What Can Be Done About Fraud?

               Every day we hear stories about some unlawful practice which lands some big company’s runners in jail, or create substantial lawsuits. The funny thing is how the problems only come out to the light when the metaphorical house of cards falls down; maybe it is not funny, but terrifying and depressing. Such is the case with Credit Suisse Securities LLC whom made one of these nefarious deals, and pretty much got away with it until the company which they used to commit the fraud collapsed. Signifying that if the company hadn’t gone bankrupt, the outright theft they perpetrated would have gone completely unnoticed.

               The article states “The suit alleges that most of the stock in the offering -- more than 3.4 million shares out of the total offering of more than 4.7 million shares -- didn't go to raise money for the company but was loaned by Credit Suisse to hedge funds that shorted the stock, causing it to drop to less than $1 when ECD filed for bankruptcy in February 2012. The lawsuit against Credit Suisse acknowledges that a supplemental filing accompanying the public-offering prospectus, called the convertible-notes prospectus, said that some shares would be loaned to lenders to serve as a hedge on the notes deal, and that short-selling of stock could result in a decline in share price.” 

               The timetable for these crimes is also an important consideration, because the alleged short selling scheme occurred back in 2008. Energy Conversion Devices Inc. went bankrupt in 2012, and now, in July 2013 deliberations are still taking place. Something seems to be missing from this system because five years is too long for something like this to go unpunished. Justin Klimko, an expert in securities law and shareholder and president of Bloomfield Hills-based law firm Butzel Long PC, of ECD's public offering and convertible notes deal, stated "There's a lot involved in proving a fraud," "The essence of fraud is: Did you make a material misstatement of fact? Or did you omit a critical piece of information?” This sounds like a taunt to authorities on his part, by basically saying “You know what I did, but good look proving it”.

               Leaving out the question about actually fixing the problem, because the governing agencies seem to be trying to fix the situation by sending some people to jail and fining the company for whatever they stole. This problem has a good parallel in the death penalty, when does an eye for an eye work? Let’s forget about the ethical implications of the death penalty and look at it from the logical aspect, did killing someone more bring the first person back to life? The same thing happens here, ECD is still bankrupt, people lost their jobs and investors lost a lot of money. A system which cannot prevent this sort of crimes seems to be fighting an uphill battle and facing much potential loss. Assuming that there are measures to stop these kinds of deals from happening, does not take away from the amusingly high expectations Klimko has on nothing happening to his company or person. 

http://www.crainsdetroit.com/article/20130707/NEWS/307079985/stock-short-selling-scheme-led-to-ecd-bankruptcy-lawsuit-says#

http://www.finra.org/Newsroom/NewsReleases/2011/P125300

http://www.insideview.com/directory/credit-suisse-securities-usa-llc