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Bank Chief Showed Enormous Restraint In Not Requiring Employees To Wear Apparatus That Sends An Electric Shock To Their Nipples If They So Much As Think About Committing A Fraudulent Act

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Since the 2008 financial crisis, banks and other financial institutions have made a big show about cracking down on illegal activity, unethical behavior, and other sorts of mischief-making that had the potential to force them to pay hundreds of millions of dollars in fines, get their asses hauled in front of Congress, or simply embarrass them in public. They've stated internally and externally that they have a no tolerance policy for insider trading, for screwing over clients in plain sight, for manipulating Libor, for inviting interns to a bar with a lax policy on underage drinking and a penchant for accepting fake IDs. They've instituted clawbacks, and disincentivized people from placing a trade that'll be good for them today and bad for the bank tomorrow. They probably think they've done a lot in an effort to put the fear of god into people. If you ask Michael Eggleton, though, they haven't done shit. 2009, the former Merrill Lynch & Co. and Credit Suisse Group AG banker, who had been appointed chief executive officer of Almaty-based Eurasian Bank JSC, flew a polygraph machine into the Central Asian country to bolster client trust. The bank, Kazakhstan’s 10th largest, was losing money, and Eggleton’s predecessor, Zhomart Yertayev, had been arrested on suspicion of embezzlement in connection with $1.1 billion in losses at Alliance Bank, which he led from 2002 to 2007. Yertayev, who denied wrongdoing, was convicted in 2011. “We had just come through one of the biggest economic crises in the world, and I had just arrived in a new country,” the 44-year-old, U.S.-born Eggleton said in an interview in Almaty in July. “There was no confidence in the banks. I was trying to address concerns of the market, and internally I saw it was going to be a war collecting money back from people.”

The polygraph -- a laptop computer with wires and sensors that connect to a subject’s hands, arms and chest -- has led to a drop in theft, including kickbacks for lending, Eggleton said, declining to provide figures. The bank was the third-least corrupt among 24 commercial lenders in the February 2012 Sange poll, which asked 500 Kazakh businessmen and mortgage borrowers whether bank employees had sought payments to facilitate credit. Eggleton started using the polygraph on a routine basis in January 2010, the same year he hired actor Gerard Depardieu to appear in advertisements for the bank. While the test is voluntary, employees who decline to take it aren’t eligible for bonuses or promotions, he said. “I have a problem with someone who has failed the test or who won’t take it and is making decisions worth millions and millions of dollars,” said the U.S.-born banker, who submits to a polygraph exam once a year. “If they are not taking it, that’s fine and I won’t be penalizing them, but I won’t be making them chairman of a credit committee.” More than 600 people left Eurasian Bank the first year the lie detector was in use, reducing the number of employees at the corporate and retail lender to 2,010, the company said. The workforce is now more than 5,700. “A polygraph is an extreme measure, but large global institutional investors that we talk to are increasingly concerned about the effects of bribery on businesses, especially in frontier markets like Kazakhstan where corruption is a serious problem,” said Hugh Wheelan, managing editor of Paris-based Responsible Investor magazine.

U.S. Banker Deploys Polygraph to Thwart Kazakhstan Theft [Bloomberg]


Vikram Pandit Is Committed To Getting Paid

If you didn't know Chief Executive Officer Vikram Pandit, you might think he enjoyed not being compensated for the work he does at Citigroup because for quite some time, he wasn't. And although the "I will only get paid $1/year until Citi turns a profit" exercise was fun for a while, he was pretty happy when the old jalopy started making money again, in part because it meant he could receive a paycheck. Then last April, his shareholders rejected the bank's executive pay plan, claiming the Big C "lets Chief Executive Officer Vikram Pandit collect millions of dollars in rewards too easily." And while it's possible that Citi shareholders are just a bunch of pricks who chose to overlook the fact that Uncle Vikula didn't collect squat for several years and once had an entire article written about the fact that lieutenants attributed a "new bounce in his step" to him daydreaming "the day when he is going to earn more than a $1 a year,” maybe they just assume that he doesn't care about getting paid either way? Anyway, here's Vickles, reminding anyone who forgot about the sacrifices he made and setting the record straight: “The board has this process with them, they’re going through it, and they are committed, as I am, to making sure that they resolve this,” Pandit said. “I want to get paid what the board thinks is right for me, for the job that I’ve done and for the incentives that they think I ought to have.” Pandit told lawmakers in 2009 that he would take a $1 annual salary until he restored the bank to profitability. Citigroup made a $21.7 billion profit for 2011 and 2010 combined, compared with a $29.3 billion loss for the two preceding years. “When the company was losing money, I stepped up and said I’ll take a dollar a year and I did, exactly for that reason, exactly the right thing to do,” Pandit said. For those having trouble separating the nice guy/don't want to offend anyone statement from what he's actually trying to say, a rough translation of the above would be: get me paid, bitch! Citigroup Will Resolve CEO Pay By End Of Year, Pandit Says [Bloomberg]

Area Investor Contemplates Act Of Civil Disobedience (Wearing A Tie To Soho House)

You messed with the wrong crowd, Soho House! Ties all UP in your face.

Convicted Insider Trader Matthew Kluger "Shocked" To Find Out He Couldn't Trust The Guys With Whom He Was Committing Federal Crimes

Remember Matthew Kluger? To recap, he's the mergers and acquisitions lawyer who spent two decades feeding inside information to convicted insider trader Garrett Bauer, that he picked up from partners at the six different law firms he worked at over the years. The operation, which included Kenneth Robinson, an old friend of Kluger who acted as the tips mule between MK and GB, went very smoothly for a very long time (17 years), and would have continued going smoothly had Robinson stuck with the plan instead of deciding to start making the same trades as Bauer, raising suspicion with SEC, which was watching the men and used "relationship analysis" to determine they were "part of the same trading scheme and had a common source: Kluger." In March 2011, federal agents showed up to Robinson's house and after thinking it over for a couple days, he decided to cooperate by giving prosecutors a step-by-step guide to how the scam operated, telling them Kluger's name, and recording conversations with Kluger and Bauer in which the two said things like "I went right up to my apartment and I broke the phone in half and went to McDonald's and put it in two different garbage cans" and "I can't sleep. I can't sleep. I'm waiting for the FBI to ride into my apartment" and "We have to get all the fingerprints off that money. Like you wearing gloves or something and wiping every bill down or something" and "There is no way [these cell phone conversations] could ever be recorded." Robinson was ultimately sentenced to 27 months in prison, Bauer got nine years (despite his 147 speeches about how insider trading is a bad idea on the college lecture), and Kluger was handed 12 years, beating Raj Rajaratnam for "the longest insider trading U.S. history." Recently, Kluger sat down with Bloomberg to offer a few more specifics re: how the scheme went down ("Sometimes it was a deal I was working on, sometimes it was a deal I heard being discussed in the office"; "I would call Ken and say 'X/Y/Z company is considering a takeover of Q company") but what he really wants to talk about? What was the biggest surprise and hardest punch to the gut in all of this? Is what it was like finding out that his buddies were stiffing him on cuts of their ill-gotten gains. "On the day I was arrested, when they showed me the criminal complaint against me, finally that day, I saw the amounts that had been traded and I was absolutely shocked. Our agreement from the beginning was always that that profits were being shared equally three ways. I felt very used and manipulated, that he was basically pumping me for information, that he was then lying to me about how he was using and then allowing his obviously better friend to make millions and millions of dollars while telling me that that was not happening. “Maybe you want to laugh and say of course there’s no honor among thieves,” Kluger added. “But even when you’re doing something you’re not supposed to do, I trusted that they were honoring the commitments that they had made.” You can imagine Kluge's utter dismay to find out that such was not the case. It's one thing to get nailed for insider trading, it's another to find out you could've been making 10 times the profits while doing so.