Consumers are often left wondering why the Securities and Exchange Commission doesn’t heavily pursue allegations of fraud against public companies like Overstock.com (NASDAQ:OSTK), Usana Health Sciences (NASDAQ:USNA), Herbalife (NYSE:HLF), and the like. I’ve always said the answer is simple: There are not enough resources devoted to investigating and prosecuting fraud in public companies. Executives are free to use phony accounting measures and other false information to hype the company with little fear of action by the SEC.
And the numbers easily illustrate my point. Prosecutions are way down. The Justice Department is on pace to record the fewest prosecutions for securities fraud since 1991.

Here are the numbers that were compiled by researchers from Syracuse University, using data from the Justice Department:

  • 133 securities fraud prosecutions in the first eleven months of 2008
  • 437 securities fraud prosecutions in 2000
  • 513 securities fraud prosecutions in 2002
  • 9 Justice Department prosecutions for securities fraud that came from SEC investigations in 2007
  • 69 Justice Department prosecutions for securities fraud that came from SEC investigations in 2000

The excuse for the almost complete failure to prosecute for securities fraud? A focus on investigating terrorism threats since 2001.

And the SEC says that it’s using “non-criminal means” like fines and deferred prosecution agreements to regulate the marketplace. They say that cases handled with civil or administrative remedies are at 636 this year, compared to 503 in 2000.

Leave a Reply