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  • 05 Dec 2014 at 3:15 PM

Deal Judge: Getting Suckers To The Market

 Laurie SchneiderEd. note: This is a new weekly column by Elie Mystal, Managing Editor of Above the Law Redline, wrapping up the week that was in law and finance. Elie is not a practicing attorney, and anything he says that you listen to can and will be used against you.

Issue #1: The law has to protect idiots. That’s just what we do in a polite society. The SEC is now taking a look at online “direct sales” pyramid schemes. From the Wall Street Journal:

Direct-sales is more popular than ever: A record 16.8 million Americans—representing about one in every seven U.S. households—worked in the industry last year, most for companies that employ networks of people paid both for selling products and for recruiting new distributors, according to the Direct Selling Association. The group estimates the industry, which includes well-known public companies such as Avon Products Inc. and Nu Skin Enterprises Inc., racked up sales of almost $33 billion last year, up 3.3% from 2012…

Regulators say the industry is being exploited by Web-savvy con artists who are in fact running pyramid schemes—a fraud where the new money comes mostly from attracting new recruits, rather than legitimate product sales. Once the supply of recruits runs out, the scheme collapses, leaving most of its members nursing losses.

This is all happening because of Herbalife. But it’s been exceedingly difficult to label Herbalife a “scam” in a legally actionable way. Going after “direct sales” seems like the SEC is trying to scoop up some of the low-hanging fruit out there as its Herbalfe investigation rolls on.

And that’s good news for the people dumb enough to get mixed up with some of these companies. A person’s desire to make money quickly often exceeds his mental capacity for self-preservation.

But I’ll just point out that there’s another way to go: “Sorry you lost all of your money by being a sucker in a Ponzi scheme. Here’s a social safety net to cushion the blow.” Read more »

imgres1As no one needs to be reminded, tomorrow is judgment day for scores of financial services employees hoping to one day add 3 little letters to the bottom of their email signature. If you’re feeling prepared, confident, and calm, that’s nice for you. If you haven’t been having a recurring nightmare all week wherein you show up to the test center not just naked but without your calculator, that’s also nice for you. If on a scale of 1-10, 1 being “I have zero anxiety whatsoever about tomorrow’s exam” and 10 being “I’m screaming into a pillow right,” you’re somewhere between 9-15, take heart. Read more »

Your time is up, Jack.It’s Jack Lew’s job or nothing for the Blackstone prez. Read more »

Opening Bell: 12.5.14

alan greenspanJPMorgan Said to Place U.S. Mortgage Securities Trader on Leave (Bloomberg)
JPMorgan Chase & Co. (JPM) put another of its mortgage-bond traders on leave, the latest in a string of suspensions amid regulatory scrutiny of the market, according to three people with knowledge of the move. The employee, Joshua Banschick, was told not to come in during the past week, said the people, who asked not to be named because the decision wasn’t public. The trader has worked at JPMorgan since 2008, after spending about a year at Bear Stearns Co., the securities firm bought by the bank that year with assistance from the Federal Reserve, according to Financial Industry Regulatory Authority records. Banschick, who hasn’t been accused of any wrongdoing, declined to comment when reached on his mobile phone.

Greenspan Says He Would Pre-Empt Asset Bubbles Financed by Debt (Bloomberg)
Former Federal Reserve Chairman Alan Greenspan, who was blamed by some economists for overheating equity and housing prices in the 1990s and 2000s, said that were he in the job today, he would take pre-emptive action to tackle asset bubbles if they were financed by leverage. Greenspan, who argued in office that it was better to clean up after an asset bubble had burst rather than artificially prick it, told delegates at a conference hosted by Citigroup Inc. in London today that he believed that argument is correct when a speculative boom isn’t financed by debt, mentioning the 1987 stock market crash as an example. If the overheating was caused by leverage, however, “then you’re going to have problems,” he said.

Uber’s Investor Club Adds Two Hedge Funds, Qatar’s Sovereign Wealth Fund (Digits)
New investors in the ride-sharing startup’s $1.2 billion round of funding included Middle East sovereign wealth fund Qatar Investment Authority and two hedge funds, Valiant Capital Partners and Lone Pine Capital, according to people familiar with the matter. One of the world’s oldest and largest venture-capital firms, New Enterprise Associates, also bought shares in the round, people briefed on the deal said.

U.S. Probes Och-Ziff Fee Paid in Libyan Dealings (WSJ)
U.S. investigators probing Och-Ziff Capital Management Group LLC’s dealings in Libya are focused on a multimillion-dollar payment by the big hedge-fund firm they believe was funneled in part to a friend of Col. Moammar Gadhafi’s son, said people briefed on the inquiry. The scrutiny is part of a broad, three-year foreign bribery investigation by the Justice Department and Securities and Exchange Commission into how Wall Street firms obtained investments from the regime of the former dictator, who was deposed and killed in the country’s 2011 revolution. A key part of the Och-Ziff investigation relates to a fee that Och-Ziff paid to the company of a London middleman for help winning a $300 million investment in Och-Ziff funds from the Gadhafi regime, the people briefed on the matter said. Och-Ziff, which has $47 billion in assets under management, has told the government its lawyers vetted the agreement and believes it was a perfectly legal placement fee, the people said.

Warren Buffett, Reluctant PAC Man, Is Ready for Hillary (Bloomberg)
The Oracle of Omaha gave the maximum donation allowed to Ready for Hillary last quarter, his first-ever check to the sort of independent political groups that he’s scorned in the past. Buffett, who is the third richest man in the world, gave $25,000, the most any individual can donate under the committee’s self-imposed cap, according to a person familiar with Ready for Hillary’s post-election financial disclosure report. The group has raised more than $11 million to finance its efforts to lay the groundwork for a Clinton presidential campaign.

Bill Gross Muses on Nursery Rhymes and Domestic Abuse in Latest Investment Letter (Dealbook)
In his latest investment outlook note, published on Thursday, Mr. Gross uses nursery rhymes as a lens for viewing global monetary policy, and he expounds at length on modern social mores. He also makes an allusion to the N.F.L. and the league’s recent domestic abuse cases. The letter begins with a quote from the Punch and Judy rhyme in “Mother Goose.” “Ah, nursery rhymes! Intended for kids no less!” Mr. Gross says. “The above little ditty could serve as a modern day N.F.L. domestic playbook, I suppose, while a century ago it was but one of many ‘lesson plans’ on what not to do when you grow up.”

School used strippers to lure students: suit (AP)
Prosecutors say a for-profit Florida college used exotic dancers as admissions officers, falsified documents and coached students to lie on financial forms as it fraudulently obtained millions of dollars in federal money. The Florida attorney general and the US Attorney’s Office in Miami announced Wednesday that they were joining an ongoing civil lawsuit against FastTrain College and former owner Alejandro Amor, 56. FastTrain is now defunct. It operated seven Florida campuses and was based in Miami. The complaint says that from at least January 2009 through June 2012, FastTrain and Amor bilked the US Department of Education out of millions of dollars with falsified grant applications. The complaint says strippers on at least one campus tried to attract young male students. Read more »

Write-Offs: 12.4.14

$$$ JPMorgan continues run as top ranked investment bank [Reuters]

$$$ Whistleblowing on Wall Street: The untapped jackpot [CNBC]

$$$ Prosecutor on Mathew Martoma Case Heads to Private Practice [Dealbook]

$$$ Putin says ‘outside enemies’ attempting to bring Russia to its knees [FT]

$$$ Traveler Busted For Decking Female Security Guard, 74, In Carry-On Rage Incident [TSG] Read more »

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deebsalebIn 2010, Deeb Salem was employed as a mortgage trader at Goldman Sachs, despite numerous attempts by rivals to poach him and his self-described Michael Jordan-esque skills. He told his mother, who was living with him at the time, that he expected to be paid a $13 million bonus. So when it turned out he only received $8.25 million, you can imagine how incensed Deeb must have been. Not only had GS management made him look like a liar, it failed to keep up its end of the unspoken agreement re: not disappointing the mothers of Goldman Sachs employees. Refusing to let Goldman get away with such an unspeakable act, Salem sued the bank, demanding it cough up the extra $5 million he believed he was owed. Sadly, last September, a judge dealt Salem a bit of a setback in his quest to recover the money but if anyone thought that was going to stop him from ultimately making good on his promise to the woman who gave him life, he/she thought wrong! Read more »

  • 04 Dec 2014 at 5:45 PM

The War Debt To End All Wars To End

Yup. From back when this guy was running HM Treasury.Even though it never has to, the U.K. is going to pay off a few old loans, including some dating to a refinancing of the country’s World War I debt. For those bonds, in perpetuity means until “the 100th anniversary of when we realized what an unceasing quagmire we had gotten ourselves into.” Read more »

  • 04 Dec 2014 at 5:14 PM

Uber Raised Some Money

This guy's excitedGo forth and discuss these data points with your Uber driver tonight. Read more »