Kumaresan Selvaraj pillai


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Wednesday, July 24, 2013

| 07.24.13 | SEC wins in tactical warfare against Cohen

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July 24, 2013
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Today's Top Stories

  1. Goldman Sachs confronts aluminum, other commodities issues
  2. SEC wins in tactical warfare against Cohen
  3. Have banks moderated their tactics to fight Dodd-Frank?
  4. Khuzami to go to law firm
  5. Tourre trial continues, as colleagues testify


Also Noted: Spotlight On... Cohen comes out swinging---internally
TD Ameritrade earnings jump and much more...

News From the Fierce Network:
1. Case study: credit union and cloud GRC
2. FCPA enforcement activity picks up
3. Compliance ROI metrics sorely lagging


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Today's Top News

1. Goldman Sachs confronts aluminum, other commodities issues

By Jim Kim Comment | Forward | Twitter | Facebook | LinkedIn

The metals wars had heated up over the past few years, and the losers seemed to be the end users, who needed physical delivery of aluminum, copper and the like. At times, regulators have stepped into the fray on behalf of end users, essentially ordering the likes of Goldman Sachs to deliver commodities faster from their warehouses. The reality is that banks such as Goldman Sachs, which owns a sprawling network of warehouses in Detroit, have every incentive to delay delivery for as long as possible, as they charge rent for storage in their warehouses, which has emerged as big business—a nice profit center for the bank.

The issue has percolated along for at least two years, since Goldman Sachs bought the Detroit warehouses and slowly pushed up wait times, but it just exploded, thanks in part to the New York Times, which weighed in recently with an influential article.

It notes that "each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again." This makes no sense, other than to extend the storage time, which jacks up rent revenue. "It also increases prices paid by manufacturers and consumers across the country." One lift worker called it a "Merry-go-round of metal."

We noted this week that Federal Reserve officials are taking a look into the problems, amid greater concerns about commodities and investment banks in general. "Using special exemptions granted by the Federal Reserve Bank and relaxed regulations approved by Congress, the banks have bought huge swaths of infrastructure used to store commodities and deliver them to consumers — from pipelines and refineries in Oklahoma, Louisiana and Texas; to fleets of more than 100 double-hulled oil tankers at sea around the globe; to companies that control operations at major ports like Oakland, Calif., and Seattle."

Now comes news that the CFTC seems to be launching an investigation, asking banks to retain pertinent documents. Hearings are also scheduled for this week.

Banks have a lot of headline risk here, especially if regulators and Congressmen decide to revive the issue of commodities speculation and food prices in the third world.

For more:
- here's a Times article

 

Read more about: Goldman Sachs, commodities
back to top



2. SEC wins in tactical warfare against Cohen

By Jim Kim Comment | Forward | Twitter | Facebook | LinkedIn

The SEC's move to launch an administrative proceeding against Steven Cohen, founder of SAC Capital, caught many people by surprise, including the lawyers hired by company. After all, the SAC Capital, in something of a coup, was able to settle civil charges by paying $616 million this year, which it no doubt thought would put its SEC woes behind it.

There are many theories as to what's going on behind the briefs. One theory is that the SEC is aiming to deflect attention from the Fabrice Tourre trial, where it has run into some problems. If Tourre wins, it would help from a media perspective for the SEC to be in the news for action on another, more topical front.

Another theory holds that the SEC wanted to get out ahead of federal prosecutors. "Under this scenario, the SEC is not just making the most out of weak hand, it is moving now to make sure it will be seen as moving aggressively against Cohen so it won't look feckless if federal prosecutors ultimately charge Cohen. Since securities regulators can't charge a person with conspiracy, they can't wait for the federal prosecutors to go forward with their case and time their actions together—as often happens. So maybe the SEC was given the greenlight by prosecutors to file now but keep the failure to supervise case with a minimum of facts," according to Reuters.

Yet another theory holds that there's a new sheriff in town, Mary Jo White, who wants to put her stamp on the issue, signaling that she's going to be tough on the likes of Cohen.

No matter what's going on, folks are seething at SAC Capital. Whether Cohen is mad enough to change counsel is an open question.

All in all, as far as tactics go, fi the goal is to put Cohen out of business, the SEC has notched a victory.

For more:
- here's the article

Read more about: insider trading, SAC Capital
back to top



3. Have banks moderated their tactics to fight Dodd-Frank?

By Jim Kim Comment | Forward | Twitter | Facebook | LinkedIn

Dodd-Frank was a gift like few others to the lobbying industry, which is massive and growing. If you were in the financial services lobbying field, you probably enjoyed a wonderful windfall, as there was lots of business to go around---and then some.

It's fair to say that the industry has been extraordinarily effective in watering down key provisions. A great example comes from the OTC derivatives reform efforts, which the industry was able to shape much more to its liking. A similarly massive effort is underway regarding the Volcker Rule. While the final rule set has not been finalized, the industry has been dazzlingly effective in raising certain issues. In the end, the rule will undoubtedly be far more palatable to it.

Given this success, one might ask why the industry would consider changing its tack. Reuters notes that for whatever reason the industry has opted to take a "less antagonistic approach Wall Street is taking as it tries to blunt the force of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the 848-page legislative response to the financial crisis. Sunday marks the three-year anniversary of its passage. Bank executives, lawyers and lobbyists now portray themselves as concerned parties trying to help stretched technocrats, who face the task of writing hundreds of complex rules to regulate high finance."

Previously, the strategy consisted of "knock-down, drag-out fights that occurred during the legislative process - and even afterward, as bank lawyers battled agencies in court, and lobbyists fought to repeal Dodd-Frank in Congress."

To be sure, the real substance in the anti-Dodd-Frank has come via the courts. The death of the proxy reform access rules was a real wake up call. Just about every provision can now be fought on the grounds that an adequate cost benefit analysis has not been performed.

One might get the idea that the real reason the industry is playing nice is because it can. It can afford to play the nice guy because it has already won.

For more:
- here's the article

Read more about: Dodd-Frank, Dodd Frank
back to top



4. Khuzami to go to law firm

By Jim Kim Comment | Forward | Twitter | Facebook | LinkedIn

There is no such thing as a career prosecutor any more. So it seems.

People pretty much assume these days that smart lawyers become prosecutors as part of their long-term resume building process. The goal of course is to waltz to the private sector, and make millions. Robert Khuzami has become the latest to travel that daisy wheel. He arrived at the SEC in 2009, as the agency was struggling with its post-Madoff crisis. "He took a new approach to enforcement, creating specialized units for various crimes and an Office of Market Intelligence to handle tip-offs and complaints.

Along with counterparts at the Department of Justice, the SEC focused on insider trading during Khuzami's tenure, and also brought charges against more than 150 individuals and entities in connection with the financial crisis," according to CNN.

That sort of success made him attractive to the private sector. And he has cashed in. He will take a job at Kirkland & Ellis, where he could make $5 million a year right off the bat.

You can't blame him for wanting to make a lot of money. That's what makes the world go around after all. We all have families to care for.

One thought here is that the career wheel can make a full circle. Mary Jo White started as a prosecutor before going into private practice. She then went to head the SEC. Khuzami too started as a prosecutor before going to Deutsche Bank, before going to the SEC as enforcement chief.

So the question is: is there something sad about the fact that prosecutors and defense attorneys are basically cut from the same cloth? To some, it might seem like one big club, with members switching side often, perpetuating business for each other.

For more:
- here's the article

Read more about: Enforcement Activity
back to top



5. Tourre trial continues, as colleagues testify

By Jim Kim Comment | Forward | Twitter | Facebook | LinkedIn

The SEC continues to make its case in the Fabrice Tourre trial, putting more of his Goldman Sachs colleagues on the stand. The latest to take a turn was Gail Kreitman, who was a Goldman Sachs managing director at the time.

She was put on the stand to buttress the case that as far as she knew Paulson & Co. was a long investor in the CDO, something that she relayed on to buyers and others, notably ACA, which helped assemble the mortgage deal. The idea here is that she was in fact misled into believing as much, so she could pass it on to buyers. Of course, Paulson & Co. were short the CDO, essentially betting against it at the expense of the eventual buyers.

"When pressed, Ms. Kreitman said that she must have received that information from somewhere — she professed a reliance on experts like Mr. Tourre's trading desk for technical details of transactions — and insisted that she would not have lied."

"I would never tell my client anything I did not believe to be true," she was quoted by the New York Times. She later added, "The trading desk really ran point, which is unusual for me."    

The defense impugned her testimony, noting that she contradicted earlier testimony.

It's all but impossible for anyone but a professional jury consultant to know how the jurors are ingesting all this. ACA employees may make for better witnesses, especially if one can say definitively that Tourre told them that Paulson was a long investor. That would be a smoking gun, so to speak.

We'll see if such explosive testimony emerges.

For more:
- here's the article

Read more about: Goldman Sachs, Fabrice Tourre
back to top



Also Noted

SPOTLIGHT ON... Cohen comes out swinging---internally

Steven Cohen, the man in the cross hairs of civil and criminal prosecutors, has come out swinging against charges he failed to supervise his employees and thus enabled a raft of illicit activity. He has posted a 45-page rebuttal to the company intranet. The report specifically rebutted the notion that Cohen traded Dell based on insider information. It also defended its compliance team, noting that it deploys sophisticated software. Article

Company News: 
> TD Ameritrade earnings jump. Article
> Legg Mason names non-exec chair. Article
> Goldman Sachs in line of fire on metals. Article
> Bank of America wins Q2 battle. Article
Industry News:
> Size vs. complexity. Article
> LSA expirations no big deal. Article
> Banks generate fees in Telefonica deal. Article
> Commodities in the line of fire. Article
> Lightsquared lenders propose reorg. Article
> A look at banks and prices. Article
Regulatory News:
> Lag in conflict minerals rule implementation. Article
> CFTC charges HFT firm. Article
And finally … Fortune's fantasy league returns. Article


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