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Criminal convictions, jail time on rise for financial fraudsters

State securities regulators are putting more financial fraudsters behind bars, and those convicted of crimes are receiving increasingly stiff jail sentences.

Although most state securities regulators focus on civil cases and refer potential criminal matters to a local district attorney or the state’s attorney general, the egregiousness of recent financial fraud cases has led them to seek redress through criminal prosecution, according to a number of state regulators.

So far this year, Alabama has had 25 felony convictions related to fraud, with 20 more cases pending. That is about two and a half times the number of convictions the state has seen in past years, said Joseph Borg, president of the Alabama Securities Commission.

In Texas, criminal convictions are also on the rise, said Denise Voigt Crawford, the state’s commissioner of securities.

Last year, the state convicted 13 individuals for financial crimes. In 2009, the state has 10 convictions to date, and Ms. Voigt Crawford expects that number at least to double by the end of the year.

“Convictions are up, and sentences are also lengthier,” she said, pointing to Bernard Madoff’s recent 150-year jail sentence for his monumental $65 billion fraud.

“It’s very clear that judges and juries are really tired of this kind of crime,” Ms. Voigt Crawford said. “We continue to see lengthy jail sentences for securities fraud.”

Ms. Voigt Crawford added that the typical case doesn’t involve a registered or licensed adviser or broker but someone who dons an impressive title and sells shares in a company that simply doesn’t exist.

STIFFER SENTENCES

“It’s not just criminal cases that are on the rise; it’s civil and administrative cases too,” said Fred Joseph, the securities commissioner of Colorado. He said the state is bringing between 10% and 20% more cases of all sorts, and one fraud operator recently received a 132-year sentence.

That is the longest sentence he has ever had for a case in which he was involved, Mr. Joseph said.

Investors, particularly the elderly, are extremely vulnerable to scams that promise guaranteed returns, regulators said.

“We have found that especially in crimes involving the defrauding of seniors, the courts are very harsh on offenders,” said Delaware Securities Commissioner James Ropp.

“Judges are looking at it as if it were a violent crime,” Mr. Joseph said. If victims, particularly the elderly, have had their lives irreparably harmed, judges will hand out tough sentences for securities fraud.

Mr. Ropp is seeing a “significant increase” in financial fraud, particularly Ponzi schemes. Most of the local cases he has seen involve frauds in the $200,000 range conducted by unregistered individuals.

“Most of them are scam artists,” Mr. Ropp said. “It could be the result of the downturn of the economy and increased enforcement efforts. Once the [economic downturn] hit, people started asking where their money was, and these instances rose to the surface.”

Investors may also be more prone to scams because they lost money in the market downturn, Mr. Ropp said. “They may feel they need to make it back and become more prone to the fast-money pitch.”

It’s not unusual for a conviction to result in a five-year prison term, Mr. Ropp said.

“If it’s a big enough scam, and depending on the number of victims, it could be longer,” he said.