$700 Million Bank Heist: SEC files charges

Did Citbank swipe $700 million from investors? Well according to an SEC filing, which alleges that Citibank sold securitized housing bonds, which they knew were sub-standard, and bet against them, something is definitely amiss. It’s easy to see why Banks are no longer seen as a safe place to invest your money, as a depositor or shareholder.

Citibank, being charged with fraud, is fighting the charges, but Recommended settlement of $285 million is likely going to stick. The SEC asked a federal judge to approve the amount, citing that $285 million would not unfairly punish the shareholders, who were essentially victims of the bank's unethical acts. Of the $285 million, the settlement breaks down as follows: $95 million is the fine, $160 million in for ill-gotten profits and $30 million in interest. We're about 18 months post signing of the Finance Reform Bill, and we're still unraveling the spoils of unbridled greed.

The national Occupy Wall Street Protest was founded on just this type of offensive conduct. I had a feeling that the near collapse of our financial markets in 2008 was the tip of the iceberg, and so far it has proven to be true.

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K.Reilly
The Cohn-Reilly Report

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Geithner Joins EU Finance Ministers in Poland

Germany’s Chancellor, Merkel met with the Prime Minister of Finland on Tuesday, where I would have liked to have been a fly on the wall, given the growing concerns about several members of the Union. The Finance Ministers are gearing up for their meeting on Friday, with U.S. Treasury Secretary Geithner in tow.
Perhaps this is a smart move for the European Union’s Finance Ministers, considering what’s at stake. We can’t ignore the fact that Geithner has first had experience in helping to save a major economy from “falling off a cliff “in 2008. All while maintaining a cool, “everything is in control” façade, avoiding fear and panic, which would have caused total mayhem.

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DOW: Tripple Digit Gains – 9/14/11
It is believed that the Merkel, Germany’s Chancellor strongly declared the EU’s commitment to resolving the issues surrounding Greece’s fiscal troubles. Germany and France are applying pressure in an attempt to urge Greece to implement additional austerity measures.
The Dow Industrial Average closed up 140 point to yield 11, 246.73

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Goldman: Witness for the Prosecution

Turning the tables, Lloyd Blankfein, CEO of Goldman Sachs is expected to testify in the hedge fund trail in Federal court as a witness for the prosecution. The testimony of the Wall Street big, should be a significant blow to the hedge fund titan Raj Rajaratnam. The SEC complaint contends that a tip from ex-Goldman Director, Rajat Grupta to Raj Rajaratnam concerning a large investment by Warren Buffet, lead to his purchase of securities. It was bad enough that Grupta breached confidentiality when he tipped his friend Rajaratnam off. However, Raj Rajaratnam transformed the breach to a federal fraud level by acting on the tip. It is alleged that Rajaratnam, bought shares within minutes of receiving the tip. No surprise that Rajat Grupta is also being charged with leaking confidential information to his friend at Galleon Group.
This insider trading case, has been in the NYC trial queue nearly 18 months. In late October of 2009, while the financial market was turning upside down, and cases fraud was beginning to hit a raw nerve in America, Raj Rajaratnam, was taken into custody for charges of insider trading. Raj Rajaratnam was founder of Galleon Securities which was investigated for insider trading of massive proportions, spanning no less than 6 other firms. Others cited as part of the insider trading ring include:

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Charged With Insider Trading
Name	Company	State
Danielle Chiesi,	New Castle Funds	NYC
Rajiv Goel,	Intel Capital (Subsidiary of Intel)	CA
Anil Kumar,	McKinsey & Company	CA
Mark Kurland,	New Castle Fund	Upstate NY
Robert Moffat,	IBM	CT

The trial that starts this week promises intriguing and disturbing headlines, as yet another tale of greed and entitlement is uncovered. Raj Rajaratnam is charged with 5 counts of conspiracy to commit securities fraud, and 6 counts of securities fraud.

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K. Reilly
The Cohn-Reilly Report.com Check out the new Music and Art Forum on BlogSpot! "Its a refreshing departure from economics. it's like life's little desert snack."doARTorDIE

Madoff: Victims' Recovery Efforts get Ugly

The Madoff plot thickens, as lawyers for his victims expand their hunt for associates and partners, who could be tapped for retrieval of funds. JP Morgan Chase is the latest in a string of suits filed against the Bernie Madoff clan. (A similar suit was filed against the Mets owners, claiming that Wilpon, et al, profited hundreds of millions of dollars from Bernie’s scheme, and ignored the warning signs) The Wall Street Journal reported that a sealed 115 page lawsuit was waged against JPM. Irving Picard’s, the victims’ trustee for recovery of Ponzi funds, filed the $6.4 billion lawsuit in December.

Pardon me for saying, but there is enough blame to go around with respect to watchdogs that did not watch, and market regulators that failed to regulate. Matters were made worse by the lack of enforcement of the limited regulations that survived deregulation of the finance industry. For the record, JPM Chase called the allegations meritless, but it all remains to be seen. In JP Morgan’s defense, two months prior to Madoff’s scheme being made public, there is evidence that the someone from the bank's US division sent a Memo to a department head in Great Britten concerning their suspicions about Bernie Madoff’s fund. If this is true, it does not support the claims delineated in the suit.

In all fairness, it’s important to remember that Bernie Madoff had established himself as being extremely smart and prosperous. He was instrumental in setting up NASDAQ, which propelled his reputation as a mover and a shaker. Bernie was often asked to participate in think-tanks concerning developing systems to automate trading, he was regularly invited to round table discussions for Financial News shows. Consequently, portfolio managers, hedge funds and banks all had immense respect for him, particularly since Madoff was associated with success, and being on the cutting edge of the convergence of technology and trading systems. Therefore, I am inclined believe that most of the firms involved with Madoff thought of him as a golden child, and not a criminal. Who would have thought the worst case scenario could be possible on such a grand scale, and executed over a 15 year period?

On the other hand, there are certainly legitimate partners-in-crime that can be identified, such as his “storefront” accountant - particularly the firms that received fees for steering wealthy investors to the Madoff’s fund. The associates of Madoff’s Ponzi scheme, may or may not have been fully aware of Madoff’s sinister scheme. I tend to think they did not know he was a scamming their clients. It could not have been sustainable for so long if there were so many people who knew about it. If nothing else, these firms are clearly guilty of letting greed be their primary focus, instead of the best interest of the client.

Victims recovery allegations are (in some cases) reaching too far, and thus taking an ugly turn. There seems to be plenty of unwitting associates sympathizing with the victims and cooperating by returning much of the funds affiliated with Madoff 's plot - amounting to over $7 billion. I think that is more than what we ever expected to dig out of this hideous set of circumstances.

See Video of initial Recovery Plan
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K. Reilly
Cohn-Reilly Report

Dangerous Liaison: Goldman, Zuckerberg and Facebook

The alliance that rocked the investment community, is making new headlines as the dust settles on the $450 million transaction. The awe inspiring transaction that made Mark Zuckerberg’s net worth more than triple, was structured to take advantage of loop holes in the SEC regulations to raise capital for Facebook. The SEC’s regulatory concerns were entirely justified, but may have been egged on by the media attention to the Goldman continued above-the-law attitude. According to the SEC regs, corporations with more than 499 investors must disclose their financials to the public. To circumvent this provision, Goldman’s bankers have set up a ”Special Purpose” vehicle which establishes Goldman Sachs as the fund manager, and sole investor. The sole investor of record could then seek to pool outside investments.

Initially the small investors were shunned, since Goldman opened the Facebook financing exclusively for its wealthiest clients, seeking larger denominations. The (clearly unwanted) attention to the behind the scenes deal has sparked a new ripple in this financing. Now, it appears that US investors are being left out all together. At this juncture, it is reported that no U.S. investor will be afforded the opportunity to invest in the transaction – large or small. This is probably one of the most sought after investment of the decade – for those who are serious players in the investment community, this is the transaction of a lifetime, and now is the Facebook shares have been taken off the U.S. market. Goldman seeks to avoid the glaring eyes of the SEC by looking overseas for their investors.


K Reilly
The Cohn-Reilly Report

Goldman, Zuckerberg and Facebook: Taking No Prisoners

One of the Oldest investment banking firms pairs up with the youngest billionaire in the world to form a strategic alliance of huge proportions.
Goldman Sachs is in the news again regarding a questionable transaction involving Facebook. The 26-year old billionaire, Mark Zuckerberg is the beneficiary of Goldman’s creative financing, while SEC Chief Mary Shapiro is being prodded to investigate by New Yorker's John Cassidy. Apparently Goldman established a “Special Purpose” vehicle to create an opportunity for its high net worth clients to invest in Facebook, which is not yet publicly traded. This is raising eyebrows and even concern. Why? Because the SEC requires companies with more than 499 investors to disclose their financial results to the public. To get around this provision, Goldman’s "best and brightest" have hatched a Special Purpose vehicle which establishes Goldman Sachs(fund manager) as “one” investor, who could be pooling investments from thousands of clients. Nice Work.

Facebook ‘s valuation was estimated to be $50 billion, which is more than EBay Inc.’s value of $39.3 billion , placing it third in the competitive internet businesses, just under Amazon ($74.4 billion) and Google ($192.9 billion). This makes it official: social-networking is serious business, attracting over a half a billion global users and more advertisers than ever imagined 6 years ago.

According to the Huffington Post , a Georgetown University professor, James Angel, opines that the special purpose vehicle can still be ruled illegal if it can be proven that it was specifically designed to circumvent the SEC rules. The Times reported that the SEC is “looking into” the hot trading market of privately held shares of networking sites. Given the backlash the investment bank suffered last year, I can't see the legal minds at Goldman leaving any room for more legal battles and negative press.

The Goldman and Zuckerberg combo is more likely to be poised for massive success, rather than trouble from the SEC. Time Magazine names Mark Zuckerberg "Person of The Year" However, I would not be surprised if media pressure forces the SEC's hand to launch an official probe.

To Follow-up Story
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K Reilly
Cohn-Reilly Report

________________________ RECOMENDATIONS

Also Check out: Socially responsible Investing site below:
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-COMMENT HIGHLIGHTS-

________________Comment
Anonymous said......

Extraordinary submit! Will you follow-up on this specific matter?
January 9, 2011

________________Comment
K. Reilly said...
Yes, I will be following up on this matter. This is certainly an intriguing set of circumstances, so it would be interesting to see how the dynamics of this liaison plays out. Wow...I think I have the heading for the follow-up article: Dangerous liaison.
Anyway, thanks - your feedback is much appreciated.
January 9, 2011

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Internaltional And Domestic Market Clips

Europe: Corporations Brace for tighter credit
Unlike US corporations, the majority of the companies in Europe heavily depend on banks for financing. Most of Europe’s banks passed the stress test, but have a steep hill to climb with respect to raising several billions in capital to fund new lending. It looks as though European banks have won the battle, but the war rages on.
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Wall St. Journal reported that the financial-overhaul law may force public firms to toughen up on “clawback” rules, and make executives repay improperly awarded incentive compensation.
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Maket was inspired today, with a little help from news about BP’s CEO stepping down, and Housings sales, which spiked 24% in June, following slump in May
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Cohn-Reilly Report / News Flash

CIT Group filed for bankruptcy as of November 1, citing the exposure from subprime mortgages, and credit tightening. CIT, which was founded 101 years ago, is the 6th largest commercial lender, the number one lender for small and mid-sized business, and a leader in funding minority and women owned businesses. The lender’s bankruptcy filing is a pre-packaged plan, structured to exit bankruptcy on a fast track. CIT is making every effort to ensure the customers remain funded, with little or no interruption to their other operating businesses. CIT’s other profitable units, including CIT Bank, were not included in the bankruptcy filing. According to court documents, CIT will have immediate access to $125 million from a total of $500 million in a debtor-in-possession (DIP) loan* from Bank of America. They have also requested are requesting the ability to make intercompany loans, as it makes its way out of bankruptcy, which is expected in early December.
The New York based lender, which funds 1-million businesses, has received $1 billion from investor Carl Icahn, for operating costs while it reorganizes. It doesn’t appear that the government will recover much of the $2.3 billion in bailout funds, which is essentially tax-payer money, and unfortunately share holders will be wiped out according to the bankruptcy plan. Financial institutions don’t have a good record for recovering from bankruptcy, but it looks as though CIT has secured $1 billion in investor funding to support their operation, and the DIP loan from Bank of America and a well thought out exit strategy to beat the odds.
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*Debtor-in-possession (DIP) loan, is a special form of financing provided for companies in financial distress or under Chapter 11 bankruptcy process
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K Reilly
Cohn-Reilly Report / News Flash
Note: Political Cartoon illustration by: Denis Elmore