$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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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:
SocialResponsibleInvest.com

-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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Inside the Insider Trading

Another Insider Trading Scandal is Uncovered

The hedge fund sector is a little on edge lately, due to the investigation that inspired the recent flood of subpoenas received by the top companies. If what is suspected is actually true, it appears to be a massive, long-term program of trading fraud that brings to mind images of organized crime during its heyday, back in the 1950s. If charges are formerly brought down it will undoubtedly send trimmers throughout the trading community.

The hedge fund sector is a little on edge lately, due to the investigation that inspired the recent flood of subpoenas received by the top companies. If what is suspected is actually true, it appears to be a massive, long-term program of trading fraud that brings to mind images of organized crime during its heyday, back in the 1950s. If charges are formerly brought down it will undoubtedly send trimmers throughout the trading community.

The last thing the financial markets need is another fraud scandal. This case brings to mind the ultimate rogue Wall St. trader, Gecco, played by Michael Douglas for the Movie "Wall Street". We could really do without the resurgence of fraud and unethical behavior in this industry, as our economy and the American people struggle out of the financial hole.

The Manhattan U.S. Attorney’s office sent out subpoenas to major hedge fund companies, including giants such as Capital Advisors and Citadel, Janus Capital Group and Wellington Management, one of the largest institutional – investment firms. Further, the FBI questioned a Global Research, LLC account manager in an effort to gain clarity on the relationship Global Research has with the hedge fund community and what role they may have played in the insider trading scam being investigated. The Wall Street Journal reported that Apple analysts were also being "dragged" into the investigation. The 3-year investigation concerns an expert-network firm that leaked nonpublic/proprietary information to the Hedge Funds and others. The details are still to come, but it does not bode well for the public perception.


Check an interview about the perception of systemic fraud, particularly insider trading in hedge funds.




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K. Reilly
Cohn-Reilly Report / News Flash

Toxic Mortgages Haunt Goldman

Meanwhile, Toxic Mortgages continue to haunt Goldman Sachs. Barely recovering from the poor publicity derived from an SEC investigation which ended in a settlement, Goldman is facing another law suit. The tainted Golden Goose of the Investment Banking industry was hit with a suit from a German Bank concerning a pool of mortgage assets sold to them in 206.

According to the Wall Street Journal, the suit alleges that Goldman failed to fully disclose the risks underlying the mortgage back securities. According to court documents, the suit contends that Goldman knowingly dumped collateralized debt obligations on their subsidiary LBBW Luxemburg, even though they saw signs that the market was tanking.

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K. Reilly
Cohn-Reilly Report / News Flash

Hedge Fund Fraud: Collateral Damage

The founder of Galleon, Raj Rajaratnam is charged by the SEC with insider trading of massive proportions, along with 6 other cohorts. The SEC complaint asserts that Rajaratnam used his high-end connections and corporate relationships to gain access to insider information about earnings reports ahead of announcements and merger activities on several high profile companies. A Wall Street Journal article quoted the SEC chairman, Mary L. Shapiro, as saying “Raj Rajaratnam is not the astute study of company fundamentals , or marketplace trends that he is widely thought to be. Raj Rajaratman is not a master of the universe, but rather a master of the rolodex.” Several sources close the Rajaratnam tipped the SEC about the fraudulent activities at the hedge fund.

Meanwhile, Galleon, which was founded in 1997, will have to begin the process of winding-down the 3.7 billion in assets, as investors struggle to divest their portfolios. Given the involvement of many other firms, it is difficult to tell how far the web of fraud will spread.

Others charged in the complaint are as follows

Danielle Chiesi: — a portfolio manager, New Castle Funds / NYC
Rajiv Goel: — a managing director,Intel Capital -Intel subsidiary /CA
Anil Kumar: — a director, McKinsey & Company /Saratoga, CA
Mark Kurland: — a Sr Managing Director & Partner, New Castle /Upstate N.Y.
Robert Moffat: — a senior vice president, IBM/ Ridgefield, Conn.
New Castle Funds LLC — a New York-based hedge fund

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K. Reilly
Cohn-Reilly Report / News Flash