SEC: Negligence vs. Fraud

Financial fraud has been rampant over the last few years, but aside from a few high profile cases like Bernie Madoff, where are the rolling heads?  The SEC has been criticized quite a bit lately, for not only failing to recognize fraud while it is happening but also for failing to punish the perpetrators.  This has long been a big draw for fraudsters; the knowledge that even if they are caught they are not likely to be seriously punished.

One reason that few fraudsters are punished is that in order to prove fraud in court you have to be able to prove that fraud was the perpetrator’s intent.  Unfortunately, it is difficult to prove that fraud was not  financial mismanagement or simple negligence.

According to a recent Thomson Reuters article, the SEC may be changing strategy and casting a wider net.  Rather than going for the big penalties and prison sentences for fraud charges, they are pursuing fraudsters for the lesser crime of negligence.  Fines for negligence are far less than that for fraud and may not even result in a ban from the securities industry but it may “chip away at the notion that financial finagling carries little risk.”  And perhaps some of the faces of the financial meltdown who have thus far escaped penalties will find that they are not in the clear after all.

It will be interesting to see if the risk of negligence charges will be enough to stem the tide of financial fraud.  In my experience, if there is enough of a profit to be made from a fraudulent scheme a relative slap on the wrist will not be much of a deterrent.

In the meantime, the daily discovery of newer and bigger financial frauds is a reminder to all of us of the importance of proper due diligence.  Especially in the volatile financial markets that investors are facing today, it is imperative that we take every precaution before entrusting our money regardless of reputation or potential profit.

Advertisements
SEC: Negligence vs. Fraud

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s