Back in college, where the combination of free time and that university mojo so often lend themselves to this sort of thing, a friend and I challenged each other to cram the most undeniable truth into complete sentences of the fewest possible words.
In the end, we settled on the following:
“Entropy increases” and “The pendulum swings.”
The first sentence is a reference to the Second Law of Thermodynamics.
The second sentence is a reference to the fact that cultural trends will always increase in pervasiveness and acceptance until some limit is broached, at which time opposing forces will be applied that cause society to respond with increasing negativity toward that trend. And, as with an actual pendulum, the higher the upswing, the more forceful the push back will be.
How true both are.
I first encountered the market reform movement near the end of 2005. Over the months that followed, I witnessed the following:
- An SEC staffer in San Francisco subpoenaed the communications of Jim Cramer, Herb Greenberg, Bethany McLean, Carol Remond and a handful of other “journalists” suspected of colluding with Gradient Analytics and short selling hedge fund Rocker Partners, only to have SEC Chairman Chris Cox personally sabotage the effort. This was followed up almost immediately by the SEC vindictively subpoenaing Patrick Byrne.
- FOIA requests filed with the SEC intended to give some sense of the scope of the delivery failure problem were regularly denied or spitefully filled with minimal accompanying explanation.
- Numerous brutal articles were published attacking opponents of naked short selling – Byrne primarily among them – under the bylines of (surprise) Jim Cramer, Herb Greenberg, Bethany McLean, Carol Remond, Joe Nocera, and Roddy Boyd.
- Audio tape captured by a market reform operative who covertly accessed a panel discussion featuring Herb Greenberg, Joe Nocera and Dan Colarusso (then Roddy Boyd’s editor) hosted by the Society of American Business Editors and Writers. The theme of the discussion was essentially “How do we deal with these lying anti-naked short selling bloggers who are so critical of us?” Among other things, the tape caught Joe Nocera saying (to loud applause) he felt life was too short to bother understanding whether naked shorting is actually a problem, and Dan Colarusso saying he and his newspaper had the capacity to “crush” Patrick Byrne.
- An all-out PR offensive launched by the Depository Trust & Clearing Corporation (DTCC) attacking opponents of naked short selling.
- The emergence of Gary Weiss, an ostensibly credible former business journalist and blogger, bursting onto the scene, proclaiming naked short selling beneficial and its opponents crazy.
- The hijacking and distortion of the Wikipedia article on naked short selling by whom we would soon learn was none other than Gary Weiss. Given journalists’ well-documented over-reliance on Wikipedia, this was undoubtedly a key factor in our difficulty getting them to provide more balanced coverage of the issue.
- A special session of the Utah Legislature which, catching the banks flat-footed, resulted in passage of a law requiring brokerages with operations in Utah to promptly disclose stock delivery failures. But before it could go into effect, and after the prime brokers managed to rally their armies of lobbyists, the law was handily repealed.
- Unprecedented growth of companies on the Reg SHO Threshold Securities list, indicating that, contrary to the intended aim of Regulation SHO, naked shorting was becoming increasingly prevalent.
On balance, it was a very dark time for the market reform movement, as every charge was followed by a blistering counter-charge, and every lunge answered by a quick parry. More than once, I recall hearing even the staunchest market reformers openly question the capacity of a rag-tag band of revolutionaries to counter the enormous influence and resources brought to bear by the hedge funds and prime brokers who were getting rich from the practice of manipulative naked short selling, and I couldn’t help but wonder whether I’d picked the wrong battle.
That’s not to say I ever doubted the correctness of the cause – only the correctness of my decision to join a fight that sometimes seemed impossible to win and certain to result in damage to my reputation as it had to Patrick Byrne’s and so many others’.
But in those moments of doubt, I’d remind myself of an eternal truth: the pendulum swings.
In other words, as dark as those days were, there would invariably be restraining forces applied to help slow – and eventually stall and even reverse – the momentum built up by decades of Wall Street villainy and the deep regulatory capture of the institutions intended to counter it.
What we could not have realized – as such perspective only comes with time – is that we (meaning, you, me, and everybody else who’s taken steps to do something about illegal naked short selling) were in fact the very restraining forces so many of us were expecting to arrive, cavalry-like, from some unknown quarter, and that as dark as those days seemed, they appeared quite bright to those who had endured the 1990s and early part of the current decade, when the practice persisted, without restraint, like a drunken orgy.
Of course, the event that finally brought the pendulum to a decisive halt and reversal was the current economic crisis, which saw the term “naked short selling” dragged into the popular lexicon (as determined by Yahoo! listing it as one of its five most popular search terms in September of 2008).
Since then, as the link between naked short selling and the beginning of the crisis itself has been solidly established, valiant members of Congress – most notably Delaware Senator Ted Kaufman – have dragged the issue of naked short selling into the political lexicon, as well.
Where are we today?
- The SEC recently enacted permanent restrictions on illegal naked short selling, which include greatly enhanced disclosure of delivery failures and shorting activity.
- Today, the SEC brought its first enforcement cases against illegal naked short selling.
- Also today, FINRA expelled a member firm for engaging in illegal short selling.
- Jim Cramer has been deeply and publicly shamed. Herb Greenberg is now a ‘consultant’. Bethany McLean has left business journalism. Dan Colarusso continues looking for steady employment. Roddy Boyd, Carol Remond and Joe Nocera all retain their former positions, but seem to steer clear of anything resembling the issue of naked shorting.
- The DTCC is mum on the issue as well.
- Gary Weiss – since abashed and banned from Wikipedia – sinks ever deeper into obscure irrelevance while the Wikipedia article on naked short selling that he once controlled has been liberated and made to read nearly as it should.
- Substantive legislation with the capacity to end illegal naked short selling and other short-side market abuses once and for all is currently working its way through Congress.
- As of today, the Reg SHO Threshold Securities list is 23% shorter than it was on the day I met Patrick Byrne (and 90% smaller than it was at its height in July of 2008), and is nearly devoid of the kinds of promising, well-capitalized companies whose inclusion used to be a sure sign of an impending bear raid.
These are all developments that seemed impossible in the dark days of 2006.
But here we are.
Yes, the pendulum is now unambiguously swinging in our direction, but the job is not done. Indeed, we can only be assured of progress to the extent that we each recognize our responsibility to continue pushing.
Thanks for the new story. I was nearly having withdrawels…
I wish you’d consider doing a Gary Weiss-ish expose on the mischief Sam Antar et al carry out on the OSTK yahoo message board. But as you noted about Weiss, Antar’s nonsense is almost entirely irrelevant now as well.
What made Weiss dangerous is that he arrived with a seemingly respectable pedigree. Antar, on the other hand…
Judd excellent observations and I have a feeling that more good news is coming our way in short order. Out of todays news I like the followin excerpt the best..
“We’re looking at the conduct of a number of other firms and that part of the investigation is continuing,” Scott Friestad, associate director of the SEC’s enforcement division, said in an interview. “These violations are not limited to smaller broker dealers.”
The above coming from this bloombeerg article..
Now notice how non of the big brokers or online trading Naked Shorting brokers are listed but they will be. Ameritrade, Etrade, Scwab, Scottrade ect. Just like going after companies that complained about Naked Shorting and Stock Manipulation and ignoring proof of an eventual 65 billion ponzi scheme ala the SEC and FINRA. Someone has turned on the lights and the roaches have no choice but to scamper. The only question is who will turn Whistlerblower first? Who will be our next Dennis Levine/Ivan Boesky? Lets keep the pressure on and the topic in the forefront!! Thanks again for your efforts.
Shapiro is the most useless regulator in the history of the universe and this is not anexageration. Listen to her interview on CNBC
She is such a useless executive, she cannot or wont make a decision if her life depended on it. She is still reviewing inputs and comments on the proposed short selling rules… She wants to hear from all sides on all the issues. We will all be dead before she decides anything. Its like she wants to find out from the bank robbers if they can still work with the proposed new alarm system. She is unfreakingbeleivable!!!
If I may interject; I actually like Schapiro. I understand what she said in the interview and that many don’t like it. But you must recognize, she alone cannot make change, it requires a majority vote of the Commission staff which she is only one of 5. Her CNBC response was the politically correct one.
The SEC has been under attack for making rule changes that were later challenged by the courts – hedge fund registration is the most telling. The SEC today is making sure the policies they create will not fall under similar legal attack.
This is a really inelgeiltnt way to answer the question.
Good stuff, Bro! Lord knows we don’t need any more “Microwave Ministries.” They’re no good for the long-term health of the Church. You hit the nail on the head!
You’ve got it in one. Couldn’t have put it better.
Zino, you seem suprised. Harry Markopolos called FINRA a corrupt agency (and that was while she was the head of it)and called the SEC incompetent. Does’nt she remind you of someone you used to know??..Christopher Cox? All cut from the same cloth sir. Their job is to serve and cater to Wall Street not us!!!
The pendulum swings is simple movement to kabukiza show.
Schapiro must be removed.
She wants to wait until the end of the year for the uptick.
Pathetic, useless wench.
This pendulum has swung largely (if not completely) because of the work of Patrick Byrne, Mark Mitchell, and Judd Bagley. And, sadly, most people are still oblivious about these issues and their significance.
Speaking of which, when can we expect to receive the publication of the full 15 Chapters of the Dendreon story? I have many people to send it to….
Great imagery, Judd! Yes indeed, the momentum is going in the other direction now. And we must keep pushing!!
Thanks Judd and others for the fortitude you have diplayed. Change comes when the masses say enough. That pendulum is swinging because of the nefarious behavior that nearly broke the financial system and that has the masses being personally impacted and saying enough. The sad part is there are still those who sit in front of us and attempt to cloud the issue. That tactic is no longer working because of the work of you and many others. All should simply cut and paste and send this latest contribution out to all on their list and have them send it to all on their list. Many do not hesitate to do so with a inane joke. It’s in the best interest of the masses to get the masses involved. So cut, paste and send. Then DEMAND action from those whose job it is to do so. With one caveat there are so many involed that to correct it with one sweep of a brush stroke was NOT possible a year ago. Cox didn’t do his job. Neither is Shapiro. Then again neither did Sen Shelby. BUT Sen Kaufman is! Gasparino/Faber didn’t do their jobs but Mark Mitchell, Judd Bagley are! Get rid of the bad and replace them with the good.
Many of the worst offenders in the area of Yahoo board FUD spewing hail from the greater NYC metro, especially Jersey. They are the “Jersey Boys!” – LOL.
“Alright youse guys … I’ll play ya a tune on my violin, see?”
(That’s actually more Chicago style, but you get the idea … )
As long as the SEC and DOJ cherry pick who they will allow to settle and who they prosecute there is nothing to deter wall street or white collar criminals /miscreants. I see more of the same. Just think, by way of our Prez the justice department has been instructed to defer prosecutions…THE CROOKS WIN
Um… Newton didn’t discover (or state formally) the second law of thermodynamics. He’d been dead for well over a century by then.
And… with all due respect to the reportorial zeal of Mr. Mitchell, his 15-part Dendreon story on the manipulation of both FDA reviews and stock price could – if it were being assembled into a single document – benefit from an equal measure of editorial zeal. Many redundancies could be squeezed out to make a leaner, easier-to-follow story. Also, I think the shrillness of the language could be toned down without undermining the force of Mr. Mitchell’s moral indignation.
You are correct about Newton. Thank you for catching that.
As for the rest…we appreciate your opinions.
drMark, you’re not exactly succinct yourself.
Aside from your obvious editorial prowess, just what do YOU offer?
There must be UNRELENTING PRESSURE. Lose hope & we lose. The pendulum is swinging in our direction, but it wouldn’t hurt to push it.
Mary Schapiro is the head of an organization that at best has a culture of favoritism, obfuscation, denial and persecution of whistle blowers – at BEST.
The SEC as it is, needs to be taken down….like the song Tobacco Road
Bring that dynamite and a crane,
blow it up, start all over again.
Build a town, be proud to show.
Gives the name Tobacco Road
Send “Tobacco Road” Ringtone to yo
How Ironic – when I went to the site that had the lyrics, the sponsor was none other than
you guessed it
That pendulum ain’t done swinging yet, Judd. Me and Walstreetpro2 are talking about organizing a Million Baseball Bat March on Washington…
We’re tired of these people, Goldman Sachs and their illegal naked shorts against Lehman Brothers… ‘yall did a good job showing JUST ONE mechanism they were using to do us all like that, and you identified the culprit: regulatory capture.
They just paid themselves out big on the taxpayer’s dime while WE STARVE. And they’ve SERIOUSLY UNDERESTIMATED the “backlash” from them partying with OUR MONEY while WE STARVE. We’re DONE man, ALL OF US. All this will take is one little spark…
mr randall there is a planned march on D.C. for the 12th of sept.
bring yer louis ville sluggers or other items.
Jay, put David Einhorn in the crosshairs for Lehman too.
Schapiro is a TOOL:
Investigating 38 million Lehman naked short.
The environment seems to be improving, but it’s way too early to celebrate. Major damage was done for several years, culminating in the climax of 2008. Will anyone investigate naked short selling in Lehman, Fannie, Freddie, Citi, etc? Will anyone investigate failures in the market for U.S. Treasuries? If that happens, we are starting to get traction. We will only know if there are stiff penalties and jail time for major actors.
I caught a few minutes of some show on cnbc the other night. It was described as a panel of experts discussing the future of healthcare in America. I was totally shocked to see that Michael Milken was sitting on this panel, amongst medical professionals, as an “expert”.
His only expertise is in bilking money out of the general public, and maybe that is why they asked him to join the panel… “Tell me Mr. Milken, how do you propose that we [covertly] steal from Peter, in order to pay Paul?”
But seriously, seeing that bald scumbag sitting there pontificating; well it just as well could be analogous to seeing Hitler sitting in on a committee to end anti-semitism.
Judd, is it possible to remove Marv Ettingers posts. He has been clogging up the bandwith here on every blog with the same nonsense, and it has nothing to do with this or any other blog that is the topic of discussion. I maybe can understand putting this out there once but this must be the 8th time I have seen this post here on Deepcapture. To me this is very suspect. Thanks for your attention in this matter.
Why not limit these long posts to the forums?
Pls delete Marv Eatinger.
Patchie. I hear you re Mary Shapiro but that politically correct thing is not going to resurrect those who fell victim to the demise of the shares of so many last year as MR COX did his politically correct thing. When under attack as we were, politically correct doesn’t and didn’t cut it. Winning is about acting when needed. I understand why she delays. Yet she had an opportunity to be a champion. Just as Cox did once he understood the chit he walked into. Cox will go down in history as a failure. Shapiro has been pegged correctly by others on this board. She’s no champion and those who are in leadership should seize the moment to put one in place that is willing to get out in front and LEAD verus be politically correct. I’ve read your work for a long time Patchie. YOU’RE A CHAMPION AND HAVE WHAT IT TAKES TO LEAD. How do we get you into that slot?
This is GOOD NEWs for all us individual investors:
Kaufman Statement on NASDAQ Decision to Eliminate Flash Order Offering
August 6, 2009
“I applaud Nasdaq for doing the right thing and not waiting on the SEC to ban flash orders. This is the urgency I have been talking about. I call on the other exchanges and trading venues who offer flash orders also to move now to eliminate flash orders and begin the first step to a level playing field for investors.”
( http://kaufman.senate.gov/press/press_releases/release/?id=2779474f-adf0-4ba5-8a8b-934d3210e8d4 )
This is why the perps will not be criminally prosecuted for their crimes. Just as I explained. The justice dept has its orders from Obama to defer prosecutions.
“The shake-up of the enforcement division is the most significant overhaul it has seen in decades. Mr. Khuzami, a former federal prosecutor, is pulling from the Justice Department’s playbook for several of his new initiatives, such as more frequently offering immunity and deferred prosecution for individuals cooperating with investigations.”
Look what this criminal behavior received:
“In recent weeks, the SEC has resolved older investigations that have lingered for years and announced multimillion-dollar settlements with Bank of America Corp. and General Electric Co. Both firms settled without admitting or denying wrongdoing.”
“without admitting or denying wrongdoing”…SOUND FAMILIAR?
Read whole article here:
AUGUST 7, 2009
By KARA SCANNELL
Thanks for all the hard work everyone has done so far,the battle is not over yet,these thieves need to be brought up on criminal charges because the deeper we dig into this criminal activity and hang names on the perps we need to press prosecuting attornies in various locations to bring charges against these organized criminals.
Things are starting to improve. I will reserve my greatest thank you for the easterbunny though. Deepcapture has taken our cause to the national scene, building upon years of thankless diligence by a handful of forgotten heroes. When the likes of rocker, einhorn, chanos, and yes milken are stripped destitute, prior to incarceration, and the monies dispersed to those victimised, then we can celebrate. Oh, and their flunkies in the press and government thrown in the pen too……..
This is what i’m SCREAMING !!!
NEW YORK—The government appears to be getting tough on corporate shenanigans, securing $83 million in fines last week from Bank of America and General Electric for misleading investors.
Read it here:
You & others Mark went beyond the call of duty; the real question is what will the rest of us do? If nothing else, I hope we continue to bang the drums….
Anonymous..apparently you have forgotten what took place after Enron and with C, Sandy Weil and others. Now let’s be objective here. BAC could NEVER have known what Merrils losses would be once they were exacerbated by the LEH collapse and the irresponsible act by those who voted NO for the Tarp that simply caused the seizure of the credit markets. Once they were known in DEC to reveal such would have broken the system. The actions re GE fall into the timeline of the aftermath of 9/11 and Enron, Ge as many others were at that time was simply attempting to stay the damage as others are NOW doing so they can survive. What I’m concerned with are those tatics that resulted in this latest attack on the financial system. This time most here understand they thugs did it by pushing buttons and the use countefeit shares. The SEC and DOJ should be focussing on those miscreants versus some major corporate that was either in defense or reacting. If Merril doesn’t merge with BAC in Sept 08 they go. IF they go it all goes. So let’s continue to focus on going after those who pulled the triggers or allowed themselves to be part of the problem. To the latter I’d say that the majority ( GS/MER/MS/UBS/etc were complicit and WHY you can’t just lock them all up.
Back on topic for all to see. The truth emerges and still no one being punished.
Pequot, Aguirre & the SEC
Pequot Trading in Google, Cox, Premcor Sparked Warnings to SEC
By David Scheer and Jesse Westbrook
Aug. 10 (Bloomberg) — Pequot Capital Management Inc., once the world’s biggest hedge-fund manager, was cited in at least 44 private reports from exchange watchdogs in the past four years alerting U.S. regulators to potential insider trading, market manipulation or other misconduct, government documents show.
Trades linked to Google Inc., Cox Communications Inc., International Securities Holdings Inc., Premcor Inc. and dozens of other companies prompted surveillance units policing U.S. exchanges to make the referrals to the Securities and Exchange Commission, according to agency records obtained by Bloomberg News. Thirty-six reports flagged possible insider trading. Four indicated possible manipulation and four were labeled “other.”
“The numbers would indicate they had trading that closely preceded 36 material events” said Bradley Bennett, a partner at Baker Botts in Washington and a former SEC investigator who focused on insider-trading cases. “Referrals are very strong at identifying accounts that are worth additional scrutiny,” he said. “Not all referrals result in enforcement actions.”
Pequot founder Arthur Samberg, 68, told investors in a May letter that he planned to liquidate his main hedge funds after a federal insider-trading investigation “cast a cloud over the firm.” People familiar with the inquiry said in January it stemmed from bets Samberg’s company, now based in Wilton, Connecticut, made on Microsoft Corp. in 2001. Neither Samberg nor Pequot has been accused of any wrongdoing by the SEC.
John Nester, an SEC spokesman in Washington, declined to comment yesterday on the previously undisclosed trading referrals to the agency and declined to say whether any are still being investigated. Chris Kittredge, a spokesman for Samberg and Pequot at Sard Verbinnen & Co. in New York, declined to comment.
Pequot oversaw $3.47 billion, according to a May 15 regulatory filing, down from $4.3 billion in November and $15 billion in 2001, when it was the top-ranked hedge-fund firm by assets.
The list of Pequot referrals accompanied a July 14 letter from the agency’s chairman, Mary Schapiro, to Senator Charles Grassley, the Iowa Republican who has been scrutinizing the regulator’s oversight of Pequot since a onetime SEC lawyer complained that his bosses had hindered his efforts to probe the firm. The SEC forwarded all but one of the referrals to its investigators, Schapiro wrote, without indicating the outcome.
The spreadsheet shows that the SEC received alerts from the New York Stock Exchange, the American Stock Exchange, the Chicago Board Options Exchange and the NASD, the brokerage regulator now known as the Financial Industry Regulatory Authority, or Finra.
The entire article can be read here…
Chris Cox: An Exceptional Speaker now ready to rake in the big bucks on the speaker’s circuit.
Nice work if you can get it.
Harvey Pitt, Ex SEC head seems to believe that naked shorting occurs:
Why doesn’t Weiss?
Dr. Jim DeCosta,
I am wondering how outstanding counterfeit shares in brokerage accounts could possibly effect a tender offer for a merger.
Specific Examaple is…
MEDX Board of Directors approved a merger with BMY for $16/shr. The MEDX stock was trading around $8.20 or so.
For the tender offer to succeed, at least 51% of the shares have to be tendered.
Since MEDX is a biotech company that has been naked shorted in the past and most likely there are outstanding naked share floating in the system…
Is it likely the naked positions were covered when the stock went up about 90% overnight?
Or is it possible the naked positions are still un-covered and the tender offer offered a means for the naked shares to be bought by the tendering company and to be counted in the tender offer?
Please march peacefully on Sept 12 (and in any other marches). Please do not bring baseball bats. The last thing we need right now is anarchy. That would play into evil hands. Trust me on this.
If it’s a cash offer and the shareholders approve of it then those naked short will have to match the offer. They do not have to cover. If there’s a large naked short position then the voting will be chaotic and people’s voting power will not be what they think it is but they’ll never learn of this reality. If a “dirty” clearing firm has a ton of FTDs then it will grant the clients of its “introducing” or “correspondent” brokers a “proportionate interest” in the number of shares that it did get delivery of. The foundational concept of “one share, one vote” got thrown under the bus by the NSCC. It had to otherwise NSS frauds would be revealed every time a vote is called. If you want your full voting power you either deal with a “clean” clearing firm (good luck finding one) or you demand delivery of your certs.
What’s really heinous is if the offer was in the form of a “share swap” wherein the shareholders got $16 worth of stock of the acquiror. In this case the crooks will not be asked to cover their naked short position but instead an FTD of the acquiree becomes an FTD of the acquiror prorated by whatever the ratio is. The BOD of the acquiror will never learn it but they will have paid a heck of a lot more readily sellable “shares” (actually readily sellable “security entitlements” that manipulate the share price downwards) for the acquisition then they thought. Again, they have to do it this way otherwise there would be a massive short squeeze in the time period before the vote. The share price of the acquiror will always tank even if the acquisition is accretive to earnings. It’s caused by all of that extra baggage in the form of readily sellable share price depressing “security entitlements” they’re taking on. The share price depression of the acquiree’s FTDs leads to the acquisition being a bargain basement deal for the acquiror (that’s what they thought anyways). Nice clearance and settlement system we have, eh!
Dr. Jim DeCosta,
In the case MEDX and BMY merger, it is a cash deal.
On the first day after the merger announcement, I think about 50 million share traded.
If there are more than the official number of shares tendered, who loses money? The brokers/dealers? Hedge funds? Individual investors?
In this MEDX example, BMY agreed to pay 2.1 Billion dollars.
ACORN Funder JPMorgan Chase Doesn’t Look Good in New Madoff Book
Submitted by Peter Flaherty on Mon, 08/10/2009 – 13:48
A new book by Barron’s reporter Erin Arvedlund asserts that banking giant JPMorgan Chase became aware of Madoff’s Ponzi scheme months before his arrest, prompting the bank to liquidate its positions in a Madoff-related fund. Yet, the bank continued to accept deposits into Madoff’s main account at the bank from unsuspecting investors who were about to lose everything.
NLPC is a critic of JPMorgan Chase’s support for political and social causes that are contrary to the bank’s interests and hostile to the capitalist system itself, such as ACORN. Although these new revelations are a separate controversy, both reflect an apparent willingness by the firm to work with shady enterprises if it is perceived to be in its own interest.
The book is titled Too Good to be True. Excerpts appeared in Barron’s over the weekend. Arvedlund has a great deal of credibility on anything Madoff-related, having written a story in 2001 suggesting that Madoff’s consistent record of returns was suspect.
The only good thing that can be said about JPMorgan Chase is that, like Arvedlund, it was perceptive enough to smell the Madoff rat. But unlike Arvedlund, who tried to sound the alarm, JPMorgan Chase kept quiet and tried to protect itself.
In 2006, JPMorgan Chase developed a derivative product for its wealthy clients. It was linked to the Fairfield Sentry Fund offered by the Madoff feeder Fairfield Greenwich. The bank offered investors — mostly in Europe — a note that paid three times the earnings, or returns, of the Sentry Fund. The note matured in five years. To hedge its risk on the derivative product, the bank invested in the Sentry Fund itself. This way, if the Sentry Fund did well, the bank’s returns would offset its obligation on the notes.
By the summer of 2008, JPMorgan Chase had deposited $250 million with the Sentry Fund. With the financial meltdown on Wall Street and around the world in full swing, most of the markets were down 30% or more, and yet the Sentry Fund reported gains of 5%. JPMorgan Chase began to grow suspicious.
As a result:
In September 2008, JPMorgan Chase quietly liquidated its entire $250 million position in the Sentry Fund, even though it remained liable on the derivatives it had sold to the wealthy clients. At the time, the Fairfield Sentry investment notes were showing a 5% gain for the year. The bank had concluded Madoff was a phony, and the only way to protect itself was to liquidate anything connected with Madoff.
When JPMorgan Chase bought what was left of Bear Stearns last year, it inherited a relationship with Madoff that is also sure to raise more questions about its ethics. According to Arvedlund:
Brokers who traded at Bear Stearns used the firm’s automated equity order system to buy and sell stocks. A broker would enter the stock symbol and the number of shares he or she wanted to trade. The system was supposed to do the rest: work to find the best counterparty to trade with from among the many market makers that traded with Bear Stearns. However, for Nasdaq stocks, Bear Stearns had an unwritten code: the system automatically defaulted to trade with Madoff.
Madoff reportedly paid Bear Stearns substantial fees for this default setting on their equity order system, and he may have paid other customers to do the same as well. Between 2000 and 2008, Bear Stearns’ 400 or so brokers all used this system, and all their Nasdaq trades defaulted to Madoff. It was a big source of revenue for Madoff, and it vaulted Bear Stearns to a position as the largest counterparty trading with Madoff. The arrangement was in place when Bear Stearns went under in early 2008, and it continued under JPMorgan Chase.
JPMorgan Chase and/or the JPMorgan Chase Foundation are major funders of the Association of Community Organizations for Reform Now (ACORN) and related organizations. ACORN is a network of as many as 360 organizations, structured to escape accountability, a network far more complicated than anything Madoff ever constructed.
ACORN has had its own embezzlement scandal. Dale Rathke, the brother of ACORN founder Wade Rathke, stole nearly $1 million in 1999 and 2000. ACORN treated the crime as an internal matter and did not even notify its board. A whistle-blower made it public. Dale Rathke remained on ACORN’s payroll until June 2008.
According to its 2007 tax return (the most recent available), the JPMorgan Chase Foundation made a million-dollar gift to ACORN Housing, Inc. that year. This donation is likely the tip of the iceberg of the bank’s total support of ACORN. JPMorgan Chase is one of ACORN largest corporate backers, if not the largest. JPMorgan Chase can take a step toward accountability by disclosing the specifics of its support for ACORN.
Last fall, JPMorgan Chase accepted $25 billion in taxpayer TARP funds. In 2008, the top 200 bonus recipients at JPMorgan Chase received $1.12 billion. The firm had 1,144 employees who received a bonus of least $1 million last year, more than any other Wall Street firm.
You would think with all these millionaires walking around the company, there would be at least a passing acknowledgement of the wealth generation potential of a free economy. Not a chance. CEO Jamie Dimon sneers at free market advocates. The firm funds a variety of anti-business activists, ACORN being just the most dramatic example.
Dimon is apparently not self-conscious either about ACORN’s role in the residential mortgage crisis, much of it driven by subprime lending. Starting in the Seventies, ACORN saw the big banks as shakedown targets. The weak-kneed executives at these institutions were pretty easy pickings.
ACORN screamed “racism.” It accused mortgage lenders of “redlining,” or denying credit to borrowers in certain areas. It picketed the homes of bank directors in leafy suburbs.
A way out was offered to the banks. They could make contributions to ACORN and/or they could “invest” in ACORN Housing, which made loans to “underserved” borrowers.
They also could back off from opposition to a law called the Community Reinvestment Act of 1977 that required banks and thrifts to lend more money from areas where they took deposits. It meant more loans to “underserved” communities, and a loosening of lending standards.
Of course, many of ACORN’s “deserving” borrowers were not deserving at all. Increasingly, the banks dumped the loans on Fannie Mae and Freddie Mac, which were under pressure by Congressmen like Barney Frank (D-MA) to make more loans to the “underserved.”
The result was the mortgage meltdown that nearly took down our entire financial system, providing the justification for the massive bailouts of the banks. But Dimon acts like JMorgan Chase has no culpability because of its “solid” balance sheet.
According to Arvedlund, there are already civil suits against JPMorgan Chase by investors whose funds were acccepted into Madoff’s account at the bank after it had concluded that Madoff was a fraud. Of course, this may also be criminal, but there is no word that the bank is the target of a criminal investigation.
During the campaign, Dimon was a vocal supporter of Barack Obama. On July 18, the New York Times called Dimon “Obama’s favorite banker.” Dimon may hope that this relationship will insulate his firm from prosecution in the Madoff case. In any event, JPMorgan Chase’s culture must be questioned, along with Dimon’s credibility and leadership.
Dr Decosta. Once again you show that you are a heavyweight and have full understanding as well as the mechanics of abnss. Here’s a case in point for you in case you were not familiar. Seagate Technology as it was being taken out back in 2000. Offer was made in March 2000 but the deal didn’t complete till Nov 2000. Activity in the equity prior to the deal and after the announcement spoke volumes Thanks for you hard work and contributions.
Technically it’s the clearing firm of the actual naked short seller that is on the hook but they just transfer the liability to their client that put in the order. Remember that these “open positions” that the CF holds are collateralized by the receipts of the naked short sale. The buyer’s money sits in limbo UNTIL delivery is made. What people don’t realize is that abusive naked short sellers have very little of their own “skin in the game”. Except for a coupleof percentagepoints the only money involved is that of the investor. The crooks sell nonexistent shares and refuse to deliver that which they sold after contracting to deliver shares on T+3. The FTD results in the issuance of a share price depressing “security entitlement” and it is credited to the account of the buyer that never got delivery. UCC Article -8 mandates that the CF of the buyer treat the “holder” of this SE as being “entitled” to exercise all of the rights and property interest that comprise the undelivered security. This adds to the “supply” of that which by law must be treated as readily sellable whether they be legitimate shares or mere SEs. This drives the share price down. At the NSCC all you have to do is to collateralize the monetary value of your failed delivery obligation. Thus as the share price drops so too do the collateralization requirements. This results in the investor’s money flowing to the party that refused to deliver that which it sold mainly because it never existed in the first place. It’s pretty good work if you can get it but in order to get it you need to be able to provide massive amounts of “order flow” to either corrupt MMs or corrupt clearing firms willing to enter into ex-clearing arrangements with other corrupt CFs. Thus only hedge funds and Wall Street behemoths are invited to play. You and I don’t have the critical mass to enter into these games.
Thank you for all you have done and all you continue to do. You are real American heros!
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Intanesert si util acest articol. Totusi, mai multa atentie la detalii va rog. In poza 2 puteati sa puneti niste protectii prizelor, ca tot vorbeste articolul de siguranta copilului.