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Friday, September 3, 2010

When Law Enforcement Gets Ripped Off


Ever wonder how the FBI or SEC never caught Ponzi schemers like Bernard Madoff, Scott Rothstein or Marc Dreier?  Hundreds -- if not thousands -- of federal agents in various agencies like the FBI, Homeland Security and the Securities and Exchange Commission were scammed by a con artist, despite their training which is supposed to teach them how to detect and uncover fraudulent schemes, according to Bloomberg News.  This con-artist successfully ran a Ponzi scheme giving financial planning seminars to numerous federal law enforcement agents and getting the apparent blessing of several federal agencies, and was only recently uncovered.   The report concludes by telling us that the con artist has since committed suicide -- rather convenient since this avoids a trial or elocution of a guilty plea, either of which might have provided valuable clues as to who assisted him in his fraudulent scheme.
 
It must be troubling that hundreds, if not thousands, of federal agents working for agencies such as the FBI and Homeland Security, who themselves are trained to detect and uncover criminal schemes including frauds, were defrauded and victimized by this scam.  Does this speak to the nefarious skill of the con artist, flaws in the training, or perhaps shortcomings in ability of the agents who were scammed?
But perhaps the bigger scam is on the American taxpayer.  When law enforcement can get ripped off like this, one must question the competence of the agents -- not that victims of financial fraud are somehow culpable, but the ability of numerous agents to fall prey to this scam suggests a systematic weakness in the application process, vetting process and training processes for federal agents.   When training or competence run short, these agencies have likely had to cut corners and turn to less reliable -- but perhaps more convenient -- sources of information such as notoriously unreliable "cooperating witnesses" or admitted felons who need to "cut a deal" in order to get a shorter jail term. 
If federal agents can fall prey to a Ponzi schemer ripping off their fellow agents, they can certainly fall prey to an embellished or entirely fabricated story concocted by admitted criminals with nothing to lose and everything to gain by lying.  One must ask: how many false accusations or perjurious claims were given full weight by federal law enforcement because that was an easier and more convenient course of action than to do its own proprietary research and investigations -- the performance of which might have revealed the agents' shortcomings in the areas of abilities or diligence.  

In other words, if our federal investigators, border agents and securities markets overseers cannot tell the difference between the truth and a lie, a legitimate story and a fraud, how many criminals have walked away -- or across our borders and into our country -- right under our protectors' noses?  Or even with apparent government approval -- the equivalent of a "good housekeeping seal of approval"? 

And if they cannot tell the difference between what's bogus and what's real, who's lying and who's telling the truth, how many totally innocent people (like small business owners, and others) have been wrongfully investigated, prosecuted, threatened and even convicted and jailed?  And all that, because of government agents' inabilities or incompetence?  (See this recent, appalling story.)
One may suggest that a solution is to raise the pay of these federal law enforcement agents in order to attract and retain a higher caliber of agent. 
As long as the federal government (and states and localities, too) isn't paying top dollar and is happy with second or even third-rate minds working on detecting and preventing crimes, frauds and terrorist attacks, the miserable results of undetected terrorist plots or frauds should not be surprising.  Government worker incompetence or inability to do the job should not and cannot be tolerated.  Taxpayers pay the price in the end.

Eric Dixon is a New York lawyer.  He has helped investigate instances of suspected corporate wrongdoing and other malfeasance.  He is available for comment at 917-696-2442 and edixon@NYBusinessCounsel.com. 


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