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Posse on Trail of Wall Street Cheats

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"The more things change, the more they stay the same," French novelist Alphonse Karr wrote in 1849.

That's surely the case on Wall Street 160 years later where financial skulduggery, judging from the latest and sharply increasing number of stock trading investigations, is unmistakably on the rise.

Given the national uproar over a slew of Ponzi schemes, especially the one engineered by the king of the market cheats, jailed money manager Bernard Madoff, who defrauded investors out of an estimated $65 billion, and widespread demand for greater scrutiny from Wall Street's regulatory watchdogs, one might have expected the bad guys at the very least to take a breather for a while, if not run for cover.

No such luck. I have obtained copies of internal documents various regulatory agencies, including the Securities and Exchange Commission, sent to the compliance departments of brokerage firms that detail their very latest batch of trading investigations, and the numbers clearly suggest the cheaters are more brazen than ever.

For example, in a piece I wrote on this website on February 19, I reported that the SEC had kicked off a wave of 17 stock trading investigations which included some of the best known names in Corporate America. Now, a little more than two weeks later, an even bigger outburst of such trading probes, at least an additional 27, about a 60% increase, has recently been launched by various securities industry regulatory agencies, including the SEC and NYSE Regulation, the market enforcement arm of the New York Stock Exchange.

Clearly, the surge in the number of trading investigations is a flashing signal that the pursuit of suspected stock cheats by regulators is heating up.

It should be noted that these investigations are not of the companies themselves, but rather focus on the trading in their securities both here and abroad.

Veteran stockbroker Malcolm Lowenthal of Kern, Suslow Securities probably best sums up the current surge in Wall Street investigations, noting "our product is money, and money attracts scum."

Once again, some top corporate names are included in the latest round of investigations, among them Wells Fargo, Alcoa and Target.

Noteworthy among the latest trading investigations is the inclusion of several giant Wall Street deals, with the regulatory focus on the securities of three mammoth drug companies that were acquired for a total of nearly $156 billion. In brief, the SEC, informed regulatory contacts tell me, is looking at the trading that preceded all three acquisitions.

Two of those announced buyouts involve the $68 billion acquisition of Wyeth by Pfizer, the world's biggest drug company, and Merck's $41.1 billion takeover of Schering-Plough. The third was the wrap-up of the $46.8 billion buyout of Genentech by Swiss pharmaceutical biggie Hoffman-La Roch Ltd. Roch had owned 55.9% of Genentech and made a bid earlier this month to buy the rest of the stock at $95 a share.

In addition, a fourth trading investigation involving another sizable drug company takeover -- notably a $1.4 billion buyout of CV Therapeutics by Gilead Sciences -- has commenced by another watchdog, the Financial Industry Regulatory Authority. FINRA, a Rockville, Md., firm, provides regulatory services to other regulatory agencies and 10 exchanges, including the American Stock Exchange and Nasdaq. Its focus is on potential trading violations connected to insider trading.

The thrust of the 27 trading probes, many involving health care companies, is to determine whether any investors illegally profited by trading on privileged or inside information that had not been disclosed to the public at large. Of prime interest to regulators in the inquiries sent to various brokerage firms were the names of the clients who traded in the securities under scrutiny in specified time periods.

All three regulatory outfits mentioned in this column -- the SEC, NYSE and FINRA -- declined to comment on the investigations, but two regulatory contacts familiar with the probes confirmed them.

"The problem with all of this," as the compliance chief of one brokerage firm sees it, "is that there seems to be a growing number of bad guys on Wall Street who think they can get away with murder. They can't and they won't."

Rounding out the 27 investigations, largely undertaken by the SEC and FINRA, are Great Plains Energy; Terra Industries; Health Care REIT; Document Security Services; Marathon Acquisition Corp.; Deerfield Capital Corp.; On2 Technologies; BioMS Medical Corp., InterMune, and AVE BioPharma.

Also, ArcelorMittal; Synta Pharmaceuticals; La Jolla Pharmaceutical; SIRF Technology Holdings; Converted Organics; Novelos Therapeutics; Freedom Acquisition Holdings; Advanced Medical Optics; Alfacell Corp., and Future Now Group.


Dandordan@aol.com