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HomeWiretaps on Wall Street
Posted by Larry Doyle on October 26th, 2009 11:11 AM |
“Leave the gun, take the cannoli.”
The world of organized crime evokes thoughts of payoffs, extortion, racketeering, and wiretaps. Are regulators now utilizing tools previously relegated to infiltrating the backroom dealings of the underworld to discover illegal activities on Wall Street? Yes, they are.
The news that regulators are now employing wiretaps to investigate financial frauds on Wall Street is sending a chill through Wall Street in general and hedge funds in particular. Why do regulators feel the need to utilize wiretaps?
Recall from the SEC’s and FINRA’s own internal reviews of their handlings of the Madoff and Stanford frauds that the regulators were woefully deficient in tracking and stopping these frauds. One of the greatest regulatory deficiencies highlighted is the use of technology.
Many hedge funds have spent millions upon millions of dollars on technology. These tools allow these funds to move with cat-like quickness in allocating capital and seizing investment opportunities. As we are learning, not all of these movements would seem to have been executed in a legal and ethical fashion.
How quickly can the regulators move to develop the necessary technical capabilities to track hedge fund activities? Don’t hold your breath.
Jules Kroll addressed the capabilities of the regulators relative to the tools employed by hedge funds on a Bloomberg interview this morning. Prior to my sharing Mr. Kroll’s assessment of the regulators’ capabilities, who is Jules Kroll? He recently founded a new firm, K2 Global Partners, which will look to “provide specialized risk services and solutions” to a wide array of global clients. (more…)
Bear Stearns Hedge Fund Managers ‘Facing the Music’
Posted by Larry Doyle on October 12th, 2009 12:29 PM |
Is it possible for an industry to accrue trillions in losses and nary an individual forced to truly ‘face the music?’ That reality, perhaps more than any other, is the greatest indictment of the incestuous relationship between Wall Street and its regulatory oversight in the form of the SEC and FINRA.
The music is about to start playing as Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin enter court this week for the start of their trial in which they are accused of misrepresenting the health of their two hedge funds at Bear Stearns.
This trial will attract a tremendous amount of attention. Why? The very fact that it is truly the first legitimate legal proceeding linked to the meltdown of our financial crisis. The trial will highlight incriminating statements and e-mails written by both Cioffi and Tannin. Additionally, we should expect the prosecution to present material which highlights the fact that Cioffi and Tannin seemed to intentionally misrepresent the very nature of their investment holdings.
The Wall Street Journal provides further color on this case in writing, A Case Pitting Spin Against Fraud:
A criminal trial involving two former Bear Stearns executives could help answer a key question stemming from the financial crisis: How far can Wall Street firms go to put a positive spin on bad news?
(Ralph Cioffi, a former money manager at Bear Stearns, is escorted by officials to a waiting vehicle in Manhattan on June 19, 2008.)
The two executives, Ralph Cioffi and Matthew Tannin, will fight securities-fraud charges in a widely anticipated trial beginning on Tuesday in a Brooklyn, N.Y., federal court. The money managers unsuccessfully scrambled to keep two mortgage-heavy Bear Stearns hedge funds afloat in 2007 amid sinking mortgage-market prices, the first of several blows that eventually felled Bear Stearns and marked the start of the credit crisis. J.P. Morgan Chase & Co. bought the firm in a March 2008 fire sale.
Prosecutors accused Messrs. Cioffi and Tannin of misleading investors about the health of the two funds, testing the degree to which Wall Street should disclose bad news to investors. (more…)
Volcker Locks and Unloads on Wall Street and Washington
Posted by Larry Doyle on September 24th, 2009 12:15 PM |
Former Fed Chair Paul Volcker
I find it interesting, but not surprising, that former Fed Chair Paul Volcker’s testimony to Congress this morning has received little to no coverage by major media outlets. Why? With few exceptions, the financial media plays along with the financial industry which pays the bills while relegating investors and the American public to the bleachers.
Recall that just a week ago I wrote “Volcker Launches Bombshell on Wall Street and Washington.” I highlighted Volcker’s direct hit:
While the insiders on Wall Street and Washington pander about real financial regulatory reform, former Fed chair Paul Volcker yesterday hit ground zero on this hotly debated topic.
The heart of financial regulatory reform is centered on the implementation of leverage by our largest financial institutions. The leverage is exercised in a wide array of activities, both on and off-balance sheet. The capital utilized by the banks in these activities is credit that has not and will not flow directly through to the economy. Why? The banks believe that they will generate a greater return on the capital via proprietary activities rather than facilitating client business and addressing customer needs.
Today, Volcker locks and loads and unleashes another volley on the wizards in Washington and their incestuous brethren on Wall Street. Whatever you may think of Volcker as a central banker, I hold him in high regard for elevating the debate at this critical point in our country’s economic history. Regrettably, President Obama’s adviser, Mr. Larry Summers, has taken Mr. Volcker’s chair away from the table. Yes, this is the same Mr. Summers who The New York Times described this past April as having received A Rich Education . . .
Mr. Summers, the former Treasury secretary and Harvard president who is now the chief economic adviser to President Obama, earned nearly $5.2 million in just the last of his two years at one of the world’s largest funds, according to financial records released Friday by the White House.
Impressive as that might sound, it is all the more considering that Mr. Summers worked there just one day a week.
Although I digress from my focus on Mr. Volcker, I find it enlightening that the man in Washington who has pushed Volcker away from the table stuffed himself at the Wall Street trough. Back to Mr. Volcker. (more…)
Sense on Cents Asks Again, “Who Regulates the Regulators?”
Posted by Larry Doyle on September 13th, 2009 11:25 AM |
On June 19th, in writing, Who Protects Investors from Regulators? I concluded,
Sad but true, as we enter the Brave New World of the Uncle Sam economy, investors need to remain diligent and should not assume that regulators are necessarily protecting them.
In my commentary that day, I specified shortcomings at the SEC and FINRA.
This morning, I am both heartened and dismayed by Gretchen Morgenson’s article in the Sunday New York Times Business section. Ms. Morgenson writes, But Who Is Watching Regulators?
I commend Ms. Morgenson for addressing a topic which receives little focus by the media at large. As such, I strongly recommend reading it. Ms. Morgenson pens:
Senior regulators who stood idly by for years as financial firms built their houses of cards have been rewarded with even bigger jobs or are jockeying for increased responsibilities. The Federal Reserve Board, for example, wants to become the financial system’s uber-regulator, even though its officials did nothing as banks made deadly decisions to lend recklessly and leverage themselves to the max.
Awarding increased power to those who failed in their oversight duties flies in the face of all notions of accountability.
Additionally she asserts:
Yet those in the public sector ask us to believe that regulators who snoozed during the credit bubble will be alert to emerging problems on their beats when the next mania begins.
That’s asking a lot, isn’t it?
Here’s a novel thought. Instead of creating more regulations to try to prevent this kind of mess from recurring, why not figure out how to hold regulators accountable when they perform as poorly as they did in recent years?
I am with Ms. Morgenson and pulling for her to ‘finish the job’ and call out specific regulators and specific regulatory bodies. I was so hopeful that this was the article that would call out Mary Schapiro (current head of the SEC), and Richard Ketchum (current head of FINRA) and take them to task for not providing real transparency at FINRA (Financial Industry Regulatory Authority), the Wall Street self-regulatory organization. (more…)
Attorney Representing Amerivet Securities Makes Claim FINRA Insider Confirms Investment in Madoff
Posted by Larry Doyle on September 4th, 2009 1:20 PM |
Did we just find the smoking gun which indicates that FINRA (Financial Industry Regulatory Authority) actually invested in the Madoff Ponzi scheme?
I was on a panel last evening on America’s Nightly Scoreboard on Fox Business News (the entire transcript can be found at this link). The topic was one which regular readers of Sense on Cents are most familiar, that being FINRA.
The show is hosted by David Asman. Panelists included Richard Greenfield, an attorney representing Amerivet Securities in its suit against FINRA; former SEC chair Harvey Pitt; Madoff Victims Coalition head Ronnie Sue Ambrosino and her husband Dominic; and yours truly.
I commend the host of the show, David Asman, for being thorough, professional, balanced, and aggressive in addressing the topic. We covered a number of angles including:
1. Amerivet Securities complaint vs. FINRA
2. Mary Schapiro’s tenure and compensation at FINRA
3. FINRA’s investment portfolio, including its sale of auction-rate securities.
4. Did FINRA invest in Bernard Madoff’s Ponzi scheme?
There were a few bombshells that came out of our discussion, including a claim by Mr. Greenfield, the Amerivet Securities attorney, that “somebody well-placed within the organization (FINRA) that told us, in no uncertain terms, there was an investment with Madoff.”
Additionally, former SEC chairman Harvey Pitt provided a qualified endorsement of FINRA opening its books and records in an acknowledgement of the need for greater transparency.
I am happy to provide the transcript of the dialogue which encompassed these two momentous statements:
ASMAN: Harvey, for example, I used to work at the “Wall Street Journal” and we had very strict restrictions about what we could buy, how long we could hold stocks if we bought it, and how we had to disclose it and that sort of thing. It doesn’t seem at least that those disclosure policies apply to FINRA, at least in the case finding out whether they invested with Madoff.
PITT: I don’t — there has been a fair amount of, shall we say, opacity with respect to what the investment activities are and the like. In a real sense, I think that’s probably ill-advised for an enterprise that has regulatory responsibilities.
But so putting that to one side, I do think that people are entitled to know where their money is coming from, where their money is going, what it is being spent and the like. The fact of the matter is the SEC does oversee all these operations. It does overlook all these things. FINRA has been under the microscope at the SEC for many, many years, long before Mary Schapiro got to the SEC.
ASMAN: I want to bring in other parties. But I want to go back to Counselor Greenfield.
Richard Greenfield, how did you get information suggesting that indeed FINRA was investing with Madoff?
GREENFIELD: Well, we got the information, number one, in two different ways. Number one, it has been rumored through many people on Wall Street that there was an investment either through a feeder fund or some other means. Secondly, we also got information from somebody well-placed within the organization that told us, in no uncertain terms, there was an investment with Madoff.
ASMAN: OK. All right. So I think it’s fair to say that FINRA owes the public some answers here.
So joining us now with — are some people who are demanding answers. Larry Doyle, a Wall Street veteran, 23 years, who currently operates his own web site, Sense on Cents — “sense” with an “S” and “cents” with a “C” — which is geared to help people navigate the landscape.
Ronnie Sue and Dominic Ambrosino, good friends of “Scoreboard”, they are Madoff victims who are mobilizing a campaign for greater transparency.
Thanks for coming in.
RONNIE SUE AMBROSINO: Thank you.
ASMAN: Larry, first to you. What do you think about Harvey’s description of the situation?
LARRY DOYLE, WALL STREET VETERAN & SENSE ON CENTS WEB SITE OWNER: I would say two things in regard to the former chairman’s statement. First and foremost, Madoff did not become a registered investment advisor until 2006. FINRA obviously wasn’t formed until 2007. FINRA’s parent, that being, FINRA was formed from the regulatory arms of the New York Stock Exchange, and the NASD.
ASMAN: Right.
DOYLE: The fact is, the NASD did have oversight of Madoff, and so there is an obligation by, to look into the NASD’s activities because, at that point, it was just a broker-dealer.
ASMAN: Have you formulated your own opinion whether there was a conflict of interest here?
DOYLE: Without a doubt. Without a doubt. The fact of the matter is FINRA is a big-money organization. We know they invested in hedge funds, fund of funds, private equity. And they also had a significant investment in auction rate securities, which is sector of the market that has been designated as a fraud by federal judges. The fact of the matter is we know, and have learned from FINRA, that FINRA exited their auction rates securities position, $647 million worth, in mid 2007, as the market was failing, and when they were supposed to be protecting investors.
Further along in the dialogue, we engage in the need for FINRA to open its books and records:
ASMAN: That is great point, Ronnie Sue.
And, Larry, it goes to the point that a lot of people are looking from the outside at what goes on inside in Wall Street and Washington. It’s that Wall Street, Washington nexus. They see all these folks kind of related with each other. The SEC related with FINRA, and related with NASD. You look at Mary Schapiro’s career and you see that. They can miss things because they’re only talking to each other.
DOYLE: I think the term there is incestuous. So the fact of the matter is Washington has an opportunity through this financial regulatory reform to bring total transparency.
ASMAN: How would you do that? Open the records of FINRA?
DOYLE: Open the books. What — what individual in America right now wouldn’t make — doesn’t it make sense for FINRA to be forced to open their books and records, full and total transparency? The markets demand it. The economy demands it. Ronnie Sue and Dominic demand it. For market confidence.
ASMAN: Harvey, if we demand it of banks, why not FINRA or for that matter, why not the Fed? We have a lot of people in Congress saying everybody needs to open the books, everybody needs to be transparent?
PITT: Well I think there’s no question that we need far more transparency throughout the regulatory environment, both for those regulated and those doing the regulation. That, I think, is a very clear proposition, and one that I’m hopeful will be addressed in whatever new legislation comes about.
ASMAN: So we have to leave.
But, Harvey, does that mean you’re in favor of FINRA opening the books so we can find out if they invested in Madoff?
PITT: I’m in favor of there being far more transparency, permitting privacy concerns to allow certain information to be withheld, as long as somebody is overseeing what they’re doing.
I am thrilled that these issues which Sense on Cents has been focused on for the last 8 months are coming into the public light. That said, there remains plenty of work left to do to generate the truth, transparency, and integrity that our markets, economy, and country so badly need.
You can help by spreading this story amongst friends and colleagues. While the Amerivet complaint vs. FINRA will be addressed in the Washington D.C. courts, the fact is the issues revolving around FINRA and regulatory transparency need to be highlighted in the court of public opinion.
What do you think?
LD
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Related Sense on Cents Commentary
Madoff Victims Call Out FINRA (September 3, 2009)
Amerivet Complaint Against FINRA Alleges Madoff Investment (August 25, 2009)
How Courageous is Mary Schapiro? (June 4, 2009)
U.S. Attorney and SEC Investigating Lehman’s Auction Rate Securities Sales; They Should Also Investigate FINRA’s (May 21, 2009)
FINRA Is Supposed to Police the Market (April 29, 2009)
NoQuarter Radio’s Sense on Cents with Larry Doyle Interviews Head of Bernard Madoff Victims Coalition, Sunday Night at 8PM
Posted by Larry Doyle on August 15th, 2009 5:04 PM |
UPDATE: The show has concluded, but you can listen to a recording in its entirety by clicking the Play button on the audio player below. Once the playback has started, you can forward or rewind to any portion of the show by clicking at any point along the play bar. My interview with Ronnie Sue Ambrosino was extremely interesting, touching upon elements of investor protection that concern us all. For your reference, I’d like to provide two important websites that my guest mentioned: Bernie Madoff Victims Coalition and an online petition to show a unified support for investors to receive fair and legal treatment by the Securities Investor Protection Corp (SIPC).
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Has our government ever failed us to the extent involved in the regulatory oversight connected to the Bernard Madoff Ponzi scheme? How could these failures have perpetuated for such an extended period? How are these failures and their impact on the victims being handled? Is insult being added to injury?
Can the victims possibly receive real justice in terms of restitution and retribution? Where did the system falter? How are the victims of this travesty being treated by the powers that be on Wall Street, Washington, and in the media?
I am thrilled to address all these issues on my weekly program, No Quarter Radio’s Sense on Cents with Larry Doyle, this Sunday evening August 16th from 8-9pm as I welcome Ronnie Sue Ambrosino, head of the Bernard Madoff Victims Coalition.
As a sneak preview, Ms. Ambrosino was interviewed by Charlie Rose on June 29th, the day Bernard Madoff was sentenced to 150 years in prison. Ms. Ambrosino appears in the video clip at the 3 minute, 5 second mark.
The issues I will address with Ms. Ambrosino run well beyond the immediate concerns of the Madoff victims. The integrity and transparency of our financial regulatory system and legal process remain very much in question.
Don’t miss this important discussion Sunday evening on NQR’s Sense on Cents with Larry Doyle.
LD
Related Sense on Cents Commentary:
Madoff Victim Makes Impassioned Plea (August 12, 2009)
SEC Complaint vs. Frank DiPascali, Jr. (August 13, 2009)
Eliot Spitzer Calls Financial Self-Regulation a Canard
Posted by Larry Doyle on September 14th, 2009 10:06 AM |
Eliot Spitzer
Say what you want about Eliot Spitzer, but in his pursuit of financial chicanery he took very few, if any, prisoners. Regrettably, his personal failings caused his demise at a time when the American public truly needed an advocate to unearth the failings in our financial regulatory structure.
Spitzer is slowly regaining his stature. He pulls no punches in taking on the many holes in our financial regulatory framework as he writes in The New Republic, Better Regulate Than Never. I commend Spitzer as he calls out the Wall Street self-regulatory oversight in writing:
I totally concur. As much as financial self-regulatory organizations would promote that they are aggressively moving forward to clean up the industry, their historical track record belies that fact.
I would point out that Spitzer’s reference to the Securities Industry Association (SIFMA) is misplaced. SIFMA is merely a de facto trade organization rather than a real cop. Spitzer should have targeted FINRA (Financial Industry Regulatory Authority), which is supposed to be the ‘tough cop.’ That said, I commend him for raising this topic.
Will our media and government pick up on Spitzer’s premise, elevate the debate, and serve the public interest? We have yet to witness any real concerted efforts by the media or the government on this front. Why? The media and the government serve at the behest of the financial industry to a far greater extent than they serve at the behest of the American public.
Spitzer sheds further light on this point by writing:
I totally agree with Mr. Spitzer. Perhaps he is a regular reader of Sense on Cents!!
In all seriousness, where do we go from here? Do we allow the media and the government to neglect their public duty and continue protect Wall Street vs. Main Street?
Keep reading Sense on Cents as I will continue to bang the drum. Readers can help by spreading the word.
LD
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