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Today's Top News1. Peregrine Financial Group CEO arrested
A massive drama is playing out in tiny Cedar Falls, Iowa. The chief--and I do mean the chief--of Peregrine Financial Group has been arrested after a botched suicide attempt. A suicide note confessed to stunning crimes over 20 years, as he stole $100 million from customers of PFGBest, the futures broker subsidiary. Russell Wasendorf, Sr., 64, an icon in Cedar Falls for his philanthropy, was arrested in a hospital and charged with making and using false statements in support of his embezzlement scheme, which ratcheted up to a new level in recent years. Wasendorf Sr. said in the suicide note to his family that he was in financial trouble and had the choice to go out of business or cheat. "I guess my ego was too big to admit failure," he wrote, according to local media reports. "So I cheated, I falsified the very core of the financial documents of PFG, the bank statements." He also details how he made forgeries of bank statements, using Photo Shop, scanners and printers. "He said he changed procedure and rules if anyone questioned his authority and had the bank statements delivered directly to him without anyone else seeing the documents and even set up a post office box, so he could intercept forms mailed by auditors to the banks to verify information regarding customer funds. He also made sure the bank only dealt with him at the company and when online banking became available he learned how to falsify those bank statements," notes Gazette Communications. While he wrote that he acted alone, you do have to wonder, and authorities will be taking a close look at how the company could have allowed this to occur. Negligence will be at the top of their minds. I would hate to be the compliance officer at the company right now, assuming they had one. One big issue here is what the money was used for. Sadly, the stolen funds were not covered by SIPC insurance. For more:
Read more about: brokerage, Criminal Charges
2. Criminal charges pending in LIBOR scandal
What distinguishes the LIBOR scandal investigation from others is that federal prosecutors are talking about the likelihood of criminal charges very early in the process. That's a bid odd, but it is certainly a sign that prosecutors are giddy over the opportunity. DealBook reports that the "Justice Department's criminal division is building cases against several financial institutions and their employees, including traders at Barclays, the British bank, according to government officials close to the case who spoke on the condition of anonymity because the investigation is continuing. The authorities expect to file charges against at least one bank later this year." It's unclear which banks will be targeted. Barclays and UBS may have some sort of immunity deal in place, and they have been cooperating with authorities. Barclays has a non-prosecution agreement in place. Other banks under investigation include Citigroup, JPMorgan Chase and Bank of America. It's also unclear how high up the food chain the prosecutors will travel. There is a lot more evidence given the cooperating witnesses in this matter than in others. In the end, Barclays' move to cooperate aggressively may yet pay off, despite a lot of carnage at the top of the executive ranks. Some may think that criminal charges in this matter will answer the many critics who have hammered the government for not bringing such charges in other cases. But we maintain that the criticism will abate only if high-ranking executives are charged. Fabrice Tourre-level executives will not be enough. For more: Related articles: Read more about: Criminal Charges, LIBOR Scandal 3. Hedge fund surveys seek early sell-side information
In light of modern communications and trading techniques, does the whole notion of Reg FD have to be rethougth? The New York Times reports that a handful of hedge funds has benefited from regular surveys of analysts at top sell-side firms, which call for them to respond to questions about possible earnings surprises and the like. The results of the survey are fed directly into trading algorithms used by the funds. The "practice of trawling for analysts' shifting views is systematic and growing on Wall Street. Questionnaires completed by analysts that can telegraph their thinking are being used by hedge funds run by BlackRock; Marshall Wace, a large British hedge fund company; and Two Sigma Investments, a United States hedge fund concern. The funds say they ask only for public information, but in at least four cases, documents from Barclays Global Investors, now a unit of BlackRock, state the goal is to receive nonpublic information. Two documents state that the surveys allow for front-running analyst recommendations." To be sure, companies say that sort of language is lamentable, but they deny anything untoward here. In any case, this might be an example of how information can be fed to hedge funds and other professionals before it is shared with the public. This sort of issue has cropped up before in the form of industry surveys of end companies, say all big box retailers, by independent research outfits. We'll see if regulators take an interest in this issue. For more: Related articles: Read more about: Hedge Funds, Insider Information 4. Charges stand against Ex-Citigroup MD
The trial of Brian Stoker must go on. And who is Brian Stoker? Recall that the SEC charged the former Citigroup mid-level executive, alleging that he had been the key bank manager for the Class V Funding III CDO transaction, and had been principally responsible for its marketing materials. Such marketing material, the SEC charged, failed to disclose Citigroup's role "in choosing the underlying debt, though a unit of Credit Suisse Group AG was acting as collateral manager, and concealed the $500 million short position," recounts Reuters. A federal judge, no less than Judge Jed Rakoff, has ruled that a jury should decide if Stoker's actions violated the law. So as it appears now, both Stoker and of course Fabrice Tourre--the only Goldman Sachs executive charged by the SEC in the massive CDO case that the bank settled in July 2010 for a record $550 million--will stand trial. There was a time when the trial of Tourre loomed as a fascinating, must-attend event. It promised to shed a light on the inner working of the big, controversial bank with the possibility that some high-level executives at the bank would be called to the stand. But as the CDO marketing scandal recedes into the past, the upcoming trials seem less compelling. Frankly, that may have been part of the bank's legal strategy--to stretch out the proceedings to the point that no one cares any longer. For more: Related articles: Read more about: Citigroup, fraud
It"s hard to believe that someone as embattled as Phil Falcone--who has been charged by the SEC for securities fraud in connection with his troubled hedge fund empire--would be attempting an IPO right now. But that's exactly what is going on. Forbes notes that the "unorthodox IPO that will see his hedge fund firm contribute assets valued at $350 million to a blank check company that will trade publicly. In the deal, a special purpose acquisition company that is expected to trade on Nasdaq and be known as Harbinger Global Corp., will acquire a majority interest in an MGM-branded hotel and casino development in Vietnam and a minority interest in an iron ore producer working in Brazil. Funds run by Falcone's Harbinger Capital Partners that are contributing the assets will get an ownership stake that could be as high as 96% in Harbinger Global and Falcone is slated to become executive chairman of the company." A company that combines casino and iron-ore production? The synergies would appear to be limited. To be sure, blank-check companies have generated some controversy recently, as some maintain that they have created back-door routes to publically traded status for dubious companies. With that said, you have to wonder how public shareholders will receive the fact that the new company's executive chairman is in such hot water with the SEC. For more: Related articles: Read more about: Hedge Funds, Blank Check Also Noted
SPOTLIGHT ON... Barton Biggs passes away Barton Bigg, a true pioneer on Wall Street has passed away at age 79, after a short illness. Biggs was known to many as the prescient chief strategist at Morgan Stanley until he left in 2003. He was famous for, among other things, predicting that the dotcom boom would end in misery for many, and is also credited with starting one of the first hedge funds. Article Company News: Industry News:
And Finally…The smallest Presidential spender since Eisenhower? Article
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Tuesday, July 17, 2012
| 07.17.12 | Peregrine Financial Group CEO arrested
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