Here is a summary of 10 of 2009′s notorious financial scandals. -Reuters

The year of the Ponzi scheme will be followed by heightened regulation and more aggressive prosecutions, experts say. Regulators and prosecutors are scrambling to uncover and pursue more fraudsters, while lawmakers seek to close regulatory gaps and give officials more resources. Here is a summary of 10 of 2009′s notorious financial scandals:

1. Madoff
2. Galleon & Rajaratnam
3. UBS & taxes
4. Stanford
5. Petters
6. Bank of America/Merrill Lynch
7. Mozilo/Countrywide
8. AIG bonuses
9. Auction-rate securities
10. Bear Stearns

1 MADOFF: The top headline-grabbing financial scandal in 2009 was Bernard Madoff’s breathtaking US$65 billion (S$92 billion) Ponzi scheme. While the fraud came to light last year, Madoff (left) was sentenced to 150 years in prison in June. United States District Judge Denny Chin described the crimes as ‘extraordinarily evil’ and said that Madoff’s was ‘not merely a bloodless crime that takes place on paper but one that takes a staggering human toll’.

2 GALLEON & RAJARATNAM: Sri Lankan-born billionaire Raj Rajaratnam was the most prominent of about 20 individuals to face charges in the biggest US hedge fund insider trading case on record. A grand jury accused the Galleon hedge fund founder of using a network of company insiders to tip him off to information that netted US$20 million in illegal profits between 2006 and this year. Rajaratnam pleaded not guilty to the charges in the case, which has ensnared employees of some of America’s best-known companies, including IBM.

[File photo: A protestor hangs from the logo of the Swiss bank UBS during a demonstration against the ongoing Davos' World Economic Forum's annual meeting in Basel.]

3 UBS & TAXES: In February, Swiss banking giant UBS agreed to pay US$780 million to settle criminal charges that it helped American clients evade taxes using concealed offshore accounts. A US-Swiss agreement reached in August forced the disclosure of 4,450 American holders of secret UBS accounts, opening cracks in Switzerland’s bank secrecy laws.

[Photo: Texas billionaire Allen Stanford's shackled feet as he arrives at the Bob Casey Federal courthouse in the custody of US Marshals in Houston.Stanford faces criminal charges for a US$7 billion Ponzi scheme.]

4 STANFORD: In June, billionaire Texas financier Allen Stanford was indicted for an alleged US$7 billion Ponzi scheme centred on fraudulent certificates of deposit issued by his offshore bank on the Caribbean island of Antigua. He has pleaded not guilty. The Miami Herald reported this week that the US authorities are investigating millions of dollars contributed by Stanford and his staff to lawmakers.

5 PETTERS: With Madoff having set the bar so high – or low – for Ponzi schemes, a US$3.65 billion scam might not sound like a lot. A federal jury found Minnesota businessman Tom Petters guilty this month of using one of his companies to bilk investors who thought he was using their money to buy consumer electronics for resale to retailers such as Costco Wholesale Corp.

6 BANK OF AMERICA/MERRILL LYNCH: Stung by a federal judge’s rejection of a US$33 million settlement with Bank of America, the Securities and Exchange Commission (SEC) in October demanded a jury trial on its claims that the bank misled shareholders on about US$3.6 billion in bonuses paid to Merrill Lynch employees before the companies merged on Jan 1. US District Judge Jed Rakoff was disturbed that the SEC did not require the bank to disclose the names of executives and lawyers who vetted the bonuses.

7 MOZILO/COUNTRYWIDE: In June, the SEC charged Angelo Mozilo, the former chief executive of mortgage lender Countrywide Financial, and two other former Countrywide executives with fraud for allegedly misleading investors about the quality of Countrywide’s loans, including tens of billions of dollars of risky sub-prime and adjustable-rate mortgages. Countrywide had been the largest US mortgage lender before being sold to Bank of America.

8 AIG BONUSES: The financial products unit of insurance giant American International Group (AIG) became the poster child for Wall Street crassness when it was revealed in March that its employees were to get US$165 million in retention bonuses after taxpayers pledged up to US$180 billion to keep AIG afloat. US pay czar Kenneth Feinberg later vowed to limit bonuses at the unit, which caused most of the insurer’s losses and threatened the global financial system.

9 AUCTION-RATE SECURITIES: Banks continued to strike deals with state securities regulators over their marketing of auction-rate securities as safe and liquid investments. The market for the securities froze in February last year following the credit crunch, leaving thousands of investors unable to tap their accounts. The latest to cut a deal was Wells Fargo Investments, a unit of Wells Fargo, which agreed in November to repay clients US$1.3 billion.

10 BEAR STEARNS: In November, two former Bear Stearns hedge fund managers were found not guilty of fraud in the first major prosecution stemming from the implosion of a major financial firm. Ralph Cioffi and Matthew Tannin had managed two funds consisting mainly of mortgage-backed securities. When the funds collapsed in 2007, investors lost US$1.6 billion. Despite the setback, the SEC said it would proceed with its civil case.

Sat, Jan 02, 2010
Reuters

financial scandals, investments, losses, risk, Scams