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Fabulous Fab The Fall Guy

Posted by Larry Doyle on July 16, 2013 8:46 AM |

America has certainly been fed a healthy diet of bluster by a wide array of regulators and government officials about cleaning up Wall Street over the last few years.

Those watching closely are well aware, though, that justice on Wall Street typically comes in small packages, token fines, and a whole lot of statements that include “neither admit nor deny.”

Let’s pause and think of all the criminal activity and otherwise unsavory behaviors that have transpired within the industry over the last handful of years: 

1. Madoff
2. Stanford
3. Mortgage fraud
4. Foreclosure abuse
5. Money laundering activities within a number of major foreign and domestic banks
6. Market manipulation (Libor et al)
7. Insider trading and assorted practices that would fall under the heading of front running (eg high frequency trading)
8. MF Global: violating the integrity of customer accounts
9. Auction-rate securities
10. Failure to properly disclose in a wide array of products

Need I go on?

Despite a mountain of potential material that would make any legal eagle quake and quiver, we sit here this morning with a serving of a trial of a mid-level Goldman Sachs employee, Fabrice Tourre, (aka Fabulous Fab) and are supposed to be encouraged that Wall Street is being cleaned up.

I am not impressed.

Beyond that, though, if I am an SEC lawyer assigned to this case, I would feel very much boxed into a corner, in a no-win position.

Let’s think about this case for a second. Supposedly, the Fabulous Fab made material misrepresentations to clients in the marketing of the now highly publicized CDO transaction known as Abacus.

If the SEC wins the case, I would think the general public would wonder why it is that a mid-level employee faces the music, but his superiors are leisurely sipping cocktails.

If the SEC were to lose the case, I would think the general public would feel that Wall Street’s cops might not be capable of finding anybody at fault within Wall Street’s major banks.

When I think of Fabrice Tourre, I am reminded of one Joe Jett who gamed the back office systems at Kidder Peabody twenty years or so ago. While Joe faced the music, his superiors who likely were all too aware — or should have been — as to what Joe was doing walked out the doors with their do-re-mi and careers largely intact.

Not unlike a wide array of other highly organized illicit activities, what we have with Fabrice Tourre is nothing more than a fall guy. As such, I believe the American system of juris prudence should be embarrassed that this is all it can deliver to a public that now knows all too well that Wall Street can and does purchase its own justice in the form of a steady stream of campaign contributions and lobbying dollars sent annually to Washington.

Navigate accordingly.

Larry Doyle

For those reading this via a syndicated outlet or receiving it via e-mail or another delivery, please visit my blog and comment on this piece of ‘sense on cents.

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Peter Scannell

    “Wall Street Professional Survey Reveals Widespread Misconduct, Acceptance of Illegal Activities, and Disregard of Client Interests”

    “Wall Street firms should serve as an important first line of defense for investors, and the survey identified fundamental ethical weaknesses throughout the financial services industry. Consider these findings: 26% of financial services professionals believe the compensation plan or bonus system at their company incentivizes employees to compromise ethical standards or violate the law; 24% fear retaliation if they were to report wrongdoing in the workplace; 17% felt that leaders in their firm were likely to look the other way if they suspected a top performer had engaged in insider trading; and 15% doubted these leaders would report actual insider trading violations to law enforcement authorities if a top performer was involved.”

  • Matt

    This is NOT a case of a rogue trader somehow bypassing Goldman’s risk controls a la the “London Whale” (although the risk parameters at JP Morgan seemed to change on a daily basis).

    These products were a Goldman product signed off on by the firm. Anyone who thinks these CDO’s were produced out of thin air without anyone in senior management involved is completely delusional.

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