The year of the Ponzi scheme will be followed by heightened regulation and more aggressive prosecutions, experts say, as US officials respond to past failures.
Bernard Madoff's massive $65-billion fraud grabbed most of the headlines in 2009, but other schemes that paid early investors with money from new victims came to light as the recession dried up new money and Madoff-inspired vigilance boosted awareness.
As 2010 approaches, regulators and prosecutors are scrambling to uncover and pursue more fraudsters, while lawmakers seek to close regulatory gaps through legislation and give enforcement officials more resources.
John Coffee, a law professor at Columbia University, said the Securities and Exchange Commission became a significantly tougher enforcement agency in 2009 and will probably issue lots more criminal referrals next year. "The brief era of light-touch regulation... is gone, apparently," he said.
Big-time Ponzi cases brought by the SEC in 2009 included one against Texas financier Allen Stanford, who was accused of masterminding a $7-billion Ponzi scheme through his offshore bank on the Caribbean island of Antigua. He was also indicted on criminal charges and has pleaded not guilty. Former SEC Chairman Harvey Pitt, who headed the agency from 2001 to 2003, said the scams underscored the failure of the regulatory system to provide the checks and balances needed to deter financial misconduct and to detect it early. The SEC filed 664 civil complaints in the past fiscal year - and has pledged to maintain an aggressive enforcement regime in 2010 - few major criminal actions related to the financial meltdown were brought by the Justice Department - and some it did bring fizzled out.
In November, a jury acquitted two former Bear Stearns hedge fund managers of fraud in the first major prosecution arising from the collapse of mortgage-backed securities.