FBI:The state of Financial Crime is Goldman Sachs

The founder of a $7 billion hedge fund is convicted of insider trading. A drug company pleads guilty to making and selling unsafe prescription drugs to Americans. The head of a financial company admits scamming distressed homeowners who were trying to avoid foreclosure.

Financial Crimes

Financial Crimes Report coverReport to the Public, 2010-11
The FBI focuses financial crimes investigations on corporate fraud, securities and commodities fraud, health care fraud, financial institution fraud, mortgage fraud, insurance fraud, mass marketing fraud, and money laundering.

Institutional scam thumbnailSurveillance footage shows an FBI source and a bank vice president talking about creating fictitious businesses to launder money. “You set up the businesses, and I’ll handle the deposits,” the bank executive says. Play Video

These recent crimes and many more like them—investigated by the FBI, in some instances along with our partner agencies—can cause great harm to the U.S economy and American consumers. That’s why financial crimes are such an investigative priority at the Bureau.

Today, we’re releasing an overview of the problem and our response to it in our latest Financial Crimes Report to the Public. The report—which covers the period from October 1, 2009, to September 30, 2011—explains dozens of fraud schemes, outlines emerging trends, details FBI accomplishments in combating financial crimes (including major cases), and offers tips on protecting yourself from these crimes.

Here’s a brief snapshot of key sections of the report:

Corporate fraud: One of the Bureau’s highest criminal priorities, our corporate fraud cases resulted in 242 indictments/informations and 241 convictions of corporate criminals during fiscal year (FY) 2011. While most of our cases involve accounting schemes designed to conceal the true condition of a corporation or business, we’ve seen an increase in the number of insider trading cases.

Securities/commodities fraud: In FY 2011, our cases resulted in 520 indictments/informations and 394 convictions. As a result of an often volatile market, we’ve seen a rise in this type of fraud as investors look for alternative investment opportunities. There have been increases in new schemes—like securities market manipulation via cyber intrusion—as well as the tried-and-true—like Ponzi scams.

Health care fraud: In FY 2011, 2,690 cases investigated by the FBI resulted in 1,676 informations/indictments and 736 convictions. Some of the more prevalent schemes included: billing for services not provided, duplicate claims, medically unnecessary services, upcoding of services or equipment, and kickbacks for referring patients for services paid for by Medicare/Medicaid. We’ve seen increasing involvement of organized criminal groups in many of these schemes.

Mortgage fraud: During 2011, mortgage origination loans were at their lowest levels since 2001, partially due to tighter underwriting standards, while foreclosures and delinquencies have skyrocketed over the past few years. So, distressed homeowner fraud has replaced loan origination fraud as the number one mortgage fraud threat in many FBI offices. Other schemes include illegal property flipping, equity skimming, loan modification schemes, and builder bailout/condo conversion. During FY 2011, we had 2,691 pending mortgage fraud cases.

Financial institution fraud: Investigations in this area focused on insider fraud (embezzlement and misapplication), check fraud, counterfeit negotiable instruments, check kiting, and fraud contributing to the failure of financial institutions. The FBI has been especially busy with that last one—in FY 2010, 157 banks failed, the highest number since 181 financial institutions closed in 1992 at the height of the savings and loan crisis.

Also mentioned in the report are two recent initiatives that support our efforts against financial crime: the forensic accountant program, which ensures that financial investigative matters are conducted with the high-level expertise needed in an increasingly complex global financial system; and our Financial Intelligence Center, which provides tactical analysis of financial intelligence data, identifies potential criminal enterprises, and enhances investigations. More on these initiatives in the future. Source

The U.S. is cracking down on the possibility of insider trading at Goldman Sachs, and not among the peons.

The FBI is investigating David Loeb, 41, a managing director at Goldman Sachs, for allegedly passing on secret information about technology companies to hedge funds, so that they would have an opportunity to trade on that information before other investors, The Wall Street Journal reports. Loeb is one of Goldman Sachs’ top middlemen between the bank and technology hedge funds.

In addition to Loeb, the FBI is also investigating Henry King, a technology analyst at Goldman Sachs, for allegedly offering insider tips to hedge fund clients, according to the WSJ.

The probe into Loeb and King comes as the FBI ramps up its crackdown on insider trading. The agency is trying to build insider-trading cases against about 120 people, the WSJ reported in a separate article on Monday. The FBI has arrested at least 64 people in their insider-trading probe since 2007, and 59 people have pleaded guilty or have been convicted at trial since 2009, according to Bloomberg.

This isn’t the first time the FBI investigated people for insider trading with deep connections to Goldman Sachs. Rajat Gupta, 63, an ex-director at the firm, was arrested last October and charged with passing on secret tips to Raj Rajaratnam, a former hedge fund manager who is serving an 11-year prison sentence for insider trading.

The government alleges that Gupta told Rajaratnam about billionaire investor Warren Buffett’s $5 billion investment in Goldman Sachs the day before it was announced — during the height of the financial crisis — according to The New York Times.

Simultaneous with the probes is the FBI’s attempt to build publicity around its insider-trading probe, which it calls “Perfect Hedge.” The agency announced on Monday that it has enlisted Michael Douglas, famous for his starring role as Gordon Gekko in the 1987 film Wall Street, to encourage Wall Street employees and ordinary Americans to report suspicious financial activity.

But whistleblowers who report just to the FBI may be getting a raw deal. The FBI isn’t obligated to give whistleblowers any financial compensation, according to David Colapinto, a whistleblower lawyer interviewed by The Washington Post. The Securities and Exchange Commission (SEC), on the other hand, gives whistleblowers between 10 and 30 percent of the money that it collects if the whistleblower’s tip leads to more than $1 million in sanctions, according to The Washington Post.


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