Feds Announce Largest Crackdown on Financial Fraud in U.S. History

suitcase full of cash -- financial fraudThe largest federal crackdown against financial fraud in U.S. history was unveiled today, a massive sweep involving more than 100,000 victims who were swindled out of more than $10 billion by some 500 fraudsters, Attorney General Eric Holder announced.

Operation Broken Trust, the first nationwide effort to target investment fraud schemes that prey upon investors, was orchestrated by the Financial Fraud Enforcement Task Force, which was established by President Obama to investigate and prosecute financial crimes.

From mid-August until December 1, Operation Broken Trust brought 231 criminal cases and 60 civil enforcement actions against fraudulent schemes that harmed more than 120,000 victims nationwide. Of the 343 criminal defendants targeted by the operation, 87 have been sentenced to prison, including several sentences of more than 20 years in prison. Civil case defendants caught up in the sweep totaled 189.Operation Broken Trust's criminal cases involved more than $8.3 billion in estimated losses, while the civil cases concerned estimated losses of more than $2.1 billion. Click here for examples of cases from the operation, and here for statistics of victims, arrests and dollar amounts.

"With this operation, the Financial Fraud Enforcement Task Force is sending a strong message," said Attorney General Holder, in a statement. "To the public: be alert for these frauds, take appropriate measures to protect yourself, and report such schemes to proper authorities when they occur. And to anyone operating or attempting to operate an investment scam: cheating investors out of their earnings and savings is no longer a safe business plan -- we will use every tool at our disposal to find you, to stop you, and to bring you to justice."

The Task Force includes officials from more than two dozen agencies, including the Department of Justice, the FBI, the U.S. Securities and Exchange Commission and the Internal Revenue Service. Operation Broken Trust's goals were to root out and expose investment fraud scams and alert the public about many phony investment scams.

The operation targeted scams aimed at investors, rather than cases involving long-term corporate fraud. The swindlers behind these schemes often promise high returns to investors, but engage in little to no legitimate investment activity. Schemes exposed during the operation included Ponzi schemes, affinity fraud, prime bank/high-yield investment scams, foreign exchange (FOREX) frauds, business opportunity fraud, and other similar schemes. In some instances, operators of these schemes filed for bankruptcy in an attempt to avoid claims by victims.

Task Force member the FBI says financial fraud is on the rise, especially Ponzi and market manipulation schemes. Based on its current caseload, the FBI says the top five Ponzi scheme hot spots in the country are Los Angeles, New York, Dallas, Salt Lake City, and San Francisco.

The FBI also offers the following tips to avoid financial fraud:
  • Be careful of any investment opportunity that makes exaggerated earnings claims, especially during a short period of time.
  • Ask for written information about the investment, such as a prospectus, recent quarterly or annual reports, or an offering memorandum.
  • Consult an unbiased third party, like an unconnected broker or licensed financial adviser, before investing.
  • Don't be fooled into believing an investment is safe just because someone you know is recommending it. So-called "affinity scams" are one of the favorite methods used to lure people in.
  • If you feel you are being pressured into investing, don't do it.
  • Be wary of people you meet on social networking sites and in chat rooms, where investment fraud criminals have been known to troll for victims.

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