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Monday, July 29, 2013

| 07.29.13 | Can SAC still settle?

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July 29, 2013
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Today's Top Stories

  1. With nil chance of winning, can SAC still settle?
  2. Is it possible to humanize a Goldman Sachs sales trader?
  3. SAC Capital still open for business
  4. Painful ordeal for accused insider trader
  5. New forms of entertainment on Wall Street


Editor's Corner: SAC Capital courtroom showdown to come

Also Noted: Spotlight On... Bank of America adds to board
MFGlobal reaches deal with JPMorgan and much more...

News From the Fierce Network:
1. NYSE joins UN Sustainable Stock Exchanges Initiative
2. The future of ATMs is now
3. Global HFT may face growing pains


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Editor's Corner

SAC Capital courtroom showdown to come

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

The SAC Capital drama has to end at some point, the sooner the better for some people. I can't think of a more dramatic ending that an old-fashioned courtroom showdown. That's where things appear to be heading now.

We're in for a real treat, a financial services trial that will be quite accessible to the public, unlike the jargon-laden trial of Fabrice Tourre. As expected, SAC Capital Advisors pleaded not guilty in federal court last week, the day after it was criminally indicted for insider trading. Somewhat humorously, Judge Laura Taylor Swain informed SAC's counsel that the firm had the right to a court-appointed lawyer if it couldn't afford one. The company, in fact, has amassed a star-studded legal team, including Theodore Wells Jr. of  Paul Weiss.

The government has also spent massively over a decade to get to this point. That will become evident to the defense quite soon. By mutual agreement, prosecutors will deliver the bulk of the evidence to the defense within 30 days. The prosecution will apparently be led by Arlo Devlin Brown, a veteran of financial fraud cases.

Judging by appearances, the gloves are off in a big way in this battle.  But the question remains: Is there any chance of a settlement at this point?

Given that SAC Capital founder Steven Cohen is not in danger of going to prison, it's hard to see him settling, as the government would likely ask that Cohen agree to be barred from the industry for life. If he's ready to take that step and essentially retire to run a family office, a settlement might work. If he's bent on working as a manager of other people's money, he'll have to fight. 

Read more about: insider trading, SAC Capital
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Today's Top News

1. With nil chance of winning, can SAC still settle?

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

What are the chances that SAC Capital will prevail in court? Unfortunately, they are not good.

"In looking at the possible defenses SAC can offer, they can be described in one word: none. Although SAC has denied engaging in any misconduct, the criminal liability of an organization is very broad in the United States, and there are no effective defenses once the government proves one of its agents engaged in criminal conduct on its behalf," according to DealBook.

Legally speaking, "as long as an employee was acting within the scope of his or her duty and the conduct was intended to benefit the company, then it can be held criminally liable. It does not matter whether the person is an executive or the lowliest janitor — the company is responsible for the person's action."

So SAC Capital would seem to be vulnerable, given the fact that six former employees have pleaded guilty to illegal insider trading that benefitted the firm.

One issue here is whether there is still time for the prosecution and SAC Capital to work out a settlement. It's fair to say that the prosecution has the upper hand, and they will demand onerous terms. In the end, founder Steven Cohen will be able to afford whatever fine is imposed. The question is whether he would ever agree to a lifetime ban on working as an advisor or in the industry? 

For more:
- here's the article on the what's next

Read more about: insider trading, SAC Capital
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2. Is it possible to humanize a Goldman Sachs sales trader?

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

That, of course, is a loaded question and one that is hardly fair. But for the defense in the trial of ex-Goldman Sachs executive Fabrice Tourre, the question is apt. They really have no idea what preconceptions and stereotypes each individual juror brings to the box. So you cannot afford to be remiss in working to ensure that they see him as a normal guy, to the extent possible. He was given the chance to describe his upbringing in France, which the New York Times describes as a rags to riches story.

"His mother, now retired, gave pedicures. His father sells office furniture.

"He dreamed of coming to the United States and succeeded in 1999 when he landed an internship in Hamilton, Ohio, as a production worker on an assembly line producing heater cores and air-conditioning units for a French company. He then attended Stanford, where he received a master's degree in management science and engineering.

"He testified that he had never heard of Goldman Sachs before arriving at Stanford, and decided to interview at the bank only to practice his English in job interviews. Instead he ended up taking a job at the big Wall Street firm. He is now accused of participating in a scheme while at the firm to defraud investors who bought into a trade in 2007 he helped structure."

The prosecution, on the other hand, has every reason to paint him as nefarious, and it has been more than willing to trot out some of his emails to a girlfriend, including the one with the infamous "widows and orphans" quote. 

For more:
- here's the item

Read more about: Goldman Sachs, Fabrice Tourre
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3. SAC Capital still open for business

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

SAC Capital is going out of its way to make clear that it's still in business. The firm noted that its recent criminal indictment was not accompanied by a prosecutorial move to freeze assets, prevent redemptions or anything else that would affect counterparties. In fact, SAC Capital says it expects prosecutors to agree to a protective order that would protect the ability of the firm to work with counterparties, which bodes well for the very short term. The company will not be shuttering and casting 1,000 onto the job market.

But there are very real issues concerning the firm's longevity, and anyone who does business with the firm now has no choice but to think twice.

According to Bloomberg, the likes of Goldman Sachs, Deutsche Bank and others -- some of whom have had reputational problems of their own -- re-rethinking whether they should continue to serve the hedge fund firm as a prime broker. Limited partners of course have already yanked $5 billion out of $6 billion from the firm. More redemptions are possible at some point. Some think that SAC Capital will soon be forced out of the advisory business.

I wouldn't call this "death by a thousand cuts," but if you work for the firm, you have to think about your future, especially if you have a family. While employees have largely stuck by the firm, that seems to be changing. One would expect employees to be putting out lots of feelers right about now.

For more:
- here's the article

Read more about: insider trading, SAC Capital
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4. Painful ordeal for accused insider trader

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

We tend to think of convicted white-collar criminals as serving in minimum security prisons that justify the moniker Camp Fed. One does not get the idea that the likes of Raj Rajaratnam and Bernard Madoff have been thrown into a dangerous situation forcing them to declare a gang affiliation just to stay alive. No one fears that they will get shanked in the prison shower. But the scenario is not always so kind.

Consider the plight of Trent Martin, who worked for RBS as a research analyst, who was arrested in Hong Kong on U.S. insider-trading charges and agreed to be extradited to New York.

"The process took three months – during which time Mr Martin, 34, was shackled in handcuffs, held in solitary confinement and placed in a psychiatric prison, according to a letter sent by his lawyer, Larry Krantz, to a US judge," as noted by the Financial Times.

Martin was held in Lai Chi Kok Reception Centre, "a maximum-security prison in Hong Kong, where he was housed with 90 other inmates, few of whom spoke English…..

US authorities could not take custody of Mr Martin until Hong Kong officials released him. It took nearly eight weeks for Hong Kong's chief executive to sign the order, Mr. Krantz said. He said he did not know what caused the delay."

The situation deteriorated from there. "Prison officials searched his cell after accusing him of not saying good morning to a prison guard. The officials accused Mr. Martin of having two radios – only one is permitted – and punished him by placing him in solitary confinement. Mr. Martin spent the next several days locked up for 23 hours a day in an 8 foot by 8 foot cell with a plastic bed, toilet and sink, his lawyer said.

"On his third day in solitary, his lawyer said, Mr. Martin tied his jacket around the bars of his cell in an attempt to exercise. A prison guard thought he was trying to commit suicide and brought him to the Sui Lam psychiatric facility. He spent the first two days in solitary confinement."

He was finally picked up by U.S. authorities after three months. On the trip home, he flew in handcuffs. He was shackled once he arrived in New York City. Eventually, he was released on bail.

This is yet another reason to stay on the right side of the law, especially if you are abroad, where there would appear to be fewer Club Feds.

For more:
- here's the article

Read more about: insider trading
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5. New forms of entertainment on Wall Street

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

If you were to read The Buyside, which I highly recommend, you might get the idea that Wall Street was awash with salesmen who use drugs, alcohol and sex to get (and keep) clients in the truck. The real marketing in the hedge fund industry was painted as a seamy exercise, certainly not anything that could be literally described on an expense report. Those who are prone to addiction might find the environment especially challenging, if they were to think about it.

But are things changing, post crisis?

"Wall Street's salesmen and dealmakers, whose expense accounts help fill downtown chophouses and box seats at ballparks, are now treating clients to a different kind of entertainment: high-end workouts," according to Bloomberg.

"Pre-dawn and afternoon classes at Manhattan fitness studios SoulCycle, Barry's Bootcamp and Flywheel Sports are growing popular with bankers who want to bond without loading up on liquor and fatty foods, according to traders and salesmen."

To be sure, there's probably a lot of traditional marketing going on as well. But the reality is that eating at steakhouses after a while gets old. So for plying clients, people have to be more creative these days. It's really about creating memorable experiences that will keep people tethered one way or another.

The goal is get them addicted to whatever you're providing, to keep them coming back. Drugs work with some. Others might get the same rush endorphin rush via a workout.

For more:
- here's the article

Read more about: marketing, workplace
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Also Noted

SPOTLIGHT ON... Bank of America adds to board

The Bank of America board continues to morph. It just added two directors, Clayton Rose, a Harvard Business School professor and a former executive at JPMorgan Chase, and Pierre de Weck, a former executive at Deutsche Bank, Citicorp and UBS. The idea is bolster the board's expertise in core banking areas. This year, three directors have left, including former FDIC chairman Donald Powell and ex-Morgan Stanley executive Robert Scully. Article

Company News: 
> SAC Capital pleads not guilty. Article
> Bove: bank investing could be dangerous. Article
> Deutsche Bank raises targets on big banks. Article
> MFGlobal reaches deal with JPMorgan. Article
Industry News:
> Is big bank revenue at risk? Article
> Hidden in the GSE settlements? Article
> Bankers in line for telecom fee windfall. Article
And finally … E-commerce supremacy? Article


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