Bayou Group Fraud

Investors in the Bayou Group are shocked to learn that the millions they paid to this hedge fund are likely gone. Regulators are examining where the money went and whether other companies such as auditors and related brokerage firms should be held accountable. Another source which should be examined is the "clearing broker" who cleared the trades for the Bayou Group to see what they knew and when they knew it.

It is unclear whether investors can recover their losses due to securities fraud and investment fraud in securities arbitration cases. This case sends a wake up call to investors and regulators about the dangers of investing in unregulated hedge funds.

Scott Sullivan WorldCom CFO, Gets Light Sentence

Former WorldCom Chief Financial Officer Scott Sullivan, whom prosecutors labeled as the "architect" of WorldCom's massive securities and investment fraud, was sentenced to five years in prison last week for his role in the scandal.

I believe that the sentence was on the low end of what the judge could have given Sullivan but the contribution of his knowledge and testimony helped convict WorldCom's CEO Bernie Ebbers. Ebbers will receive virtually a life sentence or 25 years in prison for securities fraud.

Although Sullivan was the mastermind of the fraud, his cooperation was essential to convict Ebbers. I believe, however, that Sullivan should have received a higher sentence, perhaps ten years in prison. By contrast, Enron's CFO Andy Fastow received a ten year sentence in a plea deal for his role in the securities fraud and investment fraud at Enron.

The real victims here are the shareholders and employees of WorldCom who lost their retirement and life savings as a result of WorldCom's securities fraud. Most of these investors will receive merely a pittance from the class action distribution. Other shareholders and employees who filed securities arbitration claims can expect to receive a higher payout if they prevail in their cases.

CIBC Settles Enron Suit for $2.4 Billion: It Is Still Just Pennies on the Dollar for Investors

Canadian Imperial Bank of Commerce (CIBC) agreed to pay $2.4 billion to Enron investors who claimed the financial services company took part in a massive securities fraud and accounting fraud that led to the collapse of the energy giant. Total settlements in the Enron securities fraud class action case total more than $7 billion.

While these settlements seem like a lot of money, unfortunately the ordinary investor will receive only approximately 8 to 15 cents on the dollar for their losses. Thus, if a securities investor or Enron employee had $100,000 in Enron stock in his or her retirement account, receiving $8,000 to $15,000 back hardly compensates these victims for the largest securities fraud in corporate history.

I believe that the investment banks should be contributing substantially more money towards the settlement to make their victims whole. Only by assessing substantial liability to investment fraud will the banks change their ways and abandon the "structured finance" practices which have led to major securities fraud and accounting fraud.

Many Enron investors have chosen to forgo receiving class action "pennies" and pursue their claims in securities arbitration against their brokerage firms who had involvement in Enron. These investors if they prevail in their securities arbitration cases are likely to receive a larger payout than they would from the "trickle down" class action settlement.