The arrests of both Marc Dreier and Bernard Madoff in a span of 6 days last week brought with them allegations of two of the most astounding and brazen securities frauds of all-time. In fact, I am willing to make the call right now that the facts alleged against these men, if true, instantly leapfrog both of them into spots on the Mount Rushmore of Securities Fraud.
Obviously there are thousands of candidates for the four spots on the Mount Rushmore of Securities Fraud, and the SEC’s Enforcement Division adds to the list of candidates nearly every day. But here are mine, based on the size of the fraud, overall outrageousness, and creativity:
1. Bernard Madoff: Alleged to have perpetrated a $50 billion Ponzi scheme that may devastate hundreds if not thousands of people, and to have confessed to an FBI agent that “there is no innocent explanation.” This from the former chairman of the NASDAQ stock market.
2. Marc Dreier: Alleged to have defrauded a laundry list of hedge funds through the sale of fraudulent notes. Last week prosecutors labeled Dreier “the Houdini of impersonation and false documents,” and stated that the victims of the fraud, which has gone on since 2006, are sophisticated investors who lost $380 million. Dreier, a graduate of Harvard Law School and Yale College, was the sole equity partner of a 250-lawyer firm that is now in receivership and not expected to survive.
3. David Pajcin and Eugene Plotkin: Ringleaders of arguably the most audacious insider trading case ever. As alleged by the SEC and DOJ (both men were convicted of securities fraud and sentenced to prison), Pajcin and Plotkin actually sat down together and mapped out a detailed business plan to make money through insider trading, including:
- actually hiring people via Craigslist to go out and get jobs at the plant that printed Business Week so that they could obtain and trade upon advance copies of the magazine’s Inside Wall Street column;
- enlisting an investment banker at Merrill Lynch to provide them with ongoing information about imminent mergers and acquisitions;
- persuading a friend serving on a federal grand jury convened to investigate potential accounting fraud involving Bristol-Myers to leak confidential information about possible indictments so that they could trade on it; and
- planning to recruit exotic dancers in New York to seduce information about upcoming deals from their Wall Street clientele.
4. Lohmus Haavel & Viisemann (Lohmus) and two of its employees, Oliver Peek and Kristjan Lepik: The SEC alleged that Lohmus, an Estonian financial services firm, became a client of Business Wire in June 2004 for the sole purpose of gaining access to Business Wire’s secure client website. The SEC claims that once they had access, they surreptitiously utilized a “spider” software program to further gain access to more than 360 nonpublic press releases issued by more than 200 U.S. public companies. They allegedly used this information to strategically time their trades around the public release of news involving mergers, earnings, and regulatory actions, making at least $7.8 million in illegal profits.
So those are my four nominees for the Mount Rushmore of Securities Fraud. Who are yours?