For the new U.S. attorney, who will come from among the 16 names on this list, busting financial fraud will be the top priority in South Florida federal courts. And although those cases are endlessly complex, it's fairly simple to get an overview of the region's candidates for criminal prosecution: Just look at what the SEC's been up to.
The U.S. Securities and Exchange Commission polices fraud in the civil courts, where it needs only prove a preponderance of evidence to win its case. A legal standard much easier to meet than the one in the criminal courts, "beyond a reasonable doubt," and for that reason the SEC tends to make its move first. Still, those companies who encounter fraud allegations from the SEC know that they're at risk of a criminal investigation by federal agents and prosecutors.
A 1992 SEC case involving South Floridians Frank Avellino and Michael Bienes was among the first clues that Bernard Madoff was up to no good, even if it took 16 more years to reveal $50 billion in fraud. The Stanford Financial Group's $8
billion alleged fraud makes it a prime candidate for a criminal filing.
In Bob Norman's feature story on Joel Steinger, the SEC's case came a decade before the federal criminal case was filed. Steinger awaits trial on over $1 billion in fraud.
But given the limited resources of federal investigators, combined with the seemingly limitless amount of dubious financial dealers in South Florida, the new U.S. Attorney will have to decide which of the bad guys are big enough to be worth busting and which are not worth his prosecutors' valuable time.
Given the billions of fraud in the Madoff case and others, does a company with a million dollars of investor funds and which has been accused of fraud by the SEC warrant a criminal investigation? The former operators of Boca Raton's University Lab Technologies are
about to find out.
Two years ago, I paid an unannounced visit to the Boca headquarters of University Lab. Here was a company that was claiming that its "nutraceutical" products -- consisting of natural ingrients (and thus less regulated by the feds) -- performed as well or better than their pharmaceutical counterparts. A fairly incredible claim. The small company offered cheap stock and the chance to win big for investors who bought now, before University Lab products took the market by storm.
But it seemed a bad omen, at least, that the company's leader, George Theodore, had recently left a Canadian company just as its stock plummeted. Nor did it bode well that by the summer of 2007, Canadian provinces were issuing cease-trade orders against University Labs on the basis that salesmen were selling unregistered stock. On the internet anonymous message board posters who sounded either like former associates of Theodore or burned investors, were calling the company a scam.
When I visited Theodore, he was the first one to use that word. I recounted the scene in a New Times feature story in August 2007.
Outside the office, on a balcony that overlooks a lushly landscaped courtyard, Theodore finishes a cigarette and grins unctuously. Suddenly, he's convivial enough to drape an arm over my shoulder as he asks, "You don't really think we're a scam company, do you?"Two weeks after my story published, the SEC filed an emergency civil action against University Lab, alleging that it had misled investors. The regulators alleged that University Lab had raised over a million dollars during a six-month stretch from December 2006 to May 2007.
The case wasn't settled till this past January when, in a fashion typical to SEC proceedings, Theodore consented to a final judgment in the case without admitting or denying the allegations in the original complaint. But he agreed to a range of penalties, including being barred from offering a "penny stock" like University Lab and disgorgement payment of $422,000.
The SEC attorney in that case, Amie Riggle Berlin, was not willing to venture a guess on whether federal prosecutors would scoop it up. In informal conversations these past few weeks with U.S. Attorney contenders, I asked whether an SEC fraud suit claiming $1 million in investor funds would be worth investigating for a possible criminal case. The consensus opinion was that while such cases probably land on the small end of the spectrum, much depends on the details of the case -- that is, whether it looks like an easy victory, whether there are asset seizures with potential to help fund the case's expenses and whether the accused is high-profile enough to be an example to all the other aspiring fraudsters.
At the moment, there is no evidence that University Lab is under criminal investigation.
