This past year has proved to be just as scandalous as 2009 when it comes to Wall Street greed. Of course, everybody is innocent until proven guilty, but our list of Wall Street scandals involving the SEC could make for a great made-for-TV movie. (Take a look at last year's big scandals in 2009's Biggest Financial Scandals.)
IN PICTURES: Celebrities With Big Dreams That Paid Off
Green Mountain Coffee
Let's start with an SEC inquiry into an accounting irregularity that's as common on Wall Street as bulls, banker's collars and analysts who can't seem to get anything right.
Green Mountain Coffee has made investors a lot of money in 2010 and was up more than 13% from January to September of this year. In November, GMCR announced that it would restate its financial statements for fiscal years 2007-2009 and the first three quarters of 2010 as a result of an accounting error, according to a report released by Reuters on November 19.
The company had been under investigation by the SEC since September for its accounting practices. Although the mistakes have not been attributed to misconduct by the company or its employees, the investigation continues. In its December 9 Q4 conference call, the company stated that it was hoping for a quick resolution, but in its 2010 10-K report, it said that additional restatements of prior financial statements are still possible.
Trading Against Your Clients?
Another case of Wall Street antics surfaced when Goldman Sachs, one of the nation's largest investment banks, was accused of being on both sides of an investment product. Picture it. You go to your broker and they tell you about this great new product that allows you to invest in the housing market that has a good probability of rising in value over the next few years. Sounds like a good deal but there is something that your broker didn't tell you: this is a product they created with input from a hedge fund that planned on selling it short. In other words, they believed that the product will lose value.
Sound fishy? This basically what Goldman Sachs, along with several other major Wall Street banks, did with collateralized-debt obligations (CDOs). The SEC didn't like it either. After a very public investigation, Goldman Sachs agreed to pay $550 million to the SEC to settle civil charges that it had misled its investors, although the bank did not admit wrongdoing. (Learn more about CDOs in Collateralized Debt Obligations: From Boon To Burden.)
This may just be the decade of the Ponzi scheme; if that's the case, this year's winner has to be former Manhattan money manager Kenneth Starr. According to the New York Times, Starr partied with celebrities and counted many of them – such as Al Pacino, Martin Scorsese and Ron Howard – as clients.
Unfortunately, the good times came to an end when Starr was arrested on May 27 on charges of defrauding several high-profile clients in a multi-million dollar Ponzi scheme. He did it the same way the infamous Bernie Madoff did: wine and dine his clients until they let their guard down enough to fork over huge sums. In fact, he was reportedly so charming that some of his investors had a hard time believing he had committed the crime, the New York Times said. (For more information on Bernie Madoff, see Madoff No "Mystery Man" To The SEC.)
In September of 2010, Kenneth Starr pleaded guilty to a $50 million fraud and the SEC gladly proclaimed to the world that they brought down yet another Ponzi scheme.
IN PICTURES: Top 7 Biggest Bank Failures
Mark Cuban Gets Impatient
Dallas Mavericks owner and billionaire entrepreneur Mark Cuban is known for being two things: loud and impatient. This year he made an offer that may truly be a once-in-a-lifetime occurrence. The SEC began investigating Cuban in 2008 for an alleged insider trading violation dating back to 2004, but the charges were thrown out.
The case was revived on appeal in September, but the SEC revealed that the amount of material to review is so vast that they don't expect to take any more official action on this case until all documents are reviewed, which may take more than a year. Cuban, not happy about having to wait until 2012, offered to pay to hire lawyers and freelance staff to speed up the review of these documents in order to quickly resolve the case.
The SEC told Cuban to keep his money. But who ever heard of financing the prosecution anyway?
A Pornographic Scandal
You can't have a scandal article without some sex and here it is. This year, the SEC's inspector general revealed that from 2005-2009, senior level SEC employees used government computers to download and view internet pornography.
According to the Washington Post, one female staffer tried to access 1,800 porn sites in a two-week period and had 600 pictures saved on her laptop. Another admitted to sometimes spending eight hours a day viewing porn at the office and, if that isn't enough, one SEC attorney ran out of space on its office computer so he saved the images on DVDs and kept them in his office.
While illegal pornography access by federal workers is nothing new, one can't help but wonder whether it's really the volume of paperwork that holds up cases like Mark Cuban's.
The Bottom Line
While we are making light of some of the more outlandish cases involving the SEC, statistics show that 694 cases were settled in 2010, with the largest payout coming from Goldman Sachs at $550 million. But if 2010 has revealed anything about financial wrongdoing, it's that it is hardly scarce. For every high-profile case the SEC pursues, there are probably many smaller ones flying under the radar.
Find out what happened in financial news this week. Read Water Cooler Finance: Barack Obama Vs. The World.
ProfessionalsFind out about some of the best documentaries that finance professionals can watch to gain a better understanding of their industry.
EconomicsLearn about the top five countries, China, the United States, India, Russia and Japan, that are the largest contributors to carbon dioxide emissions.
Investing BasicsA 10-K is an annual comprehensive report that thoroughly recaps a company’s performance.
EntrepreneurshipThere can be a fine line between a legitimate multi-level marketing opportunity and a pyramid scheme. Here are 9 warning signs.
SavingsLearn how Facebook employs strong measures to keep your information safe when sending money, but understand the rare threats that still exist.
EconomicsThe Tier 1 leverage ratio measures a bank’s core capital against its total assets.
Investing BasicsSchedule 13G is an SEC form an investor must file upon taking ownership of 5% or more of a company’s outstanding shares.
Investing NewsThe SEC's adoption of equity crowdfunding rules, initiated under the JOBS Act, enables small investors to invest in companies that show early potential.
InvestingFATCA regulations have cast a wide net on offshore banking activities, and many innocent account holders might get caught in its tangle.
Investing NewsCan business leaders effectively lead the country's highest office? Next year may mark the first time that we'll find out.
A financial advisor is allowed to pay a referral fee to a third party for soliciting clients. However, the Securities and ... Read Full Answer >>
The Securities and Exchange Commission (SEC) requires mutual funds to report complete lists of their holdings on a quarterly ... Read Full Answer >>
The term "financial advisor" can refer to a couple of different roles. It most often refers to a broker-dealer or an investment ... Read Full Answer >>
The U.S. Securities and Exchange Commission (SEC) has set forth disclosure requirements for private placements, including ... Read Full Answer >>
The inspector general of the U.S. Securities and Exchange Commission (SEC) oversees, audits and conducts investigations of ... Read Full Answer >>
Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent enterprises ... Read Full Answer >>