Fraud in the Markets

A dramatic look at fraud's role in our financial markets-and how you can protect yourself

Fraud In the Markets reveals the critical role fraud played in the global financial crisis-even as many of the perpetrators continue to go unpunished. Shedding light on the reckless conduct of the former senior executives at major Wall Street firms such as Lehman Brothers, Bear Stearns, Merrill Lynch and others just before their collapse, this timely book shows how the culture of "anything goes" on Wall Street fueled the innovation of exotic but deadly asset-backed securities.

A frank insider look at the most dramatic economic and business headlines in recent memory, you will find revealing discussion of

• The egregiously fraudulent lending practices that engulfed the entire US mortgage industry
• The brazenly deceptive marketing of asset-backed securities
• A road map to prevent similar disasters from recurring

Fraud in the Markets offers forward-looking advice, with practical guidelines for protecting yourself and your company from various forms of fraud that were found to have played a role in the current economic and financial crisis.

Preface.

Acknowledgments.

Introduction: A Brief History of Fraud in Financial Markets.

Banking Fraud in the Early Days.

Market-Building by Morgan.

Flim Flam Finance.

Savings and Loan Fraud Follies.

Beginning of the End.

Asset-Backed Securities.

Off to the Races.

Chapter 1 The Fraud Culture.

I Wanna Be Rich.

The Spread of Ethical Erosion.

What It All Means.

How We Got Here.

The Evolving Shapes of Fraud: Pressure, Opportunity, and Rationalization on Wall Street.

An Triangle or a Diamond?

A Fraud Pentagon?

Chapter 2 The Politics of Banking Fraud.

Politics and Regulation.

Antebellum Banking.

Early Due Diligence.

Central Banking: The Drive Is Revived.

Enter the ABA.

The Warburg Factor.

Financial Regulation Today.

What If?

Is Regulation Here to Stay?

Chapter 3 Modern Day Financial Services Fraud (1980-2010).

The Fraud Culture and Today's Frauds.

The “Milken/Boesky” Era.

Fancy Financing Foments More Fraud.

The Ignominious Birth of “Pay for Performance”.

Risky...Riskier...

A Deluge of Derivatives.

The Good Side of CDSs.

Shortening Memories.

Enron et al.

Chapter 4 Reform, Re-Regulation, and the Persistence of Fraud.

Better Anti-Fraud Controls.

Beyond Financial Reporting Fraud.

Regulation and Legislation.

More Aggressive Action Needed.

Chapter 5 The Real Estate Bubble and Bust: The Fraud Factor.

How Did It Get So Bad?

Subprime Mortgages: Licenses to Steal.

Who Is Subprime?

Going for Broke(r).

Chapter 6 The Makings of a Meltdown.

Other Fraud-for-Profit Schemes.

Greed Grows and Fraud Follows.

Fraud for Property Schemes.

The Role (or Not) of Predatory Lending.

Chapter 7 Beginning of the End: Death by Derivatives.

Playing with Fire.

Chaos Out of Order.

Anatomy of a Subprime Deal.

The Fine Art of Corporate Deception.

Bankers Go with the Flow—Into the Tank.

Hard Money.

And Then There's AIG.

How “Toxic” Securities Ended Up in So Many Investor Portfolios.

Rating Agency Deception Redux.

And So, The End Begins.

Chapter 8 Can the Circle be Broken?

So What Now?

Critical Reform Issues.

Policing, Policy, and Propriety.

About the Author.

Index.

"A dramatic look at fraud's role in our financial markets-and how you can protect yourself. Fraud in the Markets reveals the critical role fraud played in the global financial crisis-even as many of the perpetrators continue to go unpunished. Shedding light on the reckless conduct of the former senior executives at major Wall Street firms such as Lehman Brothers, Bear Stearns, Merrill Lynch and others just before their collapse, this timely book shows how the culture of "anything goes" on Wall Street fueled the innovation of exotic but deadly asset-backed securities." (AccountingWEB.com, March 19, 2010) Peter D. Goldmann is founder and President of White-Collar Crime 101 LLC, the parent company of FraudAware and publisher of the monthly newsletter, White-Collar Crime Fighter. Peter has been the Publisher and Editor of White-Collar Crime Fighter for over twelve years and is recognized as a leading expert in the areas of fraud detection, prevention, investigation, and training. He has written numerous articles on practical approaches to fraud prevention and detection for, among others, Internal Auditor, Investor's Business Daily, the Fraud Examiner and Bottom Line/Personal. He speaks¿at events sponsored by the Association of Certified Fraud Examiners, the International Association of Financial Crimes Investigators, and numerous industry trade associations. He is also a member of the Editorial Advisory Board of the Association of Certified Fraud Examiners. The subprime mania that swept the home mortgage and securities markets circa 2002–2003 was the last straw for the U.S. financial system as we knew it from the early years of the twentieth century. Starting with the establishment of central banking in 1913, the American economy has toughed out several recessions, including the devastating years of the Great Depression.

And then came the Great Crash of 2008.

It is no coincidence that the financial services industry was the breeding ground for the deadly forces that brought on the financial crash and its aftershocks. It is also no surprise that fraud played a starring role in the emergence of these dark chapters in American financial history.

Offering a complete perspective on the complicated and sobering impact of fraud in pushing the world's preeminent financial system to disaster on many occasions, Fraud in the Markets: Why It Happens and How to Fight It reveals:

• The genesis of the culture of "anything goes" on Wall Street that fueled the innovation of super-risky asset-backed securities and the financial devastation suffered by institutions that invested in them

• The egregiously fraudulent lending practices that engulfed the entire U.S. mortgage industry

• The reckless and legally questionable conduct of the captains of Lehman Brothers, Countrywide, Washington Mutual, and other major financial firms just before their collapse

• The best and brightest ideas for preventing similar disasters from recurring

• Practical guidelines for protecting your investments and your company from various forms of fraud and deception

What really matters is not so much who to blame for the subprime crisis and its related financial failures, but how this perfect storm happened. Written by a nationally recognized expert in the field of fraud detection and prevention, Fraud in the Markets shows you what you can do to protect your investments and your company from devastating financial market fraud, corruption, and deception.

Praise for Fraud Markets

"Peter Goldmann has written a fascinating book on the financial markets and the devastating impact of fraud and ethical erosion. His historical commentary is reason enough to read this book. But Goldmann really shines when he puts his unique perspective on the causative factors of the worst financial crisis since the Great Depression."
—Martin T. Biegelman, Director of Financial Integrity, Microsoft Corporation

"The financial crises that began in 2007 had a devastating impact on the U.S. economy that was felt around the world. Peter Goldmann leads us through this crisis and explains the role that financial fraud played in the tragedy. Goldmann's book is instrumental in helping us understand the devastation fraud can cause when it goes unchecked. We can only hope that by examining the mistakes we made, we will not be doomed to repeat them. This book provides a strong starting point for that introspection."
—John D. Gill, JD, CFE, Vice President of Education, Association of Certified Fraud Examiners