'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.

Saving the Bees

Honeybees contribute more than $15 billion to the U.S. economy. A short documentary considers how desperate beekeepers are trying to keep their hives alive.

Join the Discussion

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

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In