Justice Department Turns Eyes to Securities

Article excerpt

WASHINGTON (Bloomberg) -- The U.S. Justice Department is stepping up investigations of insider trading and securities fraud amid concerns about rising criminal activity in these areas.

"There's been an explosion of securities fraud, particularly in the small-capitalization market," New York U.S. Attorney Mary Jo White said. "And inside trading is the one and only area where general deterrence seems to work."

White's comments suggest the Justice Department is responding to requests by securities regulators for criminal prosecution of repeat offenders on Wall Street. Securities and Exchange Commission officials have complained in the past that prosecutors overlooked complex securities fraud cases, giving higher priority to drug trafficking, terrorism and money laundering probes. Securities fraud -- such as stock manipulation, unauthorized trading and deception of investors -- has soared in the sale of cheap stocks as scam artists have been drawn to the bull market, White said. Trading on inside information also has increased amid the record $1 trillion in mergers that took place last year involving American companies, she said. Some brokerage executives and defense lawyers, however, cautioned against overzealous prosecution that could discourage companies from stepping forward voluntarily to report employee abuses. "White has to be careful not to come down too hard on companies or they'll lose any incentive to tell the government of internal problems they discover," said Stephen J. Friedman, a partner with the Debevoise & Plimpton law firm in New York and a former SEC commissioner. Companies and brokerages fear bad publicity and possible prosecution for supervisory and other violations, Friedman said. Many investigations originate from tips provided by companies about possible wrongdoing by their employees. White said the U.S. attorney's office in New York, and other Justice Department offices around the country, are conducting more insider trading and securities fraud investigations. Those inquiries, she said, will likely lead to a sharp increase in the number of criminal charges filed in the next year or two. …

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