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SEC to sue Goldman Sachs

April 20, 2010 1 comment

The gentle art of suing Big Guns

SEC’s decision to sue Goldman Sachs, brings to an end, a long drama.

In August and September of 2008, 2ndlook was calling for investigations into the collapse of Bear Sterns, Lehman, et al. When the Great Recession was not real – and only a fear. While Preet Bharara was busy building a flimsy case against Rajarathnam? When Bharara should have been investigating Hank Paulson, the Former Treasury Secretary, under whose watch many bankruptcies happened. Conveniently in favour of JP Morgan and Goldman Sachs. Even now, this investigation,

To say that it comes at an awfully convenient time for President Barack Obama’s Democrats is a colossal understatement.

With mid-term elections just a few months off and the U.S. Congress set to debate a massive financial regulatory reform package — one that Wall Street lobbyists and their pals in the Senate have been fighting every step of the way — the suit offers tailor-made reformist ammo for Obama & Co.

Birds of feather

Khuzami tells us that Goldman Sachs is cared. Tell that to the birds!

Khuzami tells us that Goldman Sachs is cared. Tell that to the birds!

By sending a notice to Goldman Sachs, in July 2009, SEC gave enough time to Goldman Sachs to enable them to prepare adequately for an extended court-room battle. Businessweek  writes about three issues,

Robert Khuzami, shortly after becoming the Securities and Exchange Commission’s enforcement chief last year, told Congress the agency must be willing to fight big cases to show it poses a “credible threat.”

Does Khuzami think that SEC scares Goldman Sachs? With the kind of money power that Goldman Sachs has, it can manage a battle with SEC for an entire generation. What SEC’s action will do is scare the likes of the co-accused in the Rajarathnam case. Extremely small fry. Even Rajarathnam was  not scared of SEC. Minions – that is who Khuzami is trying to scare.

European regulators are following the SEC’s case. Britain’s Financial Services Authority said today it will start a formal probe of Goldman Sachs’s London unit. BaFin, Germany’s financial-services regulator, is requesting information from the SEC about the case.

Big Business loves regulatory overload. It kills competition!

Big Business loves regulatory overload. It kills competition!

Win over voters. Avoid charges of collusion. Shake the money tree. Gordon Brown has a tough election to win. In the middle of the Great Recession, the German Government needs to show ‘resolve.’ In the meantime, AIG has also decided to try a shakedown.

The SEC’s Republican commissioners, Kathleen Casey and Troy Paredes, opposed the lawsuit against Goldman Sachs, which was approved in a 3-2 vote, two people with knowledge of the matter said yesterday.

Nobody’s ‘tellin’ but everybody knows. Big business and Big Government. That is the axis on which ‘progressive’ economies of the world are being built – and depend on. Or become a large public-sector enterprise – like Europe has become. This is the regulation gambit.

Government’s impose regulation to eliminate the small players – who cannot bear the regulatory overload and compliance costs. More regulation helps the big players – and big players have the financial and bureaucratic muscle to manage excess regulation.

The trouble with Hank

Was Hank Paulson making it easier for his ex-employer Goldman to buy up competitors? Was he helping out JP Morgan with WaMu and Bear Stearns? It was well-known that JPMorgan Chief, Jamie Dimon had long drooled over WaMu. While a lot of stressed organizations were getting support, Hank Paulson allowed Lehman to go under! JPMorgan was being blamed for Lehman collapse.

US bank JPMorgan Chase stands accused of precipitating the collapse of American investment bank Lehman Brothers by freezing Lehman assets days before it filed for bankruptcy protection, the Sunday Times reported.

After 60 Days

Was Paulson looking at his own future, while deciding on the future of Bear Stearns, Lehman Brothers, WaMu? How 60 days later, when he would need a new job! Was the collapse of Lehman, a deal for a job with Goldman – or was it JP Moran Chase? While a lot of people were getting support, Paulson allowed Lehman to go under!

I wonder why?

Transparency International does not call this corruption. But then, that is par for the course!

Been there and done that

In a democracy, people have choice!

In a democracy, people have choice!

This is very similar to Joseph Kennedy’s shorting the market before The Great Depression. It has always been a source of wonder to me how could Joseph Kennedy, a bootlegger and a friend of the mafiosi become SEC Chairman? And after that, could the Great Depression not follow?

It was always 2ndlook’s suspicion that Hank Paulson’s behaviour in the Lehman collapse is similar to Bootlegger Kennedy’s behaviour. And this now coming out all in the open!!

The biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts.

As Lehman Brothers Holdings Inc struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of September 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30.

The SEC has linked such so-called fails-to-deliver to naked short selling, a strategy that can be used to manipulate markets. A fail-to-deliver is a trade that doesn’t settle within three days.

“We had another word for this in Brooklyn,” said Harvey Pitt, a former SEC chairman. “The word was ‘fraud.’” (via Naked short sales hint fraud in bringing down Lehman).

Back then in 2008, first, the world was hit by Big Oil at US$150 per barrel. As though that  was not enough, came the Big Banks! After Big Oil and Big Banks, we will have the pleasure of getting the The Big Lie!

Goebbels is alive, well and kicking. All of us.

Rajarathnam did not talk about the American dream

January 20, 2010 Leave a comment

In Sanskrit, the difference between लाभ labh (profit) लोभ lobh (greed) is सूक्ष्म thin. Very thin. Government should not be greedy in matters of taxes and imprisonment.

He told the story with the broad, toothy smile that had ingratiated him to a generation of Silicon Valley executives. The grin softened the edge of a boss who d call you an idiot or prod you into some humiliating stunt: Would you take $5,000 to be shocked with a stun gun?

In a mansion on a manmade island in Biscayne Bay in February 2007, Mr. Rajaratnam seemed determined to live up to his regal description of his name. It was Super Bowl weekend, and America s rich and powerful had descended on South Florida to watch the Indianapolis Colts play the Chicago Bears. Mostly they were there to do business. Mr. Rajaratnam s business was running a hedge fund, Galleon Group, that had made him a billionaire. And that business was based on contacts. (via The Man Who Wired Silicon Valley – WSJ.com).

Hatchet job … or a smear

This rather long post in WSJ was rather interesting. Some things stand out.

  1. The article mentions how the SEC and FBI was working to “build the biggest insider trading case in a generation.” What makes it the largest insider trading case? US$20-US$25 million? By the way, nowhere do the writers mention that the amount in question is US$20 million (as per FBI and US$25 million per SEC). In more than 15 A4 pages, and 6500 words.
  2. The whole article is about anecdotes – I counted more than 32 anecdotes and gave up.
    Maddof and his craft is alive and in the US Fed's office

    Maddof and his craft is alive and in the US Fed's office

  3. This WSJ article talks of a “dizzying picture of multiple insider-trading rings”. Worth US$20 million in insider trading?
  4. This article talks of a how Rajarathnam had earlier handed over a huge cache of documents in an investigation relating to his younger brother Rengan, in “early 2007 in cooperation with an SEC investigation of his younger brother, a probe that hasn’t resulted in charges.”
  5. “There is reason to fear that there is a culture –not only at hedge funds but at large firms in the financial sector — that thinks nothing of casually exchanging material nonpublic information,” said Preet Bharara. Now if this is the pervasive culture, how come only Rajarathnam and his ‘associates’ were investigated, charged and arrested.
  6. Is Preet Bharara expecting that every word of every conversation be released to the public before talking to anyone – or is he talking of a simul-cast of all conversations! Google are you listening!!
  7. “Insider-trading charges are notoriously difficult to prove. That’s because Wall Street is awash in information, and every savvy investor tries to be the first to ferret out important tidbits. To gain a conviction, prosecutors have to persuade a jury that a person traded on information that they knew was not only confidential but was also important enough to move a company’s stock price.” Why is it difficult to prove? Because it is difficult to define? Now if the WSJ knows this, should it not be fair and balance the coverage. But nowhere do they examine the difficulty of defining insider trading.
  8. Would you like to prosecute Citibank, Goldman Sachs and Alan Greenspan for the way they ‘saved’ LTCM? If you ask me, it was a mix of inside information, racketeering and anti-trust rolled in one.
  9. WSJ articles talk about how another case had to be dropped as they were “unable to prove that Mr. Rajaratnam traded on the information.”

On Wall Street

Coconut Bharara - Brown outside, vindictive inside?

Coconut Bharara - Brown outside, vindictive inside?

The case of the Sri Lankan Rajarathnam has similar smell to it. The US prosecuting authority, Preet Bharara, the U.S. Attorney for the Southern District of New York, alleges that the Galleon Fund made some US$20 million out of this insider trading.

Galleon Fund (more than US$5 billion in assets under management) probably spent more than US$20 million on tea, coffee, espresso, soda, Evian and paper napkins.

Rajrathnam’s own net worth was estimated by “Forbes” to be US$ 1.3 billion. Is there any sense, any balance to these cases. Especially, when what constitutes ‘insider’ trading itself is so vague and nebulous!

Is Preet Bharara, indulging in reverse ‘affirmative action’ by prosecuting Rajarathnam? Is a ‘Whiter-than-White’ Preet Bharara trying to prove that he is colour blind?

“If you’re a wealthy trader, you aren’t special,” Bloomberg quoted Manhattan U.S. Attorney Preet Bharara as saying at a press conference. “Knock on our door before we come knocking on yours.”

What Preet Bharara should do is investigate Hank Paulson, the Former Treasury Secretary, under whose watch many bankruptcies happened conveniently in favour of JP Morgan and Goldman Sachs.

Character certificates from prosecutors?

Robert Khuzami, director of enforcement at the SEC, said the charges show Rajaratnam’s “secret of success was not genius trading strategies.”

“He is not the master of the universe. He is a master of the Rolodex,” Khuzami said.

Is Khuzami here to pronounce judgment on Rajarathnam’s business skills? How is this comment relevant at all? All that Khuzami & Co needs to do is show culpability for specific action(s) – and not pronounce or give character or competency certificates.

What Khuzami is doing is usually called vilification. And why do you need to indulge in vilification, Mr.Khuzami? Is that not abuse of your office and statutory powers? Is that not misuse of Government machinery?

“Greed is not good,” Bharara said. “This case should be a wake-up call for Wall Street.”

I think I know …

I agree with you on this one, Mr.Bharara. Greed indeed is not good. Now you (might) know that in Sanskrit, the difference between लाभ labh (profit) लोभ lobh (greed) is सूक्ष्म thin. Very thin. A government official should not be greedy in justice and convictions.  America’s overflowing prison population is proof enough that rigid justice wont work. It is always better to be a little lenient – rather than being repressive.

Checking out the American Dream

Checking out the American Dream

But then maybe it is beyond your tolerance. After all, in all the articles and posts, which covered Rajarathnam, not once did Rajarathnam bang his head at the altar of the ‘American Dream.’

It is galling, isn’t it? I understand your frustration and anger. Everyone else does it. Why is Rajarathnam not doing it? Maybe that is what is beyond tolerance.

I fully understand!

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