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2. SAC Capital could become a family office

What does it take to become a stock broker these days?

There's the hoary romantic ideal. You get on with one of the wirehouses after college or after a few years of employment, you go through a training program, you beat the odds to be offered a job, you cold call for hours a day, you slowly build a client list with firm support and you forge a career over decades.

The industry has always been pretty tough to break into. It's by design that you must clear some pretty high bars. For those of you who thought that would-be brokers have it easy because cold calling is out of vogue, think again. The industry would now have aspirants go cold-knocking. That's right. They train you to knock on doors in affluent neighborhoods selling your services.

The question for the industry is whether all this still makes sense. Is this really how you train brokers?

"Until you actually go out and hit the pavement, it doesn't really sink in," said one former broker trainee, as quoted by Bloomberg. "It's not impossible, but it's definitely not sustainable if you have a family or anything to do besides knocking on doors."

This looms as a big issue as firms are now "struggling to replace a retiring generation of advisers who helped accumulate trillions of dollars of assets and generated steady profits for years."

Of course, the rise of RIA firms has played a big role in this as well. But how will the traditional stock broker industry replenish its ranks over the long-term? Most firms remain committed to traditional training, though they are hiring fewer trainees.

At some point, a better model will have to emerge. Does it make more sense for young people to pass the Series 65, for which no firm sponsor is required, throw out their own shingle, and then get entrepreneurial?

For more:
- here's the article

Read more about: Stock Brokers
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By Jim Kim

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3. Critical Bank of America settlement trial gets underway

The drumbeat of news regarding SAC Capital and founder Steven Cohen has been loud and up-tempo.

One motif is the extent to which limited partners will throw up their hands and say, "enough." More are apparently intent on that. As a crucial redemption deadline passes, the media is rife with reports that Blackstone Group and Morgan Stanley are ready to make a big withdrawal request. The former is said to be on the brink of redeeming about $550 million, perhaps at the request of its investors. Morgan Stanley is said to be withdrawing its entire investment of $180 million. Others will likely follow suit.

The big question at this point is whether the redemption requests have become so large that the firm will decide that the best course is to return all outside money to limited partners and essentially exist as a family office, investing funds for Cohen and employees. It would retain roughly $9 billion in assets under management, almost all of it Cohen's.

Such a move might make sense as the level of funds the firm is fighting to retain dwindles. At some point, the fight is no longer worth it. Every time an investor decides to yank funds -- even one as small as the 92^nd street Y -- it becomes yet another negative news story.

You certainly can't blame limited partners for wanting out. Some big milestones loom, and we'll know soon whether the firm or Cohen will be indicted criminally or civilly.

For more:
- here's a CNN article

Read more about: insider trading, SAC Capital
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By Jim Kim

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4. Prosecutors all-in with SAC Capital

When Bank of America announced in June 2011 that it was settling mortgage-related warranty and misrepresentation issues with big-named investors for just $8.5 billion, it was immediately praised as a coup. But the deal was too good for other bondholders, who attacked the "sweetheart deal" with a legal vengeance.

The issue has been held up in court, but the significance remains high. Some have argued, for example, that by relying on the $8.5 billion settlement, the bank has set aside too little in reserves to cover the future costs of litigation. If the $8.5 billion is a drastically low figure, it stands to reason that the bank will need billions more to cover the litigation costs. Analyst Mike Mayo once suggested that the more likely costs will be in the $25 billion to $30 billion range.

The issue has heated up again as a trial in New York state court gets underway this week, pitting Bank of America against AIG and others, which oppose the $8.5 billion settlement.

"AIG's lawyers are expected to produce emails between BNY Mellon and its lawyers," according to the Financial Times.

"The AIG side will say that the documents – which were delivered after a court order last week – prove that BNY Mellon was not interested in achieving the best possible deal for investors. The trustee's lawyers will argue that they show the opposite. BofA, BNY Mellon and the 22 investors, with Kathy Patrick, the Texas-based primary lawyer at Gibbs & Bruns, are all pushing for a narrow case: all the court needs to decide, they argue, is whether BNY Mellon acted reasonably in approving the deal. AIG's lawyers will argue for an expansive exploration of the motives of the parties and, crucially, an examination of the price tag."

At stake is a resolution to issues over bonds worth $424 billion, and $108 billion of losses. It should be fun.

For more:
- here's the article

Read more about: Bank of America, MBS
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By Jim Kim

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5. Goldman Sachs vs. Bloomberg in battle of heavyweights

There has been plenty of speculation lately as to whether the Justice Department would ink a deferred prosecution agreement with SAC Capital that would allow the firm to exist in some form in exchange for radical changes at the compliance level, as well as huge fines.

SAC Capital was rumored to have floated such a possibility with prosecutors. At this point, however, such an agreement, which would be great news for SAC Capital and terrible news for critics of the firm, seems to be off the table. The relationship between the embattled hedge fund and prosecutors has chilled. DealBook reports flat out that the latter are not considering such a deal. They would appear to be "all in" in terms of a criminal indictment.

While the tea leaves continue to suggest that prosecutors are more likely to bring criminal charges against the firm than against Cohen, anything is possible. If either Michael Steinberg or Matthew Martoma decide to cooperate, a personal criminal indictment becomes much more likely.

If the two would-be witnesses remain steadfast, the best choice for charges may be another civil case by the SEC, perhaps for failure to supervise. That may be the fallback option for the government, as nine former employees have been implicated in insider trading cases.

For more:
- here's the article

Read more about: insider trading, SAC Capital
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By Jim Kim

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