SEC

Over drinks!

In testimony Wednesday, Paolo Pellegrini, the former Paulson & Co managing director, said he made clear to ACA Capital Holdings Inc that Paulson wanted to bet against the deal.

“As I told all collateral selection agents, we were interested in shorting a CDO, shorting subprime securities in a CDO,” said Pellegrini, one of the architects of hedge fund manager John Paulson’s bet against subprime mortgages in 2006 and 2007. …

Pellegrini, one of two people who worked on Paulson’s strategy to take the stand so far, testified Wednesday he believed he told the principal employee at ACA working on Abacus, Laura Schwartz, about Paulson’s strategy over drinks during a “shindig” for people in the CDO industry.

“I think there was some discussion of the portfolio and what we were trying to accomplish by shorting the market,” he said.

That’ll liven up the murderous boredom of the Fabrice Tourre trial! Read more »

Labaton Sucharow is a law firm whose business consists of getting disgruntled financial industry employees to sue their employees for various bits of naughtiness, and taking a cut of whatever money those disgruntled employees can get from a lawsuit or settlement. One of their clever marketing techniques is to hire a survey firm to identify financial services employees willing to talk shit about their employers on the internet,1 because those employees are a promising source of money for Labaton Sucharow. In fact only about a quarter of those employees actually have anything negative to report, and presumably not all of that is lawsuit-worthy, but marketing is hard and you shouldn’t expect a particularly high hit rate. The trick is to just get a lot of at-bats and something will eventually pan out.

Also the PR is amazing? Here is an Andrew Ross Sorkin column titled “On Wall St., a Culture of Greed Won’t Let Go” that sort of takes this survey as a fact about the world rather than a marketing document, so is all like “oh you and your greed, Wall Street!” Read more »

“The U.S. Securities and Exchange Commission did not properly vet as many as 70 contractors with possible criminal records, including one man who later assaulted his girlfriend in a lobby at SEC headquarters, the agency’s internal watchdog has found…SEC spokesman John Nester said the agency has implemented numerous changes since the report was completed, from installing additional physical security barriers to putting the SEC’s security staff in charge of criminal background checks instead of human resources.” [Reuters]

Fabulous Fab Tourre is on his way to trial in the SEC’s securities-fraud lawsuit over the Abacus synthetic CDO he built at Goldman Sachs for John Paulson, and Andrew Ross Sorkin has a column today about all the things that the SEC doesn’t want him to be allowed to say to the jury. You should read it, it’s enraging, though who you get enraged at is entirely up to you.1 But I’ll give you a quick and tendentious summary, which is:

  • The SEC’s main argument is that Fab deceived ACA, the “portfolio selection agent” on the Abacus deal, and
  • ACA were sort of stupid scumbags, and
  • the SEC understandably doesn’t want the jury to find that out.

Right? The SEC’s suit accuses Tourre of two things: Read more »

  • 08 Jul 2013 at 11:40 AM

SEC Not Really Big Believers In Luck

A thing that the SEC sometimes does now is

  • notice when an anonymous foreigner buys a ton of otherwise thinly traded short-dated out-of-the-money call options just before a company announces big merger news that pushes the stock way up and makes those options suddenly hugely valuable, and
  • go to court to take away the anonymous foreigner’s possibly ill gotten gains.

What do you think of that? Like, on the one hand, my aesthetic sensibilities are offended, and my sense of fair play: really they ought to have some evidence of insider, as opposed to just lucky, trading. On the other hand it does seem like good police work, and if the anonymous foreigners want their money back they can always show up and dispute the SEC’s charges.1

Certainly the latest case, where the SEC froze two trading accounts of shadowy offshore figures who went and bought a lot of call options on Onyx Pharmaceuticals two weeks ago, just before Onyx announced last Sunday that it had received and rejected an acquisition proposal from Amgen, is pretty suspicious. From the SEC’s complaint: Read more »

Here’s a strange little SEC securities fraud case. Imaging3 is a small, now-bankrupt medical imaging device company that was developing a 3D scanner (pictured right, with CEO Dean Janes) that certain members of the medical establishment did not like, quite possibly because it didn’t work, hard to tell. Imaging3 sought FDA approval for its scanner and, in October 2010, the FDA rejected its application. On November 1 after the close, the company announced that it had received this rejection and held a conference call with investors. Janes, the CEO, was mad:

Janes informed shareholders and others on the call that the FDA’s rejection of the submission was not based on concerns regarding the device’s technology or image quality or the safety of the device. Instead, at numerous points during the call, he described the FDA’s denial as “ridiculous,” “administrative,” “not substantive,” and”nonsensical.”

During the November 1 call, Janes omitted any mention of the FDA’s specific and substantive concerns. For example, he never explained in any way that the FDA had determined that the use of certain sample images was “scientifically invalid and useless,” or that the FDA had expressed concerns about vibration hazards or overheating of the device.

So a difference of opinion then? Read more »

A question that you may or may not find interesting is: have the U.S. government’s rather strenuous recent efforts to stamp out insider trading actually reduced insider trading? How would you go about answering that, if you really wanted to know? I guess the right approach would be a survey; like, go email every hedge fund manager and ask “have you insider traded in the last 12 months? more or less than you used to?” and see what they say. That has … problems, so you look for proxies. Do stocks tend to go up, on heavy volume, before the announcement of secret good news? Then that at least suggests that someone traded on the secret good news before it was announced. It’s something.

A while back I idly committed some pseudoscience about pre-merger trading and found some indications that (1) stock prices and volumes tend to increase before mergers and (2) that increase has been more pronounced in say 2009-2013 than it was in say 2001-2008. This would seem to be weak evidence of increasing insider trading? This was a little puzzling given:

  • those strenuous efforts, lots of people going to jail for long periods, etc.; and
  • my assumption, anyway, that traders would be rational and competent judges of risk and reward who would weigh the increased odds of being caught and sent to prison in their decision to insider trade or not.1

But there my pseudoscience was. Anyway I learned today (via) about a recent study where some b-school professors committed some … I dunno, whatever b-school professors do, something between “pseudoscience” and “science” … of their own and got the opposite result, so I figured I’d pass it along. Here’s the abstract: Read more »