SEC Director of Enforcement Discusses New Challenges for Regulators Trying to Insulate Investors from Criminals
LEON HARRIS, CNN ANCHOR: Authorities expect to make more arrests in what's being called the largest crackdown on securities fraud in U.S. history. Police have already collared 120 people in the Wall Street investigation. Officials say all five of New York's major organized crime families are involved.</s>CAROL LIN, CNN ANCHOR: Now, the crackdown, according to investigators, is proof the Mafia is now infiltrating white collar businesses. And that poses new challenges for regulators trying to insulate investors from criminals. Which is a good time now to go to Richard Walker. He is the director of enforcement for the Securities and Exchange Commission, who is in New York this morning. Good morning, Mr. Walker.</s>RICHARD WALKER, U.S. SECURITIES AND EXCHANGE COMMISSION: Good morning.</s>LIN: Give us an idea of the scope of this case. Have you seen anything like this in your experience?</s>WALKER: This is the largest case in history for us involving actions of this kind.</s>LIN: Well, as I understand it, if the indictment is correct, it involves at least five mob families, operating for five years, managing to corrupt everyone from company heads to brokers to attorneys, what does this tell us about the fraud safety net on Wall Street?</s>WALKER: I think it is important to note that these actions focus on a very small segment of the market, an area of the market that we call the micro cap securities market. These are generally low-priced, thinly traded securities, and I don't think that there is anything about the actions that would indicate that Wall Street, in general, is anything other than very safe and secure and well policed.</s>LIN: But for the investors who managed to lose $50 million over five years, what do you tell them about whether are the regulatory safety net actually worked or failed here?</s>WALKER: Well, I think it is a very important message for investors that they have to take very, very careful steps to get the facts, to do their homework. This is an area of the market where there is less public information available, than in other areas of the market. And there is certainly an unrelenting bull market over the last 10 years lots of opportunities. I think investors sometimes are lulled into a false sense of security. There is no substitute for doing homework and getting the facts.</s>LIN: As I understand it, part of this operation was a boiler room operation, where they would actually telephone people and solicit over the phone. Who was usually targeted?</s>WALKER: There was a variety, a cross-section of people, some were elderly, but there is no particular characteristics of the people that were targeted in these kinds of schemes. These situations involve cold calls to many people, and it happens on a broad basis. The Internet was also used to achieve greater penetration.</s>LIN: Well, perhaps in a situation with a cold caller or an Internet solicitations, it is pretty easy to say buyer beware, but could this or did this happen where people actually were working with their own brokers, where there was a relationship, and that broker had been corrupted and compromised by these mob figures allegedly?</s>WALKER: In some cases that was also true. There was, again, a variety of different types of activities that occurred in these actions. But generally speaking, these were smaller firms that were engaged in cold calling and boiler room type of activities.</s>LIN: So how do you know? If you have a relationship with your broker, how can you tell if the advice that you're getting is false?</s>WALKER: If you have got a relationship and you know who your broker is, and you have checked your broker out, and made sure that your broker is reliable and credible and hasn't been disciplined, you're in good shape. But if you just talk to somebody on the telephone, you don't know who they are, you need to do more.</s>LIN: So how widespread do you think this case is going to be? how many more people arrested?</s>WALKER: Our investigation is ongoing. And obviously, when -- over 100 people are involved in any particular action, there are lots of leads to continue to follow up. So I suspect that we will be active for a good period of time.</s>LIN: You know what happened to the money?</s>WALKER: The money was, in many cases, spent by those who raised it. But we are going to use our very best efforts to get some of the money back to try to reimburse some of the investors who were harmed.</s>LIN: Hopefully, you will be able to do just that. Thank you very much Richard Walker with the Securities and Exchange Commission.</s>WALKER: Thank you, Carol.