A Congressional hearing on organized crime heard two sharply contrasted views from the FBI and the SEC this week on gangsters' manipulation of the Internet.
No prizes for guessing that the FBI said the world was coming to an end, while the SEC said that everything was under control.
According to the FBI, targetting of Wall Street by criminals "has become significant and probably will grow as crime groups increasingly use the Internet to try to manipulate stock". Went on FBI organized crime chief Thomas Fuentes: “Their victims tend to be elderly or inexperienced investors, and there is every reason to believe that as the amount of money to be made increases, more and more of this type of activity will develop.” Fuentes said that Italian and Eurasian crime groups have stepped up their activity on Wall Street during the last eight years, drawn by the money to be made on the bull market.
'New technologies such as e-mail and the Internet have made it easier for organized crime to conduct these stock and securities schemes,' he said. 'The Internet allows crime figures to reach a broad pool of potential victims quickly, while providing a certain measure of anonymity.'
The Securities and Exchange Commission, though, which often cooperates with the FBI in investigating stock fraud, said gangsters' activity on Wall Street is limited and poses little threat to U.S. securities markets.
“The commission has made significant strides in curtailing organized crime activity on Wall Street,” SEC enforcement director Richard Walker told the House Commerce subcommittee on finance. “The activities of organized crime have been confined to the `microcap' securities market and taint only a small fraction of that sector. While any unlawful activity by organized crime on Wall Street is cause for concern, the commission believes such activity to be limited and not a threat to the overall integrity of our nation's securities markets,” he said.
Walker said a number of rules adopted by the SEC in recent years had undercut organized crime's ability to manipulate stocks.
('Microcap' stocks are thinly traded OTC or 'pink sheet' securities - they are especially susceptible to 'pump-and-dump' schemes in which the stock is hyped by its owners, who then sell before the price falls.)
Despite their differing views, the two agencies had collaborated on several major organized crime busts in New York earlier this year. In June, for example, federal prosecutors indicted 120 defendants, including 11 members and associates of five crime families, in what was called the most far-reaching “securities fraud take-down in history.”
The defendants allegedly set up a corrupt brokerage in Manhattan, secretly controlled other securities firms, and used threats, intimidation and beatings to help cheat investors out of $50 million. Prosecutors accused the defendants of manipulating 19 stocks and the private placement of securities in 16 other companies, including Ranch*1 Inc., a fast-food chicken chain that wasn't itself charged.
Russian organized crime figures allegedly helped defendants at several brokerages, including White Rock Partners (later renamed State Street Capital Markets), launder their gains through overseas accounts.
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