Mafia-Style M&A

Posted by John Carney, Jul 03, 2007, 10:06am

organizedcrimeorganisedcrimeinsidertradingUKlondonthecity.jpgInvestment banks in London may be vulnerable to infiltration by “organized criminals,” UK regulators said yesterday. The Financial Services Authority issued a warning that UK firms were too lax about preventing their own staffs from leaking insider information in takeover situation. The warning comes after studies which have suggested that insider trading takes place in connection with a quarter of M&A deals in London.

It’s hardly surprising that investment banks might be targeted for “mafia-style infiltration.” Over a year ago, the UK’s Serious Organized Crime Agency warned that “new age” mafioso “plants” were a serious threat to UK companies attacking computer systems. The vast fortunes of the financial industry, and lax enforcement of insider trading regulations, must make UK investment banking a very attractive target for organized crime.

In the US, organized crime has long been interested in finance. As long as eight years ago, Gary Weiss was writing articles in Business Week showing that “the Mob is far more active on Wall Street than might appear from the public pronouncements of regulators and law enforcement officials.” His 2003 book, Born to Steal, is chock full of examples of the role of organized crime in securities markets. Organized crime’s role in pump-and-dump boiler room operations is so well known that it was prominently featured in several episodes of the Sopranos television series on HBO.

A bit of caution, however, is probably in order whenever regulators start issuing warnings of this sort, particularly when they employ the alarming suggestions of “mafia-style” criminality. The FSA has been calling for stronger enforcement powers and bigger budgets lately, and this report certainly serves to add urgency to their cause. And measures designed to crack down on the worst of criminals seldom stay confined to their original targets. In the US, anti-racketeering laws that were passed to aid federal law enforcement’s crackdown on the Mafia are now regularly used against white-collar criminals.

FSA warns of criminal gangs cashing in on insider dealing [Times of London]

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Posted in: Insider Trading, Legal

Comments

1

Posted by gab, Jul 03, 2007 10:53AM

Sorta reminds me of the line I read y'day. What do you get when you combine a Mafia Don and a bond salesman. A CDO salesman - he makes you a deal you can't understand!

2

Posted by Iceman, Jul 03, 2007 10:57AM

I'm a lawyer for small emerging companies, and can testify that there are a huge amount of frauds and scams in the small company side of the financial world.

From boiler rooms shilling garbage stocks to uninformed investors, to pump-and-dump schemes involving thinly traded stocks, to companies with no real operations that raise money from idiots, to fraudsters who prey on small companies by making promises they know they can't fulfill while requiring large fees up front, it's a very dangerous business for the unwary.

The sums of money involved are far larger than 99% of criminals would ever earn from street crimes, while the danger of physical violence is nonexistent, and the chance of going to jail is usually very small except in the largest or most blatant frauds. It's not surprising that smarter criminals have turned to stock frauds and other financial scams rather than bank robberies or car theft or drug dealing.

And England's regulations are even more lax than the pre-Sarbanes-Oxley US. For all the high expense of complying with US securities laws, it does force a huge amount of disclosure, so that if you know what you are doing you can usually get the right information - you easily can find out if a company has no actual business or if the individual you are dealing with has a criminal history. A lot of the scam artists and garbage companies are now operating on the London markets because the standards there are much more lax. They have good reason to crack down.

3

Posted by KJ, Jul 03, 2007 12:31PM

Nice pic of the Krays.

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