Today's Top Stories Also Noted: Spotlight On... Leveraged loans generating losses again News From the Fierce Network: Today's Top News1. Fortune's reconstruction of MF Global imposion
Fresh on the heels of trustee James Giddens damning report on MF Global, Fortune weighs in with a lengthy look at the entire debacle. This meticulously researched start-to-end reconstruction, which will serve nicely as a book proposal, offers the most detailed journalistic account yet of what actually happened in the final hours. JPMorgan, which wore no less than five hats in the end game, was in many was the prime mover in all this, creating massive amounts of pressure for the firm to cover overdrawn accounts in the wake of credit down grades. It was amid this confusion that money was forwarded to the bank's London office that originated with customer accounts. One interpretation might hold that there was so much chaos that money was spinning in and out of accounts willy-nilly, making the blunder possible, even likely. "Amid the confusion, a dozen firm accounts at JP Morgan in England were overdrawn by a total of about $175 million. The bank was simultaneously preparing to preside over an attempt to auction nearly $5 billion in agency and corporate bonds, as part of Corzine's accelerated effort to unload assets. JP Morgan had agreed to settle the sales on a same-day basis (instead of the usual one or two business days) to speed the return of cash. But it would only do so if MF Global covered the overdrafts…." Here are some other choice excerpts: "Corzine personally called the Chicago back office, where he spoke to (Edith) O'Brien, telling her they needed to fix the problem. Everyone, emails reviewed by Fortune show, immediately scrambled to find a way to cover the overdrafts. A manager at the firm's broker-dealer subsidiary thought he had enough from a settling repo trade to cover the hole. But Mahajan, MF Global's treasurer, emailed O'Brien that she might need to do it: 'Edith, If you don't hear from London in the next 5 minutes, please provide them funds today to cover this overdraft position.' In a second email, Mahajan underlined the urgency of the matter: 'PLEASE CONFIRM THAT JP MORGAN'S ACCOUNT IN LONDON HAS BEEN FULLY FUNDED ASAP – THEY ARE HOLDING UP VITAL BUSINESS IN THE US AS A RESULT.' "It soon became clear that O'Brien would indeed need to come up with the money. She eventually did. She then forwarded an email to others, adding the message that she was dispatching the funds "Per JC's direct instructions.'" All in all, this is a riveting read. That said, it doesn't come up with any smoking guns, though the role of the controversial O'Brien adds much to the discussion. In the end, it further clouds the dilemma faced by prosecutors: grant her immunity or charge her. I would love to read her proffer to prosecutors. Hopefully, this will be resolved soon. Corzine's fate, to some degree, hangs in the balance. For more: Related articles: Read more about: fraud
2. Where will Sally Krawcheck land?
Sally Krawcheck was once considered one of the most powerful, if not the most powerful, woman on Wall Street. At Citigroup, she carved out quite a career and some thought she was in line to become CEO some day. But the former Fortune cover subject ran into issues with CEO Vikram Pandit, and she left. She landed at Bank of America, where she was tapped to run Merrill Lynch. Unfortunately, she never quite gelled with CEO Brian Moynihan, and she left with a massive severance package in September 2011. Since then, people have been wondering what she will do next. A partial answer is that she will serve on more boards. Motif Investing, which offers themed baskets of stocks for trade, has announced that she will join the board. Reuters notes she also serves on the board of Gold Bullion International, which stores metals for consumers. In both cases, her path was paved by Arthur Levitt, the former SEC chairman who now serves on both boards as well. Krawcheck may well be planning on serving on more boards. To be sure, well-regarded former executives can make a nice career as a professional director, though corporate governance advocates frown on too many directorships. But you also get the sense that she will resurface as an executive industry at some point. At that point, she'll have to limit her outside board activity most likely. She may have signed a non-compete clause when she left Bank of America that has delayed her return to the industry. For more: Related articles: Read more about: Sallie Krawcheck 3. Gupta trial delays to benefit defense?
It's fair to say that the trial of Rajat Gupta, the former Goldman Sachs director who stands accused of leaking inside information, has been beset with lots of delays, as the lawyers argue frequently and at length while the jury is out of the room. The question is, which side stands to benefit more from this? The New York Times reports that, "During one of those arguments on Monday, Judge Rakoff seemed to reach his boiling point. 'We have spent far too much time in this trial arguing every point to the nth degree,' Judge Rakoff said, his voice rising in anger. 'I don't want to hear anything more from either side and I want the jury in here right now.' " The frequent starts, stops and delays just might make it hard for the jury to maintain its train of thought, especially given the rather arcane approach that the prosecution has chosen. It has opted to build its case via a meticulous detailing of, for example, Goldman Sachs board meetings. The upshot of his lengthy testimony was that the proceedings were secret and not to be shared with others. While some legal professionals might appreciate the thoroughness, others could easily argue that this is boring the jury in detrimental ways. At the end of the day, if the entire case seems disjointed, it may be more difficult for the jury to conclude that prosecution presented an air tight case that left no doubts as to guilt. The delays unfortunately will continue, as Judge Rakoff will be out of town on Tuesday, and Blankfein, who has not completed his testimony, presses for an accommodation to attend his daughter's high school graduation on Wednesday. For more: Related articles: Read more about: Goldman Sachs, insider trading 4. Insider trading ring players get long prison terms
One of the more interesting insider trading cases busted recently involved a simple day trader, who took tips from a prominent deal lawyer through a trusted middle man. The cops didn't break the 17-year-old scheme until the middle man started making his own trades. From there, it unraveled quickly. The lowly day trader and his two partners in crime all pled guilty. Two of the men--Garrett Bauer, the day trader, and Mathew Kluger, the lawyer--were sentenced this week to 9 and 12 years in prison respectively. These are hefty sentences to be sure. In the case of Kluger, the sentence was the longest prison term meted out for insider trading in U.S. history. Recall that Raj Rajaratnam, the convicted hedge fund insider trader, got 11 years. For Bauer, the sentence might have been even longer were it not for his recent efforts to warn others about insider trading. He has delivered 147 speeches to students, hoping to scare them straight with tales of his 5 days in prison, which he calls the scariest place on earth, according to Bloomberg. "I'm not blind anymore," Bauer told the news service. "I see how wrong it was, how unfair it was to everybody else that's trading. You get away with it once, and then you think you can get away with it every time. I almost never considered the question of getting caught. It was more a question of let's figure out a way to make money and not lose money." As for Kenneth Robinson, the middle man who turned on his two partners, he was scheduled to be sentenced the next day. He is obviously hoping for lenient treatment. For more: Related articles:
Read more about: insider trading, fraud 5. Trustee may sue Corzine, other MF Global execs
The trustee appointed to wind down the assets of MF Global just might sue ex-CEO John Corzine, whom it faults for steering the ship seriously of course en route to a disastrous end. The reports itself takes no stand on whether criminal charges should be filed against Corzine and other executives, but it found enough evidence that might sustain a suit against the disgraced Corzine and two other MF Global executives for breach of fiduciary duty and negligence. The two others are MF Global Chief Financial Officer Henri Steenkamp and former MF Global Assistant Treasurer Edith O'Brien, who was involved with the critical transfer if funds. O'Brien is said to be pursuing immunity from federal prosecutors, who have not yet made a decision. The trustee report is predictably damning but perhaps a bit more comprehensive in its portrait of a firm that was cowed in essence by a celebrity CEO. With Corzine at the helm, the firm eventually lost respect for any semblance of risk management processes, but the board was not totally obsequious. At one point, the CEO asked the chief risk manager to ask the board to boost the limits on European debt exposure from $5.8 billion to nearly $10 billion. The board approved a risk limit increase to $6.6 billion, enough to eventually sink the firm. Also in line to be sued: JPMorgan, which holds funds that the trustee wants back above the $600 million that the bank has already returned. The CME also holds some funds that trustee will lay claim to. All in all, as I've suggested previously, this report, with its portrait of a near-rogue firm, will not guarantee criminal or even civil charges by federal prosecutors. The Anton Valukas report proved that. But the issue is alive again. For more: Related articles: Read more about: scandal Also NotedSPOTLIGHT ON... Leveraged loans generating losses again Not too long ago, leveraged loans were in rally mode. But that's no longer the case, thanks mainly to the European economic crisis, Bloomberg notes. Syndicated loans of speculative-grade borrowers lost 1.22 percent last month, the most since November, snapping the longest rally since the eight months ended February 2011. Unsurprisingly, loan growth has slowed. Article Company News: Industry News:
And Finally…The gas station of the future? Article
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Wednesday, June 6, 2012
| 06.06.12 | Gupta trial delays to benefit defense?
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