Task Forces to Fight Fraud in Securities

Atty. Gen. Dick Thornburgh, declaring that investors are being bilked out of hundreds of billions of dollars annually, Tuesday announced formation of task forces by six U.S. attorneys--including Los Angeles’--to pursue securities and commodities fraud.

In addition to individual investor losses, the federal Treasury loses more than $90 billion annually through tax fraud, and white-collar crime also contributes to many recent business failures, including bank and savings and loan closings over the last five years, Thornburgh told a press conference.

“I have become convinced that a concerted interagency effort is needed,” said Thornburgh, who has made white-collar crime one of his top priorities.

Fifteen experienced assistant U.S. attorneys will be assigned to the task forces initially, along with agents and other personnel from the Securities and Exchange Commission, the Internal Revenue Service, the Postal Inspection Service, the FBI and the Commodity Futures Trading Commission.

Six of the additional prosecutor posts will go to the Manhattan U.S. attorney’s office, which has spearheaded the effort against securities fraud; three to Chicago, where suspected fraud in commodities markets is under intense investigation, and three to Los Angeles. One each will be assigned to San Francisco, Kansas City and Denver.

In San Francisco, U.S. Atty. Joseph Russoniello said that his office will focus on the Pacific Stock Exchange and options market, as well as stock offerings by new companies that spring up in the Silicon Valley.

“The integrity of the markets needs to be restored in some places, and in other places preserved,” Russoniello said. “. . .If the impression remains that only insiders make money in the markets, the markets will deteriorate.”

Thornburgh declined to specify what the additional attorneys in Los Angeles would be pursuing, saying only: “Stay tuned.”

But Robert C. Bonner, the U.S. attorney in Los Angeles, said that the three will be used to prosecute securities cases, such as those involving insider trading and market manipulation.

In announcing the task forces, Thornburgh adopted a concept first proposed in the summer of 1987 by Manhattan U.S. Atty. Rudolph W. Giuliani, but one that had languished in the office of Thornburgh’s predecessor, former Atty. Gen. Edwin Meese III.

“This is exactly what we need and what we needed for some time,” Giuliani said, standing next to Thornburgh, along with Anthony Valukas, U.S. attorney in Chicago who is overseeing the undercover investigation that recently surfaced of alleged fraudulent trading on the world’s two largest commodities futures exchanges.

Borrowing a phrase believed to have been coined by consumer advocate Ralph Nader, Thornburgh said that evidence of “crime in the suites” is not immediately evident like that of street crime and other violent offenses.

“Due to the use of subterfuge and concealment--often involving deception, record manipulation, money-laundering and cover-up--the victims often don’t realize (that) they have been defrauded until long after the event,” Thornburgh said.

“Investigators must painstakingly work their way through complex ‘paper trails’ before determining whether the law was violated, whether the violation was a federal offense and who was responsible,” he noted.

Sophisticated white-collar criminals rely on the latest technological advances, including computers, “to exploit the complexities of modern accounting and banking techniques to obfuscate their actions and confuse investigators,” Thornburgh said.

Frauds to be pursued by the investigators include stock and commodities “boiler rooms,” in which securities salesman use high-pressure telephone solicitations to recruit investors; stock loan and precious metal frauds; securities “parking” or concealing ownership of securities to hide a takeover attempt, and major bank and brokerage fraud.

Staff writer Dan Morain in San Francisco contributed to this story.

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