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Obama Signals Green Light for Stock Fraud

This didn't get much attention in the rush to claw through the details of the Obama job plan. But Sam Antar, convicted felon and mastermind of the Crazy Eddie stock fraud, blogged about it the following day.

Antar, who navigated the Crazy Eddie stock fraud past gullible investors and clueless analysts in the 1980s, immediately recognized what this means: It's not a Democrat-Republican issue, but one of criminals versus investors. "Why White-Collar Criminals Should Thank President Obama and Congressional Republicans," goes the title of his blog post.

You don't have to be a reformed felon like Sam Antar to understand how dreadful this idea truly is. To anyone who followed the dreary history of microcap stock fraud as it gathered steam in the 1990s, this plan is breathtaking in its naivete. Investor ripoffs were rife among the smallest echelon of the equities market, with microcap offerings being ripe for exploitation by unscrupulous stock promoters.

While SEC registration was anything but a panacea, removing registration entirely for offerings in the $5 million to $50 million range greatly expands opportunities for private-placement fraud, a peril that I saw frequently during the bad old days of microcap fraud in the late 1990s.

Those days, by the way, were the era of Bill Clinton and his self-aggrandizing SEC Chairman Arthur Levitt, proving that incompetence in dealing with stock fraud is by no means a Republican monopoly. At one microcap brokerage that spun out of control in the early 1990s, Hanover Sterling, 12,000 investors were ripped off in sales of worthless stocks. While their aggregate losses were not as high as the ones that afflicted Bernie Madoff's victims, the amount of investor savings destroyed was, proportionally, often the same.

And mind you, Hanover dealt in stocks that were registered with the SEC. Had there been no registration requirement, the ripoffs of that era would have been even worse. What worries me about "crowdfunding" -- when it involves weakening regulation of the capital markets -- is that it is more than just shoddy rulemaking. What Obama did in his speech, and what his aides did in that White House blog post, was to adopt the Republican-Libertarian "regulation is bad" ideology, that the only way forward is to deregulate the securities market. The underlying assumption is that raising capital in the markets should be cheap and easy, that "red tape," as Obama put it, is bad.

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