Tag Archives: kleptocrats

Too Big To Fail And Too Big-Headed To Admit Failing

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In the Times of India,  Abheek Barman reviews Andrew Sorkin’s “Too Big to Fail,” a blow-by-blow account of the bail-out and makes a couple of insightful observations:

“It’s a tribute to his writing that despite his ball-by-ball narrative Sorkin manages to hold your attention for nearly 550 pages. His character sketches are lean and unjudgemental. Yet, though he doesn’t pass judgement, by the end most of the characters – with the possible exception of Buffet and some of the regulators – come across as distinctly unsavoury.” Continue reading →

Xmarks’ Top 20 Corruption Sites List Includes Deep Capture

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I just happened to notice this ranking of the most popular corruption sites and thought I’d post it as more evidence that the campaign against naked short selling isn’t some marginal “freak” show, as some of the financial blogs have tried to claim it is. Continue reading →

DTCC Board Stuffed With Kleptocrat Banks/Funds

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The DTCC (Depository Trust and Clearing Corporation) is the largest depository in the world, and, along with its subsidiaries, the place where all transactions in equities, money market funds, corporate and muni bonds, MBSs and derivatives are cleared and settled.  Activists have been demanding detailed release of trades which haven’t been settled or have failed to deliver (FTD), because of the obvious potential for manipulation, A glance at the board of directors, which consists of leading figures from the banks and funds, many of whom profited hugely from the government bail-out, shows that concern is amply warranted.

From Citizen Economists:

DTCC BOARD OF DIRECTORS

The DTCC’s board includes 20 directors.

Art Certosimo, Senior Executive VP, Bank of New York Mellon
Norman Malo, President and CEO, National Financial Services LLC; Fidelity Investments
Stephen P Casper, Partner, Vastardis Capital
Gerald A. Beeson, Senior Managing Director, COO. Citadel Investment Group
Donald F. Donahue, Chairman and CEO, DTCC
William B. Airnetti, President and COO, DTCC
J. Charles Cardona,  CEO Bank of New York Mellon – Cash Investment Strategies,  President of the Dreyfus Corporation
Randolph L. Cowen, Co-Chief Administrative Officer, Goldman Sachs Group Inc
Norman Eaker, CAO, Edward Jones
Timothy J. Theriault, President – Corporate & Institutional Services, Northern Trust Company
Neeraj Sahai, Managing Director and Global Business Head, Securities and Fund Services, Citi
Gerard La Rocca, Chief Administrative Officer, Americas Barclays Capital
David A. Weisbrod, Managing Director and Risk Executive, JP Morgan Chase Bank
Stephen Luparellyo, Vice Chairman and Senior Executive Vice President of Regulatory Operations, FINRA
Mark Alexander, Managing Director, Global Wealth and Investment Management – Bank of America, Merrill Lynch, Head of Technology Operations, Broadcort Clearing
Ronald Purpora, ICAP Securities USA LLP
Robert Kaplan, Executive Vice President, State Street Bank and Trust Company
Michele Trogni, Managing Direcotr and Global Head of Operations, UBS Investment Bank
Ian Lowitt, Administrative Officer, Lehman Brother

Steve Cohen, Third Biggest Owner of Sotheby’s In 2009 (Corrected)

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Modern Art Obsession has a post from April 2009 (see below) about Steve Cohen exhibiting a collection of his art at Sotheby’s, (where he  is the third largest owner). The exhibition ran exactly at the same time as Sotheby´s Spring Modern and Contemporary Auction. The Cohen art was not for sale.

Quote:

“So.. we guess there are other ways to dump an art collection skin a cat.

Hmmm… Maybe the page from the Billionaire Art Opportunist Collector playbook could be :

  • Step 1.. Buy lots of Art, push prices way up, and tell everyone who’ll listenin the media you’re a wise long term buyer.
  • (Photo #1, Richard Prince, “Graduate Nurse, 2002”,Ink jet print and acrylic on canvas,89 in x 52 in.   FYI… A description from Sotheby’s.. “This work is one of the best paintings Prince ever made, particularly because of its monumental scale and the rich, painterly quality of the brushstrokes”)
  • Step 2.. Buy an art auction house (or a Whopping controlling interest in one),
  • Step 3.. Stage a show of the great works having auction house experts tout your collection..
  • Step 4..Tell everyone these art works, on proud display, are not for sale
  • Step 5… Wait for someone stupid enough to say.. I wish I could have a collection like the one by this well known art collector, which just happens to be on display in the auction house.
  • Step 6.. To be determined…. Hmm.. possibly.. Cash out..??

Note: Cohen’s SAC Capital amassed its position in Sotheby’s in the 6 months upto March 31, 2009, and  Sotheby’s shares doubled by June 2009 from a low in February.

Correction (January 7, 1020):  Cohen sold his stake in June:

The fund acquired its Sotheby’s stake between September and April, a period in which the auction house’s stock was battered by the financial crisis and a shrinking art market. The share price was below $10 for much of that period, down from a high of $61.40 at the end of the boom. This spring, the stock rebounded somewhat –­ it was $14.48 a share on June 30­, so SAC’s sale of its roughly four million shares was likely to have netted several million dollars

Lazard-Freres Insider Trading Bust

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I missed these arrests from back in mid-December:

“U.S. prosecutors filed criminal charges against a former Lazard Freres banker on Wednesday for alleged insider trading that earned him and others $500,000 in illegal profits.

The trading involved some of the highest profile deals during the leveraged buyout boom of 2005 to 2007, including the buyout of TXU Corp, as it was formerly known, for $44 billion, including debt.

The charges were brought against Adnan Zaman, a former vice president at Lazard Freres, in federal court in San Francisco.

Financial regulators also filed civil charges against him and Vinayak Gowrish, a former associate at private equity firm TPG Capital, saying the one-time fraternity brothers stole confidential stock tips and then passed them on to friends. In return, the men received cash kickbacks.

The U.S. Securities and Exchange Commission settled the civil case with Zaman, who agreed to return $78,456 in ill-gotten gains and to be permanently barred from associating with any financial broker or dealer.

The SEC said that Gowrish and Zaman, friends since high school, tipped two friends, Pascal Vaghar and Sameer Khoury. Vaghar and Khoury also settled with the SEC.”

More at Reuters.

My Comments

Is it just me, or does there seem to be an awfully high number of desis (Hindi for home-boy).

What´s with these guys?

As a fellow desi, I have to hang my head. World-class education, world-class jobs, better than world-class salaries…and a world-class racket.

Warren Buffett To Promote Paulson Book

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Now, we don´t want to read too much into this announcement, but, really, promoting Paulson´s book? What´s Buffett going to say?

I really really like that chapter where Hank had to take over the US government.…you know, after he pushed Bear Stearns and Lehman over with the help of his  hedge-fund buddies…and all but nationalized housing.

Or

Gee, Hank´s into that cap-and-trade collectivist boondoggle that just got outed as a total rip-off  and a fraud made up by climate change fanatics but hey, give the guy a break, will ya? We´re all capitalists here…..you know, like, state capitalists..wazza big deal?

Or

Yeah, I know. Vanity Fair, that bastion of free markets and free minds, already did its bit for Hank´s place in history when it got down on its knees and..um.. blew…up.. the guy into some kind of I´m-taking-on-the-slings-and-arrows-for-the-greater-good-profile-in-courage long before me, and yeah, Bethany  did her bit for Hank too.. but every little effort counts…

I´ve had my doubts about Buffett´s involvement in the bail-out.

This doesn´t make them go away…

Janet Tavakoli Faces Off With Goldman On AIG CDOs

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Janet Tavakoli in Market Watch

“Earlier, Goldman denied it could have known this was a problem, yet acknowledged I had warned about the grave risks at the time. If Goldman wants to stick to its story that it didn’t know the gun was loaded, then it is not in the public interest to rely on Goldman’s opinion about the greater risk it now poses to the global markets.

Goldman excuses its participation by saying its counterparties were sophisticated and had the resources to do their own research. This is a fair point if Goldman were defending itself in a lawsuit with a sophisticated investor trying to recover damages. It is not a valid point when discussing public funds that were used to bail out AIG, Goldman, and Goldman’s “customers.”

Goldman claims the portfolios were fully disclosed to its customers. Yet at the time of the AIG bailout, Goldman did not disclose the nature of its trades with AIG, and Goldman did not disclose these portfolios to the U.S. public. If it had, the public might have balked at the bailout.

The public is an unwilling majority owner in AIG, and public money was funneled directly to Goldman Sachs as a result of suspect activity. The circumstances of AIG’s crisis were extraordinary and without precedent. I maintain that the public is owed reparations, and it would be fair to make all of AIG’s counterparties buy back the CDOs at full price, and they can keep the discounted value themselves.”

Reverse Midas: SAC Spin-Offs Fail Even When They Succeed

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Reading this report about SAC Capital by Reuters, I was struck by a few things.

But first, here’s the chronology (skip below for my argument):

  • 1980s: Steven Cohen allegedly involved in insider trading at Gruntal
  • 1999-2004, 2004-2007, 2007-2009: Insider trading at Spherix (ex-SAC trader Richard Lee’s own firm); and possibly at Stratix (founded by Goodman and Grodin in 2004, also ex-SAC traders, with SAC as a sizable investor); and (again, possibly) at SAC itself, by Richard Lee and Ali Far, also an alum of SAC.
  • 2006: SEC investigates SAC and two other firms for manipulation of Fairfax Financial stock. Investigation dropped in 2007
  • 2007-2009: Agent Kang investigates 20 hedge funds for insider trading
  • 2007: SEC investigates SAC over Andrew Tong’s sex charges. Case sealed in 2008. Reopened in Nov. 2009, this time focusing on insider trading. About this time, Richard Grodin’s and Ian Goodman’s firm Stratix (where Lee and Far worked) closes. Grodin then begins Quadrum, which also closes
  • Oct-Nov 2009: Galleon Group charged by Kang with insider trading and 14 traders arrested, including former SAC traders, Richard Lee and Ali Far
  • Nov-Dec 2009: Cohen’s ex-wife alleges insider trading when Cohen was at Gruntal & Co. in the 1980s
  • Dec. 2009: Ex-SAC trader and founder of Stratix Richard Grodin subpoenaed

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Now that you have that in mind, here are the things that struck me:

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…

SEC Subpoenas Former SAC Trader Grodin

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El Economista carries this Reuters report, dating from yesterday, Dec. 24, on the SEC´s subpoena of a former manager at Steven Cohen´s SAC Capital hedge-fund:

“Federal prosecutors in the Galleon Group case have sent a subpoena to a former employee of Steven A. Cohen’s SAC Capital Advisors, a sign that the scope of the problem into the largest hedge-fund insider trading case in history is expanding, the Wall Street Journal reported, citing people familiar with the matter.

The subpoena seeks trading records from a former SAC hedge fund manager, Richard Grodin, who employed a cooperating witness in the insider trading case announced last week, the Journal said.”

My Comment

It’s all getting pretty tangled, so first let me try to bring some order into the picture.

  • I blogged, via Terri Buhl, that hedge-funds are going SAC-remote, deleting their email records and changing their trading positions so they don´t look too similar to Cohen´s, in anticipation of a probe. And now here come the subpoenas.
  • The subpoena to Grodin arises out of the two-year FBI investigation of twenty hedge-funds that became public in October 2009 with the Galleon arrests.
  • The investigation is headed by FBI agent B. J. Kang.
  • Kang also led the probe into the alleged stock manipulation of Fairfax Financial in 2006, in which SAC was one of three hedge-funds involved.
  • The two traders, Richard Choo-Beng Lee, and Ali Far, have admitted that they were involved in insider trading not only at their own fund Spherix, but  going back to 1994. This makes it highly probable that they were also trading illegally at SAC, where Lee worked for about five years.
  • Specifically, the agreement Far and Lee signed with the US Attorney’s Office charges conspiracies to commit insider trading from 2007-2009, from 2004-2007, and from 1999-2004.
  • Galleon chief Raj Rajaratnam’s brother Rengan, who was investigated for insider trading at his firm Sedna, also worked for SAC in 2003.
  • Lee is also going to be testifying about any insider trading he might have done at another firm, Stratix, which was founded by former SAC trader Richard Grodin, and yet another SAC alumnus, Ian Goodman.
  • Stratix, whose investors include SAC (is your head whirling?), shut down in 2007.
  • Then Grodin began another firm, Quadrum, which also shut down (“abruptly”, says Reuters).
  • Also, in November, we had the bizarre revelations of Andrew Tong, who claims he was sodomized and forced into oral sex, cross-dressing, and the ingestion of female hormones (to make him the perfect androgynous trader) by his boss, SAC trader Ping Jiang. Investigated in 2007, the case was dismissed as lacking in substance. The records were sealed, leaving many people feeling that the SEC, as a Harvard paper recently confirmed, tends to go after smaller rather than bigger fish.
  • But in November ’09, the Tong case was opened again and given wide attention on the internet, this time with more attention to Tong’s claims that Ping Jiang forced him to into illegal trading that led to a $3 million loss. The loss was the reason SAC gave for Tong’s firing. But Tong himself claims that that was just an excuse and that the sexual harassment was the real reason. He also claims that Cohen knew what was going on and didn’t care, as long as money was being made. In keeping with the firm’s reputation for secrecy, Cohen made everyone sign confidentiality agreements and kept even top officers in the company out of the loop.
  • These revelations have been followed by new charges made by Cohen´s ex-wife Patricia that her husband had cheated her out of money in their divorce settlement. Some of that money, she now claims, was hidden from the government and came from illegal insider-trading by  Cohen was he was a young trader in the 1980s at Gruntal & Co., a shady brokerage with a history of embezzlement and scandal.

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NOTE:

**If you want to understand the modus operandi of one of these insider trading deals, read Deep Capture´s latest analysis. It displays some of the emails sent by certain hedge-funds that colluded with SAC in the manipulation of the stocks of Fairfax Financial, Jim Chanos´Kynikos and Third Point among them.

The Fairfax investigation (opened in 2006) petered out, but Deep Capture’s email collection nixes any chance that the record can be wiped clean by any of the funds involved (you can also see Bagley´s piece posted at Seeking Alpha).

Death Penalty for Chinese Embezzler

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“China on Tuesday executed a former securities trader for embezzlement, the first person in the industry to be put to death, but millions of yuan are still missing, a state newspaper said.

Yang Yanming was sentenced to death in late 2005 and took the secret of the whereabouts of 65 million yuan ($9.52 million) of the misappropriated funds to his grave, the Beijing Evening News said.

The report added that Yang was the first person working in China’s securities sector to be executed.”

More here at News Daily.

Stories like these should alert us to the possibility that there may very well be mini-Madoffs (mini in absolute money terms only) all over the world, on which this recovery rests flimsily.