PLUS Special Section

White collar crime

No longer a backseat issue

By Phil Zinkewicz

There was a time, not very long ago, when white collar crime took a backseat to other activities of a criminal nature. There was the occasional embezzler, the con man and the stock manipulator. When caught, the courts usually went easy on the perpetrators. After all, it wasn’t as if they had robbed a bank or committed murder. Moreover, Hollywood often turned these criminals into loveable scoundrels, who didn’t cause any real harm to anyone, except the “mark” who deserved to be ripped off. Consider Paul Newman and Robert Redford in “The Sting.”

However, the last couple of years have provided us with a large dose of reality. We have seen firsthand how an economy faltered and nearly fell because of greedy groups of miscreants who wear suits and whose fraudulent activities were conducted on an epic scale.

At next month’s PLUS annual meeting, one panel discussion titled “The Credit Crunch: What’s Crime Got to Do With It?” will center around crime and its effects on the economy. The panel will be moderated by Edward Gallagher, general counsel, Surety & Fidelity Association of America. Panelists will include: Chris Cavallaro, RPLU, managing director, ARC Excess & Surplus; Phyllis Chechile, managing director, Frank Crystal & Co.; David DiBiase, Esq., managing partner, Anderson, McPharlin & Connors, LLP; Melissa Schwartz, assistant vice president, Liberty International Underwriters; and John Wallace, director, product executive, CUNA Mutual Group.

“No one will argue with the statement that turmoil in the financial markets has wreaked havoc on investment portfolios worldwide in recent months,” says Gallagher. “Fraudulent activity that was previously cloaked by an ever-rising stock market and too-good-to-be-true returns has now been revealed. Look at the role that fraud has played in creating our economic crisis. There is mortgage fraud in deliberately lending on bad risks; fraud on housing, with buyers lying to get a mortgage; fraud for profit, with lawyers and appraisers deliberately inflating the values on properties. And, the list goes on.”

Gallagher says that some frauds have been going on for years. “Take the Madoff situation,” he says. “When the stock market was booming, Madoff was able to continue his Ponzi scheme with impunity. But when the market faltered, people who had invested with Madoff wanted to get some of their ‘earnings’ back, only to discover that there were no earnings. Madoff’s effects on the economic crisis are staggering, affecting investors, charities and pension plans.”

New technological advances have been of great assistance to fraudsters, says Gallagher. “There are identity fraud schemes, Internet banking schemes and pump and dump schemes, all made easier through technology. Financial institutions must learn to use that same technology to combat fraudulent activities.”

Gallagher says that his panel will explore all of these issues and more. “Our panel consists of two lawyers, two brokers and two underwriters. So, we will look at fraud in our financial institutions from different perspectives. We intend to address the issues ourselves for the audience and then hold a question and answer period.”