USA: History’s Largest Free Port for Financial Freebooters?

The term “freebooter,” derived from the Dutch vrijbuiter, means one who openly steals property.  Once freebooters sailed the coasts of the Carolinas, Florida and Caribbean isles from free ports such as Port Royal, Jamaica, taking what they wished with little or no consequences because Jamaican Colonial authorities granted them immunity.

Today, a federal appeals court may determine if the United States has become the largest such free port for swindlers in modern history.  At issue is the Supreme Court’s controversial 2010 decision (Morrison v. National Australia Bank), that provides immunity from investor accountability to off-shore shysters preying on Americans as well as on-shore fraudsters plundering foreigners as long as the fraudulent transactions take place outside the USA or involve securities listed overseas.  

Many experts believe Morrison also provides immunity from SEC civil and federal criminal actions.

“Political” High Court Decision to Curtail Investor Rights May Also Free Criminals

With Morrison, the Supreme Court “cavalierly overturned 40 years of precedent,” says former SEC commissioner and Brooklyn Law professor Robert S. Karmel.  She says there was no compelling reason for the Supreme Court to even hear the case and only did so to “further its campaign to limit [investor fraud] class actions to the extent possible”:

“Justice Antonin Scalia’s majority [Morrison] opinion is blatantly political.”

Justice Scalia’s majority opinion may also be so broadly worded that the United States Court of Appeals for the Second Circuit may be compelled to conclude that no prosecution — civil or criminal — of wrongdoers peddling foreign securities is possible within the United States. 

Among other unfortunate and unforeseeable consequences, such a ruling would overturn the criminal convictions of two flamboyant “old school” fraudsters:   Alberto Vilar, who falsely claimed to be a Castro-fleeing Cuban émigré but did have an investment operation in Panama (an old pirate haunt); and, Ross Mandell, a broker of questionable repute who resides in Boca Raton (the new Port Royal?).

Flamboyant Convicted Swindlers May Be Off the Hook

First, let’s meet Ross H. Mandell, a Boca domiciled broker with a regulatory challenged past – he was suspended from trading on the New York Stock Exchange — and million dollar life-style, the New York Times reported.

 A unanimous federal jury convicted him of running an old-fashioned “boiler room” operation in Florida to defraud mostly British investors by using fraudulent sales pitches to flog questionable stocks on a London exchange.   Although, he allegedly defrauded Americans as well, his lawyers contend the statute of limitations had run out on those crimes.

New York Times columnist Floyd Norris recently described Mr. Mandell:

“The government says the money he gained from defrauding investors paid for ‘first-class flights, five-star hotel suites, expensive meals, adult entertainment and personal spending,’ even though his firm was losing money. 

It says some of the money was used for ‘work done on Mandell’s penthouse apartment at Trump U.N. Plaza’ in Manhattan.” 

Let’s now consider the case of Mr. Alberto Vilar, a high-profile broker-dealer who was found guilty in federal court of stealing millions of customers’ funds.  Listed by Forbes in 2005 as among the 400 wealthiest men in America, Mr. Vilar had assets believed to total nearly $1 billion.  He was an opera lover and a very generous, well-known patron. As reported in The New Yorker, despite his love of the performance art, Mr. Vilar reportedly embezzled $2 million from star tenor Placido Domingo, in an incident unrelated to his securities conviction.

In an appeal citing Morrison, Mr. Vilar’s attorneys say he should be released from incarceration at a federal facility and his conviction overturned because the transactions and investments at issue were allegedly structured at the defendant’s Panamanian registered broker-dealer, rather than within the United States.   As reported in Bloomberg, in a sign some believe signals that the federal appeals court may agree, Mr. Vilar was ordered released on bail pending the appellate decision.

Foreign-Based Frauds of Petty Criminals and Too-Big to Fail Banks
These are simply two recent fraud cases that may be turned upside down by Morrison.  And, although the alleged crimes were egregious, these were relatively small scale transgressions when measured against the off-shore connivances of too-big-to-fail banks that can cause multi-billion dollar investor losses. Think Goldman Sachs and its’ allegedly fraudulent sub-prime mortgage derived collateralized debt obligations structured in London, but sold to U.S. investors.

Whether petty criminals or clever multi-national corporate schemers, such wrongdoers may have been dealt a “get out of jail free” card by the Supreme Court.  They have also been immunized from accountability to their victims.

Congress Should Take Action before Jolly Roger flies beside Stars and Stripes

Many agree with former SEC commissioner Karmel (cited above) that it is time for Congress to overturn Morrison.  Salvator J. Graziano, Esq, a partner at Bernstein Litowitz Berger & Grossman, LLP, president of the National Association of Shareholder and Commercial Attorneys and former Assistant District Attorney for Manhattan agrees. He summed-up the wider repercussions of Morrison in calling for Congress to take action:

“With Morrison, the Supreme Court unwittingly has allowed the U.S. to become a safe haven for fraud so long as the securities at issue are listed abroad.  On behalf of investors at home and abroad, we ask Congress to over-turn the unfortunate Morrison decision by restoring the rights of action of defrauded investors and clarifying the authority of federal regulators and the Department of Justice.”

Congress should act before the Jolly Roger flies beside the Stars and Stripes over Wall Street and Boca Raton.USA: History’s Largest Free Port for Financial Freebooters?