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Al-Ahram Weekly 22 - 28 June 2000 Issue No. 487 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 22 - 28 June 2000 Issue No. 487
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Focus Opinion Culture Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Get poor quick
By Thomas Gorguissian
It was described as the largest securities fraud takedown in history. Front pages of almost all American newspapers carried stories about the 120 arrests in a crackdown on a big stock-fraud ring that spread across the country and included members of five mob families from New York City.
Internet investment strategies were used in the scheme, which cost investors an estimated $50 million. More millions would have been lost if investigators had not interfered and stopped a number of frauds. Many of these scams, which feed on people's craze for dot-com stocks and their dreams of instantly becoming millionaires, are expected to keep recurring.
More than 600 FBI agents began making arrests in the early-morning hours of Wednesday 14 June. US Attorney Mary Jo White called the crackdown the "biggest dent we've ever made in the mob's influence on Wall Street." The 10-month under-cover operation, code-named Uptick, gathered enough evidence to arrest 120 suspects, including 57 stockbrokers, 12 stock promoters, 30 officers and directors of companies issuing securities, two accountants, a lawyer, an investment adviser and a hedge-fund manager.
One of those arrested was ex-detective Stephen Gardell, a 30-year career officer with the New York Police Department. The indictment said he helped the gangsters in getting permits to carry firearms, tipped them off to information about the investigation, and helped them get police department stickers. In return he received "cash and property."
According to the fraud indictments, the Manhattan investment firm DMN Capital Investments was the "fraud central to the racketeering" and "an investment bank for the crooked and corrupt." According to Barry Mawn, head of the FBI's New York office, a large percentage of the victims were senior citizens, who were targeted with promises of easy money and 100 per cent return on their investment.
Since at least 1995, the Bonanno, Colombo, Gambino, Genovese and Luchese crime families have been infiltrating the Wall Street stock markets in particular, bringing with them an element of violence "rarely seen in the world of white-collar crime." When brokers tried to get their clients out of the rotten stocks, officials said, they were subjected to beatings and threats of violence. "From the fish market to the stock market, the methods used [by the mob] are always the same: violence and the threat of violence," Mawn said.
It is becoming a trend now to see "criminals becoming businessmen on Wall Street," Robert Castelli, a mob specialist and professor at the John Jay College of Criminal Justice, told The Washington Post. A year ago Brooklyn prosecutors charged 85 defendants -- including members of the Colombo organisation -- with involvement in stock frauds that cost thousands of investors more than $100 million. "They have taken it to another level by professionalising their operation ... They are all graduates of the 'Harvard business school of crime' and they're good at what they do," Castelli said.
Following mass arrests in the biggest "dot com" scam in recent Wall Street history, security forces are on high alert and undercover high-tech surveillance squads have come to the rescue.
The photo shows trading in General Electric stock on the floor of the New York Stock Exchange on Monday 19 June
(photo: AP)
"Now the Internet is the method of choice for organised crime," says Bill McDonald, enforcement director for the California Department of Corporations. In the case of the latest fraud, it was reported that the defendants could receive prison terms of five to 80 years.
The challenge of security and privacy in the new world is getting greater and tougher with the spread of Internet services and the increase of dot-com companies and day traders. Online stock trading, e-commerce and the direct sales of products to businesses and consumers have already reached billions of dollars each year and within a few years sales are expected to exceed $1 trillion. The issue for both Internet experts and regulators alike is how to guarantee businesses' freedom while safeguarding consumers in the new era of cyberthreat or cybercrime.
Thus, the search for well-trained manpower and advanced technology has begun. The Securities and Exchange Commission (SEC), the market watchdog agency, recently announced that it is seeking $150 million for enforcement work and investor education and another $15 million to pay its attorneys and other professionals more than the government rates. The SEC has reportedly lost 25 per cent of its attorneys, accountants and examiners in the last two years to lucrative jobs in private practice. For this 3,200-person agency, the current $377 million spending level is not enough -- and it's not going to be enough, especially since high-tech companies are paying big salaries and provide juicy stock options.
It's a wild wild world out there in cyberspace. Hackers last week broke into America Online Inc. (AOL)'s computer network and gained access to information such as names, addresses and credit card numbers from some subscribers. AOL spokesman Rich D'Amato said only a "very limited" number of the records of the company's more than 23 million subscribers had been pilfered. Electronic sources said information was stolen from about 500 subscribers.
The real Wall Street poses its own financial quagmire, but the cyber one can be even more risky -- especially when identities and even the human face are concealed by cyberspace. Last week when the talk of the town was how mobsters make "financial markets their playground," Congress approved legislation affirming that a contract signed online has the same legal status as a paper contract. The measure was taken to spur e-commerce and to ease conducting business on the Internet, but a heavy tax on smooth transactions may loom ahead.
