It’s clear that I am a terrible person because I continue to be unable to get all that excited about banks that commit fraud. And the big thing today is that the SEC doesn’t put banks out of business just for committing fraud, which I think is rather sporting of them but lots of people disagree.
Here’s the issue:
By granting exemptions to laws and regulations that act as a deterrent to securities fraud, the S.E.C. has let financial giants like JPMorganChase, Goldman Sachs and Bank of America continue to have advantages reserved for the most dependable companies, making it easier for them to raise money from investors, for example, and to avoid liability from lawsuits if their financial forecasts turn out to be wrong.
An analysis by The New York Times of S.E.C. investigations over the last decade found nearly 350 instances where the agency has given big Wall Street institutions and other financial companies a pass on those or other sanctions. Those instances also include waivers permitting firms to underwrite certain stock and bond sales and manage mutual fund portfolios.
JPMorganChase, for example, has settled six fraud cases in the last 13 years, including one with a $228 million settlement last summer, but it has obtained at least 22 waivers, in part by arguing that it has “a strong record of compliance with securities laws.”
Ha ha ha strong record of compliance with a fraud case every two years or so! What a sham! Except that JPMorgan actually does have a strong record of compliance, and is generally viewed as being pretty conservative and law-abiding.
This stuff stirs emotions because it’s hard to think about who is being punished here. Corporations are people, my friend (still), but in the way Mitt Romney meant it, not in the way everyone pretended to take it. Like: JPMorgan employs a lot of people, and some of them are maniacs and crooks and liars and most of them aren’t and that’s true of … the SEC, for instance, and The New York Times,* and anyone else who wants to give them shit for their fraudulosity. But JPMorgan isn’t an individual human, not any more anyway. So saying “JPMorgan is crooks” is sort of nonsensical. Continue reading »
Mr. Mason, who sometimes posts online videos of himself in his underwear doing yoga or dancing, sat down for a recent interview in his Chicago office to discuss challenges facing the company and his ability to handle them. WSJ: The SEC also took issue with a memo you wrote to employees during the quiet period that was leaked to the press. Mr. Mason: I wrote the memo because 23-year-olds were coming into my office and asking how they should respond to their parents when they ask if Groupon is about to go bankrupt. The risks of not communicating to my employees were greater than the risks of doing otherwise. If I knew it was going to leak, I would have been less bizarre, and I wouldn’t have made a joke about my now-wife. She was upset. (He joked that his then-girlfriend asked him why he never said anything nice about her.) [WSJ]
The insurrection worked! Everyone just take the rest of the day off and catch up with your favorite porn sites, okay?
Continue reading »
I try to be honest when telling you that a court complaint or SEC filing or research paper is a fun read, just in case you might go read it, though of course there’s no accounting for tastes and I may enjoy many things that you don’t.* And that’s okay. In any case I doubt anyone will find the SEC’s fraud complaints against Fannie Mae and Freddie Mac filed today all that fun to read. “Very, very boring” would be more like it. The only bits that I enjoyed were the names of some of the loan programs, including Freddie’s “Touch More Loans” and the Fannie/Countrywide joint effort “Fast and Easy” which, boy, different times.
But there are some fascinating things about the case. A small one: I was kidding when I said “complaints against Fannie Mae and Freddie Mac.” They’re complaints against former Fannie CEO Daniel Mudd, former Freddie CEO Richard Syron, and a handful of their executives. The SEC signed weird neither-admit nonprosecution agreements with Fannie and Freddie themselves, in which the GSEs agree to help the SEC make its case against their former bosses.
This all seems like very good PR. You are learning, SEC. The neither-admit-nor-deny thing might be awkies, but slapping a big fine on the taxpayer-funded GSEs wouldn’t make a whole lot of sense. And the people who are upset that the SEC are not going after big names connected to the financial crisis have to be happy about the fact that the SEC here is going after the CEOs of big entities that in most people’s minds are intimately connected to the cause of the financial crisis. Suing them is not quite as good as throwing them in jail, but the SEC can’t do that, and this is a start anyway.
The bad news is that the SEC’s case sounds just absolutely terrible. Here it is: Continue reading »
You may remember that a while back the SEC decided to modernize its computer capabilities by deleting all the porn* and replacing it with algorithms that could catch other algorithms, sort of like Tron. Apparently that worked:
On Thursday, a new “analytics” division tasked with mining hedge fund data announced actions against six individuals and three hedge fund firms for alleged fraud.
“We’re using risk analytics and unconventional methods to help achieve the holy grail of securities law enforcement – earlier detection and prevention,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This approach, especially in the absence of a tip or complaint, minimizes both the number of victims and the amount of loss while increasing the chance of recovering funds and charging the perpetrators.”
Here’s how the SEC describes its, er, data mining** division: Continue reading »
The SEC tends to come in for a lot of good-natured joshing around here, and elsewhere, for amusing foibles like spending their days surfing porn, ignoring multibillion dollar Ponzi schemes when they’re told about them directly, and complaining bitterly when anyone suggests that their priorities might be misplaced. Also on some people’s complaint list is that the SEC tends to be heavy on lawyers and light on forensic accountants, economists, traders, quants, and just generally anyone who might have a glancing familiarity with things financial.
But credit where it’s due: the SEC has gotten a bit better at using market mechanisms to find the next big, or little, or whatever fraud. This week has seen a spate of stories about how the SEC, and the Feds generally, are using new and existing whistleblower programs to encourage people to come to them first if they have negative information to peddle. The headliner is Grant Wilson, who new-best-friend-of-the-SEC Harry Markopolos recruited to expose some currency trading unpleasantness at his former employer BoNY Mellon, but others seem to be in the SEC’s pipeline.
More intriguingly, though, the SEC is doing a great job at shutting down its competition. Continue reading »
Let’s say there are two models of how to run a financial system: make it transparent and give participants the tools they need to evaluate counterparties, or leave it opaque and trust regulators to keep things safe. There are good arguments for both sides – perfect transparency would be a competitive nightmare, and wouldn’t help those too stupid to use it; perfect opacity concentrates a whole lot of risk in the hands of regulators with doubtful incentives and skills – and so we have sort of a mix, for good or ill.
This might make you ill:
When Citigroup agreed last month to pay $285 million to settle civil charges that it had defrauded customers during the housing bubble, the Securities and Exchange Commission wrested a typical pledge from the company: Citigroup would never violate one of the main antifraud provisions of the nation’s securities laws.
To an outsider, the vow may seem unusual. Citigroup, after all, was merely promising not to do something that the law already forbids. But that is the way the commission usually does business. It also was not the first time the firm was making that promise.
Citigroup’s main brokerage subsidiary, its predecessors or its parent company agreed not to violate the very same antifraud statute in July 2010. And in May 2006. Also as far as back as March 2005 and April 2000.
The incredulity continues throughout, and the article includes a handy infographic where you can see how many times each bank pulled the “I’ll be good, I’ll be good, I’ll be good!” move in the past.
Continue reading »
If, like me and David Kotz, you get some sad pleasure from getting annoyed at SEC incompetence, then you might enjoy the filings that the SEC and Citi made today in a federal court defending their settlement over charges that Citi did some bad stuff with CDOs.
The quick background: Citi decided to make a big prop bet against some mortgages, so it structured a synthetic CDO with the exposures it wanted to short and sold it to some dopes, keeping virtually all of the short side of the trade on its books. This was a good idea and Citi made $160mm, but it worked out less well for the dopes. The SEC sued Citi for not telling the dopes certain things, like that it had picked the mortgages involved because of their exceptional badness, and they signed up a $285 million settlement. Unfortunately for them, the federal judge hearing the case is Jed Rakoff, who is as high on the enemies list of the SEC’s employees as it is possible to be without standing between them and their tranny porn. Judge Rakoff had some questions about the settlement. Questions like “Why, for example, is the penalty in this case less than one-fifth of the $535 million penalty assessed in SEC v. Goldman Sachs & Co.,” or “How can a securities fraud of this nature and magnitude be the result simply of negligence?” Today Citi and the SEC filed answers those questions. They’re a fun read.
Continue reading »
In recent years, the Securities and Exchange Commission has been known more for its fuck-ups than successes. The regulator took a pass on heeding the warning signals by Bernie Madoff himself that he was running a Ponzi scheme, it chose to go after David Einhorn rather than Allied Capital when the hedge fund manager suggested all was not right at the company and right now, as we type, the regulator is presumably fucking up in ways we cannot imagine but will hear about two years hence. Separately the Commission happens to employ a not insignificant number of people who like to look at porn all day, every day, in lieu of working, which perhaps could explain some of the slip-ups, though it’s a very chicken or egg situation.
In past times, none of this (the failures and the 24/7 surfing of www.ladyboyjuice.com, www.anal-sins.com, www.fuck-my-wife.com, among others) proposed a problem. Business as usual. Then Inspector General David Kotz had to come in and start asking people, “Why didn’t you think to follow up when Madoff said the whole thing was a scam?” and “Why, on Wednesday, August 20th did you make approximately 385 attempts to access a website called www.ladyboyx.com from your work computer?” And now, it’s war. Continue reading »
Citi today paid out some of its DVA gains to settle SEC charges that it sold investors a CDO-squared that facilitated its own naked CDS purchases on the underlying CDOs, while misleading investors into thinking that an independent collateral manager selected the underlying portfolio. If my grandmother reads Dealbreaker she’s now stopped.
Anyway. I’m proud of my time at Goldman, which I thought was a great place filled with smart and ethical people (really) and which also was a market leader in many areas, including paying fines for fraudulent CDO structuring fraud. In that line of business we were first both in time and in market share, settling Abacus for $550mm in July; JPMorgan’s $153.6mm Magnetar settlement came a week later and Citi didn’t get around to their $285mm entry (and Credit Suisse’s $2.5mm addition) until today.
Now, maybe it’s just my Goldman bias talking but I never really got the outrage at these things, which always seemed to come from importing an already incorrect understanding of how nonfinancial transactions work into a market-making, two-sided, financial markets context. But reading the Citi CDO documents, which are fascinating, I think makes it a little more comprehensible.
There are five points to which your free-floating rage could maybe attach:
Continue reading »
You might think that an agency that missed the Madoff fraud for years even after being told about it would have some sympathy for people who are, not bad guys necessarily, just a little sloppy on the whole looking-out-for-investors front. But you would be wrong:
Securities and Exchange Commission officials are trying to make it easier on themselves to hold more individuals responsible for wrongdoing during the financial crisis.
The good news, though, is that the way they’re going to make life easier for them is by reducing the stakes, pursuing negligence cases where they only have to show that someone acted “without reasonable care, even if there was no intent to harm investors.” The tradeoff for the SEC is:
Continue reading »
