The Curious Case of Not Guilty Scammers

Let's hear it for Judge Renee Marie Bumb of United States District Court in Camden, N.J.

I don't know about you, but I have the feeling everybody is trying to scam me. I'm not talking about those letters from Nigeria, where scams are a leading export. (Just the other day the widow of a former head of a bank in Abu Dhabi offered me an exclusive chance to get in the ground floor of something really big if only I would assist with a small sum of startup money.)

I'm considering here the more humdrum scams on TV, radio, the Internet, in print. I seem to be an integral part of direct marketers' playbooks. I am planning to retire on the many millions I may have won from Publishers Clearing House Sweepstakes and other contests where all I have to do is send in a coupon. My lawyer is still trying to interpret the mouse print at the bottom.

The tide of this crap is ever rising. It's almost as if there is scam artist born every minute.

What galls me, though, is that in the rare instance when the law clamps down and stops a fraud, the alleged miscreants are allowed to settle. While neither admitting nor denying any wrongdoing, they'll pony up a few million anyway out of the goodness of their hearts.

What the public is supposed to take out of this practice is that the alleged perpetrator is not guilty. The hell they aren't!

Judge Bumb blew the whistle on such a deal recently. She blocked a proposed settlement between the Federal Trade Commission and a New Jersey marketing company, which would have allowed the company and its chief executive to beat the rap on a charge they had been making false and unsubstantiated claims that the use of something called "acai berry-based products" would result in rapid and substantial weight loss.

As an overweight person, I am especially susceptible to these miracle elixir offers. Basically, I always assume they are telling less than the truth or even lying. It's unfair, I know, but I'm right 98.2% of the time. Eat less, exercise more is my secret dieting formula, which I plan to direct market some day.

In the acai berry case, the FTC was more thorough in examining the claims, before hitting the alleged scammers with the book. It proposed an $11.5 million settlement with weight-loss advertising company Circa Direct LLC -- a settlement that involved no one pleading guilty to anything. And then Judge Bumb asked, "Why?" She found nothing in the case dossier to indicate that the negotiated deal was in the public interest, she said.

Judge Bumb was following in the footsteps of that other courageous jurist, Judge Jed S. Rakoff of Federal District Court of New York, who took on the SEC in the notorious Citigroup (NYSE: C) case, rejecting a proposed $285 million settlement of fraud charges, with the usual denial of any wrongdoing.

True, Judge Bumb's case against the pill-pushers is small potatoes compared to claims of financial fraud against companies like Bank of America (NYSE: BAC), which settle for pennies on the dollars with no admission of guilt. Executives who deluded investors running companies that packaged and sold trillions in toxic mortgages get away, if not unscathed, only slightly scathed. While I have not studied the hundreds of cases still pending, I have a gnawing feeling justice is not being served.

Call me naïve, but these settlements diminish the majesty of the law. If the laws on the books are not strong enough, we need better laws.

The usual excuse is that the government doesn't have the manpower to gather enough evidence to go to trial. Hire more and better investigators. Furthermore, going to trial is costly. But why should lawyers be prevented from making their $350 or $400 an hour?

What the settlement practice says to the public is that you are allowed to get away with scams with impunity. Even in the unlikely event you are nailed, it's petty cash expenditure, cleaning up the mess.

The least the law can do as the scamming segment of the business community goes its merry way is make the ones it catches admit their guilt. It's a small satisfaction.

So three huzzahs for Judge Renee Marie, along with several others who went down similar paths recently. In January, a Wisconsin federal judge questioned the SEC's settlement with headphone maker Koss Corp. (Nasdaq: KOSS) before ultimately approving it. And last month, Brooklyn federal judge Frederic Block called on the SEC and former Bear Stearns fund managers Ralph Cioffi and Matthew Tannin to explain why a proposed $1 million deal was fair.

May the decisions of these judges to second Judge Jed be a source of inspiration to others on the settlement bench.

In the meanwhile, it might help us folks at home to change the uplifting Latin on the dollar bill to Caveat Emptor.