SAC Capital Gets “Tips” from Goldman; If Only There Were a Pattern

SAC Capital’s business model: cheating

Earlier this week,  the Wall Street Journal published what should have been a fairly explosive story implicating Goldman Sachs and its favored hedge fund clients in yet more market miscreancy. Predictably, though, this story did not have what journalists call “legs.” No other mainstream media outlets picked it up. There was no outrage. And there is, of course, no indication that anyone in the government plans to do anything about it.

So allow me to do my small part by reprinting the relevant passage:

“Goldman Sachs Group Inc. research analyst Marc Irizarry’s published rating on mutual-fund manager Janus Capital Group Inc. was a lackluster ‘neutral’ in early April 2008. But at an internal meeting that month, the analyst told dozens of Goldman’s traders the stock was likely to head higher, company documents show.

“The next day, research-department employees at Goldman called about 50 favored clients of the big securities firm with the same tip, including hedge-fund companies Citadel Investment Group and SAC Capital Advisors, the documents indicate. Readers of Mr. Irizarry’s research didn’t find out he was bullish until his written report was issued six days later, after Janus shares had jumped 5.8%.”

The story goes on to suggest that this is standard operating procedure at Goldman. Every week, Goldman analysts exchange stock tips with each other at a gathering the firm calls the “trading huddle.” After the huddle, the tips are conveyed to as few as six, and no more than 60 preferred clients – presumably all high paying hedge funds, such as the above-mentioned SAC Capital.

The Journal quotes Goldman spokesman Edward Canaday as saying that the tips are nothing more than “market color” and are “always consistent with the fundamental analysis” in published reports. As for the retail investors who might benefit from this “market color,” they are out of luck.  Goldman’s spokesman says, “We are not in the business of serving thousands of retail customers.”

No, of course, Goldman is not in the business of serving retail customers. Goldman is in the business of serving SAC Capital, which is known to pay more and higher commissions than any firm on Wall Street (a model pioneered by Michael Steinhardt). And, apparently, one of Goldman’s services is to give SAC Capital advance notice of the contents of its research reports, so that SAC Capital can trade on that inside information, effectively transferring money from the accounts of average investors into the bank account of Steve Cohen, whom BusinessWeek magazine has called “the most powerful trader on Wall Street.”

For those who do not know, Steve Cohen is the proprietor of SAC Capital. He spent his formative years as the top trader for Gruntal & Company, a brokerage that stood firmly on “The Shabby Side of the Street” – as Fortune magazine described it. Gruntal was staffed largely by criminals, some with ties to the Mafia. In the 1990s, Gruntal’s management was implicated in what was then the biggest case of embezzlement in the history of Wall Street.

During his time at Gruntal, Cohen was investigated by the SEC for trading on inside information provided to him by Michael Milken, the most famous – and most destructive – financial criminal the world has ever known. Today, Cohen maintains close business relationships with Milken’s cronies and with former Gruntal managers, such as Howard Silverman, who somehow avoided prosecution, and now operates a “dark pool” platform that allows Cohen to process trades without public scrutiny.

Cohen is no doubt a mathematical whiz (after all, he’s a hedge fund manager). But, with some effort, I have cracked his trading strategy. I’m sure this strategy has some algorithmic expression, but for the sake of simplicity, let us just call it, “cheating.”

First, it was trading on inside information from Michael Milken. Then, a few years ago, it emerged in sworn affidavits that SAC was authoring, and trading ahead of, the so-called “independent” financial research published by an outfit called Gradient Analytics. The SEC’s staff launched an official investigation of Gradient, and began to probe its relationship with Cohen, but ultimately SEC leadership intervened, and the matter was dropped.

This tends to happen — the SEC’s leadership intervenes when its staffers step on the toes of powerful hedge fund managers.

Last December, Deep Capture reporter Judd Bagley broke the news that SAC Capital and Kynikos Associates received advanced copies of reports published by Morgan Keegan, another “independent” financial research shop. It is clear that SAC Capital and Kynikos traded ahead of these reports, which is trading on material, non-public information. The SEC is supposedly investigating Kynikos, but don’t expect any resolution to that case, or any action against Steve Cohen, who is, after all, “the most powerful trader on Wall Street.”

If it seems that nobody much cares that Goldman has been providing such tips to SAC Capital and others, some of the blame must go to the Wall Street Journal, which is a “respectable” publication with a reputation for “balance,” and therefore refrains from saying much of anything at all. The Journal’s story about Goldman could have been the sort of investigative blockbuster that would spur the government to action, but it is so politely worded and so “balanced” that it is possible to read the thing and think that Goldman did nothing wrong.

The Journal reports that “Canaday [the Goldman spokesman] says that analysts are told that any comment at a meeting that could result in a change in a rating, earnings estimate or stock-price target ‘must be published and disseminated broadly to all clients.’ He adds, however, that it is rare that tips arising from the meetings reach that threshold. He says ratings changes after the meets also are rare.”

Elsewhere in the story, the Journal provides two vivid examples that show Canady’s statement to be blatantly false, and yet nowhere does the Journal state (even politely) that Canady spends his days issuing mealy-mouthed platitudes to cover up Goldman’s improprieties. And nowhere is it noted that Goldman’s spokesmen regularly describe the bank’s critics as “conspiracy theorists” or people “who just don’t understand how the markets work,” the implicit threat being that any journalist who asks too many questions will be made to look foolish.

The Journal story states that Goldman provided a “tip” to SAC Capital. It states that this “tip” was articulated in published research report six days later, after the stock had gained more than 5%. But not once does the story state the obvious: that SAC Capital was given advance notice of the contents of Goldman research – a clear violation of law. And, of course, nowhere in the story are we reminded that this is serial behavior. Nowhere are we given any reason to be particularly pissed off.

So what we have is a significant addition to a long list of atrocities, in a story that will, unfortunately, be forgotten.

  1. we cant let this be forgotten mark.
    i still dont know why we cant set up a case with all the evidence we have and go have these people arrested.what is stopping us from doing this? someone with balls?
    ok i’ll step up to the plate. this nonesense doesnt have to go on anymore all we need to do is really rock the boat and have these folks charged with crimes. theymay think they are above the law but we all know they arent.

  2. GOOD NEWS!!! There is finally a new movie out about stock market manipulation, the SEC, and short selling called: “Stock Shock.” Amazon has it or has a trailer.

    1. Kevin, it was not censored…something in it triggered our spam filter. It’s imperfect, so I have to check it regularly to restore stuff incorrectly flagged. Sorry it took me so long today.

  3. There’s a tool that can tie wikipedia edits to the company that posted them based on IP and there were a bunch made by SAC on naked shorting that were immediately deleted.

    The posts were about how much of what we think is naked shorting is swaps.

    1. The client agrees to give Goldman Sachs all their commissions and to hold their shares with them.

    2. The short swaps the interest on $1 million for the upside on the target company, say OSTK.

    3. For a small interest rate, say prime + 1, the short has a call on the current price of OSTK. They can naked short to their heart’s content with no risk, because the call protects them if OSTK runs.

    4. They don’t have to disclose it on the balance sheet as it cancels out. The swap is supposed to be equal value, so what you are giving away equals what you get.

    5. The brokerage “naked shorts” by owning less shares than they are supposed to. They get interest on money they never lent, commissions, they can also short and ride it down and the stock never actually existed.

  4. The thin, collusive line between these characters and the mafia just got retraced with a red crayon for the benefit of the willfully blind cane-tappers at the SEC.

    Now I know why Patrick said on TV that Goldman is akin to the Genovese Family. He really meant it!

    1. Mark. After letting the cat out of the s.a.c. enough times, will the d.o.j. be presented with the damning evidence showing the criminal activities little stevie cohen regularly engages in?

  5. How do you think SAC comes up with those stellar returns year after year? One of the best tactics used to be calling other firm desks AFTER a huge slug of stock was taken down by them and pumping the research stories of GS etc that were ‘breaking views/news’. This was done all in the name of keeping ‘friends up’ on news flow but in reality provided a strong bid for them to unload. The modern day pump and dump. Do it thousands of times and you’ve got a sustainable, stable peer-beating business. Scumbags and criminals through and through.

  6. SEC Chair Schapiro: The Agency Lacks the Tools to Get the Job Done
    By editor|Aug 28, 2009, 3:59 PM|Author’s Website
    see video
    Securities and Exchange Commission Chief: We Need More Regulators
    see video
    Here is Senator Kaufman’s reaction in an exclusive responding to Schapiro’s comments

    you can read the scgaouri transcipt, here are some clips it:

    SCHAPIRO: We are certainly going to look in the short term at flash trading. I’ve asked the staff to make a recommendation to me for how we might eliminate the inequities that are created by flash trading. With respect to high frequency trading that will be part of this broader review we’re doing of the markets to include dark pools, co-location, high-frequency trading and some of the other really recent innovations in the marketplace that have created this asymmetry of information and access for retail investors versus institutional investors. At the same time, we don’t want to squelch innovation. We don’t want to slow markets down in appropriately. But we want to make sure that we have a handle on all of these different innovations. …
    SCHAPIRO: Well, we clearly have to regulate. We have vast swathes of marketplace, like credit default swaps, and other over the counter derivatives, that are unregulated. Hedge funds are unregulated. Those kind of institutional products must be brought under the regulatory umbrella. …
    SCHAPIRO: I think it’s necessary to regulate hedge funds. I think they are too big a part of the marketplace for the SEC and the federal government not to have a handle on the impact they’re having on the market, the strategy they’re employing. It’s time for that. …
    SCHAPIRO: First of all, we need to have them registered, so we understand who is in the space and what they’re doing. We need information so that, to the extent they could be engaging in manipulative activities, insider trading, we can constrict. Reconstruct trading practices and patterns so that we can bring those cases and enforce the rules against manipulation and insider trading.

    So we really need reporting. We need registration. We need the ability to examining their books and records, and understand how they’re conducting business. …


    CLAMAN: Naked short selling; I had a fund manager ask me yesterday, when is the SEC going to start enforcing the rules to prevent people from abusing naked short selling? I know there are rules in place, but enforcement.

    SCHAPIRO: We actually did some cases in the last couple of weeks.

    CLAMAN: How many?

    SCHAPIRO: Oh god, probably just two cases that I can think of off the top of my head in the last couple of weeks. We are going to enforce those rules, as we’re going to enforce all of our rules in a more aggressive way. Of course, we’ve proposed some regulatory responses.

    We made final in the last month on rules with respect to the failure to deliver on short positions. Those rules have been credited with really bringing down failed to deliver by about 56 percent. So those are tremendous positive steps.

    We’ve also proposed some market-wide price caps that would slow the decent of the market caused by short selling, or some circuit breakers, as an alternative, where an individual stock declines by more than a certain percentage on a day. A circuit breaker would kick in and no more short selling would be permitted in that stock.

    CLAMAN: Why not just reinstate the uptick rule?

    SCHAPIRO: We proposed that as an alternative and asked for comment on that. We’ve got thousands of comment letters on all of these multiple proposals that we’ve put out. There’s a concern about whether — in this new market environment, whether the old uptick rule really can work. We want to put into place something that’s going to be effective, not something that just sounds good because it existed in the past.

    So that’s why we have proposed multiple different approaches to dealing with short selling. Over 4,000 comment letters about this point. And we’re working through them to see what the right approach will be….

    SCHAPIRO: Well, I think, obviously, at the end of the day it is going to be up to the Congress how to structure the regulatory system. And I think what you hear from members is a deep appreciation that we must have better controls over the risks in our system, and appreciation that all of the regulators bring a different perspective and something important to the table, an understanding of the institutions of the regulate or the products that are offered by the institutions of the regulate.

    And I think Congress is in the process, much as well all are, trying to get the balance right. And you have to go back to what I said earlier, getting the balance right is really what it is all about in regulation. …

    SCHAPIRO: I would to bring the SEC at the end of my term with a deep dash, a real driving commitment to protecting investors, which exists in this agency already. It just needed to be unleashed a little bit. With a very solid regulatory regime, that covers those parts of the marketplace that have been exempt from legislation historically.

    I want to unleash the capability that I know is here. I want to augment it with some new skill sets, new technology that allows us to keep up with the marketplace. I want to walk out with people, investors believing there is an SEC on the watch; there is an entity that’s out to protect their interests, and to be their advocate.

    That’s our historical roots. That’s what we have to return to. We need to do it through our enforcement, through our rule making, through our examination programs. It’s got to inform everything we do.

    CLAMAN: Should the businesses and markets be scared of you?

    SCHAPIRO: They shouldn’t be scared, but they should be respectful of the Securities and Exchange Commission’s role in enforcing the law and protecting the marketplace from fraud and other abuse. …

  7. of special note for your reference
    look where an investorvillage post about DNDN titled “FWIW: Received Phone Call From Spencer Bachus R-AL Aid This Afternoon” showed up, might be worth translating considering the attention DNDN has, and the fact the yahooligans made a point to have yahoo delete my referenced link and post from the ostk msg board of which they don’t do unless they want it hidden in my opinion.

    Dendreon…mit Provenge das erste Vaccin zur Krebstherapie? – Seite 699
    The first Dendreon…mit Provenge Vaccin for cancer treatment? – Page 699

    more translations:
    Hi GuHu,
    schön, dass einige die ominöse manip-periode anders sehen als kurz nach dem vorfall die (überforderte??personalmangel??) SEC, die ja geprüft und keine unregelmäßigkeiten gefunden hat (aus dem gedächtnis zitiert).

    Gut, dass vielleicht ein paar wichtige leute wach gerüttelt werden.

    Vielleicht bekommen dann einige der armen schweine, die SL-s gesetzt hatten, nach entsprechend fundierten klagen ihre verluste ersetzt.
    Ciao Ede
    Hi, nice GuHu that certain ominous install differently period when shortly after the incident (beyond??got SEC staff shortages, which is tested and found no irregularities (from memory quoted). Well, that perhaps a few important people awake sacrosanct. Perhaps get some of the poor pigs SL-s have had to be substantiated complaints replaced their losses. Ciao Ede

  8. AUGUST 29, 2009:


    Marv Eatinger

    Depository Trust & Clearing Corporation(DTCC) 3-Feb-08 05:45 pm —– Original Message —–
    From: marv eatinger
    To: [email protected]
    Sent: Sunday, February 03, 2008 4:10 PM

    —– Original Message —–
    From: marv eatinger
    To: [email protected]
    Cc: [email protected]
    Sent: Sunday, February 03, 2008 4:02 PM


    Is this a matter of training, or is this a matter of knowledgeable circumvention of the Regulatory System for public equities?

    Marv Eatinger

    —– Original Message —–
    From: marv eatinger
    To: [email protected]
    Sent: Sunday, February 03, 2008 3:08 PM

    Steve Letzler – DTCC:

    What were the loop holes in the “FAIL TO DELIVER COVERAGE” as associated with “NAKED SHORT SELLING OF EQUITIES” that made it possible for Daleco Resources Corp three years after the fact (Feb. 28, 2000 to Aug. 1, 2000 while Daleco was listed only on the Pink Sheets) to cover “NAKED SHORT SELLING IN 1996 & 1997” with 1/100 of the shares that were sold short in 1996 & 1997? Have these loop holes been changed to insure that since August 1, 2000 this “NAKED SHORT SELLING” and the ability to cover these “FAIL TO DELIVER SHARES” three years later with 1/100 of the original shares sold short, is no longer a modus operandi?

    Marv Eatinger

    —– Original Message —–
    From: marv eatinger
    To: [email protected] ; [email protected]
    Cc: [email protected]
    Sent: Sunday, January 27, 2008 6:00 PM

    —– Original Message —–
    From: marv eatinger
    To: [email protected] ; [email protected]
    Cc: [email protected] ; [email protected]
    Sent: Saturday, January 26, 2008 6:41 PM

    —– Original Message —–
    From: marv eatinger
    To: [email protected] ; CFLETTERS ; [email protected] ; [email protected] ; [email protected] ; [email protected]
    Cc: [email protected] ; [email protected]
    Sent: Saturday, January 26, 2008 5:51 PM

    List in Topics | List as Individual Messages Tip: Want to start a new topic? Review the List of Topics first.
    View: Simple | Summary
    Subject Author Rating Time Posted (ET)
    > >>REDFRMADV > > Dear Yahoo Finance: > Below you will find copies of the historical volume… marv_68114 Rate it 25-Jan-08 06:58 pm
    BELOW YOU WILL FIND COPIES OF THREE EMAILS (ONE EMAIL BEING “Ron Franz” REPLY OF APRIL 4, 2006 … marv_68114 Rate it 25-Jan-08 06:24 pm
    Why did eliminate three years (fro… marv_68114 Rate it 25-Jan-08 05:48 pm

  9. Insider Talk on Wall Street: Spitzer, on orders from Milken, Boesky, and Goldman Sachs, went after Hank Greenberg in order to push him out of the way so that AIGFP could increase its CDS business.

    By getting Hank out of the way, AIG could serve as a key entity to fuel the bubble, and enrich their pockets- on the upside and downside

    1. I kinda thought that was the plan. You have a sacrificial cow that they can get the government to aid because it is so big… especially with GS being the trading partner and with Hank P at the Treasury at the time. Set up wide and far… They were great at creating the crisis and taking advantage of it at 100%.

      I like what Max Keiser said should happen to Hank P… head should be rolling down the steps. He called it when it was happening.

  10. Is it possible to have Marv eatingers’ repetitive posts permanently removed from Deepcapture blogs? Thanks in advance.

  11. This could be interesting..

    Report Is Set to Criticize SEC Over Madoff Scheme
    The inspector general of the Securities and Exchange Commission is expected to deliver a stinging report Monday on the agency’s failure to prevent or detect Bernard Madoff’s $65 billion Ponzi scheme.

    SEC inspector general H. David Kotz launched an investigation into the agency’s Madoff dealings in December, shortly after federal agents arrested Madoff. Madoff, who turned himself in to the authorities, pleaded guilty in the case and is now serving a 150-year prison sentence.
    Then-SEC Chairman Christopher Cox requested the probe. Among other things, Cox asked Kotz to investigate why the SEC found allegations about Madoff over the years “not credible.”

    In an email to FOX Business on Sunday, Kotz said he plans to send his finished report to the current SEC chairman, Mary Schapiro, on Monday and will leave it to agency officials to decide how and when to release it to the public. But its release is expected sometime this week, after Schapiro and her team review it.

    Kotz would not comment on his findings. But in testimony to a House committee in January, Kotz promised lawmakers a tough review.

    “I can assure you that our investigation and review will be independent and as hard-hitting as necessary,” Kotz testified. “The matters that have been brought to our attention require careful scrutiny and review… If we find that criticism of the SEC is warranted and supported by the facts, we will not hesitate to report the facts and conclusions as we find them.”

    In separate testimony before another House committee in July, Kotz indicated his eight-month investigation has focused on the SEC’s Office of Compliance, Inspections and Examinations and its Division of Enforcement.

    Legal proceedings revealed Madoff and his co-conspirators successfully misled SEC examiners and investigators numerous times, by lying to them and providing phony records. But the proceedings, along with numerous media reports, also suggest that in some instances, SEC staff members made mistakes in their dealings with Madoff.

    Kotz told lawmakers in July that his review would include “all the examinations and investigations that the SEC conducted of Madoff or Madoff-related entities from 1992 until the present” and would analyze “the reasons why the SEC did not uncover the Madoff Ponzi scheme, notwithstanding these examinations and investigations.”

    “We also plan to issue two additional reports providing specific and detailed recommendations for improvement of both the SEC’s Division of Enforcement and the Office of Compliance, Inspections and Examinations, which will incorporate the findings from our investigative report,” Kotz testified.

    He told committee members that his team had interviewed more than 100 witnesses and had reviewed millions of emails and documents in its investigation.

    Former SEC Chairman Cox also asked Kotz to investigate agency staff contacts and relationships with the Madoff family and firm and “any impact such relationships had on staff decisions regarding the firm.”

    Cox’s request came after media reports about former SEC compliance lawyer Eric Swanson. Swanson was dating Shana Madoff, Bernard Madoff’s niece, in 2006, when the SEC was investigating the Madoff operations. Shana Madoff was a compliance lawyer in her uncle’s firm. She and Swanson married in 2007, after Swanson had left the SEC. Neither he nor his wife has been implicated in the Ponzi scheme.

    The inspector general’s report may also discuss Madoff investigations by the Wall Street’s self-regulatory body, the Financial Industry Regulatory Authority, or FINRA. Like the SEC, FINRA failed to detect and prevent Madoff’s scheme.

    Before President Obama nominated Schapiro as SEC chairman, she was FINRA’s chairman and chief executive officer.

    Since the Madoff scandal surfaced, the SEC has announced a number of proposals and steps it says will help it detect and shut down future financial con artists. They include surprise examinations of investment firms, more third-party reviews of investment managers and hiring more experienced staff at the agency.

    An SEC spokesperson declined to comment on the pending Kotz report, though Schapiro told FOX Business on Friday that “while we waited for this review, that we have not waited for this review in order to make some pretty fundamental changes in the SEC as a result of what we understand to have happened with respect to Madoff.”

  12. Just when you think you’ve seen and read it all here’s a must read by what maybe a real journalist..

    Re: Report Is Set to Criticize SEC Over Madoff Scheme

    As a follow up, here’s a good piece highlighting the revolving door between the cabal and the SEC. Oh, and here’s Linda Thomsen again.

    August 31, 2009

    Will the IG Report Cover the Role of White Shoe Law Firms?
    Madoff and the SEC’s Revolving Door

    The long-awaited investigative report by the Securities and Exchange Commission’s (SEC) Inspector General on how the SEC bungled multiple investigations of Bernard Madoff is set for release this week. Unfortunately, according to media reports, the long suffering investing public will not receive the report until the SEC itself has had a chance to review it.

    The team that produced this report on one of the most long-running and convoluted frauds in the history of Wall Street included Inspector General H. David Kotz who came to the SEC-IG post in December 2007 after five years as Inspector General and Associate General Counsel for the Peace Corps. The Deputy Inspector General, Noelle Frangipane, also came to the SEC from the Peace Corps where she had served as Director of Policy and Public Information.

    This lack of Wall Street cronyism by the top two in the Inspector General’s office might have been refreshing to some in Congress and compensated for their not knowing the difference between puts and calls and peaks and troughs and the intricacies of Mr. Madoff’s split-strike conversion strategy (he splits with your money while converting you to a pauper). But the background of the member of the team heading up the Inspector General’s Office of Investigations, J. David Fielder, should have rang serious alarm bells to Congressional investigators.

    For the ten years leading up to July 2007, J. David Fielder worked for the SEC as a Senior Counsel in the Division of Enforcement. In February 1999, he moved to the Division of Investment Management, first as Senior Counsel on the Task Force for Adviser Regulation, then as Advisor to the Director. In November 2000, SEC Chairman, Arthur Levitt, appointed Fielder Counsel to the Chairman.

    In July 2007, Mr. Fielder was invited to join the corporate law firm, Haynes and Boone LLP, as a partner. In other words, Mr. Fielder’s government issue rolodex filled with the names, home numbers and email addresses of his colleagues at the SEC along with the investigatory matters in his head is deemed fungible currency among corporate law firms and can be freely exchanged for partner status, instantaneously moving one from the lowly wages and attendant lifestyle of public servant to the rarefied bracket and luxuriant trappings of corporate law firm partner.

    But what happened next is where things get interesting. In March 2009, just as the SEC Inspector General was hot in pursuit of Madoff aiders and abettors, Mr. Fielder gave up his lucrative partner status at Haynes and Boone to accept the lowly post of Assistant Inspector General of Investigations, working under a boss from the Peace Corps. In other words, he gave up big bucks for a demotion at the SEC.

    What Mr. Fielder did might not raise alarm bells were it not happening on a regular basis throughout the corridors of Washington and Wall Street. To understand the implications, this maneuver deserves an appropriate name. A revolving door is assumed to mean one gets all the right connections as a public servant and cashes them in to the highest bidder in private industry. That concept doesn’t typically entertain the door revolving back to public servant status. On Wall Street, they call a maneuver like that a round trip: you buy 100 shares and eventually sell the same 100 shares. You end up back where you started: a round trip.

    Just how many lawyer round trippers are involved in the Madoff investigation? Enough to raise a strong stench of circular corruption.

    Linda Chatman Thomsen left the SEC in February and has now returned to the corporate law firm that represents many of the largest Wall Street firms, Davis Polk & Wardwell LLP. Ms. Thomsen, who served as head of Enforcement at the SEC, also achieved partner status in this round trip. Ms. Thomsen is married to Steuart Hill Thomsen, a partner in the law firm, Sutherland Asbill & Brennan LLP, which brags as follows in its brochure: “Many of our financial services attorneys have worked in the federal government, including regulatory agencies such as the SEC, FINRA and the Department of Justice.” Mr. Thomsen represents “many in the financial services industry” including “securities fraud cases.”

    Linda Thomsen’s February 4, 2009 appearance before the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises left Chairman Paul E. Kanjorski (D-PA) and Committee Member Gary Ackerman (D-NY) smoldering over her smug attitude and refusal to answer questions. Congressman Ackerman erupted at one point, telling Ms. Thomsen and her colleagues: “You have single handedly diffused the American public of any sense of confidence in our financial markets if you are the watchdogs…”

    Congressmen Kanjorski and Ackerman’s outrage was set off by earlier testimony that day from whistleblower Harry Markopolos who presented the multi year, documented complaints he had filed with the SEC advising that the Madoff operation was a giant Ponzi scheme, without any serious action on the part of the SEC. Markopolos said the agency “roars like a mouse, bites like a flea” and “when an entire industry you were supposed to be regulating disappears due to unregulated, unchecked greed, then you are both a captive regulator and a failed regulator….”

    On May 14, 2009, Wayne Jett, Managing Principal and Chief Economist of Classical Capital LLC summed up Ms. Thomsen’s more recent SEC tenure as follows in a published letter to the SEC:

    “As SEC’s director of enforcement, Thomsen presided over the firing of her investigating attorney, Gary Aguirre, in 2005 shortly after Aguirre disclosed to Paul Berger, Thomsen’s immediate subordinate, evidence of insider trading by a hedge fund. Berger learned that Aguirre’s evidence pointed to Wall Street player John Mack [the head of Morgan Stanley] as the “tipper” in insider trading by Pequot Capital, a major hedge fund. Berger fired Aguirre and closed the investigation of Pequot…

    After a statute of limitations expired foreclosing further action against Mack, Berger resigned from the SEC to accept a position with a major Wall Street law firm — the same law firm which had contacted the SEC on behalf of investment bank Morgan Stanley to inquire whether Mack was exposed to any pending investigation. Berger pursued his new position as he exercised authority in the Pequot investigation and in the inquiry by Morgan Stanley.

    Two Senate committees investigated Aguirre’s firing and a joint minority report found appearances of impropriety. The report was followed by resignations of the SEC’s inspector general, chief economist and three commissioners. A new SEC inspector general investigated and recommended disciplinary action against Thomsen for her conduct in the Pequot/Mack/Aguirre matter. But the Enforcement staff issued its own press release denying misfeasance. Commissioners voted to take no action against Thomsen despite the inspector general’s report, and laudatory comments followed her eventual resignation.

    In other words, if you’re only a domestic diva like Martha Stewart, SEC round trippers may see fit to throw you to the wolves. If you’re a major Wall Street firm generating tens of millions in billable hours to round trippers and their legal colleagues, you may get a gift-wrapped get out of jail free card.

    This isn’t just my suspicion. U.S. District Court Judge Jed Rakoff smelled something fishy in the August 3rd deal the SEC cooked up with Bank of America. The Judge refused to approve what he perceived as a measly SEC settlement of $33 million in a lawsuit over Bank of America withholding from investors information that it had approved of Merrill Lynch paying out billions of dollars in bonuses as part of its rescue acquisition of the firm. (Both firms required life support from the public purse known as TARP.) Bloomberg News quotes Judge Rakoff as follows: “I would be less than candid if I didn’t express my continued misgivings about this settlement at this stage…When this settlement first came to me, it seemed to me to be lacking, for lack of a better word, in transparency. I did not know much about the facts from the complaint. I did not know much, or really anything, about the basis for the settlement.”

    That was the same view held by the Congressional questioners in the Madoff matter at the February 4, 2009 dust up with top SEC officials. After many rounds of pointed questions produced unresponsive answers, round tripper Andrew Vollmer, then Acting General Counsel of the SEC, explained why. He and his fellow SEC panelists were claiming executive privilege. This position elicited the following outburst from Congressman Ackerman: “Your value to us is useless…Our economy is in crisis, Mr. Vollmer. We thought the enemy was Mr. Madoff. I think it’s you…you were the shield…You come here and fumble through make believe answers that you concoct and attribute it to executive privilege….”

    On April 2, 2009, another of Wall Street’s favorite law firms, WilmerHale, announced that Andrew Vollmer would be returning to the firm as a partner. According to the press release, before joining the SEC, Vollmer was a vice-chair of WilmerHale’s Securities Department.

    The idea that highly paid corporate lawyers have an insatiable altruistic bent to periodically serve as low wage staffers at the SEC is worthy of its own Congressional hearing. Any serious reading of the facts will likely prove these lawyers are going to protect that big Wall Street firm that represents their next big pay day and fast track to partnership.

    And just what does the Madoff fraud have to do with the big firms on Wall Street? The multi billion dollar proceeds of the fraud were wired in and out of JPMorgan Chase where Madoff maintained his firm’s account. Also, Madoff partnered with Citigroup’s Smith Barney, Morgan Stanley, Merrill Lynch and Goldman Sachs to compete head on with the New York Stock Exchange in a venture called Primex Trading as reported here at CounterPunch on January 15, 2009.

    Pam Martens worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire. She can be reached at [email protected]

  13. Do you guys think J. David Fielder was sent influenced Kotzs’ report on the SECs’ performance re: Madoff (and others of course) no therein lies (no pun intended) the rub!!! This could get real good in a hurry!!

  14. revolving Annette Nazareth:

    8/31/09 Securities and Exchange Commission press release
    Joint Meeting on Harmonization of Regulation
    CFTC Headquarters
    September 2, 2009
    9:00 a.m. Opening Statements by Commissioners
    9:30 a.m. Panel One — Exchanges, Markets, Clearance and Settlement, and Margin Requirements

    William Brodsky, Chicago Board Options Exchange
    Jonathan Short, ICE Futures
    Craig Donohue, CME Group
    Anthony Leitner, AJ Leitner & Associates
    Annette Nazareth, Davis Polk & Wardwell
    Eric Baggesen, California Public Employees Retirement System (CalPERS) …
    read the rest of who will be participating @


    Former SEC Commissioner Annette Nazareth Joins Davis Polk

    2007-210 Oct. 2, 2007 Commissioner Nazareth Announces Intention to Leave SEC

    SEC Biography:
    Commissioner Annette L. Nazareth
    Annette L. Nazareth was appointed by President George W. Bush to the Securities and Exchange Commission and sworn in on August 4, 2005.

    Prior to being appointed a Commissioner, Ms. Nazareth served as the Commission’s Director of the Division of Market Regulation, a position she held from March 1999 until August 2005. As Director, Ms. Nazareth had primary responsibility for the supervision and regulation of the U.S. securities markets, principally through the regulation of brokers and dealers, exchanges, clearing agencies, transfer agents and securities information processors….
    read the rest @

    1. i forgot to mention Nazareth began where she is now (revolving), as she steps up to the plate @ Joint Meeting on Harmonization of Regulation
      CFTC Headquarters
      September 2, 2009

      …She began her career as an associate with the law firm of Davis Polk & Wardwell in 1981, where she worked with commercial banks, investment banks and corporations on mergers and acquisitions, syndicated loans and public and private securities offerings…

      “O” it gets better…
      Top Treasury Pick to Withdraw From Consideration
      March 05, 2009 6:33 PM
      Annette Nazareth, Treasury Secretary Tim Geithner’s expected pick to be his top deputy at the Treasury Department has withdrawn from consideration, administration sources confirm….

      A Democratic source tells me that Nazareth faced resistance on Capitol Hill for being “too lax a regulator” at the SEC.

      Mar 6, 2009 2:38:47 AM a comment that followed the above article was:
      “Annette Nazareth’s husband had his own problem with missing a derivatives mess at his former position and that might have been an embarrassment.”

      ironically her husband Roger W Ferguson Jr took office and served on the Federal Reserve Board in November 1997.

  15. Judd, feel free to delete this as long as it gets to Patrick. I am blunt, because I care about Patrick and Overstock and am a shareholder.

    I just saw the new Canadian commercial for Overstock and have some constructive criticism as I think the ad campaign will be ineffective.

    – the experience for Canadians to buy is really bad. The tiny Canadian market probably isn’t worth it, but if it is, get the website right first. I’ve tried to buy for no other reason than I want my money to go to Overstock and I get bounced around so much that I get frustrated and give up. The best advice may be to skip Canada as it’s too much bother for an extra 10%. Check how many empty shopping carts are abandoned in Canada.

    – if you do skip us, make sure you aren’t paying for ads that show here. OSTK advertised heavily in Canada when it wasn’t available here. Sites like CNN should discount you for Canadian traffic unless they can block us.

    – the emphasis on O makes people think of Oprah which isn’t a plus. It’s just confusing. Oprah makes me think of wealth (hers), free (cars to her audience), her magazine, feminism, etc. My brain goes on a stream of consciousness that doesn’t talk to the benefit of your company. The only way I’d ever use O is if you had an endorsement from Oprah. Otherwise, it seems like you are trying to cling onto her. By the time my eyes stop glazing over, I think it is a new oprah product that she will explain on one of her shows.

    – people only care about themselves. The ad should be about what overstock is going to do for me, not why I should care about Patrick. No one cares about the CEO unless he’s sending them discount cards. The ad has to be about what is in it for me or there is no point to running it.

    – CEO’s shouldn’t be in videos. From Bill Gates to Remington “I bought the company”, it isn’t effective. When I hear the men’s wearhouse guy, I just keep thinking he needs to quit smoking or he’s going to get cancer and I just imagine his clothes are full of smoke. No one cares about the owner of the business. It just steals words from how I can log in and save money and why I would want to. It can only be negative. Why not pull the CEO out, so even shorts would buy and save money.

    – the product is not well known here. It isn’t clear what you are selling. The name is about how there is too much of something. OVER stock. Over has a negative connotation.

    Over fed, over indulged, over paid, etc.

    Only talk about the negative of Over if you can talk about the benefit such as UNDER charged.

    You could talk about how OVERstock means UNDERcharging, but unless you talk about the UNDER benefit, it only comes across as a negative. Most people think of the word OVER as a negative, such as my life is OVER.

    Why should I care? The ads should be about how the over stock is the company’s problem, but my short term opportunity to save. (I need to hurry up and buy because the crazy deal is only there until the stock is gone.)

    – it’s too much from the company’s point of view. “What’s in it for me!” The ad seems to be about the company bragging about itself.

    I want nothing better than for Overstock to short squeeze the b_turds.

    Discount is popular here. Liquidation World. One I can’t think of I go to all the time, etc.

    We have an annoying grocery store that I can’t even think of the brand name (extra save, super save, great save, something like that, but they don’t advertise and I can’t even think of the name except I believe they are cheap and shop there), but I remember reading a story that you think you are saving money because the experience is so terrible. Glaring yellow, bright lights, card board boxes, nothing in the right place.

    Anyway, I get the feeling you are marketing to us rich folk, when you should be marketing to two demographics. Your ad is too nice. Images of wealth and relaxation and ease. Saving money is supposed to be a chore. You should market that it IS a chore, but the computer does it for you, kind of like the roomba vacuums. Talk about how hard saving is, but the internet automates the saving chore, while you still get the money savings.

    You should play up you charity and you should play up your savings.

    I bet 90% of the population would choose you over another provider if they thought you were more charitable. I know that’s not why you do it. You do it because you are a nice person. But, your marketing has to let people be aware.

    Don’t be afraid to hire a professional image consultant that can brag about OSTK when you don’t want to because your charity is from your heart.

    The savings and charity are no where in your commercials.

    I would hire a professional marketing consultant, even if it cost a fortune, because you have so much good will, even potentially bringing the story about the super hero Patrick, fighting naked shorting for the good of the average saver, but it has to be done right and the ad comes across as amature.

    Anyway, Judd, delete this as soon as you see this, but make sure Patrick gets it.

    He’s my hero and I want him to win and succeed and the constructive critisism is towards that goal.

  16. Now look what Mark has started!!LOL!!!

    Questions raised over Goldman research policyFont size: A | A | A10:28 AM ET 8/24/09 | Marketwatch

    4:01 PM ET 8/31/09
    Symbol Last % Chg
    GS 165.46 0.00%
    JNS 12.72 0.00%
    Quotes delayed at least 15 minutes

    NEW YORK (MarketWatch) — Goldman Sachs Group Inc. regularly provides its top clients with stock-trading tips that differ from the firm’s published research reports, The Wall Street Journal reported on Monday.

    The report said that the firm’s (GS) researchers hold weekly meetings, referred to as the “trading huddle,” at which analysts discuss their latest views of individual stocks, and that those views are passed on to the firm’s top clients and Goldman traders who run the firm’s own money.

    The paper, citing company documents, said few of the firm’s clients who receive written stock research from Goldman ever hear or know about the views that emerge from the meetings.

    The report cited research on asset manager Janus Capital Group Inc. (JNS) as an example of the practice.

    It said Goldman issued a report on Janus on April 1, 2008, rating the stock neutral, and a day later at one of the weekly meetings told a group of Goldman traders that the stock was likely to go higher.

    Following that meeting, the paper reported that research department employees called about 50 favored clients, and passed on the information about Janus from the meeting.

    Goldman’s clients who receive written research did not find out about the bullish update until six days after the call to top clients, according to the report.

    The report cited critics of the practice, who argue that the policy hurts customers who do not receive the updates.

    The report quoted a Goldman Sachs spokesman in its story saying, “Analysts are expected to discuss events that may have a near-term or short-term impact on a stock’s price.” He further told the paper that earnings estimates or stock-price targets “must be published and disseminated broadly to all clients.”

    Goldman Sachs declined to comment to MarketWatch on the story.

  17. Goldman Sachs will shortly receive $21 Million Dollars from the Medarex Board of Directors per the agreement between MEDX BOD and GS (about 1% of the 2.1 Billion Dollar Merger Deal with BMY).

    BMS (BMY) announced this morning that 90.7% of the MEDX outstanding shares have been tendered and a “”short-form merger,”… expected to occur on or about September 1, 2009….”

    ( )

    I wonder how many “Counterfeit Shares” were created and tendered during the tendering period?

    And I wonder how many “Counterfeit Shares” were created and subsequently tendered during the tendering period?

    Of course, we do not know how many “Counterfeit Shares” were created JUST BEFORE, and DURING the tender period, nor long before the tendering period, since the SEC does not require Wall Street to report Ex Clearing transactions.

    Once again SEC you have failed to protect the small retail investor, the mass majority of investors in the United States!

  18. One correction:

    “And I wonder how many “Counterfeit Shares” were created and subsequently tendered during the tendering period?”


    And I wonder how many “Counterfeit Shares” were created JUST BEFORE the tendering period, and subsequently tendered during the tendering period?

  19. Just a quick note on Goldman Sachs receiving $21 Million Dollars upon the completion of the Merger of MEDX with BMY.

    This payment (or is it something else? payoff?) of $21 Millions Dollars was NOT revealed in the original Schedule 14D-9 filed by MEDX with the SEC when the merger was first announced.

    The only reason this information became public knowledge is because of the Class Action Law Suit Against MEDX and BMY. The lawyers in this suit came to a settlement which revealed some additional information. The one sentence statement revealing this payment (payoff?) is:

    “Medarex has agreed to pay Goldman Sachs a transaction fee of approximately $21 million, all of which is payable only upon consummation of the Contemplated Transactions.”

    ( See Under Item 4…. )

    There is no explanation of WHAT services Goldman Sachs would render that would be paid out by MEDX to Goldman Sachs ONLY IF the deal was consummated.

    What services rendered by Goldman Sachs could be worth approximately 1% of the 2.1 Billion Dollar Merger Dear ($21 Million Dollars)?

    Since I know there is corruption on Wall Street, I wonder about this “payment.” And I wonder if this “payment” was really a “payoff” for services rendered for by the Wall Street Counterfeit Machine??

  20. The new official motto of the anti-abusive naked short selling reform movement: Si solummodo deinde tamquam exemplar (“if only there were a pattern”)

  21. A few years ago the Swindler Bob Brennan was put in the slammer, rightfully so. He was a pumper and dumper. I think it was Gary Lynch, of the SEC who hounded then jailed Brennan.Now Steve Cohen is essentially doing the same thing- yet he walks.This Miliken era cheat has co-opted everyone in sight. The Times is in his pocket. So is Schumer and the political establishment of NY state.If there was one honest public servant in NY Cohen would be in a cell. Conversely if the events of today were played out 20 years ago. Miliken truly would be the master of the universe.And untouchable.

  22. You can learn a lot from these consultants for the management of your
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