Cracking down on white-collar fraud

It seems you can’t pick up a newspaper or turn on the TV these days without another story about investors being ripped off in various Ponzi or other white-collar fraud schemes: Bernard Madoff and Allen Sandford cases in the U.S., Earl Jones in Montreal and now Milowe Allen Brost and Gary Allen Sorenson in Alberta, who have been charged with operating a $100-million Ponzi-type scheme affecting some 3,000 investors.

It seems you can’t pick up a newspaper or turn on the TV these days without another story about investors being ripped off in various Ponzi or other white-collar fraud schemes: Bernard Madoff and Allen Sandford cases in the U.S., Earl Jones in Montreal and now Milowe Allen Brost and Gary Allen Sorenson in Alberta, who have been charged with operating a $100-million Ponzi-type scheme affecting some 3,000 investors.

Not even some of Canada’s most prestigious financial institutions are immune from what seems to be a growing epidemic of white-collar crime. Bank of Montreal and BMO Nesbitt Burns, its brokerage arm, announced recently they are suing one of their own retail investment advisers for $10 million for allegedly stealing clients’ money.

All these cases seem to confirm that investment fraud is a big, and costly, problem.

Last year Phone Busters, the central agency in Canada that collects information on identity theft, telemarketing and advanced fee fraud letters, handled 62,264 calls, seven per cent more than in 2007.

In the first four months of this year it handled 22,493 calls. If that pace continues throughout the year, the number of calls in 2009 will increase 8.3 per cent over 2008.

In 2008, Canadian victims lost $23.9 million to mass-marketing fraud, $9.5 million from identity theft and $3.2 million from advanced fee fraud.

In the first four months of 2009, Canadians lost $6 million, $3.6 million and $485,000 respectively to these three types of fraud.

Those numbers likely are just the tip of the iceberg.

Phone Busters, which lists 24 different types of scams involving everything from vacation, travel and vehicle warranties to pyramid schemes, false charities, and cheque overpayments, believes 95 per cent of frauds are never reported.

Scam artists have been around for years, but experts believe they tend to become more prevalent during recessions and bad economic times.

Fraud also has become easier to perpetrate in recent years with a rise in the use of the Internet, which provides quick, easy and cheap access to literally thousands of potential victims with the push of a computer key.

The seeming increase in white-collar fraud is prompting the federal government and the U.S. Security and Exchange Commission (SEC) to take notice, and action.

Federal Justice Minister Rob Nicholson has announced the government plans to introduce mandatory jail sentences for serious fraud convictions as part of new legislation aimed at white-collar crime.

The new legislation would change the Criminal Code to impose mandatory penalties for fraud, allow courts to consider longer sentences if there are aggravating circumstances, and require the courts to consider restitution for victims.

“This bill acknowledges that those who fall victim to these kinds of fraud have been victimized just as much as the person who has been mugged in an alley,” Nicholson said. “The effects in terms of loss of financial security and confidence as well as the sense of humiliation can be every bit as serious and damaging as physical threats and intimidation.”

The SEC is training more than 300 examiners on ways to spot fraud and is considering creating a fraud school to train staff in detecting market abuses after the SEC failed to stop Madoff’s $65-billion Ponzi scheme over a period of 16 years.

The fraud detection training is being co-ordinated with the Commodity Futures Trading Commission, and the SEC is revamping its enforcement division and forming five specialty units focusing on cases involving asset management, structured products, municipal securities, foreign corrupt practices and market abuse, according to reports from Bloomberg News.

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be contacted at

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