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FBI Fraud Probes Increase as Insider Trading ‘Widespread’

Feb. 27 (Bloomberg) -- Open FBI investigations into corporate, securities and commodity fraud increased 8.8 percent as of Sept. 30, compared to a year earlier, the agency said in a report.

The Federal Bureau of Investigation had 2,572 such cases open at the end of last fiscal year, according to the report released today. That’s up from 2,364 on Sept. 30, 2010.

The FBI report included data on financial crime probes during the last two fiscal years, including investigations related to the economic downturn that followed the 2008 market collapse.

There was an increase in insider trading probes, which are a “widespread problem” that has plagued the “fair and orderly operation” of securities markets, according to the report.

“Insider trading has been a continuous threat to the fair and orderly operation of the U.S. financial markets and has robbed the investing public of some degree of trust that markets operate fairly,” according to the report.

The FBI is making greater use of wiretaps and undercover operations, which may provide the “best evidence” to prosecute financial crimes, said Timothy Gallagher, chief of the FBI’s financial crimes section, at a briefing in Washington.

Wiretaps Used

“You don’t want to sit in a room with a hundred filing cabinets,” Gallagher said. “You want to get people on tape talking about their crimes.”

The FBI used wiretaps or undercover operations in more than 40 corporate, securities and commodity cases in 2011, compared to less than 20 in 2008.

The FBI released a surveillance video in the case of Yonni Sebbag, who pleaded guilty to selling confidential Walt Disney Co. earnings information obtained by his girlfriend, a company employee. Sebbag was sentenced in January, 2011 to 27 months in prison.

Sebbag was shown asking two people whether they were with the FBI or Securities and Exchange Commission. One of them, an undercover FBI agent, said he was with the Central Intelligence Agency, eliciting laughs from Sebbag.

The number of cases involving falsified financial information “remains relatively stable,” according to the report.

Mortgage Cases Decline

The number of pending mortgage fraud cases declined 14 percent to 2,691 in 2011 from the previous fiscal year. Fraud targeting distressed homeowners has displaced loan originations as the biggest source of fraud in many FBI field offices, the report said.

The FBI also had 2,690 pending health care fraud investigations at the end of fiscal 2011, up from 2,573 in 2010.

The FBI also released a public service announcement featuring actor Michael Douglas reprising his role from the 1987 movie, “Wall Street.”

“The movie was fiction but the problem is real,” Douglas said in the 57-second ad, in which he asks the public to report insider trading and other securities crime to their local FBI field office.

To contact the reporter on this story: Seth Stern in Washington at sstern14@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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