12/07/2010 05:21 pm ET Updated May 25, 2011

"Operation Broken Trust": The Little Fish Fry While the Whales Swim in Oceans of Cash

U.S. Attorney General Eric H. Holder's whack-a-mole campaign to bring financial industry crooks to justice would make Machiavelli smile.

Dubbed "Operation Broken Trust," Holder and his Justice Department Team have whacked a collection of unrelated criminal and civil cases involving mostly small time Ponzi schemes, currency frauds, and the usual too-good-to-be-true investment scams: all of it low hanging fruit. There are, so far, 343 defendants allegedly responsible for scamming 120,000 victims out of $8.3 billion.

Let's examine this tally more closely and ask: Why would Holder's actions cause Prince Machiavelli to smile? A little history may be in order: When the famous Italian prince was told there was unrest among the citizenry, Machiavelli came up with a cynical and highly effective solution: "Give them festivals," he advised. This is precisely what Holder is doing with Operation Broken Trust.

No one with any real degree of financial sophistication -- especially the criminal gang on Wall Street -- is quaking in their custom-fitted SAS boots over Holder's tough talk.

Most of the schemes so far uncovered by Holder have targeted the usual collection of vulnerable investors: small communities, churchgoers, the elderly, bereaved families, and disabled individuals.

"With this operation, the Financial Fraud Enforcement Task Force is sending a strong message," Holder told reporters at a press conference. "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, stop you and bring you to justice."

Oh, really? Once again, Machiavelli smiles. It might seem as if snagging $8.3 billion in fraud after the fact is a big deal, a heavy lift for the federal government. Yet Investment News, a relatively small print and online source of information for broker-dealers, has uncovered scams totaling more than $9.2 billion in the past seven using its unofficial "Fraud Tracker."

Holder isn't the only administration official searching the weeds for wrongdoers. Even the industry-friendly Securities and Exchange Commission is making threatening noises. According to SEC chairwoman Mary Schapiro, the commission hopes to enlist the accounting industry to boost oversight of broker-dealers. This is a numbers-crunching game to update a 30-year-old rule involving oversight of broker-dealer client accounts to make sure the numbers are accurately reported to clients. Just how she intends to do this remains unclear.

Schapiro is also touting a "major insider trading" investigation; this would be a good idea if only we had a firm definition of insider trading, which we don't.

For example, one of the putative insider scores recently hailed by the SEC was the indictment of a group of blue collar railway workers who, observing various teams of "suits" taking notes and huddling with rail executives, formed an investment club and bet the railroad operation was up for sale. They were right, and the workers made about $1 million on their hunch. The SEC said these employees were privy insider information. Soon afterward, New York Times columnist Andrew Ross Sorkin wondered if the SEC might be Goliath stomping on an innocent David. Just exactly what constitutes insider trading, Sorkin asked? He believes the rail workers were acting on the obvious and playing a hunch -- hardly a criminal offense.

And while this petty-ante crime-busting show continues, the big players are getting the usual pass. There are, for example, $138 billion in scam-worthy auction rate securities floating about that neither Holder nor the SEC seems to care about. The ARS scam is going on its third year. Why hasn't the administration gone after the ARS pushers: Oppenheimer, Charles Schwab, E*Trade, Pimco and Raymond James, among others? I have written a book about this scam; it's titled "Ruthless," and it tells how the combined efforts of ARS investors recovered portions of their savings, despite the SEC's lame inaction.

Why hasn't the administration moved in on the big-time securitization gang: CitiGroup, JPMorgan Chase, Bank of America, and uncountable smaller players who destroyed the American housing market? The mortgage meltdown is an incalculable loss, amounting to trillions of dollars, and yet not one perp has gone to jail.

What about those mysterious "dark pools" of money that have a way of fueling financial "products" such as the Goldman Sachs-John Paulson bucket of mortgage-backed securities that were deliberately designed to fail? Why is Goldman's CEO Lloyd Blankfein still up to his old tricks, while the rest of Wall Street, acting like a swarm of termites, chews gaping holes in the Dodd-Frank financial reform bill?

Perhaps the major players are too big too fail, let alone be neatly fitted with stripped coveralls.

Soon or later, we need to wake up to the reality of the Wall Street-Washington nexus. And that reality is clear: The little bugs will get crushed (and that's fine by me) while the so-called "whales" will go on swimming freely in vast seas of ill-gotten gain.

Machiavelli, are you laughing out loud yet?