive. If all an entity had to do to get away with fraud was "set your mind to not getting caught," then every entity that participated in the economy would be committing fraud because it is in their best interest. That sounds wrong, probably because it is. White collar criminals don't plan on getting caught, they do everything they can to get away with their crimes. To me, that qualifies as setting their mind to not getting caught. Well, they get caught anyway. The companies you bring up (enron, worldcom, madoff) are outliers in the world of securities fraud. they achieved unprecedented levels of success and then failure. Using these cases are counterpoints to an argument that financial crimes are hard to get away with seems silly to me. After all, none of these frauds were successful in the end, instead, people ended up in prison.
    - zaphos 9y ago
      Even if it's relatively easy to not get caught, you can't be sure exactly how easy it is, and the downside is catastrophic. So no, I don't think every entity in your thought experiment would be committing fraud. Only ones that knew for sure exactly how easy it is and that they would not get caught for sure. And those ones, by definition, would never be caught so the public would never know ...

c3534l 9y ago

The counterpoint to that is Bernie Madoff, who was a big fish and careless and by the time he was caught there was an orgy of evidence against him. I think it has more to do with low-hanging fruit than anything else. That doesn't mean SEC investigators aren't diligent and hardworking, but you need to leave behind evidence. Very few schemes struck me as particularly creative frauds, it's like the most obvious stuff you can think of: either just pocketing money or lying to investors like a dumbass, or simple schemes involving capitalizing expenses, or over-payment scams. No Repo 105 or any sophisticated Enron stuff like that. It's like if you studied cyber security in school, and all the big fish are falling because they set their password to hunter5 or got phished.

kahnjw 9y ago
What I'm hearing is "avoiding the ire of the SEC is relatively easy" because "Bernie Madoff." IMO that is naive. He is an outlier. Sort of like saying committing mass acts of terrorism is easy because 911.
- c3534l 9y ago
  Also, actual SEC filings. But fine, here's a paper: https://business.illinois.edu/accountancy/wp-content/uploads/sites/12/2014/11/Audit-2010-Dyck-Morse-Zingales.pdf https://business.illinois.edu/accountancy/wp-content/uploads... I can't find it now, but I do recall the SEC itself putting the number of frauds they uncovered in the low single digits. I might ask my SEC friend himself what percentage of the iceberg he thinks is uncovered.
  - kahnjw 9y ago
    I have asked him this. Paraphrasing his words: eventually, the SEC investigates virtually all securities frauds. Some cases are dropped if the act was criminal in nature and the FBI or law enforcement wants it, other cases are dropped if the suspect is deceased or fled, and of course there are cases where leads go cold and the case is back burnered. The point is, fraud is risky, and it isn't easy. You basically have to be willing to give up your life as you know it. Sometimes I wonder whether fraudsters have an internal dialogue about whether it is worth the risk. And for the fraudsters who aren't psychopaths the guilt of defrauding friends and people who trust you must be enormous. Sounds like a stressful day job that I won't ever be entertaining.