White Collar Crime To Soar As Markets Roil

White Collar Crime To Soar As Markets Roil - 1/21/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

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White Collar Crime To Soar As Markets Roil
Evan Weinberger

Securities Law 360. January 21, 2009
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EXCERPT: As if an alleged $50 billion Ponzi scheme, alleged fraud throughout the mortgage sector and fears that stock traders manipulated, even destroyed, companies through targeted and fraudulent short-selling weren't enough, fraudsters may be cooking up new schemes and investors could see a big jump in white collar crime in the coming years, according to a report released Wednesday. “In difficult economic conditions, businesses are struggling to compete for fewer business opportunities,” said Blake Coppotelli, senior managing director in the business intelligence and investigations practice at risk consulting firm Kroll Inc., which released its Global Fraud Report. “This creates more incentives to deviate from proper business practices and engage in fraudulent activities to protect and maintain revenue.” The Kroll report cited a potential rise in targeted and fraudulent short-selling as one potential risk facing companies in an increasingly volatile stock market environment. Short-selling in and of itself is not fraudulent and serves a legitimate purpose in the economy, the report said, but the nature of short-selling is changing. “A growing number of brokers and traders are creating loosely organized cartels which start negative rumors about customers whose shares they are short-selling,” wrote Niren Shah and Richard Dailly of Kroll's Mumbai office. “The strategy, known as 'short and distort,' can yield substantial profits quickly.” The two Kroll researchers said that the “loosely organized cartels” have modified their tactics over the years, often using cell phone text messages and Internet instant messaging services to spread the rumors, noting that it is much more difficult to trace those messages than e-mail or blog posts. The heads of several routed financial institutions, including Lehman Brothers Holdings Inc. and Bear Stearns Cos., have blamed “short and distort” schemes for their downfalls, while outside observers believe that they played at least some role.

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