LILA RAJIVA: The Mind-Body Politic
Individuals Not Ideologies
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Lazard-Freres Insider Trading Bust
I missed these arrests from back in mid-December:
“U.S. prosecutors filed criminal charges against a former Lazard Freres banker on Wednesday for alleged insider trading that earned him and others $500,000 in illegal profits.
The trading involved some of the highest profile deals during the leveraged buyout boom of 2005 to 2007, including the buyout of TXU Corp, as it was formerly known, for $44 billion, including debt.
The charges were brought against Adnan Zaman, a former vice president at Lazard Freres, in federal court in San Francisco.
Financial regulators also filed civil charges against him and Vinayak Gowrish, a former associate at private equity firm TPG Capital, saying the one-time fraternity brothers stole confidential stock tips and then passed them on to friends. In return, the men received cash kickbacks.
The U.S. Securities and Exchange Commission settled the civil case with Zaman, who agreed to return $78,456 in ill-gotten gains and to be permanently barred from associating with any financial broker or dealer.
The SEC said that Gowrish and Zaman, friends since high school, tipped two friends, Pascal Vaghar and Sameer Khoury. Vaghar and Khoury also settled with the SEC.”
More at Reuters.
My Comments
Is it just me, or does there seem to be an awfully high number of desis (Hindi for home-boy).
What´s with these guys?
As a fellow desi, I have to hang my head. World-class education, world-class jobs, better than world-class salaries…and a world-class racket.
SEC’s Own Accounting Is Deficient
Apparently, the SEC, top regulator of financial fraud, isn’t up to snuff keeping its own financial books…
We don’t say it’s cooking its books, but it sure looks like if someone wanted, they could cook them quite easily, according to this report at law.com:“The GAO found that the SEC “did not have effective internal control over its financial reporting as of Sept. 30, 2009.”
As part of its mission, the SEC is charged with enforcing strict financial disclosure rules for public companies. Apparently, it is less adept at policing itself.
For example, the GAO reported that SEC’s general ledger system allows unauthorized personnel to view, manipulate or destroy data, and that “serious unauthorized activity” may remain undetected.
Until the SEC fixes these problems, the GAO found, the SEC can’t be sure “1) its financial statements, taken as a whole, are fairly stated; 2) the information the SEC relies on to make decisions on a daily basis is accurate, complete, and timely; and 3) sensitive data and financial information are appropriately safeguarded.”
Nor could the SEC “provide evidence that it monitored controls over its payroll exception reports to ensure payroll transactions were recorded accurately and timely.”
While the GAO did credit the SEC with producing statements that were “fairly stated in all material respects,” it flagged “six significant deficiencies” for FY 2008 and 2009.The six areas are:
• information security;
• financial reporting process;
• fund balance with Treasury;
• registrant deposits;
• budgetary resources;My Comment:
Translated, those six problem areas amount to this:
No one can really be sure if or when1. Someone steals information from the SEC
2. Something is wrong in the SEC’s accounts
3. How much money the SEC has with the Treasury
4. How much money the SEC takes in
5. How the SEC is doing on an ongoing basisChew on that…
SEC To Look At High-Frequency Trading and Naked Access
From Reuters, a report shows sharp rise in “naked access” to markets after 2005:
“NEW YORK (Reuters) - A report says that 38 percent of all U.S. stock trading is now done by firms that have “naked sponsored access” to markets, the controversial trading practice said to imperil the marketplace, and which faces a regulatory crackdown.
Naked access gives trading firms, using brokers’ licenses, unfetted access to stock markets. The firms, usually high-frequency traders, are then able to shave microseconds from the time it takes to trade.
Aite Group, a Boston consultancy, found that naked access accounted for just 9 percent in 2005.
The U.S. Securities and Exchange Commission is set to make changes to naked access and less risky forms of so-called sponsored access, when it releases a document expected next month.
The document is also expected to look more generally at high-frequency trading — where proprietary trading firms, brokers, and others use algorithms to make markets and profit from narrow market inefficiency.”
SEC Chief Khuzami On Muckety
Former federal prosecutor and Deutsche Bank general counsel Robert Khuzami was appointed chief of the SEC on March 30, 2009. Here’s his bio.
SEC Shuckin’ and Jivin’ on Madoff Report…
“U.S. District Court Judge Jed Rakoff smelled something fishy in the August 3rd deal the SEC cooked up with Bank of America…….
That was the same view held by the Congressional questioners in the Madoff matter at the February 4, 2009 dust up with top SEC officials. After many rounds of pointed questions produced unresponsive answers, round tripper Andrew Vollmer, then Acting General Counsel of the SEC, explained why. He and his fellow SEC panelists were claiming executive privilege. This position elicited the following outburst from Congressman Ackerman: “Your value to us is useless…Our economy is in crisis, Mr. Vollmer. We thought the enemy was Mr. Madoff. I think it’s you…you were the shield…You come here and fumble through make believe answers that you concoct and attribute it to executive privilege….”
On April 2, 2009, another of Wall Street’s favorite law firms, WilmerHale, announced that Andrew Vollmer would be returning to the firm as a partner. According to the press release, before joining the SEC, Vollmer was a vice-chair of WilmerHale’s Securities Department…….
…And just what does the Madoff fraud have to do with the big firms on Wall Street? The multi billion dollar proceeds of the fraud were wired in and out of JPMorgan Chase where Madoff maintained his firm’s account. Also, Madoff partnered with Citigroup’s Smith Barney, Morgan Stanley, Merrill Lynch and Goldman Sachs to compete head on with the New York Stock Exchange in a venture called Primex Trading as reported here at CounterPunch on January 15, 2009.
Wiki Fudges Importance of Naked Short-Selling
(Continued from previous post)
Many people (including this blogger) see naked short-selling as one of the central rackets used by Wall Street’s racketeers to pull off their heists. It’s a view with quite a few supporters in the industry, government, and major media. But you wouldn’t know it from the wiki entry on naked short selling.
In a piece earlier this piece, urging sharper treatment of Geithner during his hearing, an off-shore journalist Lucy Komisar pointed out that naked short-selling of US Treasury bonds artificially depresses the price of the bonds by increasing the number of shares. It’s in effect a theft from the portfolios of ordinary people who hold them, unaware that their brokers are lending them out and leaving them only with electronic IOUs.
In other words, they’re lending to their broker, rather than to the US government….In fact, the most prominent critic of naked short-selling, Patrick Byrne, has this to say on his blog, Deep Capture:
“Notwithstanding thousands of articles such as the ones cited above, the current Wikipedia article on naked short selling insists that experts believe that it is not a problem. No mention is made of hearings, statements by economists and SEC Chairmen, emergency federal actions and emergency meetings of regulators from the G-20 to stop the world financial system from imploding, etc. ……… notwithstanding the thousands of articles such as the ones I cited above, the current Wikipedia page maintains that the mass media agrees that naked short selling is not a problem…”
– “The Hijacking of Social Media”
Byrne’s site has a useful video by Judd Bagley on naked short-selling:
Byrne is the CEO of Overstock, an online retailer of surplus and returned goods, which, he claims has been the victim of naked short-selling for many years. At one point, around 30% of Overstock’s float (shares held by the public and not institutional investors or insiders) consisted of fails (shares that did not deliver at settlement of the trade) and although fails can have many causes, naked short-selling is certainly the most important of them.
Note: Byrne claims that this isn’t the principal motivation for his campaign against the practice and points to his other philanthropic initiatives as proof. Major media business reporters, including Joe Nocera and Gary Weiss, have argued otherwise.
Note: Bagley has been accused of cyberstalking Weiss over Weiss’s alleged complicity in the social engineering of wikipedia.
Update: Note also that several experts have contradicted Byrne’s assessment of the effects of naked short selling on the price of the stocks he’s analyzed.
Still, whether Byrne is a hero or an out-of-control conspiracist is beside the point.
With the scale of criminality on Wall Street now, you’d have to be a hero and out-of-control to go after any of it successfully.
And conspiracy-mongering seems to be largely in the eye of the beholder.
Byrne deserves credit.
Update: To be fair to Byrne’s critics here is a criticism by one Sam Antar (a reformed felon who now consults on white collar crime) of Overstock’s accounting practices.
To be fair to Byrne, Antar’s original fraud was extensive and involved his whole family. Antal also admits to profiting from short positions in the companies he criticizes for fraud.
Paulson, Bernanke Caught Red-Handed in Fraud?
From Casey Research:
“On April 23, 2009, New York Attorney General Andrew Cuomo sent a letter to Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs Chris Dodd; Chairman of the House Financial Services Committee Barney Frank; SEC Chairwoman Mary Schapiro; and Chairwoman of the Congressional Oversight Panel Elizabeth Warren.
The letter outlined how former Treasury Secretary Paulson and Fed Chairman Ben Bernanke forced Bank of America’s acquisition of Merrill Lynch – even though Bank of America CEO Ken Lewis and the board of directors tried to pull the plug on the deal after it turned out that Merrill Lynch was far deeper in debt than it had admitted……….
…the part of the story that could really break Al Paulson and Don Bernanke’s necks is the failure to inform the Securities and Exchange Commission, as well as Bank of America’s shareholders, of the extent of toxic waste Bank of America was forced to accept. That’s fraud, pure and simple.“
My Comment:
The only problem is - who will bell the cat? Goldman Sachs’ reach is vast. And I doubt that Goldman is acting alone or purely out of its own interests, although its own interests are no doubt paramount.
Think about it.
How was this bank’s reach and corruption not noticed before? Even Lisa Endlich’s very staid history of the firm in 1999 couldn’t conceal the slime.
So what gives?
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