The Timesreported this weekend that JPMorgan is being investigated for hiring the children of influential Chinese officials in order to win investment banking business, which apparently the SEC’s antibribery unit thinks might be bribery and thus a violation of the Foreign Corrupt Practices Act.1 People are sort of fallingoverthemselvesto be unscandalized by this, which seems about right. Here are amusing FT and Reuters articles pointing out that every bank hires children of influential Chinese officials in order to win investment banking business.2 But of course you don’t need to go that far afield; anyone who’s worked in an investment bank for more than twelve minutes, anywhere in the world, can tell you stories of nepotism at least as blood-curdling as these. There are idiots, look around, often they are clients’ kids.
So why are some nepotistic hires okay and others illegal bribery? Here is the Times: Read more »
It’s useful to be reminded every now and then that shareholders don’t really “own” corporations and they certainly don’t run them. Whatever you think of Carl Icahn’s self-funded, mildly loony plan to do a leveraged-recap-via-tender-offer of Dell, his basic argument, that Dell shareholders should be able to vote to (1) do that, (2) sell the company to its founder, or (3) none of the above, in some straightforward up-or-down way, had a certain real appeal. I mean, it’s their company, let them decide to sell 100% of it for $13.88ish or 80% of it for $14ish or 0% of it for … I see $13.82ish1 … or some intermediate pair of numbers. But, nope: Read more »
There are a lot of things in the financial industry that you could legitimately get upset about and so it seems sort of wasteful when people go around getting upset about the other things.1 Like: the too-big-to-fail banks have a lot of subsidiaries, which is bad for some reason. Complexity! Opacity! Subsidiaries. I dunno.2
Bank of America Corp., the second-biggest U.S. lender, plans to merge its Merrill Lynch subsidiary into the parent company to reduce complexity and costs.
The move could happen as early as the fourth quarter and means Charlotte, North Carolina-based Bank of America assumes all the investment bank’s obligations and debt, Merrill Lynch said in an Aug. 2 filing. Dissolving the legal entity also ends Merrill Lynch’s need to file separate regulatory disclosures.
The SEC announced securities fraud charges against a fairly random assortment of South Florida crooks today and the message I took away from the assorted complaints is that it’d be a lot of fun to work in the South Florida office of the FBI. Basically the job seems to consist of setting up fake hedge funds and then using them to con people into giving you money, which is pretty much my dream job, and also the dream job of a lot of South Florida crooks I guess. Only in the FBI version the people you’re conning are themselves con men, and the money is illegal bribes, and then you arrest them, so it’s okay.
Their trading didn’t take place in a market where very large numbers of transactions produced transparent and public prices through the day, like the stock market. Instead, the traders made bets with derivatives, financial contracts that often trade sporadically and in the shadows of Wall Street. Their trading didn’t take place in a market where very large numbers of transactions produced transparent and public prices through the day, like the stock market. Instead, the traders made bets with derivatives, financial contracts that often trade sporadically and in the shadows of Wall Street. The traders focused on so-called credit derivatives, including one named CDX.NA.IG9, which allow traders to bet on the creditworthiness of a basket of companies.
The federal complaints charge Martin-Artajo and Grout with mis-marking CDX.NA.IG9, and other indices, from March to May of 2012. From December 2011 through June 2012, that contract averaged about 60 trades a day for around $8 billion in notional.2Read more »
Today U.S. prosecutors charged former JPMorgan CIO traders Javier Martin-Artajo and Julien Grout with various crimes for mis-marking the London Whale structured credit portfolio positions. The complaints are here and here and reading them you get the strong sense that Bruno Iksil, the Whale himself, was the hero of the whole saga. Oh, sure, he built a colossal portfolio of what turned out to be massively money-losing speculative trades, and yes, he did sit by and watch as his boss Martin-Artajo and his underling Grout conspired to mis-mark that portfolio to disguise hundreds of millions of dollars of losses, but: it made him angry.1 So that’s something? Anyway, he is not being charged and is cooperating with authorities, and I guess one benefit of cooperating, in addition to the not prison, is that you come across pretty well in the complaints.
Meanwhile Martin-Artajo and Grout were not pure of heart, per the complaints; they conspired to mis-mark the book to, in Martin-Artajo’s case, make sure that their bosses didn’t take it away from him,2 and in Grout’s case, I dunno, to do what Martin-Artajo told him to do I guess. The dynamics of this terrible terrible team are a bit unclear. From the emails and recorded calls Martin-Artajo seems like the sort of guy you would not want to work with if you were law-abiding and massively money-losing; he spent a lot of time yelling at Iksil for his conscience.3Read more »
Once upon a time before there were activist hedge funds there were corporate raiders, whose business model was
buy stock in company,
sell stock back to company at higher price.
This model had many delights of which perhaps the greatest was that you couldn’t really, like, do damage to your reputation. The more annoying you are: the more the company wants to get rid of you! So the more they’ll pay. And since you’d really only get into this business if you had some natural predisposition to annoyingness, it was a nice way for some people to make a living doing what they loved. Sadly it sort of petered out after the 1980s, though you still see variants on it occasionally.
It’s fun to contrast Bill Ackman’s 2,000-word letter to the J.C. Penney board referencing his previous “several-thousand-word email to the board outlining my concerns about our current trajectory” with Carl Icahn’s 280characters about Apple. Read more »
Today the Justice Department indicted nine people for operating “one of the largest international penny stock frauds and advance fee schemes in history” and as you’d expect from that description it was a very professional multinational operation.1 I mean, y’know, it was a penny-stock pump-and-dump scheme, one involving “distributing false press releases, announcing non-existent business ventures and fake mergers, posting false information on social media sites and bribing stock promoters and brokers,” but it was a penny stock pump-and-dump scheme that made $120 million, so that’s impressive.2
So, fine. Here you are having successfully executed a pump-and-dump scheme. You pumped, then you dumped. You have $120 million, other people have worthless stock. You could stop there and call yourself a pretty successful criminal. But then you get to thinking: the people you defrauded have something else, in addition to their worthless stock. They have something that is actually extremely valuable. They have: an abnormal willingness to piss away money on terrible ideas! They have a complete lack of common sense! And you know who they are!
So why not make some money off of that? A second-rate crook might think “well I’ll sell them some more penny stocks” but of course they’ve just been burned. They’re idiots, yes, but they’re idiots who’ve been put off penny stocks for a while. They’re still mad about the last penny stock. But what if there were some way to take advantage of exactly that fact? Read more »