My favorite financial news story of 2013 so far might be the Reuters story last Friday about how NYSE and Nasdaq each listed more IPOs than the other during the first quarter. A normal human might find that odd: listing an IPO is the sort of thing that you tend to notice and keep a record of, so you could pretty easily just add up the IPOs you listed and compare. But to a banker, it’s obvious that everyone would claim, with some sort of semi-plausible justification, to be first in every league table. In fact the explanation is perfectly, almost paradigmatically natural: Nasdaq excludes REITs, spin-offs, and best efforts deals.1 I remember when I used to exclude REITs! Excluding REITs is, like, 20% of what a capital markets banker does.
A deep tension at the heart of the financial industry is that it attracts a lot of quantitative logical evidence-oriented people and then puts them to work in essentially sales roles, and a lot of what it sells is unsubstantiated mumbo-jumbo. You wrote your senior thesis on geometric Brownian motion in the prices of inflation-linked Peruvian bonds from 1954 to 1976? Great, go make a page telling clients why Bank X is so much better at underwriting commoditized debt deals than Bank Y. Or: your thesis took for granted the truth of the efficient markets hypothesis? Great, go market a hedge fund that charges 2 and 20 to beat the market. You have to be quantitative enough to manipulate the data to get it to say what you want (“This fee run is 0.2% higher if we exclude REITs” “Well, do that then”), but not so quantitative that you find the whole process revolting. It’s a hard line to walk, and it’s not surprising that Eric Ben-Artzi or Ajit Jain or the quant truthers at S&P end up disgruntled and either blowing whistles or writing regrettable emails.2
Does that explain Lisa Marie Vioni? I dunno, her economics degree came with a side of French, she became a hedge fund marketer, and she’s done it for over 20 years, so I’d have pegged her as pretty comfortable in the gray areas. But in January 2012 she went to work for Cerberus as an MD selling its RMBS Opportunities Fund, and in February 2013 they fired her, and now she’s suing them. She’s suing in part for gender discrimination, which is hard to evaluate from her complaint but sure, maybe.3
But she’s also suing as a Dodd-Frank whistleblower, because she complained about what she thought were misleading marketing materials and was more or less told to go pound sand. And those accusations go like this: Read more »
The Securities and Exchange Commission said Thursday it received more than 3,000 tips in the past fiscal year. The SEC said the tips — 3,001 in all — came from all 50 states, Washington, D.C., Puerto Rico and from 49 countries. It announced the findings in a report required by the Dodd-Frank Act on the activity of the SEC’s whistleblower office, which opened its doors in August last year…Under the program created by the Dodd-Frank Act, whistleblowers can receive a 10% to 30% reward if they provide original information that leads to a successful enforcement case netting a penalty of $1 million or more. The SEC issued its first reward under the program on Aug. 21 to an informant who didn’t want to be identified. The whistleblower received $50,000, or 30% of the $150,000 thus far reclaimed out of the multimillion-dollar fraud the person prevented, the SEC said at the time. [WSJ]
Last week, we discussed the whistleblower payout awarded to Bradley Birkenfeld, a former UBS employee who single-handedly made the government’s case against the Swiss bank re: tax evasion, scoring the US between $780 million and $5 billion, depending on how much credit you want to give him. Earlier in the month, Birkenfeld secured a $104 million bonus from the IRS for his assistance, though only after a lot of hoop jumping, nearly three years in a federal prison, and several months in a halfway house, prompting us to wonder how much money, if any, it would take to get you to blow the whistle on some colleagues playing it fast and loose with the law,* if you would do time for it, and, if so, how much? Today brings one more issue to consider, should you be seriously considering teaching your coworkers a lesson they’ll never forget, which is: are you will to get your face rearranged and/or have your ear stapled to your spacebar?** Read more »
A whistleblower who helped the Securities and Exchange Commission stop a multi-million dollar fraud will receive nearly $50,000 — the first payout from a new SEC program to reward people who provide evidence of securities fraud. The award represents 30 percent of the amount collected in an SEC enforcement action against the perpetrators of the scheme, the maximum percentage payout allowed by the whistleblower law. “The whistleblower program is already becoming a success,” said SEC Chairman Mary L. Schapiro, who advocated for the program. “We’re seeing high-quality tips that are saving our investigators substantial time and resources.” [SEC]
So there’s a law firm called Labaton Sucharow and a big chunk of their business model is:
(1) read newspaper,
(2) see bank did bad thing,
(3) sue bank.
This is a great business model because banks just cannot resist doing bad things and courts just cannot resist taking piles of money from shareholders of those banks and divvying it up among other shareholders of those banks and the lawyers who facilitated the transfer. For those same reasons, though, it’s a highly competitive business model and there’s every reason to branch into other related fields. So they did:
Labaton Sucharow was the first firm in the country to establish a practice exclusively focused on protecting and advocating for SEC Whistleblowers. Led by Jordan A. Thomas, a former Assistant Director and Assistance Chief Litigation Counsel in the Enforcement Division who played a leadership role in the development of the SEC Whistleblower Program, our practice leverages unparalleled securities litigation expertise and significant in-house resources to protect and advocate for courageous individuals who report possible securities violations.
This is clever as that is also a lucrative business model but a safer one: unlike securities class actions, where the decision about which lawyers get paid and how much are left to courts and can seem arbitrary to those lawyers, in whistleblower suits you actually find a client and convince him to pay you your fees out of any money he can get. And that money can also be serious money.
The problem though is that you cannot typically get these cases just by keeping a casual eye on the newspaper: banks cannot resist doing bad things, true, but once those bad things are in the newspaper the expected value of whistleblowing is low. The whole point of a whistleblower is that he voluntarily goes to regulators with information that isn’t yet widely known, so your job, as a whistleblowing broker, is to find people who have not yet come forward with their valuable crime information and make them come forward to you. And that is hard. It’s not like you can just contact a bunch of people in senior roles in the UK and US financial industries and say “hey, would you like to talk to us about possible misconduct in your industry?” Right? Read more »
Just something to keep in mind. Read more »
Yesterday, the Wall Street Journal ran a front page story reporting that the Securities and Exchange Commission had “blown” the cover of whistleblower Peter C. Earle. The article claimed that Earle, a former employee of Pipeline Trading Systems turned government informant, had his identity “inadvertently” revealed through a “gaffe” on the part of an SEC lawyer, who showed a Pipeline exec “a notebook from the whistleblower filled with jottings about trades, calls and meetings.” The executive was said to have recognized Earle’s handwriting and told his colleagues, who had previously suspected but did not know for sure that “Pete’s the whistleblower.” The story was easy to believe because if you’ve been keeping up with the SEC over the last number of years, you know that this sounds exactly like something they’d accidentally do. Except that whereas the regulator fully copped to, for example, missing Madoff while trying to access ladyboyjuice.com 385 times/day, it says that this accusation? Is bull shit. It did not “inadvertently” “blow” anyone. Read more »
In recent years, the Securities and Exchange Commission has had its share a fuck-ups come to light. 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 yesterday, it was announced that the Commission is suing Egan-Jones for lying about having rated 150 ABS bonds on an SEC application four years ago (in reality it had rated zero), information that could have been fact-checked at the time but was not because there were new clips on www.ladyboyjuice.com, www.anal-sins.com, and www.fuck-my-wife.com to watch. Today the team scored a new victory when it outed an informant (in typical amateur hour fashion, natch). Read more »
The SEC is well aware that everyone thinks its failure to stop Bernie Madoff’s ponzi scheme was pretty weak. After all, Harry Markopolos told them about it for years and they did nothing. But it turns out there’s a pretty innocent explanation: when Markopolos would call the SEC, they didn’t have a pen handy so they couldn’t write down what he told them. This happened all the time and was generally viewed within the agency as not a big deal.
Tips used to come via phone calls, e-mails, faxes and even handwritten letters into the SEC’s 11 regional offices and Washington headquarters. Before the Madoff case, the SEC’s Los Angeles office might receive a written complaint about a bad broker, for instance, and stuff the letter into a filing cabinet if it was deemed without merit. So, if later on a complaint about the same broker was sent to the SEC’s Chicago office, staff there would have no easy way of knowing about the earlier tip and connecting the dots.
Now? They’ve got a shiny new database. And their treatment of people who do their job for them has never been better: Read more »