Shankar Sharma: Some Insider Trading More Legal Than Others

At last. One honest journalist out there has the spine to tell the truth about the Western establishment’s vengeance against upstart South Asian finance,  known to the moron masses as the Galleon group/Gupta insider trading (non) case.

Here’s businessman and journalist Shankar Sharma in a piece that puts to shame the drivel emanating from the entire western press (Bloomberg included), not to mention the rags published by various Indian satraps (Livemint etc):

“On July 21, 2008, Hank Paulson, the then US treasury secretary, met around 15 major hedge fund managers at the offices of Eton Park in New York — itself one of the biggest hedge funds in the world. At least five of the 15 who attended were ex-Goldman Sachs, the firm that was headed by Paulson before he became the treasury secretary.

That very morning, Paulson had spoken to The New York Times reporters and editors and had assured them that the government was looking into the book of Fannie Mae and Freddie Mac, and that this would calm the markets that had been fearing an imminent bankruptcy of these firms.

This was material, non-public information, being selectively disseminated to a group of people whose jobs were to profit from such information. And, by no less than the serving treasury secretary. (Imagine the brouhaha if something like this were to happen in India.)

Those who attended were the who’s who of Wall Street: Taconic Capital, James Chanos of Kynikos Associates (a known short-seller), Steve Mandel of Lone Pine Capital, Dinakar Singh of TPG Axon, GSO Capital (part of Blackstone group), Daniel Och of Och-Ziff and Roger Altman of Evercore Partners.

Seven weeks later, on September 6, the government did indeed take over Fannie and Freddie and put it into conservatorship, wiping out the equity holders. Their stock prices fell 85 per cent from September 5 to September 6, i.e. overnight. Precisely as Paulson had told the hedge fund group.

The government gave scanty information on the names of those present at the July 21 meeting to Bloomberg, who sought this information under the Freedom to Information Act. Paulson’s press secretary told Bloomberg to refer to Paulson’s book on the financial crisis, On the Brink. Except for the little inconvenient fact that there is no mention of this meeting in the book at all.

Now, here is an interesting thing: the fund manager who recounted this tale to Bloomberg, was already short the stock at the time of the meeting. And, he did not cover his short position after this meeting because Paulson had clearly informed the group that the government was going to “wipe out the equity holders”. So, by not cutting his already short position in these names, that fund manager ended up profiting handsomely, by riding the short position all the way to the bottom… all based on Paulson’s generous advice.

And, what is even more significant is that given the negativity surrounding Fannie and Freddie at that time, it is almost given that nearly all those who attended that Paulson meeting would have been short these stocks. The whole world was short Fannie and Freddie (for the record, short interest in both these stocks rose after the July 21 meeting to hit a yearly high on July 24). Paulson revealing the government’s hand made the decision very easy for all these funds: “Don’t cut your shorts, since these stocks are going to zero.” Perfect.

What is even more curious is: why would Paulson reveal this to a bunch of hedge funds? Revealing this to commercial bankers would probably have some minuscule sense attached to it, i.e. to get them prepared for an impending catastrophe. But, hedge funds? And, an even more damning question arises: why would Paulson reveal negative information to these hedge funds, i.e. that the equity investors would get wiped out by the government takeover? This sort of information from a regulator/government official is unheard of: they are supposed to give out generally positive information, not catastrophic, unsettling information like this. Paulson’s information could lead to only two trading outcomes: one, hang on to your shorts in Fannie and Freddie, or, two, go short some Fannie and Freddie. This short-trade generating advice coming from a regulator, and that too a seasoned pro like Paulson, is extremely suspicious, to say the least.

If this is not giving out material, non-public information, then what is? If Rajat Gupta is guilty, why isn’t Paulson? If Gupta had given Raj Rajaratnam information that Goldman Sachs was going to get an investment from Warren Buffet (and suppose, if Rajaratnam had not sold an already long position in Goldman stock based on this material, non-public information), would this have amounted to a criminal offence on Gupta’s part?

Of the many things I don’t like about this Rajat Gupta affair, one is the Indian media’s sickeningly fawning portrayal of the American justice system as one that “doesn’t spare the rich and powerful, unlike ours where the well-connected get away”, and “how justice is dispensed speedily in the US”, and so on.

Nothing could be farther from the truth. The US protects its own rich and powerful better than we can ever do. Paulson got away clean. Not even an investigation. No investigation by the Securities and Exchange Commission into the trading by these attendee hedge funds. Nothing. Just a conspiracy of silence.

Then, we have the strange case of David Sokol. He was Buffet’s No. 2, and was widely tipped to take over from the old man. Sokol bought shares of Lubrizol, prior to getting Buffet to buy the company outright. After the deal was done, Sokol told Buffet of this purchase. Buffet waved it aside, saying it was no problem. No problem? Sokol traded on inside knowledge of material, non-public information, and Buffet joined him in keeping this a secret.

When the problem came out, Sokol resigned, Buffet shrugged. And, that was it. The cover up had happened. Because any serious investigation would have led to Buffet himself becoming a party to any offence, since he chose not to report this to the authorities. Consideration for his old age? Well…


But in the meeting with the hedge funds later that day, Paulson sang a completely different tune: he revealed in precise detail (according to someone who attended that meeting) what the government proposed to do with Fannie and Freddie. He told the elite group, whose sole business was to profit from any superior knowledge and analysis of events, that the government planned to seize the two firms, and place them into “conservatorship”: a move that would allow the firms to stay in operation, but would wipe out the equity holders.

Ron Paul Implosion: End The Fed To Technology Revolution…

The Pauls have lost all credibility with me.

Read their latest missive, blogged at EPJ

And reported here at Forbes: “Ron Paul Takes Up Internet Freedom with New Technology Revolution.”

They’ve abandoned the financial battle.

I guess the financial coup of 2008, completed in 2010, is now sealed and cordoned off from prosecution. Last month, as if to confirm that, the White Queen (the City)  took down the Black Knight (Gupta) that had infiltrated the highest ranks of her court, while the White Bishop (Lloyd Doing-God’s Work Blankfein) was witness for the prosecution.

“End the Fed,” which  Rand Paul converted to” Audit the Fed,” is over.

The Pauls have now skipped forward to their new, new project –  the  “Technology Revolution.”

I  never thought that much of “End the Fed,” because, as I’ve blogged previously, the elites can manufacture money from other places besides the Fed, like the BIS and the reconstituted IMF.

But, apparently,  End the Fed doesn’t even work as a popular slogan any more.

So, what do I think about the new campaign?

I think it will be about as effective as their “End the Fed” campaign, which is to say, not effective at all.

See my comment at The Daily Bell in 2010:

Posted by Lila Rajiva on 11/23/10 11:55 AM
Daily Bell: “But by pursuing his strategy, he has made his opponents look like fools and perhaps altered the course of history.”

Lila: Let’s hope. Personally, I agree with Doug Casey on this:
“As a lone voice, his father was a breath of fresh, more principled air, but he didn’t change anything at all that I can see”

(Doug Casey on Presidents, LRC)

But it will be a great platform for the Pauls to sell books, promote ideas and launch political careers for their family members.

I only hope it won’t be done on the backs of idealistic young people. There were many who put change they could hardly spare in a tough economy into the Paul’s war chest.

The new campaign, which dubs itself  “The Internet Versus The Machine” is obviously a rebranding campaign to move young people away from what Forbes calls “the archaic” (they mean arcane) issues of finance.

Instead, the Pauls will focus on the hip world of the net.

Forbes:

“Young people have been a driving force in the Paul campaign, and the focus on internet freedom should only bolster that support.”

I’m going to call foul on that.

Their new “campaign” is in support of the Technology Revolution on the Internet?

Last I looked the tech revolution has been around for a while, getting on quite well without the Pauls.

One part of  the new project is going to be defending big business from attempts by consumers to scrutinize their data collection.

I kid you not. Here is Buzzfeed on the subject.

“The Pauls also take a stand for the growing industry known (and widely criticized) as “big data.”

They deride the notion that “private sector data collection practices must be scrutinized and tightly regulated in the name of ‘protecting consumers,’ at the same time as government’s warrantless surveillance and collection of private citizens’ Internet data has dramatically increased.”

So does this mean that Ron Paul is going to be fighting to prevent European governments or NGOs  like EFF or Asian governments from scrutinizing Google’s data collection practices?

Remember that I just blogged that Google’s CEO Larry Page should be arrested for privacy violations and espionage against foreign governments?

I was being satirical about US surveillance of foreign CEO’s and money-managers.

For instance, in the Galleon -Gupta cases, the government used wire-taps whose authorization was obtained pre-textually in violation of the defendants’ constitutional rights.

I don’t recall that the Pauls said a word about that, although the Galleon insider case has dominated the financial media for a couple of years now, and is directly tied via Rajaratnam’s funding of Tamil charities to  issues like terrorist money-laundering  with which Paul adviser Bruce Fein – once employed by an alleged front group for the Tamil Tigers –  is intimately connected.

A recent Washington Post article described how the military is outsourcing surveillance in Africa to private contractors (with little accountability, significant cost over-runs, and little to show for the expense).

Densely populated China and India are both locked in battles with the West for access to resources and agricultural lands.  Indian and Chinese companies compete with American and European countries on the African continent.  China and India have also complained about American corporate espionage.  American companies in turn complain about IP theft from the Indians and Chinese.  Meanwhile the US government itself is involved in IP theft through its pervasive global surveillance.  Where does data collection for corporations end and espionage for the state begin, anyway? Where does the government end and the private sector begin, when private companies are outsourced arms of the government and the government is the enforcement arm of the companies?

Ron Paul is not oblivious to the complexities of all this. He is far too shrewd.

Rajat Gupta’s conviction shows evidence in my opinion of being a  set up by the government, with some arm-twisting from Goldman Sachs. Likely it was an important blow in the  covert psy war against India, an ostensible US ally, about which I blogged here (“Coconut Imperialism”and here, “Educating the Gentoos In India”)

The obvious response from foreign governments (such as India) would be to treat American CEO’s the same way and wire-tap them.

So, is it just coincidental that the Pauls suddenly abandon their financial campaign (which never involved a word against Goldman Sachs), and suddenly rush to head off any animosity toward Google?

On their silence on G Sachs, here is a comment I made (one among many) below the same Daily Bell article:

Posted by Lila Rajiva on 11/23/10 11:40 AM

@Pisano.

Why would it distract him?
How hard is it to say, unequivocally, “Goldman Sachs and several other banks, are involved in corrupt actions and should be investigated and prosecuted.”

There. Back to “business.”

He certainly had no problem drawing a hard line over relatively trivial things like a monument to Rosa Parks. If he was really afraid of distraction, why would he make a fuss over something like that, and then on something crucial, suddenly go silent?

Why doesn’t he state clearly – “9-11 needs to be investigated. There is credible evidence that there was some kind of conspiracy involving intelligence agencies, US and foreign.”

I like Ron Paul and want to believe the best of him.

But this excuse doesn’t hold water for two seconds.”

This looks like more material to add to the mounting evidence (see  here) that Paul fronts for financial interests.

Perhaps he cannot avoid doing it, as I’ve said.

But there’s no need to be suckered into what could well be a counter-attack against foreign governments who defend themselves against espionage by Google/Facebook/Hotmail/Skype/TOR and the rest of the government-corporate spy sector, by couching the issue as a defense of the private sector.

That explanation also takes care of Paul’s pandering to the left.

The financial world (which controls the media) is left-leaning, in contrast to non-financial businesses.  Paul’s recent moves make quite a bit of sense when understood that way.  He acts to co-opt the brand of libertarianism appropriately called the Marxism of the right by deploying what seem to be ideologically inflexible positions in the service of  larger imperial goals.

So, I have to ask. Will the two Pauls now be collecting money from young people to defend multi-billion dollar multinationals like Google from scrutiny by the governments on which they spy?

I mean, if you phrased that in the appropriately anti-state way, there will be enough libertarian lemmings who’ll rush to defend Google, I’m sure.

This theory might explain why the financial media, usually so vocal in defense of insider-trading, when it’s done by Michael Milken or Ivan Boesky, is suddenly so quiet  about South Asian insider-trading not a tenth as bad.

Does it also explain why large parts of the alternative press  have had nothing but praise for Julian Assange, another front for western financial interests? And why the Pauls have promoted Assange?

Talk about Trojan horses.

Big corporations cannot be analyzed separately from government.

When the state outsources its spying to corporations, for someone to argue that the state should not limit corporate surveillance because it’s engaged in surveillance itself is confused, at best, and downright misleading, at worst.

Especially when it comes from seasoned politicians like the Pauls.

Parts of the government are scrutinizing the private sector. Often they’re right to.

Other parts of government are much worse than the private sector when it comes to privacy violation.

Those parts of the government are often most incestuously allied with corporations. This is the corporate-state or intel-industrial complex that produces programs like Echelon.

So it’s quite bizarre for the Pauls to claim that Microsoft (or Google or Apple) are pure private-sector entities, when they gain market share directly because of concrete government actions on their behalf and because of endemic and pervasive state-created judicial/legal/financial corruption.

One more thing.  Microsoft wasn’t prescient at all about the net, as the Pauls claim in their new manifesto.

It was way behind. Gates himself admitted it.

There is, finally, another reason why the Pauls may have turned their attention to protecting Big Data,

It looks like Big Data is bankrolling him.

Here’s Reason’s Brian Doherty, making the point:

“With Peter Thiel, founder of the controversial “big data” company Panantir, having made a $2.6 million investment in the (somewhat feckless in the end) superPAC “Endorse Liberty” during campaign season, perhaps the Paul machine sees this as a cause that can energize both grassroots and big money.”

And that’s all  I want to say now about this turn of events until I learn a bit more what is really going on.

But, if you were waiting to see Ron Paul libertarianism implode, it happened this week.

Rajat Gupta: Did Goldman Frame Gupta To Save Its Skin?

We know that Rajat Gupta was a big Obama supporter.

We know that Goldman Sachs switched its loyalties to Mitt Romney earlier this year, mainly out of animosity to Dodd-Frank, which they claim is crushing the banks.

As early as last year  ThirdPoint LLC, said to be part of a Michael Milken-related market racketeering network, attacked Obama.

[Third Point is a leading hedge-fund that’s  credibly alleged to have colluded with Goldman Sachs in collusive raids on rivals. Documents accidentally released in a lawsuit against Goldman Sachs by Patrick Byrne of Overstock now show that Goldman did in fact pass on non-public information of its clients to select hedge-funds .

ThirdPoint has since cut stakes in Goldman Sachs in March this year, probably sensing that the firm is due for a huge beating.]

GS’s troubles are ongoing.

In March 2012, Greg Smith, a senior manager, trashed the firm, specifically Lloyd Blankfein and Gary Cohn, for corrupting the culture…..as if that were possible.

Two other Goldman executives are under investigation for tipping caught on wire-taps, Henry King and David Loeb.

[This is the evidence that Judge Jed Rakoff wouldn’t let the jury hear. It was the core of the defense’s argument that, not Gupta, but the other proven tipsters at Goldman has passed on the Buffett tip. The jury, confused by hearsay that was wrongly included of Gupta talking about non-public non-material information to Galleon, hung the Galleon case on him and convicted on this insubstantial evidence.]

Last year,  after the SEC first began administrative proceedings against Rajat Gupta (March 2011) we heard that Lloyd Blankfein had hired a big-shot DC criminal attorney (August 23, 2011).

Then, in Feb 2012,  sources close to Goldman reported to the NY Post that the nine month long investigation would likely not lead to criminal charges.

Why not?

How did they become so sure that Blankfein wouldn’t be facing charges?

Did they fix the deal around that time?

Only a month later, March 2012, the defense reluctantly began sending particulars of its charges to Gupta.

Yet it had been investigating Big Raj for a decade, and had been on the Galleon case since 2007.

What took so long? Was there any pressure from Goldman?

Was the fix in by then, and is that why Goldman insiders were so sure that Blankfein would be off the hook?

After all. Gupta is a RETIRED director at Goldman, and his main professional association is with McKinsey, not with Goldman.

He had nothing to do with the trading culture of Goldman that was the source of its problems.

He just sat on a board, which probably met a few times a year. The public, angry at Goldman, wouldn’t know that they’d been fed Gupta, to protect the core of Goldman itself.

Did Blankfein figure out that throwing overboard a South Asian patsy, albeit a powerful one, one associated with the loss of jobs to Americans, would save his skin in the media, dominated, rightly, by anger over the financial crisis?  Did it help that Gupta was also an Obama donor?

That Blankfein had an eye on PR at this time is clear because around the same time that he  made some other interesting moves, as I noted earlier.

1. He announced his support for Romney (January 2012)

2. He told the press that Goldman was in the clear (February 2012)

(This was around the time the defense was asking for particulars of the charges to be sent)

3. Bharara starts sharing Brady material (Feb 2012)

In March 2012, a month later, Bharara was finally forced to disclose what specifically he had on Rajat Gupta.

4. Blankfein was hired as a public spokesman for gay marriage by Human Rights Campaign  (February, 2012).

The timing of all these events is surely extremely suggestive…

Blankfein’s attorney, Reid Weingarten, represented WorldCom CEO, Bernie Ebbers, who was convicted in 2005 of fraudulent accounting, in the largest such scandal in US history until the Bernie Madoff ponzi.

Charles Gasparino at The New York Post:

“Goldman Sachs will not support Obama,” the firm’s CEO, Lloyd Blankfein, muttered at a recent dinner.

It was a meeting with the CEO of Blackrock, Larry Fink, himself another of Wall Street’s top Obama boosters back in 2008. But “Larry is looking for someone to support this time,” a friend of Fink told me.

Blankfein has apparently found his pick. According to people who know him, Blankfein’s bet is that Romney will win the Republican nomination fairly early, putting him in a decent position to win the presidency — and in office does his best to water down some of the more insane aspects of the Dodd-Frank financial-reform law.

Some caveats: Romney barely won the Iowa caucuses and still faces much conservative skepticism about his various flirtations with big government as Massachusetts governor. Goldman still has many committed Democrats, and Wall Street support can be fickle. Blankfein might well reverse his bet if Obama takes a commanding lead in the polls.

But with the polls fairly even, the firm so far seems to be betting big that the GOP base will conclude that Romney has the best chance of winning over independents and beating the president in November. That would allow a reversal of Obama’s most leftist policies — including financial reform, which threatens to strangle Goldman and all the big banks while doing little to address the core problems that led to the 2008 collapse.

What makes Goldman’s move to the right so striking is just how far to the left it was in 2008. The Goldman community gave more than a $1 million to the 2008 Obama campaign, bested only by donors tied to the ultraliberal University of California. But the latest contribution records (through the end of September) show that Goldman-linked givers barely crack the top 20 of Obama donors, with a little more than $50,000 toward his 2012 re-election effort.

By contrast, Goldman-linked donors are Romney’s leading source of corporate campaign cash, spending $367,200 on his 2012 effort so far. That’s nearly $127,000 more than the firm put up for 2008 GOP nominee John McCain.

Not that Goldman has suddenly become a hotbed of Tea Party conservatism. Its beef with Obama is focused almost entirely on Dodd-Frank’s impact on its bottom line.”

Doing Well By Doing Good: Corporate Brand Teaching

In the old days, people who did things for love of their community, for idealism, or for a cause they believed in, were in it just for that. They deserved the respect they got. Today, volunteer work has been festooned with all kinds of goodies, and, not unnaturally, it’s drawing people more interested in the goodies than the good. And not unexpectedly, the king of “doing well by doing good” –  Goldman Sachs – is in the thick of it. Continue reading

Steve Cohen To Leave Trading, Says Vanity Fair

Well, well, well. It looks like Patrick Byrne, Judd Bagley, Mark Mitchell and the rest of the estimable team at Deep Capture are having more than some effect.

Not only have the Germans and Austrians banned naked short- selling, Vanity Fair, our least favorite low-class, high-gloss magazine of the DC twitterati, tells us that Steve Cohen is closing up shop as a trader. Sith Lord Cohen doesn’t like the spotlight, it seems.  Maybe he remembers all too well what he was up to in the 1980s……even if Reuters wants to keep it buried.

Vanity Fair:

In the July issue of Vanity Fair, legendary hedge-fund billionaire Steve Cohen tells special correspondent Bryan Burrough that he might be ready to walk away from active trading. How big would that be? Well, says Burrough, it’s “a little like saying that God is ready to walk away from Earth.” In this video, Burrough takes the measure of Cohen’s controversial careeer—and offers his theory on why the reclusive banker granted the second in-depth interview of his 30-year career to Vanity Fair.