Securities and Exchange Commission

SEC Attorneys Accused Of Insider Trading Like Legally Dumb And Dumber

Moe Tkacik | May 15, 2009, 6:31PM

When first we heard that two enforcement attorneys at the SEC were being probed by the FBI for insider trading, we almost sympathized. After all, as the GAO informed us last week in its damning report on the dysfunctional agency, commissioners seem to have spent the Bush years thinking up new ways of preventing enforcement attorneys from doing their actual jobs. And in an environment of incessant deregulation, the markets have to regulate themselves, right?

Uh, then we read the 51-page SEC Inspector General report on the case submitted to SEC chairman Mary Schapiro March 3 by SEC IG David Kotz, who made no attempt to conceal his amazement at their awe-inspiring stupidity. Seriously, Hank Paulson's chief of staff who didn't know who the nine big banks were is a MacArthur fellow next to this pair, who are only identified in the report as [#1] and [#2].

The OIG investigation disclosed that [#1] sent e-mails to his brother and sister-in-law from his SEC e-mail account during the work day recommending particular stocks, and sometimes informing them that [#2] had recommended those stocks as well. Both [#2] and [#1] inexplicably testified that they failed to see how [#1]'s sending e-mails to his brother and sister-in-law from his SEC account could raise an appearance that he may be sharing nonpublic information with someone outside of the SEC.

More amazing highlights after the jump.

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Topics: Securities and Exchange Commission

Charles Millard

Charles Millard's Devastating Term "Insuring" Nation's Pensions, By The Numbers

Moe Tkacik | May 15, 2009, 2:09PM

We just told you about the probes underway of Charlie Millard, the obscure Bush-appointed former director of the Pension Benefit Guarantee Corporation, which provides a form of limited bankruptcy insurance to the retirement funds of 44 million Americans. Millard's aggressive plan to sell off most of the PBGC's bonds and plow the majority of its funds into stocks and real estate has been a pension world controversy since he started at the agency in May 2007, at the beginning of the credit crunch. Even by the highly imperfect standards of conventional Wall Street wisdom, the former Lehman Brothers executive's investment strategy appeared almost gratuitously risky.

But it wasn't until the Office of the Inspector General began sniffing around the agency that Millard's short-lived stint in the federal government began to take on a more sinister light. We've boiled down the draft report of their audit, released yesterday by Congress, to a few key figures, adding a few of our own for perspective.

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Topics: Charles Millard, Paul Atkins

Charles Millard

Congress Probing Charlie Millard's Quixotic "North Star" Strategy For "Insuring" Pensions

Moe Tkacik | May 15, 2009, 12:32PM

Even later update -- Earlier posts read as though Millard's investment plan had been entirely implemented, which we don't believe to be the case. A Congressional staffer said the PGBC had refused to say how much of the fund had already been reallocated under Millard's guidelines. But a PGBC spokesman told BusinessWeek none of it had and that the agency would "work with our board to decide whether these contracts should be terminated and whether strategic partnerships fit into the board's investment approach going forward."

The original version of this post was also somewhat unclear on the specifics of the various investigations into Millard. Both houses of Congress are investigating Millard and a group of senators requested a criminal investigation as well.

Remember Charles Millard? He's the former Bush-appointed director of the Pension Benefits Guaranty Corporation, and we expect to be seeing a lot more of him as congressional investigations into his brief but significant tenure at the agency gathers steam, starting with a scheduled appearance next Wednesday.

Some background: the Pension Benefits Guaranty Corporation insures a portion of the retirement funds of 44 million Americans to protect their savings accounts from the capriciousness of market conditions. Somehow, by the perverse illogic that defined the financial services industry of the past few years it came to pass that this fund would be run by a former Lehman Brothers executive who would devise a plan to plow the majority of its investment portfolio into the volatile stock market and the massively overheated real estate market under the pricey guidance of financial advisers at Wall Street's most prestigious investment banks, such that some such that billions of dollars would vanish in the course of months. An honest mistake, or was unethical behavior involved?

The Office of the Inspector General conducted an audit of Millard, who spearheaded this effort, and found no evidence he'd committed any actual crimes -- but enough "clear violations" of agency ethics rules to alarm Congress, which released the OIG's draft report yesterday and announced an investigation of Millard and said it had requested a criminal probe of him as well.

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Topics: Charles Millard

Bear Stearns

Carlyle Group To Pay $20 Million, Submit To Cuomo's "Code Of Conduct"

Moe Tkacik | May 14, 2009, 4:06PM

In what New York AG Andrew Cuomo is hailing as a "revolutionary" agreement, Carlyle Group agreed to pay a $20 million settlement to "resolve its involvement" in former New York state comptroller adviser Hank Morris's alleged scheme to collect bribes from hedge funds and private equity firms in exchange for state pension fund investments. As part of the deal Carlyle will agree to Cuomo's new code of conduct banning the use of "placement agents" like Morris, who allegedly collected $13 million in sham fees from Carlyle for steering $730 million in state pension fund investments to the firm.

Carlyle admitted no wrongdoing and announced it was suing Morris and the firm he worked for, Searle & Co., for $15 million. The code of conduct could indeed prove pretty revolutionary in the industry if Cuomo succeeds in making similar settlements with other money managers, which he said was his intention. Whether it marks a considerable change at Carlyle is another matter; after all, if you can name one politically-connected private equity firm it is probably the Carlyle Group.

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Topics: Andrew Cuomo, Bear Stearns, Carlyle Group, Hank Morris

Bill Richardson

Why Not To Get On Bill Richardson's Bad Side

Moe Tkacik | May 14, 2009, 2:14PM

The president is at a high school in New Mexico today attacking predatory financiers -- and, we imagine, silently thanking the deities his cabinet is not inhabited by a certain friend of predatory financiers accused of booking huge fees bilking the retirement funds of the state's school teachers. No, Bill Richardson is still in the governor's mansion, and he doesn't seem happy about it. On Monday we read that Richardson had actually "rolled his eyes" in response to a reporter's question about noted that he'd :

When asked recently if he had set the tone for his administration, which has been criticized for sometimes moving quickly on programs and for having a blind spot for details, Richardson rolled his eyes. The governor, who had just gotten into a black state SUV, didn't answer the question as the door closed and the vehicle drove off.

If Richardson does indeed set the tone for his administration, that tone has changed considerably of late. The expanding pension probes in New York have state officials suddenly taciturn -- after spending most of the year in hard-core attack mode.

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Topics: Bill Richardson, Frank Foy, Marc Correra, Vanderbilt Financial

Henry Paulson

The Daily Muck

Moe Tkacik | May 14, 2009, 10:54AM

A new cache of Treasury emails released by Judicial Watch reveals, inter alia, that Hank Paulson's chief-of-staff was a guy named Jim Wilkinson who was nt only clueless -- and this is, mind you, an entire month after the Lehman bailout -- as to the names of the nation's nine biggest financial institutions, he was clueless enough to put it in writing. But not so clueless that he didn't understand that the administration's decision to flow them a few hundred bil was a hit with the Dow Futures, bro! This guy makes Neel Kashkari look pretty awesome.

Also in the docs: Paulson used his "Texas Fed" strongman tactics with all nine big banks, couldn't get ahold of McCain to brief him; JP Morgan CEO Jamie Dimon arrived 45 minutes early. [Judicial Watch]

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Topics: Henry Paulson, Jim Wilkinson

Angelo Mozilo

Well, Duh: SEC To Sue Angelo Mozilo For Insider Trading

Moe Tkacik | May 13, 2009, 7:23PM

Huge surprise: the SEC is mobilizing to sue sue former Countrywide Financial CEO Angelo Mozilo for insider trading.

Perhaps no one made so much money so directly perpetrating the abuses responsible for the most painful consequences of the economic collapse as Mozilo, whose massive mortgage giant encouraged sales reps to sell homeowners on the biggest and most abusive loans possible, fueling a meteoric rise in housing prices that sustained Countrywide's profit margins for much of the last decade -- until 2007, when the market finally broke down and Countrywide tried to change tactics, raising its lending standards with an internal memo encouraging employees to "Do the right thing."

That memo was instantly parodied by Countrywide employees, who posted and circulated an alternate version that ended:

P.S. My naked orange body is rolling around in piles of hundreds of millions of dollars from the stock I've dumped.

The first of innumerable shareholder lawsuits alleging insider trading was filed shortly thereafter.

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Topics: Angelo Mozilo, Countrywide

AIG

How European! AIG Derivatives Traders Go On Strike

Moe Tkacik | May 13, 2009, 5:44PM

AIG CEO Ed Liddy's much-anticipated appearance in Congress today was... not really worth all the anticipation, in our humble opinion. Questions posed by members of the House Oversight Committee included "what is the address of AIG?", an inquiry into whether the company's value was reflected in its stock price, and the follow up to the first question "Is that in New York City?"

But today the blog ZeroHedge wonders something we'd like to see Ed Towns bring up next time: wherefore the apparent halt in the unwind of derivatives held by the money vortex called AIG Financial Products? Back in February the company was saying it had unwound 25% of its $2.7 trillion in notional exposure, which would leave it with 2.025 trillion in outstanding swaps. By March they said they had unwound another $400 billion and change. But in the two months since then, if Liddy's testimony today is accurate, the unit has only managed to offload $100 billion in additional exposure. What's to explain for the sudden halt? Did someone give up "unwinding complex trades" for Lent?

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Topics: AIG

Julio Ramirez

If Anyone Can Tell Us How This Massive Pension Conspiracy Worked, It's Probably Julio Ramirez

Moe Tkacik | May 13, 2009, 4:42PM

It looks like a major figure in the ever-expanding public pension fund scandal is cooperating with New York AG Andrew Cuomo's probe.

The player in question is Julio Ramirez, a former Los Angeles politico who until March worked for the tony boutique investment bank Blackstone. In the nineties, Ramirez managed one of former LA mayor Richard Riordan's campaigns and worked on various others. Yesterday Cuomo announced Ramirez had pleaded guilty to securities fraud in the scheme allegedly masterminded by Hank Morris, the former top adviser to Comptroller Alan Hevesi, along with David Loglisci, the chief investment officer of the New York general pension fund. Ramirez could be the key to unwinding the Western wings of what Cuomo yesterday called "a matrix of corruption - which grows more expansive and interconnected by the day."

The AG office says Ramirez got involved in the scheme in 2003 while he was working for two hedge funds on behalf of Wetherly Capital Group, a well-connected placement agency in LA. Morris, who effectively became the "gatekeeper" of pension investments after Hevesi won the 2002 comptroller election, promised to secure investments for Ramirez's clients if he gave him a 40% cut of his fees. Unbeknownst to the pension funds and money managers, Ramirez wired a cut of his fees into a shell company Morris incorporated called PB Placement. In a statement Wetherly president Dan Weinstein called Ramirez a "part-time employee who...dragged the firm into this controversy."

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Topics: Andrew Cuomo, Julio Ramirez, Marc Correra

Allen Stanford

When The DEA Came Calling, Allen Stanford Re-Routed His Plane

Moe Tkacik | May 12, 2009, 6:54PM

An anecdote in a new GQ Allen Stanford story sheds some light on yesterday's weird reports that the suspected Ponzi schemer secured himself ten years of SEC amnesty by being an informant for the Drug Enforcement Administration -- and also the continuing puzzle of why the Stanford's "statuesque" CIO Laura Pendergest-Holt, who was formally indicted today, isn't cooperating with the government. Stanford wasn't just any DEA informant, he turned his plane around at the chance to rat out a Mexican drug lord! Also, Stanford was a bit cultlike.

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Topics: Allen Stanford

Allen Stanford

Why Would Laura Pendergest-Holt Take The Fall For Allen Stanford's Ponzi?

Moe Tkacik | May 12, 2009, 4:19PM

Suspected Ponzi schemer Sir Allen Stanford's chief investment officer Laura Pendergest-Holt was indicted in Houston this morning for obstructing and conspiring to obstruct the federal investigation into Stanford's sham money manager. Aside from a new allegation that Pendergest transferred $4.3 million of bank funds into the bank's operating account after speaking to the SEC, the charges don't appear much different from those laid out in a criminal complaint filed against the photogenic 35-year-old overseer of Stanford's "Tier 2" investments in February. (That's not for lack of rifling through her underwear drawer, according to a motion filed by her lawyer.)

That complaint depicted Pendergest-Holt's role in the Stanford enterprise as less mastermind than a case of (yes we realize this is a lame joke but) "Who Framed Jessica Rabbit?"

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Topics: Allen Stanford

Jimmy Cayne

Where There Is Pot Smoke, There Is Ex Bear Stearns CEO Jimmy Cayne

Moe Tkacik | May 12, 2009, 11:51AM

We tore through the first big Bear Stearns book this year, William Cohan's House of Cards, in hopes of some substantiation of reports that the bank's former CEO (and former billionaire; he's now a "mere eight figure-aire) Jimmy Cayne liked to smoke weed. But Cohan skipped the issue entirely, as he had in a Fortune interview with Cayne last year. We might say we read those 468 pages in vain, except that we are not convinced marijuana played a significant role in the financial crisis, especially since the Cayne depicted and quoted by Cohan sounds more like an angry drunk than a stoner. Here's an abridged version of his rant about then-New York Fed President Tim Geithner:

"The audacity of that prick in front of the American people announcing he was deciding whether or not a firm of this stature and this whatever was good enough to get a loan," he said. "Like he was the determining factor, and it's like a flea on his back, floating down underneath the Golden Gate Bridge, getting a hardon, saying, 'Raise the bridge.' This guy thinks he's got a big dick. He's got nothing, except maybe a boyfriend. I'm not a good enemy. I'm a very bad enemy.

But he is also a marijuana enthusiast, according to Street Fighters, the new book on Bear written by Kate Kelly (a "cunt...whose capability is zero" according to Cayne.)

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Topics: Bear Stearns, Jimmy Cayne

The Daily Muck

Moe Tkacik | May 12, 2009, 10:04AM

Dollar Dominatrix and TIME 100 member Meredith Whitney on the recent stress test-inspired stock market rally: "Even though I said it was gonna happen, I couldn't believe it with my own eyes. Because the underlying core earnings power of these banks is negligible." Aren't you glad you didn't just plunk your billions into bank stocks? Oh wait. CNBC

And a new suspect in our favorite pension scandals, some new words from AIG and new intel on what/when Pelosi knew about waterboarding Al Zubaydah awaits after the jump...

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Topics:

Allen Stanford

Fox: New Indictment In Stanford Ponzi Tomorrow Still Won't Be Charging Allen Stanford With Anything

Moe Tkacik | May 11, 2009, 5:41PM

Today was a surreal day in the surreal case of accused (though not yet criminally-charged) Texas ponzi schemer Allen Stanford, even by the standards of Stanford. First came a credulity-straining BBC report that Stanford somehow bought himself 10 years of amnesty from SEC scrutiny by serving as an informant for the Drug Enforcement Administration. Then Fox Business News piped in, excerpting a strange paragraph from a letter it had received as part of a Freedom of Information Act request from someone claiming that two of Stanford's clients were part of the Venezuelan mafia. CNBC replayed the segment of its interview with Stanford in which reporter Scott Cohn asks if the disgraced financier had ever assisted "federal authorities" -- to which Stanford blurts out "You mean the CIA?" before declining to comment further. (It's embedded after the jump.)

But not everyone in the Stanford family cooperates, and tomorrow we may finally get some clarity on this bizarre scam in the form of a "global indictment," if reports from Fox Business News are accurate. Stanford himself still isn't getting charged, though; the feds are coming down again on his glamorous chief investment officer Laura Pendergest-Holt, who was already arrested and charged with obstruction of justice in the scheme -- and last week denied every allegation against her. The Fox clip, also after the jump.

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Topics: Allen Stanford

Citigroup

The Fight Over Your Student Loans Reducing Banks To "Pornography"

Moe Tkacik | May 11, 2009, 2:22PM

Last Friday Citigroup email-blasted borrowers of its student loans entreating them to write Congress and sign online petitions saying they opposed Barack Obama's plan to do away with the private student loan business in the name of "consumer choice."

We thought the email was funny because, sort of like AIG's bailout-funded legal battle to reclaim $329 million penalties it paid the IRS, it was a case of a company transparently working to undermine the agenda of its parent company the U.S. Treasury. But it gets better!

As it turns out, Citigroup's biggest competitor in private student loans, Sallie Mae, sold out the rest of the industry last month by agreeing to go along with the Obama Administration's plan. Two weeks ago the company told analysts that while it did not intend to be a "Thanksgiving turkey for the government" it was content shifting its strategy from the lucrative government-subsidized lending business that made its CEO Al Lord a centimillionaire many times over to being a fee-for-service government contractor. It circulated some suggested changes to the Obama proposal and left its smaller competitors, like Citigroup's Student Loan Corporation and First Marblehead Corporation to fend for themselves.

In a conference call with analysts last month, Lord said his reasoning for the change of heart was simple: student loans were not as profitable as they once had been, following a string of conflict-of-interest scandals in 2006 and 2007 that galvanized support around a series of cuts in the federal subsidies bankers received for extending such loans -- so charging the government to service the loans was a better business to be in. "I don't think there's anyone in this building...that's not a capitalist," Lord told an analyst. The trade group representing Citi and other private lenders, however, the Consumer Bankers Association, had some harsh words for this rationale in a Washington Post story this morning.