There's no police log in the New York Times, or if there is I never noticed, but there is a crime section, which for reasons all too apparent is called the “Business” section. It's chock-a-block with crime news, though the odd thing is that the crimes are being committed in plain sight, the perpetrators are well known, but no one ever seems to get arrested. Take a look at today’s Times. First we have the on-going saga of Barclay's, where we find, much to no one’s surprise, that the chief scumbag there just might have known more than he was letting on about Barclay’s market manipulations.
Robert E. Diamond Jr., the chief executive of Barclays, told employees on Monday that he was “disappointed and angry” about the bank’s past attempts to manipulate key interest rates to bolster its bottom line.
But fresh details about the case show how Mr. Diamond and other senior executives played a role in the questionable actions and failed to prevent them. In 2007 and 2008, Mr. Diamond’s top deputies told employees to report artificially low rates in line with its rivals, deflecting scrutiny about the health of Barclays at the height of the financial crisis, according to several people close to the case.
In the fall of 2008, Paul Tucker, deputy governor of the Bank of England, spoke with Mr. Diamond about the high Libor submissions, according to one of the people close to the case. The conversation prompted Mr. Diamond to relay the central bank’s concerns to his top deputies.
While Mr. Diamond never specifically told anyone to influence Libor, at least one of the deputies acted on the discussion, regulatory records show. After talking with Mr. Diamond, the deputy then instructed employees that the Libor submissions should be lowered to be “within the pack.”
(via The New York Times)
So, Mr. Diamond sayeth, “see you, our rates are too high, would that it were not so” and lo, the rates declineth and it was no longer so, and Mr. Diamond said it was good and Mr. Diamond never thought that mayhaps his minions were goosing the numbers. Henry II couldn't have given a broader hint.
Lest anyone conclude that this particular fraud was penny ante, the fact is that it has a significant impact in what is a $350 trillion (yes, that’s trillion) market.
“Because mortgages, student loans, financial derivatives, and other financial products rely on LIBOR and EURIBOR as reference rates, the manipulation of submissions used to calculate those rates can have significant negative effects on consumers and financial markets worldwide,” said Assistant Attorney General Lanny Breuer, in a statement.
(via The Street)
Next up, the inevitable JP Morgan Chase, which, faced with the prospect of losses, made money in what is now the old fashioned way, by scamming its clients:
Facing a slump after the financial crisis, JPMorgan Chase turned to ordinary investors to make up for the lost profit.
But as the bank became one of the nation’s largest mutual fund managers, some current and former brokers say it emphasized its sales over clients’ needs.
These financial advisers say they were encouraged, at times, to favor JPMorgan’s own products even when competitors had better-performing or cheaper options. With one crucial offering, the bank exaggerated the returns of what it was selling in marketing materials, according to JPMorgan documents reviewed by The New York Times.
The benefit to JPMorgan is clear. The more money investors plow into the bank’s funds, the more fees it collects for managing them. The aggressive sales push has allowed JPMorgan to buck an industry trend. Amid the market volatility, ordinary investors are leaving stock funds in droves.
(via The New York Times)
Finally, we have the civil libertarians at Moody’s and Standard and Poor’s, who are saying they simply can’t be sued for giving bogus opinions, because everyone’s entitled to their opinion, even if they know they’re spreading misinformation.
Documents in a civil suit in federal court appear to threaten a legal defense that credit ratings agencies have long used to fend off liability for misjudging securities that later cost investors vast sums in losses.
For years, the ratings agencies have contended that the grades they assign debt securities are independent opinions and therefore entitled to First Amendment protections, like those afforded journalists. But newly released documents in a class-action case in Federal District Court in Manhattan cast doubt on the independence of the two largest agencies, Moody’s Investors Service and Standard & Poor’s, in their work with a Wall Street firm on a debt deal that went bad as the credit crisis began.
The case, filed in 2008 by a group of 15 institutional investors against Morgan Stanley and the two agencies, involves a British-based debt issuer called Cheyne Finance. Cheyne was a structured investment vehicle, created in 2005, that raised $3.4 billion in short-term debt from investors. The company was meant to profit by purchasing longer-term obligations that generated more in interest than the company paid to its lenders.
But Cheyne collapsed in August 2007 under a load of troubled mortgage securities. The institutions that bought almost $1 billion of its debt, including the Abu Dhabi Commercial Bank, the fund manager SEI Investments and the Public School Employees’ Retirement System of Pennsylvania, lost much or all of their money.
(via The New York Times)
The first amendment defense strikes me as fairly laughable, and one only available to the rich. Imagine a court even listening to a snake oil salesman say that he was just giving his opinion when he said his noxious brew could cure cancer.
Now, all of these folks have one thing in common. Coming as they do from the upper echelons of the .01%, they will never see the inside of a courtroom, unless it’s to put the screws to some poor bastard who can’t pay his mortgage. But never fear, while the government can see no harm in these cases (at least no criminal harm), it is right on the spot when it comes to the aforesaid snake oil salesmen:
The chief of Full Tilt Poker surrendered to authorities on Monday and pleaded not guilty to charges of illegal gambling and that the online poker operator defrauded its players.
Raymond Bitar,40, had been working at Full Tilt’s Dublin, Ireland, headquarters, and until Monday had not returned to the United States since charges against him were first announced in April 2011.
Federal prosecutors in Manhattan have charged 11 people at the three biggest online poker companies: Absolute Poker, Full Tilt Poker and PokerStars. The U.S. government also seized their Internet domain names.
At a hearing late on Monday in Manhattan federal court, Bitar pleaded not guilty to nine criminal counts, including illegal gambling, money laundering and wire fraud charges.
Online gambling has been illegal in the United States since 2006, the year Bitar moved Full Tilt’s operations to Ireland. Some U.S. lawmakers have talked recently about legalizing Internet gambling and regulating it.
Since unveiling the case, prosecutors have expanded both their civil and criminal charges against Full Tilt. They say it operates as a Ponzi scheme and paid its directors more than $440 million while defrauding players, even after the charges were filed.
(via The New York Times)
These guys, having aimed way too low, are fair game for prosecution. Sure, $440 million is a lot of money to most of us, but it’s nothing in comparison to blowing up the entire international economy, or defrauding investors out of billions of dollars. If you don’t want to go to jail, you have to aim high.