Outside of foreclosure fraud and the chain of title issues that could bring down the entire financial system, you still have your run-of-the-mill financial fraud. Wall Street executives and traders have only a passing familiarity with integrity, and the authorities may finally be catching up with them.

Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation, according to people familiar with the matter.

The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.

The investigations, if they bear fruit, have the potential to expose a culture of pervasive insider trading in U.S. financial markets, including new ways non-public information is passed to traders through experts tied to specific industries or companies, federal authorities say.

I think that anyone who has looked into this knows that there is fraud at the heart of Wall Street. This investigation concerns, if anything, small-time fraud comparatively; “tens of millions of dollars” is a rounding error in the grand scheme of things. But nevertheless, this is an important investigation. Basically, the FBI’s taking a look at the selling of inside information, through “expert network” services. Insiders at the largest Wall Street firms also worked for these consultants, who then told investors inside information about their companies for a fee. The individual investor without access to this information basically doesn’t have a chance, as those paying for the services thrive on this non-public, confidential information. And now the feds are looking to roll the whole thing up.

You can see the arrogance of those engaged in this practice from this anecdote:

Independent analysts and research boutiques also are being examined. John Kinnucan, a principal at Broadband Research LLC in Portland, Ore., sent an email on Oct. 26 to roughly 20 hedge-fund and mutual-fund clients telling of a visit by the Federal Bureau of Investigation.

“Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information,” the email said. “(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman’s gracious offer to wear a wire and therefore ensnare you in their devious web.”

Clearly, penitence is not their strong suit.

The Manhattan US Attorney is heavily involved in this, with a grand jury already hearing evidence. Yves Smith believes that the investigation focuses on the worst abusers rather than trying to end the entire seedy practice. But real criminal penalties would present a potential deterrence.

The SEC, which is part of the probe, has definitely stepped up their enforcement activities under the Obama Administration.