On the second day of the McCormick Foundation’s Specialized Reporting Institute of Financial Crimes, the talk turned to reporting financial crimes.
Julia Dahl reports live from John Jay.
1:48 p.m. Cohan said: “Wall street has always been a dangerous place, firms have been coming in and out of business forever…we still need a capital market system, and that’s what Wall Street does best, provides capital and allocates capital to anyone willing to pay for it. That’s the heart of the capitalist system, without that you can’t have a functioning society.”
David Shapiro , of John Jay, said, “I believe anti-trust is the way to go.”
Cohan said that “securitization isn’t going to go away…It’s like any innovation that Wall Street comes up with: it’s fine until it’s not.”
1:43 p.m. Elaine Carey, of Control Risks, suggested looking at insurance companies as instruments of money laundering; Cohen said that “the next big thing you all should be looking at are private equity groups.”
Cohan spoke about writing books about Wall Street, the people that worked there, “and the messes they got themselves into.”
“It was very interesting to write a book where everybody knows the ending,” said Cohan, “but what they didn’t know was why.”
Cohan said his book is “as much a moral history as investigative journalism.” With the book now finished, he said “there is no question in my mind that [Bear Sterns] in fact did do this to themselves.”
He told several stories of the “infuriating” process of requesting (and rarely receiving) documents from the SEC. “They’re supposed to get back to you in 20 business days,” said Cohan. On one of his requests, Cohen didn’t hear back for three years. Cohen said he was also “stunned” that members of Congress wouldn’t release information they’d gathered in the lead-up to questioning Wall Street titans.
“In this whole financial crisis that has taken such a toll on the world economy, there have been two people indicted…and no documents released,” said Cohan. “In the case of Bear Stearns, a number of lawsuits have been quietly settled…with no explanation.”
“The Wall Street army seized on the innovation [of securitizing debt], and sold the innovation as long as they could,” said Cohan.
Cohan explained the mentality of Wall Street with the proverbial frog in boiling water scenario: “It’s easy in retrospect to see that this was a bubble, but it’s never easy to see, when you’re going through it, that it’s a bubble.”
12:11 p.m. The panelists walked fellows through the BRB Publications, Inc. website, which is an online portal to public records.
Wenske said that upwards of 80 percent of resumes have mistakes or exaggeration on them. She said to set up an account with the National Student Clearinghouse, which has transcripts and enrollment information for many U.S. colleges (not including, among others, Harvard).
11:42 a.m. Joelle Scott walked fellows through FINRA’s website to see if the broker or firm has ever been involved with arbitration. She said that after the Allen Stanford story broke, Corporate Resolutions ran a test to see whether, if they’d been backgrounding Stanford, they would have found red flags. Just by using FINRA, they found that Stanford’s company has been involved in seven arbitrations alleging fraud, and lost four of them. The company was sanctioned by FINRA for, among other things, misrepresenting certificates of deposit.
“Allegations of fraud are rarely normal course of business,” said Scott. “A lot of companies that are investment companies, we’ll see sometimes they were fined $5,000 – $10,000 for violating a trading rule past a certain hour. If it happened once it’s normal course of business. But if it’s one guy who’s done this five times, he’s trying to do something shady.”
Kayla Boorady suggested looking up an investment advisor’s Form ADV, which an advisor that manages more than $25 million must file with the SEC. She pointed out that Bernie Madoff’s ADV form was all-but blank, which is a red flag.
11:21 a.m. Kristen Wenske walked the fellows through the Florida Department of State’s website, showing them how to look up annual corporate reports and background corporate officers. Joelle Scott suggested reporters look at officers’ LinkedIn or Zoom profiles, which she called great places to “brag.”
One participant said that www.internic.net was a good site to look up who has registered for domain names and websites.
Kayla Boorady suggested using www.archive.org, which allows you to look at websites back to about 1997.
10:52 a.m. The final workshop, “Following the Money: Using Public Databases to Detect Fraud,” was moderated by Joelle Scott, Kayla Boorady and Kristin Wenske of Corporate Resolutions.
10:12 a.m. Deborah Potter introduced a case study: “Sold a Nightmare,” a 2007 Charlotte Observer series about mortgage fraud and foreclosures that “had as much to do with the builder as it did the borrower.”
The investigation found that no one in the county, state or federal government was tracking foreclosures. After the series ran, the FBI opened an investigation into the mortgage fraud laid out in the stories, and Beazer Homes USA eventually fired an officer for attempting to destroy documents.