Fortunately for all you evil doers out there, the various bail out provisions in the works (or already implemented) stand to benefit you too. Times are hard on fraudsters these days. Your Ponzi scheme is in danger of running out of cash, withdrawals are up, and due diligence has seen a huge growth spurt in the wake of Madoff and Stanford. What is a white collar criminal to do in this recessionary environment?
Steal TARP funds, of course.
“History teaches us that an outlay of so much money in such a short period of time will inevitably draw those seeking to profit criminally,” Mr. Barofsky said in testimony for the afternoon hearing obtained by Dow Jones Newswires.
Federal regulators have already seen evidence of alleged TARP-related crime. In late January, the Securities and Exchange Commission charged a Nashville-based firm with defrauding investors of at least $6.5 million by claiming their money was invested in the TARP and other securities that didn’t exist.
“If, by percentage terms, some of the estimates of fraud in those programs apply to TARP programs, we are looking at the potential exposure of tens if not hundreds of billions of dollars in taxpayer money lost to fraud,” Mr. Barofsky said, noting that the total amount of money potentially at risk in TARP-related programs is approximately $2.875 trillion.
Hey, stimulus is stimulus.
TARP Fraud Could Cost Taxpayers Billions, Watchdog Warns [The Wall Street Journal]
I guess you could say that this is to be expected, but it’s the sort of malarkey we’d expect of a more Charlotte-based Ken and not our preferred K out (mid)West. Supposedly our favorite Chicago hedge fund has put a clause in bonuses to keep people loyal ’til at least June (when the majority of their goodie bags will be paid out), though “some ship jumping has already begun.” Also hideous: apparently bonuses this year were “in-line” with the rest of the Street, which is common, and uncool.
UPDATE: Au contraire: we’re told that Citadel’s bonuses were paid in their entirety in December and that they came out of KG’s pocket.
We suspect that when Harry Markopolis called FINRA “corrupt,” he at least seems to have hit the nail on the head:
Two employees of Allen Stanford’s financial business, which U.S. regulators have accused of massive fraud, held advisory roles at a watchdog group overseeing U.S. broker-dealers aimed at preventing abuses.
Lena Stinson, director of global compliance at Stanford Financial Group, is listed as serving on the membership committee of the Financial Industry Regulatory Authority, or FINRA, which describes itself as the largest independent regulator of U.S. securities firms.
Frederick Fram, the chief operating officer of Stanford Group Holdings, serves on the FINRA continuing education content committee, “where he participates in creating material for the Regulatory Element continuing education program,” according to a biography on Stanford’s website.
Entertaining. Of course, don’t forget:
On Tuesday, FINRA named Richard Ketchum as its chief executive officer. He replaces Mary Schapiro, who resigned after she was confirmed as chairman of the U.S. Securities and Exchange Commission.
Stanford workers have ties to regulator FINRA [Reuters]
Charlie Gasparino points out the most important aspect of the maybe Citi-Gov deal that has been entirely, shamelessly, overlooked thus far. If the US takes a forty percent stake in the Big C, it’ll displace Prince Alwaleed as the single largest shareholder. First off, taking the Prince’s feelings into consideration, this is devastating. Sure, in the beginning, Vikram et al will probably act as though ‘leed is still important to them but you know before long Pandito will be all, “I actually gotta take this call,” heretofore NEVER interrupting the Prince during one of their marathon phone conversations. After a while, he’ll be “some guy we used to know in Saudi Arabia.”
Brushing those tears aside, however, an important question must be answered. According to CG, when Alwalweed would say ‘jump,’ Citi would ‘jump three feet, so you’ve got to multiply that by ten for the government and it’s 30 feet’ (the math behind this apparently being that Al has an approximately 4 percent stake and 40/4 = 10 * 3 = 30 ft). But obviously there’ll be other preferred treatment besides jumping associated with having your tentacles in C, and we need to determine now what kinda sick stuff the senior staff and board are willing to do. Wining and dining, sure, but are we also talking, like, A to O?
We knew that some exceptions were being made with respect to listing requirements, but the extent of firms that could be facing delisting (though it is discretionary for the S&P 500) is presently alarming. Consider:
In the table below, we summarize the number of stocks in each sector that currently do not meet the $3 bln market cap threshold to be eligible for inclusion in the S&P 500. In the Consumer Discretionary sector, over 40% of the stocks currently have market caps of less than $3 bln. For the index as a whole, nearly 27% of the stocks that are currently in the index would not be eligible for inclusion if they were being considered today. Fortunately for them, S&P doesn’t automatically kick companies out of the index when they fall below the market cap threshold. And since there aren’t many companies outside of the index that could replace the ones that no longer would qualify, the only thing S&P can really do is lower the requirements.
The S&P 500′s Incredibly Shrinking Market Cap [Bespoke Investment Group] via Abnormal Returns
A lot of people have been trash talking our new Treasury Secretary for not being off book during his big Congressional debut a couple weeks back, for not moving his ass quickly enough, and for squeezing too tightly. Well guess what, tough guys? It’s not his fault!
Whereas Paulson had a stenographer, driver, and fluffer, T. Geith is working all by his lonesome. According to ABC News, the lil’ fella is “sitting over there by himself and does not have a staff,” though actual estimates put the number at “probably ten to twenty percent” of what it should be. Apparently one major factor in the lack of Little Geiths is that they need people who have “financial expertise” but can also pass what is likely a ramped up vetting process, due to some awkward moments with Turbo Tax made public. Does that sound like you? Have you longed for the opportunity to whisper sweet nothing’s in those elfin’ ears*? Take one for the team and get in touch.
*They look bizarrely unpointy in the one above but you know what I’m talking about.
I wonder why citibank.com is broken.
Update: Pandit plugged it back in.
Update: Pandit tripped over the plug again.
HT: guest.
Take heart, Merrill investment bankers stationed in New York: while the awkward conference room conversations are said to be currently taking place for your counterparts in London, your box of tissues moment is apparently not going down ’til next week.
Indeed, the size is barely comparable, but it continues to grow interesting to watch who finds themselves caught up in scandal via a connection to “feeder funds” or feederesque funds for fraud. (Of course, its not at all clear that this is what was going on here, since, at least on these facts, it doesn’t look like Stanford was managing the capital in question, but the connection is interesting).
A fund of hedge funds run by two members of Vice President Joe Biden’s family was marketed exclusively by companies controlled by Texas financier R. Allen Stanford, who is facing Securities and Exchange Commission accusations of engaging in an $8 billion fraud.
The $50 million fund was jointly branded between the Bidens’ Paradigm Global Advisors LLC and a Stanford Financial Group entity and was known as the Paradigm Stanford Capital Management Core Alternative Fund. Stanford-related companies marketed the fund to investors and also invested about $2.7 million of their own money in the fund, according to a lawyer for Paradigm. Paradigm Global Advisors is owned through a holding company by the vice president’s son, Hunter, and Joe Biden’s brother, James.
No word yet on the fate of the Stanford Capital Management Alternative Suction That Will Pull Your Insides Out Core Opportunities Fund.
We shouldn’t be at all surprised that these frauds ensnare political luminaries. To a great extent, they require a visible association with political luminaries to preserve themselves, shield them from scrutiny, and to lend the endeavor a shiny coat of legitimacy. After all, if SenatorVice President Biden’s family is involved….
Of course, Antigua knows the smackdown is coming.
“The Americans have a tendency to act in such a big manner,” Mr. Simon said. “It’s a very, very serious situation. One has to look at it from a nationalistic standpoint.”
You almost want to feel sorry for them. But not really.
Stanford Had Links to a Fund Run by Bidens [The Wall Street Journal]
Antigua Is Hurt by U.S.’s Crackdown [The Wall Street Journal]
So, on the one hand, it’s nice that Ken Lewis hasn’t gone radio silent on his minions, while rumors of the ‘n’ word persist. On the other, he says the same thing every day (and probably uses a form letter with some minor tweaks…these things are labor intensive and Happy Hour starts just after 4). Via Deal Journal, the latest:
I want to address any questions about Bank of America that may be arising as a result of the news that at least one of our competitors is now in discussions with the government to negotiate an enhanced public stake in their company.
I have said repeatedly that our company does not need further assistance today and I don’t believe we’ll need any more in the future. That includes the potential conversion of the government’s preferred shares into common shares that would dilute existing shareholders.
Continue reading »
When credit default swap sellers move to quoting upfront prices, the writing may be on the wall. Today’s graffiti victim? Citi.
Sellers of credit protection in the credit default swaps market were asking to be paid on an upfront basis to insure Citigroup’s subordinated debt on Tuesday, traders said, a sign of greater perceived risks at the third-largest U.S. bank.
Five-year credit default swaps on Citigroup’s subordinated debt were quoted around 9.5 percent upfront, or $950,000 in upfront costs to protect $10 million of debt, plus annual payments of $500,000 a year, according to a trader.
There are so many things to watch during this slow-motion train wreck that it is hard not to miss something. We’re running out of popcorn here, people.
Citigroup sub CDS moves to upfront basis – traders [Reuters] via Alea
