EPJ Uncovers Suspicious Filing at the SEC with Regard to MF Global Documents

Some strange doings at the SEC, with regard to MF Global documents.

Documents that disappear, as noted by EPJ's own Bob English, then resurface with deviations from the normal "received stamp," pages that look to include copy with a different type and a new scribbling on a document that was specifically identified earlier by English. English summarizes:

The fact that the stamp says "REGISTRATIONS BRANCH" is also a deviation from the filing stamp that broker filings usually receive. Here is MF Global Inc.'s 2010 report, which contains the typical diamond shaped filing stamp (truncated at the top):

Finally, we hinted at the top that there are a few curious annotations in the replacement MF Global Inc. filing. Compared to the original filing, the replacement filing has text that is slightly smaller and more blurred. Also, the right margin is wider, which all suggests it is a photocopy. Thus, we are left to wonder whose hands this copy passed through before being scanned, and just who was interested in the first paragraph of the financial notes, which specifically addresses the definitions of the various MF Global entities:

And further, why would this person have scribbled below the sentence that specifically addresses the European repo-to-maturity trades that were transacted with an affiliate of the broker unit?

Here is the original:

Interestingly, we included only two excerpts from the MF Global Inc. financial notes in our November 9 article, and the sentence above the handwritten scribble constitutes one, the other being this:

These annotations, combined with the three month delay in scanning, along with the atypical filing stamp all suggest that the 2011 MF Global Inc. report has been receiving special attention at the SEC. Yet, the public record reveals very little of this file tampering, and would likely have gone unnoticed had MF Global not been so high profile. Indeed, the deleted filings of JP Morgan Securities, Goldman Sachs & Co., Banc of America and Newedge USA have gone unnoticed for years.

The full report by English is here.

Caught Red Handed (on the Eve of Christmas) The SEC Big MF Scrub

Wow, we don't take days off here at EPJ, and for good reason. The real sneaky stuff usually happens when everyone else is out partying.

EPJ's Bob English has caught a big scrub of key MF Global filings with the SEC, which has apparently occurred in recent weeks/days.

Got that? MF Global is under investigation for the co-mingling of client funds and some one is scrubbing SEC filed documents from the internet.

Bob English has the full story, here.

Paulson Hires Protection

Billionaire hedge fund operator John Paulson has added two former SEC bigs to his board of directors.

NyPo reports:

In what appears to be a move to protect his firm from getting further ensnared in the Securities and Exchange Commission's legal spat with Goldman Sachs, hedge fund titan John Paulson has enlisted two high-profile former SEC officials to act as consultants to him and his firm, The Post has learned.

In a letter to investors yesterday, Paulson announced he has added former SEC Chairman Harvey Pitt and former SEC Commissioner Roel Campos as "independent directors" to the firm's board of directors, sources tell The Post.

Pitt was chairman of the regulatory agency from 2001 to 2003, and Campos served as a commissioner from 2002 to 2007.

Sadly this where the country is headed. For your own protection, if you have the bucks, you hire those surrounding the pockets of power.

The only way to end this nonsense is to eliminate the pockets of power. Outside of being a smooth operation that grows these private sector beasts, the SEC has done absolutely zero since its inception, other than create barriers of entry for those who want to compete against the insider elite that have captured the SEC.

SEC Investigating Leaks in Galleon Insider Trading Case

The Inspector General of the SEC has informed attorneys for Raj  Rajaratnam, head of Galleon, that it is investigating the source of allegedly improper leaks of information about the case pending against him, according to a spokesman for Rajaratnam, reports John Carney.

Yes!

These government leaks need to be investigated. They are some of the most evil government attempts at distorting a case. They leak carefully selected information prior to trial to poison a jury.

Separately, the Office of Professional Responsibility for the Department of Justice has also informed Rajaratnam’s attorney’s that it is launching a leak investigation.

The DOJ of the OPR should also look into who leaked information that the DOJ was conducting a criminal investigation of Goldman Sachs.

DOJ: If You Are Going to Do It, Do It for Sex Not Money

The sex obsessed SEC thinking has rubbed off on the DOJ.

While most of what goes on as insider trading should be legal and not prosecuted DOJ style, the DOJ has now split hairs, in its extremely selective insider trading prosecutions--once more for the benefit of an insider, an IBM exec.

A DOJ attorney told the court that insider trading for sex is not as bad as insider trading for money. NyPo  reports on the madness:

It turns out he did have sex with that woman.

Federal prosecutors yesterday confirmed what many watchers of the Galleon Group scandal case have long suspected: Former IBM executive Robert Moffat had a relationship with the woman at the center of the largest insider-trading case in US history, hedge-fund consultant Danielle Chiesi.

The revelation came during a sentencing hearing for another player in the Galleon case, former hedge-fund honcho Mark Kurland, who was sentenced yesterday to a 27-month prison term for conspiring with Chiesi on illegal trades.

Kurland's defense lawyer, Patrick Smith, had argued in vain for a probation-only sentence for his client, noting that Moffat -- who leaked inside information as part of the wide-ranging scheme -- faces only six months under the term of his plea deal.

Prosecutor Reed Brodsky countered that Moffat, who was at one time in line to be IBM's CEO, made no money for his role, and was motivated solely by his "intimate relationship" with Chiesi, a Kurland underling.

I should note that there are no indications that the SEC or DOJ are investigating potentially serious insider trading.

EPJ Opens Web Site to Anyone Who Has Been Questioned by the SEC or FTC

Another front in the revolution has broken out.

WSJ explains:

U.S. trustbusters have set their sights on Silicon Valley, with a growing number of investigations targeting possible anticompetitive behavior by technology companies. Now they are having to deal with an unexpected consequence: Potential witnesses are using blogs to blurt out details of an inquiry as it is being conducted.

Many of the technology-savvy people contacted by Federal Trade Commission staff investigating Google Inc.'s $750 million deal to buy mobile advertising company AdMob Inc. have written online about the conversations. Some of their blog posts discuss the kinds of questions the FTC is asking, the apparent attitudes of agency investigators and their level of familiarity with online advertising.

"There is no way the FTC knows enough to support a decision to block the deal," wrote a blogger from Wertago, a mobile nightlife application. The post was entitled "Ignorance and Hubris at the FTC."

Though there is no written rule against disclosing the details of such investigations, FTC staffers typically tell potential witnesses that such inquiries are nonpublic.

"It is highly unusual in every respect," says Eric Goldman, director of the High Tech Law institute at Santa Clara University in California. "Historically, whenever the FTC was doing its homework, it was able to keep it behind the veil. We don't normally get to see [an investigation] developing in real time."

Google and AdMob certainly hope the online chatter will help their deal get approved. Both Google and AdMob Chief Executive Omar Hamoui have encouraged some mobile-software companies to blog about their experiences with the FTC and say why they support the deal, according to people familiar with the matter. Google points to the blogs as evidence that those who best know the sector support the acquisition...

Such noisy public feedback—even before the FTC has taken any action—is potentially uncomfortable for investigative agencies. Might it also affect the decision whether to act?

"Absolutely," said Jeffrey Schmidt, a former head of the FTC's competition bureau, now a partner at Linklaters LLP. When making a case against a merger, FTC lawyers like to point to customers that would be adversely affected, he said. The negative reviews from bloggers could suggest the agency would have a hard time producing sympathetic witnesses in court.

What the bloggers are doing here needs to be emulated by others who have been questioned by regulators.

As of right now, EPJ is welcoming reports from anyone who has been questioned by the SEC or FTC. We will carry, at our discretion, such reports on our site. Please email  reports to reports@economicpolicyjournal.com

SEC Gives Another Edge to the Weak Players

By: Michelle Caruso-Cabrera

We’ve learned today that three trading firms could not handle the volume they faced the day of the flash crash.

The Wall Street Journal reports Citadel and Knight both couldn’t handle the flood of orders. This marks three firms which reduced liquidity, whether by choice or not, at a moment when market participants wanted it most. (The third is the NYSE which says they got so many orders they decided to slow down trading, and some stocks didn’t trade for roughly 90 seconds.)

The market should punish these firms and likely would, by telling these players "we will not be sending trades to you if you don’t improve your platforms enough to handle moments like these." They need to reestablish confidence among their customers.

Instead, the SEC decided to regulate to the lowest-common-denominator. By announcing that all trading platforms will have to slow down when one slows down, they have given a pass to companies whose infrastructure clearly isn’t up to par.

Read the rest here.

Law Firm Wants Peek at the Peekers

The SEC  has not disclosed the names of the dozens of its supervisors, employees and contractors who spent most of their working days looking at pornography on their government computers.

Now a law firm has filed a lawsuit to get a peek. The Washington Times reports:

The Securities and Exchange Commission is facing a federal lawsuit for keeping secret the names of dozens of its supervisors, employees and contractors who spent their workdays looking at pornography on their government computers.


The lawsuit, filed Friday by a Denver- and Washington-based law firm, accuses the SEC of violating federal open-records law by shielding the identities of more than two dozen current and past porn-snooping workers.
"There simply is no privacy right or interest to search pornography on SEC computers, particularly during work hours," says the 17-page complaint, filed in federal court in Denver.

How Do You Shut Warren Buffett Up?

When Warren Buffet called then-Treasury Secretary Hank Paulson, just before he made his investment in Goldman Sachs, do you think he talked to Paulson in his goofy public Mister Roger style? I didn't think so. 

If you are sick and tired of Warren Buffett's nauseating Mister Rogers act, there is a way you can shut him up. Ask him about his sale of Moody's stock the day Moody's received a Wells Notice from the SEC. Zero Hedge explains:

As Zero Hedge first pointed out on Saturday, Moody's is in very big trouble - in its 10Q, in the very last paragraph of the very last page, the company indicated that on March 18, it had received a Wells Notice and a recommendation by the SEC to pursue a Cease and Desist order against the agency's NRSRO status, in effect killing its business model. This was not lost on the market, which punished Moody's stock by 10% yesterday even as every other stock went vertical. When all is said and done the 10% could well become 100%, and as far as the market is concerned nobody would shed a tear: the conflicted rating agency model is long dead, and the independent third party vendors are the only ones that add any actual value at this point. However, far more interesting are the actions by Moody's CEO Raymond McDaniel and key shareholder and kindly grandfather, Warren Buffett, both of whom sold millions worth of Moody's share and stock, the day of, and just after, the Wells notice receipt. The New York Times has reported that Buffett, who recently has not had a problem commenting on pretty much everything, and was vociferously defending not only arch monopolist Goldman Sachs at his annual ukulele outing in Borsheims, but Moody's as well, has had "no comment" on his sales. Perhaps it is time for someone to take Mr. Buffett to task, instead of just to his word: sure, it could be just a coincidence... or three - he sold over $30 million in MCO stock on March 19, March 24 and March 26. Or it might not. However, now that it has become far too clear that nobody in the finance business has a shred of integrity and honesty left, perhaps it is time an independent and impartial jury to decide if any impropriety based on material, non-public insider information, was committed.

BTW If Buffett was trading on inside information, he was simply pushing the market price closer to where it should be. In my book there is nothing wrong with this, despite what the SEC (and Zero Hedge) might say on the matter. On the other hand, Buffett's call to Paulson in the middle of the financial crisis is very curious. What was that all about? Did Buffett outline to Paulson under what terms he would invest in Goldman stock, including what market sponsorship he expected from the Treasury?  And there is this minor bit of activity, surrounding Buffett's purchase of Goldman Sachs stock, that the SEC does not appear to have had time, during breaks from porn surfing, to investigate.

SEC Inspector General Begins Investigation of Goldman Fraud Charges

It's official.

The SEC investigative office has opened a probes into whether charges against Goldman Sachs were politically timed.

SEC Inspector General H. David Kotz wrote Rep. Darrell Issa (R-Calif.) on Sunday to notify Issathat he had opened an investigation, at the congressman's request, reports The Hill.

In the letter to Issa, Kotz said he would seek any documents relevant to the investigation, and would conduct interviews "of all persons with potential knowledge of the facts and circumstances regarding this matter, including those outside of the SEC."

Brain Freeze in D.C.: What the Real Insiders Think about the Goldman Case

WaPo has a short feature out today on the legal team surrounding the Goldman Sachs fraud case. The article is here and it is worthwhile reading. The team is a very sharp group of people, but they have to be in some sort of brain freeze. It's a phenomena you run into often in D.C., very bright people who are somehow in denial about the basic elements of what they are doing. They are so caught up in the bright lights, glamor and power that they simply ignore the fact that at the core of what they are doing is an obvious but very ugly truth that there is no fundamental reason they should be dong what they are doing. Whether it is promoting or carrying out some regulation that at its core is evil, or promoting legislation they know has no chance of achieving its stated goal, or bringing a court case that has no merit, they march on. At best it is a brain freeze, at worst they have sold their soul.

The Goldman Sachs fraud case is such a situation. The people identified in  the WaPo story are working on a case that simply had no reason to be brought. Goldman Sachs, especially Lloyd Blankfein, are evil bastards for the way they raped America through the bailout of AIG, but the SEC case has nothing to do with that. It is a case about a trade that went down between very sophisticated financial  people on all sides, who certainly had all the information they needed to analyze the security they were buying or selling.

Major players in the world of finance, and I am  talking about the top players, tell me that they are yet to find any top level lawyer who thinks there is any merit to SEC's case. They are quite simply amazed that the SEC brought this case.

One player directed me to an Op-Ed by Fareed Zakaria, editor of Newsweek International. The Zakaria piece reflects the insider thinking. He wrote:

There's so much resentment toward banks these days -- some of it quite justified -- that anything resembling a defense of them is bound to anger people. But the rage surrounding the Goldman Sachs case can cloud our perspective and distort public policy. We need to step back and try to understand what happened.

Evidence may yet be presented that documents specific misrepresentations and false claims by Goldman, but much of the public debate has struck me as guided more by emotion than careful analysis. Even if some Wall Street practices seem dodgy, or unethical, that's not the same as illegal. I want financial reform, but I also want our system of governance to be characterized by fair play and equal justice -- even for people making $10 million bonuses.

There are two core claims of wrongdoing. The first is that hedge fund manager John Paulson was allowed to select the securities he wanted to bet against. This is disputed -- but in a routine hedge transaction on Wall Street somebody decides to bet against some set of stocks or securities; that person approaches a firm, which finds someone with the opposite view on those securities. This is how large companies offset the risks to their balance sheet from fluctuating currency, energy or commodity costs. Both sides examine carefully the securities involved in the wager.

The main institution that took the other side here, IKB, is a large German bank that had whole departments devoted to analyzing just these products -- departments many times larger than Paulson's firm. IKB surely knew that someone was betting against them: Otherwise, there would have been no transaction. Did IKB realize that the other party thought these securities were garbage? Yes -- disagreement over the value of stocks or securities is what creates the market.

The second charge is that Goldman Sachs designed a product it "knew" would decline in value. Dozens of transactions like this took place in 2005, 2006 and 2007. In most, the people who bet that the housing market would go up made money, and those betting it would fall lost money. These kinds of collateralized debt obligations went up in value in 2006. In fact, had this bet been made nine months earlier, Paulson would probably have lost a huge sum and IKB would have been a winner.

It's easy to say now that the housing market was doomed to go bust by 2007. But Michael Lewis documents precisely the opposite point in his recent book "The Big Short." He shows that in 2006 and even 2007, almost all the storied names in finance -- Lehman Brothers, Bear Stearns, Merrill Lynch -- were betting that the housing market would continue to rise. Only a handful of contrarians believed the opposite, and many of them had lost money for years on bets that the market would drop. At the time of the Goldman deal, Paulson was still seen as an oddball.

Whatever the new rules, one thing will not change: We can't be sure in advance which securities are "good" and which are "bad." If you doubt this, pick any asset you think is overvalued -- American stocks, Chinese real estate, Pakistani bonds -- and bet against it. Six months from now, you'll be proved a genius or a fool. Oh, and to make the bet you'll have to find someone to take the other side, so you'll need someone to handle the deal. Calling Goldman Sachs . . .

This is pretty much the case that I have been making since, a day after the charges were brought when I called SEC enforcement chief Robert Khuzami a buffoon for bringing the case. There is really no case here, unless there is the highly unlikely situation that the SEC is holding back a smoking gun.

Bottom line: Nothing new in D.C., we have a bunch of very bright people in brain freeze being controlled by a buffoon with power.

Here's the Serious Situation that Could Blow Goldman Sachs Out of the Water

While the SEC continues to pursue a highly questionable fraud charge against Goldman Sachs, new information suggests that a serious violation may have occurred that could cost the chairman and chief executive of Goldman Sachs, Lloyd Blankfein, his job and that of the President and COO, Gary Cohn, and severely damage the firm.

In Goldman's 2009 annual report to investors, Blankfein and Cohn said that Goldman “did not generate enormous net revenues or profits by betting against residental related products."

However, in an email just released by the Senate Subcommittee Investigating the Financial Crisis,  Blankfein, , wrote in November 2007: “Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.”

In other emails released, Goldman's CFO David Viniar responded to an email that Goldman had made $50 million in one day by taking short positions : “Tells you what might be happening to people who don’t have the big short..."

In another released email, a Goldman employee wrote in response to news of a decline in some mortgage backed securities that Goldman was short, “Sounds like we will make some serious money.”

“Yes we are well positioned,” another responded.

Thus, it's clear, Goldman did make money shorting mortgage backed securities.The size of net profits is not clear, but the size of net profits  becomes critical.

It is a situation where size matters, thanks to Blankfein's and Levin's claim in the annual report that net-profits were not enormous.

The "big swinging dicks" of Wall Street better hope that the size of the net profit they made from short selling mortgage backed securities was tiny. If the net profit is anywhere close to as big as they think their dicks are, they are in serious trouble for reporting false information in their annual report.

-----

Here are the emails released by the Senate Subcommittee . They are fascinating reading.

The SEC and Goldman Sachs are Both "All In"

Harvey Pitt, former-SEC chairman, who has also done work for hedge fund manager John Paulson, who helped Goldman Sachs develop the product at the center of the SEC’s case, writes:

 
With rules or policy decisions, some divided votes may be inevitable. But, the agency usually doesn’t split on enforcement actions, and especially not along party lines. Could more time have produced a different result? We won’t know. But, what was the rush? After a year-and-a-half of investigation, eight months after receiving Goldman’s “Wells Submission,” was there a need to file the litigation when it was filed? Why didn’t the five Commissioners take more time to try and find common ground? What was the need that compelled the filing of the action last Friday, instead of, say, this Friday, or next?... Government suits affect the target’s share price, as occurred here, and also adversely affect its reputation and potential business. In those respects, Goldman has already lost. Arthur Andersen ultimately prevailed in the Supreme Court, after losing in the lower courts. But its victory was Pyrrhic, and came long after the real stakes had been decided. Goldman’s a strong firm with an illustrious history... In this litigation, either the SEC, or Goldman, is betting the proverbial farm, or perhaps, they both are...

More Details Emerge on SEX Crazed SEC

 The New York Daily News reports:

-A senior attorney at the SEC's Washington headquarters spent up to eight hours a day looking at and downloading pornography. When his government computer ran out of hard drive space, he burned the files to CDs or DVDs. He later agreed to resign.

- An accountant was blocked more than 16,000 times in a single month from visiting "sex" or "pornography" sites, but still managed to amass a collection of "very graphic" material by using Google to bypass the SEC's internal filter. He wound up with a 2-week suspension.

- Seventeen of the randy employees were "at a senior level" earning salaries of up to $222,418.

- Porn watching intensified as the financial crisis heated up. The number of cases jumped from two in 2007 to 16 in 2008. The cracks in the financial system emerged in mid-2007 and spread into full-blown panic by the fall of 2008.