CBLOG

> 2013 ABA National and Graduate Trust Schools - September 22-27 - Atlanta, GA

If post-financial crisis enforcement actions proved anything, it was that charging top executives is extremely difficult. It's not that investigators didn't try to link criminal acts to the very top---they may have come very close, notably in the case of Lehman Brothers and maybe MFGlobal.

It's more a case of the evidence just not being strong enough. That's the conventional wisdom anyway.

But prosecutors still seek a human fall guy (or gal), hence the prosecutions of low-level employees, like Brian Stoker at Citigroup and Fabrice Tourre at Goldman Sachs. It's laughable to think that these guys were the masterminds in anyway at their banks. They were effectively grunts. In the latter case, however, there was evidence that made Tourre a great scapegoat.

So what to make of the JPMorgan Chase London Whale enforcement activity or the energy trading abuse enforcement activity? Once again, top executives have been spared. Neither Ina Drew nor Blythe Masters are expected to be personally charged. But Drew has been forced out, and the future of Masters is unclear.

In the case of the London Whale fiasco, lower level employees have been hit with personal criminal charges. The London Whale himself has apparently proven to be a sound cooperating witness, and he has fingered his boss and another trader. Bruno Iksil has every reason to cooperate. He has indeed wrangled a nonprosecution deal out of this.

For the higher ups, all this is working out perfectly. It allows then to maintain that all the crime was conducted by the London team—a European thing, in essence. For a New Yorker columnist, however, this is unconvincing. "The closer you look at the indictments and the other information we have gleaned about the scandal, the less complete the bank's version of events seems," according to the column. "Surely it can't all be pinned" on the Europeans, who were "both pretty low on the totem pole. Drew, who ran the chief investment office, which was supposed to be hedging the bank's risks rather than amplifying them, bears some responsibility. But isn't a bank's chairman and chief executive ultimately in charge of how it manages the risks that it takes?" The columnist also notes: "In January, 2012, months before Iksil's huge losses started accumulating, the trading book of the chief investment office grew so large that it breached a risk limit established for the entire bank. Rather than reducing its exposure, the chief investment office requested an increase in the risk limit and tweaked the mathematical model that it used to measure risk, making it appear to be much less exposed. In an e-mail, Dimon approved the changes."

In the end, the prosecutors have decided that they didn't have enough evidence to go after the people in charge. We can only hope it was a tough decision at least.

Read more about: Criminal Charges, London Whale
back to top

Events

Marketplace

> Get Subscriptions to the Leading Finance Magazines for FREE
> Whitepaper: Case Study: Improve Service and Lower IT Overhead with Skybot Scheduler
> ABA Online Bank Compliance Training: Prepare for Lending Regulation Changes

* Post a classified ad: Click here.
* General ad info: Click here

Today's Top News

1. Is Wall Street ready for another massive Dutch auction?

By Jim Kim

Comment |

2. On Wall Street, sports teams still trophies

Few companies wield the type of heft to essentially demand that underwriters stage a massive Dutch auction. The only one to date to have its way in this arena was Google, whose IPO was staged by Morgan Stanley in perhaps the most celebrated Dutch auction ever.

In the end, most people would call that IPO an amazing success. Facebook of course went with a more conventional IPO, and its results were disastrous. The stock plunged immediately. Nasdaq suffered system issues that stuck it with a $10 million fine and lots of headaches. Only recently did Facebook even come close to its offer price.

Now that Twitter appears amenable to an IPO, the issue is hot again.

"The process used by Google founders Larry Page and Sergey Brin successfully mitigated some of the hype that Facebook couldn't. The auction style asks investors to declare how much they're willing to pay and for how many shares. The price steadily declines until it reaches a level where all the shares on offer would sell — at which point all interested buyers commit," notes Breakingviews.

"Google left itself latitude to cut the price further, which it eventually did. The decision elicited much criticism but also eradicated the feared 'winner's curse' that instead would years later befall Facebook investors. The social network's 2012 debut was marred by technological failures and in only a few months the shares had fallen by half. By contrast, Google stock popped by about 18 percent on its first day of trading, achieving the generally desired result of raising the targeted funds for the company and any selling owners while giving new shareholders a warm welcome."

In the end, Twitter executives will have to make a touch decision. You can bet that the top sell-side banks are working hard to convince them that a conventional offering is the way to go. My guess is that they will go in that direction.

But even so, Twitter would be wise to play hardball on fees. They at least have the heft to demand rock-bottom costs. The banks will still line up.

For more:
- here's the article

Read more about: IPO, Dutch Auction
back to top

By Jim Kim

Comment |

3. Sordid tale of Bank of America exec and murder plot

Josh Harris, a founder of private equity firm Apollo, and David Blitzer, a senior managing director at Blackstone, have become the latest to acquire that highly prized personal trophy: a sports team. They are leading the group that just bought the New Jersey Devils hockey team for $320 million. Harris now joins an elite group: people who own multiple sports franchises, as noted by the Financial Times.

The short list includes Paul Allen, who owns the Seattle Seahawks and the Portland Trailblazers, and Stan Kroenke, who owns the Saint Louis Rams and the Denver Nuggets, not to mention a controlling stake in Arsenal. As for Blitzer, he joins the list of Wall Street financiers who dabble in sports team ownership. That list includes the likes of David Einhorn, the hedge fund manager who took a $200 million stake in the New York Mets, Jeff Vinik, another hedge fund guy, who bought the Tampa Bay Lightning in 2010, Tom Hicks, the private equity honcho, who has owned several teams at various points, including the Dallas Stars. Not all Wall Street forays into sports ownership have ended successfully. Recall that Stanley Druckenmiller, another hedge fund executive who made his name working with George Soros, was rebuffed in his attempts to buy the Pittsburgh Steelers.

In the end, vanity project can be a lot of fun. They can also showcase an executive's managerial chops---if they can work their magic. There are other vanity projects that showcase their talents even more. Consider Jeff Bezos's purchase of the Washington Post for $250 million. If he can somehow turnaround that great paper, allowing it to thrive in the new media era, he'll look good indeed.

For more:
- here's the article

Read more about: Sports
back to top

By Jim Kim

Comment |

4. SAC Capital limited partners want funds quick

The banking industry crime blotter fills up quickly with white-collar items, insider trading and the like. So when violent crime crops up in the industry involving high-level executives, people tend to take note. The case of Chris Latham is sordid indeed.

He was a high-ranking executive in Bank of America's U.S. Trust based out of Charleston. He served in unit that sought and served high-net-worth clients in Florida, Georgia and South Carolina. He was also the Charleston market president for Bank of America. He is now in jail in Charleston, arrested, indicted and denied bail for his role in an alleged murder-for-hire plot that targeted his wife.

The big break in the case came in the wake of a drug bust, when one of the arrested fessed up about the plot. A gaggle of conspirators were rounded up, and the plot soon foiled.

Last week, the "50-year-old suspect, who until recently commanded an annual salary of nearly $700,000, shuffled into the courtroom shackled, clad in a pin-striped jail jumpsuit and sporting grey stubble on his cheeks. He avoided eye contact with his estranged wife but frowned and shook his head when Assistant U.S. Attorney Nathan Williams said he was a key player in a plot to kill her."

Latham and his wife are said to be estranged and in a contentious divorce. Media reports say that he had a "live-in" girlfriend, who was also arrested in the plot. His wife says she had suspected a plot for some time and had been in hiding fort two months.

Latham "also listened attentively as his wife and their eldest daughter, 19-year-old Emily, pleaded with the judge to keep him locked up, saying they remained frightened for their safety." His daughter was quoted: "I really do wish I didn't have to stand here and ask you to keep my father in jail, but I am terrified. Please don't give him the opportunity to do any more harm to us."

For more:
- here are the details from The Post and Courier
-the Daily Mail weighs in as well, including some mug shots

Read more about: Bank of America
back to top

By Jim Kim

Comment |

5. Bank of America's exposure to FHFA claims debated

The most loyal limited partners of SAC Capital stuck with the firm for as long as they could. But at some point, the heavy curtain of enforcement actions descended to the point that defending their affiliation with the firm was no longer tenable. They had no choice but to ask for their money back.

As of now, the company expects to hand back all external funds. The issue is how fast these funds will be delivered. Bloomberg reports that some limited partners have asked that the company honor redemption requests on an expedited basis, fearing that the government will freeze assets, even though the government has made clear that it intends for the company to remain in operation.

SAC Capital has informed them that final payments will be made by the end of the year. In the minds of some limited partners, the best course of action is to get their funds out now and be done with the risk. Unfortunately, SAC Capital doesn't see it that way. It earns fees based on those assets, and at a time when revenue is drying up, it has every reason to want to hold onto those funds for as long as possible. It has refused requests for expedited redemptions.

In any case, a significant milestone looms. Steven Cohen's firm will be transformed de facto into a family office, as all the assets will belong to Cohen and possibly some employees. It's unclear how the company will handle requests to redeem employee money.

In a sense, has the death penalty already been meted out?

For more:
- here's the article

Read more about: SAC Capital, Limited Partners
back to top

By Jim Kim

Comment |