Today's Top Stories Also Noted: Spotlight On... JPMorgan gets help in winding down positions News From the Fierce Network: Today's Top News1. SEC deposes Steven Cohen, charges coming?
In the wake of successful insider trading prosecution of Rajat Gupta, arguably the biggest prize in the entire effort to date, I wondered if the high point of the historic investigation had been reached. Perhaps there another big fish yet to be nabbed? My sense was that the broad investigation had crested and that Steven Cohen, the founder of SAC Capital, was likely in position to avoid charges. But Bloomberg Businessweek reports that the enigmatic hedge fund kingpin "is facing renewed scrutiny from U.S. regulators over whether he made illegal trades based on inside information." He was "recently deposed by Securities and Exchange Commission investigators in New York about trades made close to news such as mergers and earnings that generated profits at his hedge fund." It's unclear when those depositions took place. Cohen, who didn't comment for the article, has been under scrutiny at the criminal and civil levels. While former employees have been charged, he has so far avoided scrutiny. Many consider him the biggest whale in the sights of investigators, almost mythic. As of now, few know what kind of evidence has been amassed against him, and it's unclear if the Gupta conviction will embolden prosecutors to go after Cohen with circumstantial evidence, which proved to be remarkably persuasive. There's no indication that wiretap evidence has been amassed against the hedge fund mogul. If this ever gets to trial, it would rank as a milestone. For more: Related articles: Read more about: Hedge Funds, insider trading 2. Bank of America ATM glitch leads to $1.5M in withdrawls
The error rate for ATMs is very low. But glitches do occur, and they can expose banks to some odd risks. Bank of America found that out the hard way recently when a Detroit man was able to withdraw more money than he had in his actual account. A lot more. Ronald Page, 55, has pleaded guilty to "bellying up to the bank over and over again for 15 days in 2009, until he'd pulled out $1,543,104." This was all due to a Bank of America glitch in the system. Page typically kept only $100 in his account. Bank of America apparently had mistakenly put his account into a "pay all" status, allowing him to make the unlimited overdrafts, according to the Daily News. Page's "streak began on Aug. 1, 2009, when prosecutors say the bank's mistake allowed him to withdraw $312,000 from ATMs at Greektown Casino and $51,727 from MGM Grand Casino, both in Detroit." He also made withdrawals at casino windows. How did he fare with all this ill-gotten money? He apparently lost it all at the tables. Bank of America finally noticed the odd behavior and shut him down. The U.S. Attorney in Detroit is asking a judge to sentence Page to 15 months in prison and to force him to pay back every cent. For more: Related articles:
Read more about: Bank of America, ATMs 3. Gary Cohn: Goldman Sachs feels for JPMorgan
In one sense, JPMorgan Chase did Goldman Sachs a favor with its multi-billion trading fiasco, which has thrust JPMorgan Chase CEO Jamie Dimon onto the hot seat. For Goldman Sachs, a chance to share the harsh spotlight could be seen as a good thing, a way to get the bank out of the news and share the negative sentiment. But there is little Schadenfreude at the bank, according to President Gary Cohn, who just might be in line to be CEO someday. According to an interview with Bloomberg TV, he said that, "I don't think it is good for anyone to be in the public light for negative reasons. I'm not sure JPMorgan would have said it was good for them when Goldman Sachs was going through it and I can tell you for sure is not good for us to have JPMorgan going through what they're going though. At the end of the day, there's a finite group of major financial players in the United States and in the world. We are in the same business. We have many of the same clients. We are all servicing our clients. Overall, the best thing for all of us is to be in an industry that is well-respected, well-regarded and well thought of. If one of us has a problem reputationally, the other may have the problem and they will end up getting similar questions and their clients will question them. The best thing for all of us is to do our job, provide to our clients what they need to be provided and stay out of the limelight." All big banks stand to be effected by JPMorgan's mess in this regard: The movement to impose harsh new regulations has been stepped up. For more:
Read more about: Goldman Sachs, JPMorgan 4. Lessons from another Chinese short seller target
Chinese companies, many of whom trade as ADRs, have been tainted as of late by reports by short-seller analysts alleging massive frauds in many cases. The best example might be Sino-Forest, the target of negative reports by a short-seller research outfit called Muddy Waters, based in Hong Kong. The reports sank the stock and stuck the likes of hedge fund mogul John Paulson with huge losses. Another example has cropped up just recently. Citron Research, of Los Angeles, has published a negative report on Evergrande Real Estate Group, which trades in Hong Long, alleging all sorts of accounting shenanigans, according to Deal Journal. The company has responded that the allegations that it is technically insolvent are untrue. We'll have to see how this plays out. You can bet the shorts are happy, as the stock has tanked. In general, it strikes me that there is a point to be made about the JOBS Act here. It's fair to say that companies that provide scant disclosure are more prone to be targeted by shorts. The best defense in many ways is a good offense, which means the kind of financial transparency that can attract long-term shareholders. To be sure, there will always be an active short-selling community looking for dubious stocks. Emerging growth companies want to do everything they can not to be unfairly lumped up in with the likes of Sino-Forest and others. My sense is that many emerging growth companies will opt to err on the side of more disclosure, despite the watered down requirements of the JOBS Act. There may even be some that voluntarily comply with Sarbanes Oxley 404 (b). For more: Related articles:
Read more about: short sellers, shorts 5. JPMorgan's $14 billion subsidy
The position by top banks, including JPMorgan, on Dodd-Frank has been fairly stark: The bill is the enemy. Indeed, the straw man of "excessive regulation" has been shown to be politically potent over time. But banks have profited handsomely on an on-going basis by the mere fact that central banks stand ready to help them should some sort of credit crunch develop. There's an implicit subsidy that flows from the perception that central banks will aid top banks, to keep the financial system running smoothly. A Bloomberg editorial notes a recent study published by the IMF that quantifies this subsidy. To be precise, JPMorgan receives a government subsidy worth about $14 billion a year…. The money helps the bank pay big salaries and bonuses. More important, it distorts markets, fueling crises such as the recent subprime-lending disaster and the sovereign-debt debacle that is now threatening to destroy the euro and sink the global economy." And "with each new banking crisis, the value of the implicit subsidy grows. In a recent paper, two economists -- Kenichi Ueda of the IMF and Beatrice Weder Di Mauro of the University of Mainz -- estimated that as of 2009 the expectation of government support was shaving about 0.8 percentage point off large banks' borrowing costs. That's up from 0.6 percentage point in 2007, before the financial crisis prompted a global round of bank bailouts." The conclusion is that, "Like all subsidies, the taxpayer largesse distorts supply. If the government supports corn farmers, you get too much corn. If the government subsidizes banks, you get too much credit." Bloomberg calls this a form of corporate welfare. This concept adds color to the "too big to fail" controversy and the moral hazard controversy. It's interesting to see the annual costs boiled down to numbers. So are bankers the new farmers? For more: Related articles: Read more about: banks, Corporate Welfare Also NotedSPOTLIGHT ON... JPMorgan gets help in winding down positions When it comes to JPMorgan's disastrous index CDS trades, hedge funds were all too willing to pounce on the hapless bank. Many benefitted as the bank's positions tanked. But one fund, BlueMountain Capital Management, co-founded by former JPMorgan executive Andrew Feldstein, "has been compiling trades in recent weeks that would offset JPMorgan's risk in Series 9 of the Markit CDX North America Investment Grade Index, then selling the positions to the bank, according to three people outside the firms who are familiar with the strategy. That allowed the bank, which is said to have amassed as much as $100 billion in bets on the index, to unwind trades outside the traditional web of dealers," according to Bloomberg. Article Company News: And Finally… Asia tops U.S. in millionaires. Article
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Friday, June 22, 2012
| 06.22.12 | SEC deposes Steven Cohen, charges coming?
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