(September 13 – 17:25 ET) – The U.S. House of Representatives Subcommittee on Finance and Hazardous Materials held a hearing today into organized crime on Wall Street.

The committee, chaired by Representaives Michael Oxley and Tom Bliley, heard from the SEC, the NASD, FBI, and the North American Securities Administrators Association. Richard Walker, enforcement counsel, appeared for the SEC. He said that in the commission’s experience mob involvement with the stock market has been limited to micro-cap stocks. He went on to detail recent cases involving organized crime and SEC initiatives to fight micro-cap fraud.

Thomas Fuentes of the FBI also detailed a number of mafia-related white collar crime cases, including the notorious TSE debacle YBM Magnex International Inc. Fuentes says that the FBI’s YBM investigation is ongoing. In June 1999, YBM pled guilty in U. S. District Court, Eastern District of Pennsylvania, to one count of conspiracy to commit securities fraud and mail fraud, including filing a prospectus with the Ontario Securities Commission for a secondary offering of $100 million. Fuentes says the plea covers 1993 to June 1999, but the FBI continues to work the case.

The committee then heard from Barry Goldsmith of NASD’s Office of Enforcement who discussed the NASD’s efforts to deal with these cases.

Brad Skolnik, head of the NASAA, finished the testimony. Skolnik said there’s “a bull market in securities fraud”. He said the NASAA believes the mob in involved, and not just on Wall Street. “From my experience, I can tell you that organized crime on Wall Street is targeting investors on Main Street.”

He went on to note that although regulators do a decent job of overseeing legitimate brokerage firms they’ve had a hard time dealing with outright criminals. “Traditional weapons to sanction firms and brokers who violate market regulations – such as administrative fines and suspensions – have little effect on these criminals. Regulators must provide deterrents to corrupt brokers and firms by bringing criminal cases and putting the perpetrators in prison. Period.”
-IE Staff