Investor's Watchdog.com: Stock, finance and investment protection for investors

Back in June 2008, we blogged about the SEC’s case against Massachusetts investment adviser Stephen Clifford who raised $2.9 million in connection with a financial scam and converted most of it to his personal use.  Now comes news that the Department of Justice has filed criminal charges against Clifford for the same conduct.

Many victims of investment fraud misunderstand the relationship between the U.S. Securities and Exchange Commission and the Department of Justice.  The SEC cannot commence a criminal case against a scam artist.  Nothing the SEC does, alone, will result in prison time for the defendants. The SEC brings civil enforcement actions, and can obtain injunctions, orders of disgorgement, and orders barring defendants from the securities industry.  They are and have been quite effective at stopping Ponzi schemes before they can collect more victims.  But they cannot put anyone in prison.  The Department of Justice can file criminal charges.  Often, their criminal complaints track the civil complaints filed by the SEC.

Many people wonder why the Department of Justice does not always file criminal charges against scam artists exposed by SEC investigations.  The answer brings into play purely practical considerations.  The Department of Justice has no end of work.  There is more criminal conduct than they can possibly address.  The United States Attorney for the relevant district has to make decisions about how to best deploy his troops.  Some financial fraud cases, therefore, die as a result of those decisions.

Another practical consideration is the familiarity of the local U.S. Attorney’s Office with the federal securities laws.  Because of their proximity to Wall Street, the U.S. Attorney’s Office for the Southern District of New York is staffed with attorneys who know the securities laws like the backs of their hands.  There is no learning curve there.  The same is not true in other districts.  In a district that sees relatively few securities cases, therefore, the U.S. Attorney must consider the learning curve in making his decision about which cases he will prosecute.  Assigning an Assistant U.S. Attorney (“AUSA”) to learn the securities laws and the court decisions interpreting them means not prosecuting two other cases in an area of law in which that AUSA is already familiar.  Out of the best of motives, not every U.S. Attorney is willing to make that decision.

All of this makes the point that proactive protection is the wisest course.  You do not want to grieve over the failure to prosecute someone who has stolen what it took you decades to save.  Hire an investor protection company to help you do your due diligence about a prospective unregistered investment.  Thousands of senior citizens are now starting over with nothing because they failed to do so.