'Operation Broken Trust' Succeeds, Now How Do You Restore Trust?

The Justice Department today announced that its intensive three-and-a-half-month effort to crack down on investment fraud has ended, with charges for more than 500 fraudsters. The staggering amount of deception uncovered by "Operation Broken Trust" led to $10.4 billion in investor losses. To give an idea of scope, of course, that's equivalent to about one Madoff. But in a way, these mini-Madoffs are just as bad, if not worse: they often take advantage of less financially savvy, and thus more vulnerable, consumers. There are more than 120,000 victims in these cases. With all the fraud out there, how can trust be restored?

It's worth nothing that these cases are only those with enough evidence to charge people. That means for every case where charges were brought, there were probably several more cases of deception without enough evidence to pursue. Whether a big or small investor, it's only logical to be wary of anyone who seeks to help you manage your money. It won't be easy to restore confidence in investing.

Serious Penalties

One problem with white collar crime is that it often does pay. The risk is fairly low. You might spend a little time in a country club prison if caught, and lose your illegally obtained fortune. But you could make millions of dollars if you succeed. Because the potential reward for succeeding in a fraud scheme is so great, the punishment needs to match it. We're not talking the death penalty here, but prolonged jail time in a general population prison might be more fitting. Potential fraudsters should be very scared of the consequences they would face if caught.

Lifetime Probation

It's not uncommon for those who participate in a fraud scheme once to do so again in the future. This shouldn't ever be allowed to happen. One way to remedy this might be with a robust lifetime probation system, where all future income is examined each year after release. If these criminals go legit after they serve their time, then that's great. But if they suddenly begin making lots of money again, feds should take note.

Tools for Consumers

Finally, consumers need more resources and tools to identify good, honest investment consultants. Licensing isn't enough. There also needs to be robust and easily accessible information on how to choose an investment manager and warning signs to look for that a financial consultant might be a fraud. The SEC and Justice Department can't possibly catch all of these fraudsters on their own, so diligent consumers should also have the capability and know-how to identify and expose deception.

Fraud poses a serious threat to an economy beyond just the loss of money directly involved. If it becomes too prevalent, then investment will decline as worries mount about finding honest financial consultants. In order for the U.S. to keep its growth rate high going forward, investment must be robust. If fraud continues at such high rates, then it will be very difficult to keep the market strong.

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus


A Stop-Motion Tour of New York City

A filmmaker animated hundreds of still photographs to create this Big Apple flip book


The Absurd Psychology of Restaurant Menus

Would people eat healthier if celery was called "cool celery?"


This Japanese Inn Has Been Open For 1,300 Years

It's one of the oldest family businesses in the world.


What Happens Inside a Dying Mind?

Science cannot fully explain near-death experiences.

More in Business

Just In