Preet Bharara fixes HSBC; jail for Gupta, Martoma

Credit: blogs.marketwatch.com

Manhattan prosecutor Preet Bharara shows his true colors as a servant of the money-power.

In the case of mega British bank  HSBC, Bharara is willing to settle for peanuts civil charges over HSBC’s defrauding of the US government to the tune of  millions of dollars:

Federal prosecutors in Manhattan on Tuesday announced a $10 million settlement with the British bank HSBC, accusing it of fraud over the way it submitted fees to the government when foreclosing on homeowners.

HSBC, prosecutors said, lacked the internal controls to review fees it incurred in the process of foreclosing — expenses that the bank ultimately passed on to the government for reimbursement. The bank, which admitted committing the misconduct as part of the civil settlement, cost the government millions of dollars in losses.

Civil actions like these serve as an important tool that our office can and will continue to use in holding financial institutions responsible for misconduct,” Preet Bharara, the United States attorney in Manhattan, said in a statement.

In a separate statement, a spokesman for the bank said, “We are pleased to have settled this matter,” additng that the bank had “taken steps to enhance oversight” of the billing process.”

HSBC  Holdings, the company that owns the bank, has a market capitalization of $192.57 billions. That is billion with a ‘b.’

The fine on HSBC was ten million.

There are a thousand millions to a billion.

In 2012, the bank settled criminal charges over money-laundering for $1.92 billion.

HSBC was the bank of choice for the Mexican drug cartels.

In Forbes’ global 2000 list of the world’s largest companies, HSBC came in at 14.

It ranked #3 among all companies in the world in  total assets.

HSBC’s billion-dollar-plus fine was the third it had earned in a decade, says a Reuters piece from 2012, which also lists the fines paid by HSBC’s mega-bank colleagues:

Standard Charter PLC:  $327 million (violating sanctions)

ING, NV:  $619 million (violating sanctions against Cuba and Iran)

Meanwhile, for not making any money on an alleged insider tip about consummate insider Warren Buffet’s insider-deal involving insider-bank Goldman Sachs (to which at least half-a-dozen insiders were privy and which any one of them could have leaked);

for not costing the government a dime,

Rajat Gupta became the highest-placed manager ever to be convicted criminally and the first to ever have been subjected to federal wire-tapping…and pre-textually, at that.

Wire-tapping is usually reserved for the mafia.

In this case, the blue-chip manager got the wire, the strip-down and jail…and the mafia (SAC Capital) got off with fines.

Gupta is now starting two years in jail, having got a “break” because of his philanthropic work.

The Occupy Wall Street left  would have liked him to do ten years.

Matthew Martoma, a significantly smaller fry than Gupta, is now facing eight years in prison, as  Bharara throws the book at him.

Martoma elicited information about drug-trials from a couple of doctors before the results were public and earned millions in bonuses.

It isn’t clear how Martoma’s conduct was any more corrupt than that of the big banks….and that of many fraudulent lenders and borrowers all through the financial crisis, not to mention corrupt bureaucrats, courts, lawyers, doctors, journalists and general public.

Martoma’s boss, the alleged mafia-man and Sith Lord of Wall Street, Steven Cohen, has not been touched criminally.

Actually, no manager or CEO of any of the largest banks has faced any criminal proceeding.

Some Sheriff of Wall Street, this Preet  Bharara.

Interestingly, the author of the piece I just linked,  Judge Jed Rakoff, is as much an enabler of corruption as any figure in the court-system.

Which makes the piece, while true, the usual hypocritical tosh, wherein the very folks who scammed us get to change their jaddis, put on new togs and and bloviate about the integrity of the markets.

(For non-desis, jaddi = underwear)

Just remember it was the same Jed Rakoff  who handled the Madoff fraud and reportedly made it harder for the victims to collect.

And it was again Jed Rakoff who prevented crucial evidence from being heard in the Gupta case.

Evidence that would have helped the defense and thwarted Bharara.

Now, between Bharara and Rakoff, the fix is in.

 

SAC Case: Should Be About Racketeering, Not Insider-Trading

Previous Mind-Body Politic posts related to Steve Cohen, in reverse chronological order (incomplete):

Rajat Gupta Trial: The other Goldman insider ring, MBP, June 10, 2012

More on Einhorn’s rumour-mongering about Lehman, MBP, April 15, 2010

Third-point, Goldman trading chiefs exist together, Madoff programmers indicted, March 18, 2010

Hedge-funds: top ten earners in 2007-2008, MBP,  January 13, 2010

Steven Cohen: third-biggest owner of Sotheby’s in 2009, MBP, Dec. 30, 2009

Secretive Steve Cohen on talk-show, discussing relationship with ex, MBP,  Dec. 27, 2009

SAC spin-offs fail, even when they succeed, MBP,  Dec. 26,2009

SAC subpoenas former SAC trader Grodin, MBP,  Dec. 25, 2009

Den of Thieves: Hedge-hogs go into SAC remote mode, MBP, Dec. 23., 2009

Sad SAC: Reuters spikes hedge story on complaints from Steven Cohen, MBP.com, December 22, 2009

Ex-Sith lady uses RICO on Sith lord? Mindbodypolitic, December 17, 2009

ORIGINAL POST

In his piece at Deep Capture, “SAC Capital (and Steve Cohen too) should be convicted”, researcher Mark Mitchell is far more sanguine than I am that Preet Bharara really means to go after the chief of the mega-hedge fund SAC,  Steven Cohen, after he puts away  various underlings, like Michael Steinberg and Indian-born Matthew Martoma.

“By fixating on the insider-trading angle in all his cases, Bharara, in my opinion, undermined the whole credibility of his prosecution and opened himself up for charges that he is merely targeting politically-viable low-hanging fruit.

Lila: As I’ve documented thoroughly at this blog, Bharara hasn’t had much credibility in his Wall Street prosecutions for at least a year now, regardless of how successful his other prosecutions might have been in some people’s eyes. I’m glad to see some main-stream voices coming around to my view.

I think I know a little about the Steven Cohen investigation, from my conversations with some of the principals at Deep Capture, where the investigation of Cohen began

Here’s a piece I wrote which they picked up, back in 2009:

Steve Cohen, the anti-Midas (Judd Bagley at Deep Capture):

Here are Lila’s observations on the matter:

1. The high number of SAC traders who seem to have gone off into their own businesses.

You’d think with all that money and the fund’s record as the most consistently successful in the business (only one bad year on record), their traders would stay forever. Quite the opposite.  People seem to have been leaving all the time to form their own businesses.

But SAC was also said to be a very tough environment. You produced, or you left.

So maybe that’s why Lee and Far, Grodin and Goodman, all left to found their own firms?
Could be. But I’m not convinced.

2. None of the spin-off firms seems to have been very successful.

Why not? Why couldn’t these hot-shot traders make money on their own?

The Reuters piece suggests that perhaps the SAC experience didn’t foster business ability. And that perhaps SAC traders flounder without SAC’s huge supporting cast.

But those things are likely to be true of other firms as well, not solely SAC.

Still not convinced.

Furthermore, consider this.

3. A spin-off fund that didn’t get money from Cohen ended up quite successful:

“Healthcor, a healthcare industry focused fund, had raised $3.2 billion by June 2009 since launching four years ago. The fund returned 25 percent in 2006, 18 percent in 2007, and was up 4 percent last year, when the average hedge fund lost 19 percent. In the first 10 months of 2009, Healthcor was up 7 percent.

Healthcor, founded by Arthur Cohen and Joseph Healey, opened without any financial support from SAC. In fact, soon after Cohen and Healey struck out on their own, SAC sued the pair, accusing them of breaching their employment contracts. The matter ultimately was settled. (Healthcor’s Cohen is not related to SAC’s Cohen).”

4. Even spin-offs that were doing well were shut down.

When Stratix started in 2004, it had $60 million given to it by SAC. When it shut down, in 2007, it was up 17% and had $530 million under management. Yet it shut down. Why did it shut down? Those numbers sound pretty good.

Another spin-off, Fontana Capital, started out in 2005 with $50 million of SAC money. It grew to $325 million by 2006.  But sometime in 2007, Cohen pulled out all his money. And in 2009, Fontana was down to $16.1 million, despite being down only 7.69%, compared to the average S&P Financial index loss of 57%. Again, that sounds like it wasn’t doing all that bad.

Reuters quotes someone familiar with the record of ex-SAC traders:

“So many of the ex-SAC people seem to have this model where they attract you with fantastic returns in the first year but in year two or three or four you get annihilated,” said a person who is familiar with several former SAC employees’ records.

Shades of Bernie Madoff….

Someone need to look closely at what happened to the money at these firms…

Lila:

Unlike some, I don’t think the fact that Bharara has an agenda means that Martoma is necessarily innocent, either.

I just think that even guilty as charged, Martoma is small fry.

He’s Cohen’s employee and by every account I’ve read, Cohen kept notoriously tight control of his business and tolerated no dissent.

He was not the kind of hands-off employer who can plead ignorance after the fact, even though that’s just what he did.

So Martoma might be guilty as heck, but it’s beside the point.

Insider-trading, outside the  issue of racketeering, is an irrelevant and minor side-show.

Insider-trading as part of systemic racketeering is another thing.

But Bharara hasn’t shown that, nor does he even look like he’s trying to show that.

He looks like he’s polishing his resume for a move into politics.

Anyway, here’s Mark Mitchell at Deep Capture:

Deep Capture: SAC Capital (and Steve Cohen too) should be convicted….

“During the trial of Martoma, DOJ prosecutors confirmed that SAC Capital traded on inside information provided by a doctor at the University of Michigan, which was all well and good, but as I documented in my book, SAC Capital not only traded on inside information from another University of Michigan doctor, but also profited from short selling Dendreon’s stock after multiple doctors (some of whom had demonstrably corrupt relationships with Milken) conspired to undermine Dendreon’s treatment by convincing the FDA (also corrupted by Milken and his associates) to delay approval of the treatment (which had been proven effective).

Some journalists and their Wall Street sources have argued that insider trading is an essentially harmless offense and that SAC Capital deserves leniency, but their arguments obscure the fact that SAC Capital’s insider trading has involved the wholesale corruption of the FDA and some of the nation’s most prominent doctors, all of whom have (as my book documents in detail) shown themselves more than willing not only to provide Steve Cohen and his associates, including Milken, with inside information, but also to undermine pharmaceutical companies with effective treatments while promoting companies (i.e. companies that are financed by Milken and his associates) whose treatments are actually killing people.”

Lila: Exactly. But then, in that context, Matthew Martoma is actually the lesser offender.

He was after all a portfolio manager, a trader. His employment depended on his getting an edge.

When he stopped getting that edge (illegal, as it turned out), he was fired.  Since Martoma has been attested to be very knowledgeable in his field by the doctors with whom he interacted, it follows that his competitors in the field must also have been getting their “edge” in the same way.

Industry-wide corruption of that kind isn’t best addressed by throwing the book at some representative pawn/small fish in the game.  That only makes the prosecutors’ office look biased or politically motivated.

Which it usually is.

If the nation’s top doctors were engaged in corrupt activities, why aren’t some of them being prosecuted before Martoma?

And, if Steven (don’t call me Stevie) Cohen is a racketeer, prove that.

Then give yourself a gold medal. Not before.

Note: See John Cassidy’s piece at the New Yorker, “Has Steven A. Cohen bought off the US Government?” November, 4, 2013