Evidence will become less important as the masses get more pinched. This lot should feel fortunate to be on the front end--the folks later on might face sharper pitchforks and hotter torches.
Regardless of the quality or quantity of evidence or lack thereof, a decision has been made that "somebody has to pay". Looks like it will be these guys, and many more.
Election year grandstanding... but I would guess they get a conviction anyway (in this angry climate they could convict a ham sandwich) but then it gets thrown out on appeal. Just my WAG.
The real damage will be in civil court - these practices might be marginally legal but certainly place the practitioners on the wrong side of their fiduciary responsibilities. It will generate a civil lawyers feeding frenzy.
Regardless of the quality or quantity of evidence or lack thereof, a decision has been made that "somebody has to pay". Looks like it will be these guys, and many more.
giacutter | 06.19.08 - 9:43 am | #
My guess is the plan is sacrifice these guys so many more DON'T have to pay. Paint me cynical.
A criminal complaint will have to spell out exactly what law was broken, when, and by whom.
The fact that investors lost money is not, by itself, sufficient.
Hedge funds run under less restricitve legislation and regulation; it is assumed that "sophisticatd investors" understand that they could lose every penny. High risk, high reward and all that.
(I'm not saying these guys were good at running money, just suggesting that they might not be criminals.)
Dryfly probably has a point; civil cases are sure to follow with mobs of angry investors seeking to recoup their losses based on a breach of fiduciary duty. Good luck with that.
(I'm sure the procspecti contained plenty of "past performance is no guarantee" and "you could lose money if yada, yada, yada" language!)
Eagerly awaiting the release of the indictment. And I am officially going long on tar and feathers.
The WSJ seems to have left out/de-emphasized some of the pertinent facts: Cioffi also withdrew $2 million of his own money from the funds before they collapsed.
This is what is known as insider trading. It's a very strong case, since the evidence shows an awareness of the true facts, from which the insider gained a benefit (not losing $2 million), while not revealing the information to the public.
This reminds me of a true story. In the `80s on Russian TV they showed a guy who had had been cought stealing ~10 lb of corn from the field.
"Becouse of people like Vladimir we have a shortage of corn on the market" said the TV guy. He was right!
The U.S. Attorney would have been negligent if he did not file a criminal complaint in this case. Because of the obvious discrepancy between what was stated in the email and what was told to the investors, and because the dire outlook stated in the email was in fact correct, the US Attorney had no real choice but to bring this to trial. It could be that a trial will exonerate the B-S executives, but this is too serious to pass.
When more facts come out, we might well be stunned at the malfeasance that went on at B-S.
United States : Philadelphia Fed Survey
Definition
The general conditions index from this business outlook survey is a diffusion index of manufacturing conditions within the Philadelphia Federal Reserve district. This survey, widely followed as an indicator of manufacturing sector trends, is correlated with the ISM manufacturing index and the index of industrial production.
Highlights
News is very bad from the Mid-Atlantic manufacturing region where contraction is apparently settling in while price pressures increase. The Philadelphia Federal Reserve's business activity index fell another point-and-a-half into negative territory, to -17.1 for the June report. Bad news is everywhere: new orders -12.4 vs. -3.7 May, shipments -6.7 vs. 2.2, employment -6.9 vs. -1.0.
Prices paid jumped more than 15 points to 69.3, while prices received remains unusually high at 29.7 though a bit less severe than May's 31.6. The only positive in the report continues to be the six-month outlook which came in at 21.3, down nearly 7 points but still indicating that a major share of the sample is optimistic on the future.
Treasury yields slipped in reaction to the report which points squarely at recession with inflation for the manufacturing sector. But the ISM report on the manufacturing sector, which is on a national scale and is more closely watched, has held steady so far this year, perhaps with a tilt to the downside. This report, along with even weaker results earlier this week from the Empire State report, may raise expectations that the ISM manufacturing report, to be released at the beginning of July, will shift measurably lower.
" Despite the actions of a few misguided individuals,which caused great harm to some investors,these indictments show that the system still works,and works well".
The thinking in this should be that there are bigger fish to fry, and these two will sing like canaries when facing the charges, a la Enron.
Personally, I think the government shouldn't rest until the Tan Man is indicted and shipped off for the rest of his natural life. Also his money would help the national deficit a bit too.
The real story here is the message it sends to unregistered hedge funds, which is most of them.
The SEC is saying: Just because you are unregistered, you are not immune or outside our jurisdiction.
The case can't hang on a private e-mail between managers. It has to hang on a material mis-statement or false statement made to an investor that covered up truth or risk. The e-mail just helps to corroborate the fact that another statement was known by the managers to be false.
All over the U.S., hedge fund mgrs. will be looking closely at puffery they have told (and tell) investors.
Yes, get the Tan Man, too. I bet he thought about selling mortgages of the type bought by these funds to someone at some time. He may have even been willing to give the managers a break on the mortgages on their homes in the Hamptons. Well, he'd have probably done it if asked, so let's crucify him.
Put them all in jail. Yep, that solves everything.
Never mind the federal reserve that incentivized all this feckless behavior. No, don't bother with fixing a system addicted to cheap money. Just pick a few big shots and send them to jail.
Now, let's move on the oil speculators. Perhaps the rack would be more appropriate for them. But again, it has nothing with an American public that thinks cheap oil is its birthright. No, nothing at all. It's all about evil market manipulators. Hmmph.
Anonymouse writes:
We need to break our addiction to lipstick.
Heard a story on NPR's Marketplace that lipstick is countercyclical, selling strongly, and $24.00?!! Didn't put it together then, but it makes sense, pigs have larger lips. And getting the right shade is probably difficult.
DonKei said: "Now, let's move on the oil speculators."
Yeah, just don't go after the gold speculators or there might be a lot less visitors to CR! Really though, how is oil speculation any different than other investing? Especially a stock market with real low dividends.
Donkei, it's pretty obvious that Countrywide was just a nice cover for a confidence operation, no? If that place doesn't fit a RICO definition, I don't know what does. The fraud was blatant and pervasive, starting at the top. So yes, I think they should all go to jail for running a racket because, at the end of the day, that's what it was.
Now, that does not excuse the street for packaging this crap up and foisting off on others, nor does it absolve the ratings companies for giving it AAA status. Anyone involved in this should also have their profits disgorged.
Want to make sure it doesn't happen again? Disgorge the profits from the chain of any illegal activity. That's why these people should be prosecuted.
Slightly off-topic, but inspired by the focus on e-mails --
I heard a radio report this week about junior litigation lawyers. The guy being interviewed said that juniors can expect to spend their first years sifting through e-mails. That's what litigation attornies do now. In the old, pre-e-mail days, a case involving 300k documents was extreme. Now, a case involving 3 million documents is not uncommon.
Crabgrass,
If you are going to call pulling out your own money while talking up the business 'insider trading' then every investment bank employee who went home with a bonus last year-end is a crook.
Reading through the indictment, the "toast" e-mail the WSJ made so much of seems to me to be there, with a lot of other internal e-mails, to establish a pattern that might convince a jury that the misrepresentations were deliberate.
The real meat of the case is the alleged misrepresentations themselves: telling investors there were "a couple of million" in redemptions expected for June 30 after being told by a major investor they were planing to withdraw $45M on that date, for example.
It's a bit hard to evaluate the case without seeing the evidence, but I certainly don't think it's fair or wise to dismiss it based solely on the WSJ article.
Re: The following complaint is industrywide, wall street wide, global with corporate insider abuse. I'm very happy that real estate people are being caught as well at this point, because all these people placed abusive traps for people that had money -- and hopefully our jails will swell with this white collar criminals that should be denied access to cash and left to hang!
The complaint says that in March 2007, Cioffi withdrew $2 million of his own money from a hedge fund without revealing to investors that he was substantially reducing his exposure to the toxic loans.
"Cioffi's clandestine redemption caused the Enhanced Leverage Fund to pay out $2 million at a time when the markets were weak and the fund was facing another month of losses, as well as escalating margin calls and forced sales," the SEC said.
"Although Cioffi had lost faith in the funds, as evidenced by his own redemption from the Enhanced Leverage Fund, he nonetheless falsely expressed his supposed confidence in the funds, encouraging investors to add money to the funds and attempting to dissuade them from redeeming," the complaint said.
The complaint alleges Cioffi and Tannin revealed their secret doubts about the survival of the funds in internal e-mails.
Tannin, the complaint says, sent one e-mail last March to a third fund manager with only question marks in the subject line. The e-mail said, "Is Ralph doing what he should be doing right now?"
Greenspan is a symbol of corruption and collusion, I agree, start at the top or at least use the little guy to rat out everyone that they are connected to, then sweep the industry of as many crooks as possible ASAP!
Perpwalks are always about indictments, not convictions, even if it's true that you can indict a ham sandwich on toast.
There's no perpwalk after conviction--the guy goes from the courthouse to the jail, usually leaving through some non-public access point, or he goes home without escort to await sentencing, if he was already free on bail.
Hand-cuffed perpwalks are for media-hungry DA's, AG's and US Attorneys. Perpwalks are intended to show the public that the state/county/feds are serious about protecting us from crime, without the actual necessity of protecting us from crime. They're as big a fraud as the Fed's dollar bills.
Am I the only one who read it that he thought the market for the bonds was toast.
So what?
Oh, and FIRST!!
True, not very good evidence when you put it like that CR. They should focus on the big dogs at these banks and brokerages...!
Plenty of malfeasance to be had there.
Evidence will become less important as the masses get more pinched. This lot should feel fortunate to be on the front end--the folks later on might face sharper pitchforks and hotter torches.
Also, assuming convictions are to be had in the Bear case, what then happens to the JPM buyout/Fed bailout?
Regardless of the quality or quantity of evidence or lack thereof, a decision has been made that "somebody has to pay". Looks like it will be these guys, and many more.
Election year grandstanding... but I would guess they get a conviction anyway (in this angry climate they could convict a ham sandwich) but then it gets thrown out on appeal. Just my WAG.
The real damage will be in civil court - these practices might be marginally legal but certainly place the practitioners on the wrong side of their fiduciary responsibilities. It will generate a civil lawyers feeding frenzy.
Regardless of the quality or quantity of evidence or lack thereof, a decision has been made that "somebody has to pay". Looks like it will be these guys, and many more.
giacutter | 06.19.08 - 9:43 am | #
My guess is the plan is sacrifice these guys so many more DON'T have to pay. Paint me cynical.
I second that cynicism!
you can't un-toast toast
"you can't un-toast toast" - CRjunky
However, you can scrape the black stuff off, and add lots of peanut butter hoping no one will notice.
A criminal complaint will have to spell out exactly what law was broken, when, and by whom.
The fact that investors lost money is not, by itself, sufficient.
Hedge funds run under less restricitve legislation and regulation; it is assumed that "sophisticatd investors" understand that they could lose every penny. High risk, high reward and all that.
(I'm not saying these guys were good at running money, just suggesting that they might not be criminals.)
Dryfly probably has a point; civil cases are sure to follow with mobs of angry investors seeking to recoup their losses based on a breach of fiduciary duty. Good luck with that.
(I'm sure the procspecti contained plenty of "past performance is no guarantee" and "you could lose money if yada, yada, yada" language!)
Eagerly awaiting the release of the indictment. And I am officially going long on tar and feathers.
When does Alan Greenspan get charged for talking up ARMs in the face of the lowest rates in history?
It's a PPT day, today.
The WSJ seems to have left out/de-emphasized some of the pertinent facts: Cioffi also withdrew $2 million of his own money from the funds before they collapsed.
This is what is known as insider trading. It's a very strong case, since the evidence shows an awareness of the true facts, from which the insider gained a benefit (not losing $2 million), while not revealing the information to the public.
Philly region not well: -17.1 vs. expected -10.0, vs. previous -15.6. Wish I knew what that means.
It means the PPT is active like never before. Go ahead and underestimate the US consumers, but don't underestimate the BS of the PPT.
This reminds me of a true story. In the `80s on Russian TV they showed a guy who had had been cought stealing ~10 lb of corn from the field.
"Becouse of people like Vladimir we have a shortage of corn on the market" said the TV guy. He was right!
Their obvious fear of DOW below 12000 is laughable.
What a strong economy.
Apparently, a close below 12000 is enough to cause the remaining leveraged positions that are now holding up portfolios to crater.
Look out below.
Die, PPT, die!!
The pertinent question to ask is:
Can you put LIPSTICK on toast?
We need to break our addiction to lipstick.
The U.S. Attorney would have been negligent if he did not file a criminal complaint in this case. Because of the obvious discrepancy between what was stated in the email and what was told to the investors, and because the dire outlook stated in the email was in fact correct, the US Attorney had no real choice but to bring this to trial. It could be that a trial will exonerate the B-S executives, but this is too serious to pass.
When more facts come out, we might well be stunned at the malfeasance that went on at B-S.
"Wish I knew what that means."
United States : Philadelphia Fed Survey
Definition
The general conditions index from this business outlook survey is a diffusion index of manufacturing conditions within the Philadelphia Federal Reserve district. This survey, widely followed as an indicator of manufacturing sector trends, is correlated with the ISM manufacturing index and the index of industrial production.
Highlights
News is very bad from the Mid-Atlantic manufacturing region where contraction is apparently settling in while price pressures increase. The Philadelphia Federal Reserve's business activity index fell another point-and-a-half into negative territory, to -17.1 for the June report. Bad news is everywhere: new orders -12.4 vs. -3.7 May, shipments -6.7 vs. 2.2, employment -6.9 vs. -1.0.
Prices paid jumped more than 15 points to 69.3, while prices received remains unusually high at 29.7 though a bit less severe than May's 31.6. The only positive in the report continues to be the six-month outlook which came in at 21.3, down nearly 7 points but still indicating that a major share of the sample is optimistic on the future.
Treasury yields slipped in reaction to the report which points squarely at recession with inflation for the manufacturing sector. But the ISM report on the manufacturing sector, which is on a national scale and is more closely watched, has held steady so far this year, perhaps with a tilt to the downside. This report, along with even weaker results earlier this week from the Empire State report, may raise expectations that the ISM manufacturing report, to be released at the beginning of July, will shift measurably lower.
" Despite the actions of a few misguided individuals,which caused great harm to some investors,these indictments show that the system still works,and works well".
The thinking in this should be that there are bigger fish to fry, and these two will sing like canaries when facing the charges, a la Enron.
Personally, I think the government shouldn't rest until the Tan Man is indicted and shipped off for the rest of his natural life. Also his money would help the national deficit a bit too.
The real story here is the message it sends to unregistered hedge funds, which is most of them.
The SEC is saying: Just because you are unregistered, you are not immune or outside our jurisdiction.
The case can't hang on a private e-mail between managers. It has to hang on a material mis-statement or false statement made to an investor that covered up truth or risk. The e-mail just helps to corroborate the fact that another statement was known by the managers to be false.
All over the U.S., hedge fund mgrs. will be looking closely at puffery they have told (and tell) investors.
It will generate a civil lawyers feeding frenzy. D'accord. This is the guy with the green flag at tha start saying "Lawyers, start your actions!"
The SEC is in Wall St's pocket, but to make that less obvious they charge someone now and then with some offense or another.
Yes, get the Tan Man, too. I bet he thought about selling mortgages of the type bought by these funds to someone at some time. He may have even been willing to give the managers a break on the mortgages on their homes in the Hamptons. Well, he'd have probably done it if asked, so let's crucify him.
Put them all in jail. Yep, that solves everything.
Never mind the federal reserve that incentivized all this feckless behavior. No, don't bother with fixing a system addicted to cheap money. Just pick a few big shots and send them to jail.
Now, let's move on the oil speculators. Perhaps the rack would be more appropriate for them. But again, it has nothing with an American public that thinks cheap oil is its birthright. No, nothing at all. It's all about evil market manipulators. Hmmph.
Yeah, if the Fed can indict and convict these two guys, they might as well do the same for the entire financial industry.
The case is not that strong.
Here's the indictment--unfortunately it's a badly formatted copy and hard to read.
New York Local News, US, & World, Business & Green News |
NBC New York
If I find a better I'll post the link.
Needless to say, there's much more to the case than the WSJ lets on.
Anonymouse writes:
We need to break our addiction to lipstick.
Heard a story on NPR's Marketplace that lipstick is countercyclical, selling strongly, and $24.00?!! Didn't put it together then, but it makes sense, pigs have larger lips. And getting the right shade is probably difficult.
DonKei said: "Now, let's move on the oil speculators."
Yeah, just don't go after the gold speculators or there might be a lot less visitors to CR! Really though, how is oil speculation any different than other investing? Especially a stock market with real low dividends.
Didn't one of the guys at the BS funds cash out when his customers couldn't? Or am I remembering wrong.
To put lipstick on toast heat it first. Then it goes on reasonably easily.
"Didn't one of the guys at the BS funds cash out when his customers couldn't? Or am I remembering wrong."
Ralph Cioffi had $6mil of his money in the riskier fund. In March 2007, he withdrew $2mil of that money.
Donkei, it's pretty obvious that Countrywide was just a nice cover for a confidence operation, no? If that place doesn't fit a RICO definition, I don't know what does. The fraud was blatant and pervasive, starting at the top. So yes, I think they should all go to jail for running a racket because, at the end of the day, that's what it was.
Now, that does not excuse the street for packaging this crap up and foisting off on others, nor does it absolve the ratings companies for giving it AAA status. Anyone involved in this should also have their profits disgorged.
Want to make sure it doesn't happen again? Disgorge the profits from the chain of any illegal activity. That's why these people should be prosecuted.
Slightly off-topic, but inspired by the focus on e-mails --
I heard a radio report this week about junior litigation lawyers. The guy being interviewed said that juniors can expect to spend their first years sifting through e-mails. That's what litigation attornies do now. In the old, pre-e-mail days, a case involving 300k documents was extreme. Now, a case involving 3 million documents is not uncommon.
Reuters reports that there have been nearly 300 arrests in a mortgage fraud case. Anybody we know?
Crabgrass,
If you are going to call pulling out your own money while talking up the business 'insider trading' then every investment bank employee who went home with a bonus last year-end is a crook.
This case could have been much much bigger, had Bear Stearns successfully floated the Everquest IPO.
But, somebody had some good sense to cancel it at the last moment.
Reading through the indictment, the "toast" e-mail the WSJ made so much of seems to me to be there, with a lot of other internal e-mails, to establish a pattern that might convince a jury that the misrepresentations were deliberate.
The real meat of the case is the alleged misrepresentations themselves: telling investors there were "a couple of million" in redemptions expected for June 30 after being told by a major investor they were planing to withdraw $45M on that date, for example.
It's a bit hard to evaluate the case without seeing the evidence, but I certainly don't think it's fair or wise to dismiss it based solely on the WSJ article.
Some nice perpwalk pictures from NYT
2 Face Fraud Charges in Bear Stearns Debacle - NY Times
In perpwalk, don't forget to wear a little bigger jacket because the front can get tight with your arms behind your back.
"frogmarch" is an early leader for 2008's Word of the Year.
Re: The following complaint is industrywide, wall street wide, global with corporate insider abuse. I'm very happy that real estate people are being caught as well at this point, because all these people placed abusive traps for people that had money -- and hopefully our jails will swell with this white collar criminals that should be denied access to cash and left to hang!
The complaint says that in March 2007, Cioffi withdrew $2 million of his own money from a hedge fund without revealing to investors that he was substantially reducing his exposure to the toxic loans.
"Cioffi's clandestine redemption caused the Enhanced Leverage Fund to pay out $2 million at a time when the markets were weak and the fund was facing another month of losses, as well as escalating margin calls and forced sales," the SEC said.
"Although Cioffi had lost faith in the funds, as evidenced by his own redemption from the Enhanced Leverage Fund, he nonetheless falsely expressed his supposed confidence in the funds, encouraging investors to add money to the funds and attempting to dissuade them from redeeming," the complaint said.
The complaint alleges Cioffi and Tannin revealed their secret doubts about the survival of the funds in internal e-mails.
Tannin, the complaint says, sent one e-mail last March to a third fund manager with only question marks in the subject line. The e-mail said, "Is Ralph doing what he should be doing right now?"
Greenspan is a symbol of corruption and collusion, I agree, start at the top or at least use the little guy to rat out everyone that they are connected to, then sweep the industry of as many crooks as possible ASAP!
Mojo said:
In perpwalk, don't forget to wear a little bigger jacket because the front can get tight with your arms behind your back.
I think the solution there is not to button your blazer. Casual arrests are in.
BTW, it isn't a perpwalk until you're convicted. Indictments are nothing. You can indict a ham sandwich. Even one on toast.
I beg to differ!
BTW, how does my blazer look?
Perpwalks are always about indictments, not convictions, even if it's true that you can indict a ham sandwich on toast.
There's no perpwalk after conviction--the guy goes from the courthouse to the jail, usually leaving through some non-public access point, or he goes home without escort to await sentencing, if he was already free on bail.
Hand-cuffed perpwalks are for media-hungry DA's, AG's and US Attorneys. Perpwalks are intended to show the public that the state/county/feds are serious about protecting us from crime, without the actual necessity of protecting us from crime. They're as big a fraud as the Fed's dollar bills.