I found a fascinating report on stock fraud tonight. It was a report from the United States Senate, Committee on Governmental Affairs, titled "Fraud in the Micro-capital Markets Including Stock Fraud", from a Senate hearing held on Sept. 22, 1997. I found this item in the government documents section of the local university -- the shelf number is Y.4G 74/9:S.HRG. 105-266, if you want to look for it.
Along with testimony from various government officials and stock fraud victims, there is a large collection of newspaper and magazine articles on stock fraud.
Some of the things the report mentions are that stock fraud is a 6 billion dollar a year industry because of the current public obsession with stocks, fraudulent companies using tricks to boost stock prices over 5 dollars a share (to avoid regulatory notice as a "penny stock"), and the fact that fines and lawsuits do not deter scam artists like time spent in prison does.
My impression of the regulators is that the SEC ( sec.gov ) does what it can (but is underfunded and overworked), and the regulatory arm of NASD ( nasdr.com ) has possible conflicts of interest regulating their members (although NASD has introduced innovative new technologies, like artificial intelligence software to search the Internet looking for stock scams in message boards -- this place, Silicon Investor, was specifically mentioned as a target of their investigations.)
But, it seems like the regulators who are the most effective are at the state and local level. (Check the North American Securities Administrators Association site at nasaa.org for information about how to contact state securities regulators if you have a problem with a fraudulent company or stock broker.)
Here are some quotes from the report:
"I urge in every way, in every forum I get, that an investor who does business with a broker over the telephone that he or she has never met is making a terrible mistake." -- Arthur Levitt, Jr., Chairman of the SEC
"What is unusual about the increasing evidence of wrongdoing in the stock market is that shady practices tend to go unnoticed in the days of a strong bull market. Usually, the misconduct is uncovered after a sharp sustained market drop similar to that of 1987. This has the regulatory community wary about what it would face should the stock market collapse." -- Senator Max Cleland
Paul M. |
