Profiling – from Hannibal Lecter to Bernie Madoff

SSA Mark Hitts, SSA Susan Kossler

Bernard Madoff — the architect of history’s biggest Ponzi scheme — and Gary Ridgway – the Green River killer — would seem to have little in common aside from being branded as “monsters” in the tabloids.

But a team of FBI agents, the same ones who specialize in helping local police track down serial killers like Ridgway, are using their expertise in behavioral profiling to target white collar criminals like Madoff.

For about two years now, agents with the Federal Bureau of Investigation’s Behavioral Analysis Unit have been consulting with their colleagues in New York who specialize in securities fraud detective work. The BAU agents are going over the case files put together by the FBI for Madoff and other convicted scammers like Bayou Group’s Samuel Israel, whose $400 million hedge fund turned out to be Ponzi scheme, and former Democratic fundraiser Hassan Nemazee, who stole nearly $300 million from Citigroup and two other big banks.

The hope is the BAU agents, whose work in profiling serial killers has been popularized in books, movies and on TV, can get into the minds’ of fraudsters and see what makes them tick…

The expanded efforts to sniff out white collar crime arise from a deep-seeded belief shared by many in law enforcement – that fraud is rife in some corners of Wall Street and corporate America. Manhattan U.S. Attorney Preet Baharara says his office, which is prosecuting the big insider trading case against Galleon Group co-founder Raj Rajaratnam, has found that trading by hedge funds on confidential information is “pervasive and pernicious.”

Indeed, some of the FBI agents in New York assigned to investigating securities fraud openly describe some of their targets as operating like “professional criminals” – the kind of language you might expect agents to use when discussing the Mob or other organized crime syndicates…

Yet the agents with the FBI’s behavioral group, some of whom also are active in developing profiles of terrorists and criminals who prey on children, believe they can develop profiling strategies that will help undercover agents ferret out corrupt corporate titans, shady hedge fund traders and other Wall Street con artists. At a minimum, the profilers want to determine if major white collar criminals share enough personality traits and behavioral patterns that agents in interrogations and investigations could use the information they glean…


Sam Anter, CFO of Crazy Eddie electronics stores

Meanwhile, a relatively new SEC team that specializes in insider trading is already showing there may be some merit to profiling in white collar cases. This group has developed an expertise in analyzing associations between traders suspected of wrongdoing and their friends and relatives…

This so-called pattern-recognition analysis may not be profiling in the classic sense. The SEC isn’t focusing on behavioral characteristics of suspects as the FBI agents do. But regulators are profiling data to help find patterns in trading activity that previously would have left regulators befuddled and scratching their heads.

And the SEC’s new pattern-recognition analysis approach has achieved some early success. The market abuse team’s analysis proved instrumental in helping federal prosecutors bust a 17-year-long insider trading ring that generated at least $37 million in illicit profits, say people close to the investigation.

All are systems most geeks are familiar with. Certainly some of the BAU methods have been successfully popularized in the eyes of the general public – and assigned values well beyond the reality investigators assign to the approach.

But, the expansion of the same systems and methods of analysis into pattern recognition and data mining may well prove valuable in the wonderful world of finance. I know most geeks are paranoid enough to believe officialdom is only out after them – but, in the long run successful careers fighting crime are a numbers game. That means bringing home the bacon from global hogs.

RTFA. 4 pages of analysis, potential, pros and cons. We always need more cons. 🙂

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