A Fraud by Any Other Name
In the roaring 90's, most private investors were little guys who perhaps didn't know stocks but knew their brokers. Or at least they thought they did.

Last week they got to know their investment advisers a little better. Ten major Wall Street investment firms agreed to pay $1.4 billion to settle conflict-of-interest charges; they would do things like issue enthusiastic research reports about the same stocks they were describing as worthless junk in internal e-mail messages. Federal, state and market regulators singled out three of the firms — Citigroup's Salomon Smith Barney, Merrill Lynch and Credit Suisse First Boston — and accused them of outright fraud in issuing bogus research.

The $1.4 billion amounts to only 7 percent of the industry's profits from last year, Wall Street's worst year since 1995. (I wonder why it was the worst year. Could it be that people don't trust Wall Street any more?) But the settlement also includes "structural reforms" intended to protect the individual investor from being duped again. From now on, the regulators will make sure that the firms build "barriers" to separate their investment bankers from their stock analysts. They won't talk to each other. Really.

Right. Imagine the same remedies being imposed on the other purveyors of fraud in the news last week: outfits that use the Internet to sell things like penis enlargers. The state of Virginia couldn't. Instead, it simply outlawed fraudulent commercial e-mail, known as spam. Send spam to, from or through Virginia, and you could be looking at five years in prison.

What if, instead of threatening to send them to jail, the authorities said: "O.K., hand over 7 percent of last year's profits on that herbal Viagra. Then follow up with some structural reforms. Make sure the people testing this stuff don't talk to the people selling it." How would they react? How would we?

What is the real difference between Henry Blodget, Merrill Lynch's Internet analyst during the tech boom, and the guy who tries to entice me into the latest e-mail scam? With Mr. Blodget, I suppose, there was a tiny chance that things could work out. But both are trying to sell me something they know to be worth less than advertised. Mr. Blodget reached me through the programming of all-business cable channels like CNBC. The guy from Nigeria who promises me untold thousands if only I will provide him with the number of my bank account reaches me through the Internet.

The central engine of fraud never changes: tell lies to gullible people until they hand over their money. By the time the dupes find out those supplements don't actually make them lose weight while they sleep, or that the stock they bought for $90 is actually worth 32 cents, their checks have been cashed, their credit cards charged.…
http://www.nytimes.com/2003/05/04/opinion/04DOOL.html