April 20, 2021

DealBook: Scrutiny Intensifies on Collusion in Rate Manipulation Inquiry

Mervyn King, of the Bank of England, told Parliament he was not informed that Barclays' bankers might be breaking the law.ReutersMervyn King, of the Bank of England, told Parliament he was not informed that Barclays‘ bankers might be breaking the law.

While much of the scrutiny surrounding interest rate manipulation has centered on Barclays, regulators have said that traders at the big British bank colluded with rivals to influence a key benchmark.

As part of a three-year scheme, a senior Barclays trader in Europe worked with counterparts at Crédit Agricole, HSBC, Deutsche Bank and Société Générale, according to people with knowledge of the matter who could not speak publicly because of the investigation. Regulators are examining whether at least one other bank was involved, one of the people said.

In an effort to bolster their profits, the traders collaborated to push interest rates up or down, according to regulatory documents. By doing so, they aimed to eke out extra gains on their trades or limit losses. In its complaint against Barclays, the Commodity Futures Trading Commission described the bank’s trader as having “orchestrated an effort to align trading strategies among traders at multiple banks” to profit on their portfolios.

In June, Barclays paid $450 million to settle its case with the commission, the Justice Department and the Financial Services Authority of Britain. British and American authorities accused the bank of submitting false rates from 2005 through 2009. Regulators have also conducted investigations of others involved in the scheme.

As the rate-manipulation scandal spreads to other banks, the fallout could have major ramifications for the financial industry. Civil and criminal authorities around the world are investigating, and lawmakers in the United States have started their own inquiries. The civil and criminal actions, as well as private lawsuits, could cost the banks tens of billions of dollars.

The Barclays case centers on key benchmarks, including the London interbank offered rate, or Libor, and the Euro interbank offered rate, or Euribor. Such rates are used to determine the borrowing costs for consumers and corporations. The senior trader at Barclays who worked with the four European banks specifically tried to manipulate Euribor, according to regulators.

The Barclays case was the first to emerge from the multiyear investigation, which has also touched some of the biggest banks on Wall Street. Authorities in the United States, Britain, Japan and elsewhere are also looking into the potential involvement of JPMorgan Chase, Citigroup and UBS. The Financial Times previously reported the names of the four European banks that worked with the Barclays trader.

The broad investigation has prompted outrage from lawmakers in Washington and London. In recent weeks, British central bankers and regulators testified to Parliament about their role in the rate-manipulation scandal. In the United States, politicians are asking why regulators did not stop the illegal activities, even though regulators knew about potential problems as far back as 2007.

In 2008, the Federal Reserve Bank of New York suggested changes to the process, after learning that Barclays reported artificially low rates, according to documents. The regulator then shared those recommendations with the Bank of England, the British central bank. But the New York Fed did not end the rate manipulation at Barclays.

Top central bank officials are now signaling a willingness to change the system.

On Wednesday, Mark Carney, the governor of the Bank of Canada, said he and other central bank chiefs would discuss ways of improving Libor, or even replacing it, when they are scheduled to meet on Sept. 17.

“In terms of alternatives, there is an attraction to moving toward, obviously, market-based rates if possible,” Mr. Carney said at a news conference. Mr. Carney currently heads the Financial Stability Board, a body consisting of central banks and finance ministries that was set up in 2009 to coordinate global financial regulation.

Mervyn A. King, governor of the Bank of England, sent a letter on Wednesday to central bank chiefs inviting them to discuss Libor reforms at another meeting scheduled for September. The Bank of England did not respond to a request for comment. Jeremy Harrison, a Bank of Canada spokesman, confirmed the existence of Mr. King’s letter and its purpose.

The United States Congress is also delving into the matter, as lawmakers question why the rate-setting process was not better policed.

Representative Randy Neugebauer, the Republican chairman of the House Financial Services subcommittee investigating Libor, is seeking documents from the New York Fed about JPMorgan Chase, Citigroup and Bank of America, the three American banks involved in setting the rate. Last week, Mr. Neugebauer collected transcripts from at least a dozen phone calls in 2007 and 2008 between New York Fed officials and executives at Barclays.

The House committee has also homed in on Barclays. On Monday, Congressional staff will receive a briefing about Libor from the general counsel of Barclays in America and its chief lobbyist, according to a government official.

Peter Eavis contributed reporting.

Article source: http://dealbook.nytimes.com/2012/07/18/rate-inquiry-focus-turns-to-possible-collusion/?partner=rss&emc=rss

DealBook: Christie Hefner’s Husband Is Accused of Insider Trading

Christie Hefner and her husband William Marovitz.Jonathan Daniel/Getty ImagesChristie Hefner and her husband, William Marovitz.

7:38 p.m. | Updated

The Securities and Exchange Commission has accused a member of the Playboy family of breaking the law.

William A. Marovitz, the son-in-law of Hugh Hefner, the founder of Playboy Enterprises, settled an S.E.C. lawsuit filed Wednesday that accused him of trading in shares of the publisher with insider information. The S.E.C. said that Mr. Marovitz, a lawyer and a former Illinois state senator, gained about $100,000 by trading on confidential corporate developments gleaned from his wife, Christie A. Hefner, the former chief executive of Playboy.

“Despite instructions from his wife that he should not trade in shares of Playboy and a warning from the general counsel of Playboy about his buying or selling Playboy stock, Marovitz bought and sold shares of Playboy in his own brokerage accounts from 2004 to 2009 ahead of public news announcements,” said the lawsuit, which was filed in Federal District Court in Chicago.

Mr. Marovitz, 66, agreed to pay about $168,000 in penalties, disgorged profits and interest to resolve the case. The settlement is subject to approval by a federal judge.

“My client has no comment on the S.E.C.’s complaint or settlement but wishes to note that he has lost a substantial amount of money on his investments in Playboy stock,” said James R. Streicker, a lawyer for Mr. Marovitz.

The case against Mr. Marovitz continues the federal government’s far-reaching crackdown into insider trading on Wall Street and beyond. Authorities have pursued a battery of cases against defendants who include corporate lawyers, doctors and railroad workers. Dozens of hedge fund traders have found themselves in the government’s cross hairs. The United States attorney’s office in Manhattan alone has in the last two years charged about 50 defendants with insider-trading crimes.

Mr. Marovitz’s prosecution is the latest of several so-called pillow-talk cases — insider-trading violations involving husbands and wives. Earlier this year, a San Francisco woman pleaded guilty to passing merger tips to her relatives that she had learned from her husband, a partner at a major accounting firm. In 2008, federal prosecutors brought criminal charges against a Lehman Brothers broker who had obtained confidential information about pending deals from his wife, a public relations executive who advised companies on mergers and acquisitions.

Married since 1995, the 58-year-old Ms. Hefner and Mr. Marovitz are a Chicago power couple. Ms. Hefner ran the Chicago-based Playboy from 1988 to 2009 and has been one of the city’s highest-profile business executives. Mr. Marovitz has been a fixture in Illinois politics and Chicago real estate for years. He is president of the Marovitz Group, a local real estate developer. They have no children.

The S.E.C. accused Mr. Marovitz of improper trading in Playboy stock on a number of occasions despite clear warnings from his wife and the company’s general counsel that he should not buy or sell Playboy shares while in possession of confidential information.

Howard Shapiro, the company’s top lawyer, specifically requested that Mr. Marovitz consult with him before trading Playboy stock. Mr. Marovitz never contacted him to discuss any of his transactions, the S.E.C. said.

A number of Mr. Marovitz’s trades surrounded Playboy’s 2009 merger talks with the Iconix Brand Group. During the time Ms. Hefner was negotiating the sale of the company to Iconix, Mr. Marovitz bought Playboy shares while knowing secret information about the deal that he had obtained from his wife, the complaint said. When Playboy announced the potential merger, Playboy’s stock rose 42 percent.

Iconix eventually dropped its acquisition plans. Before the news became public, causing a 10 percent drop in Playboy’s stock, Mr. Marovitz dumped his shares, avoiding thousands of dollars in losses, the S.E.C. said.

In another instance, in August 2004, Mr. Marovitz sold all his Playboy stock the day before the company reported a large quarterly loss that resulted in an 18 percent decline in its share price. The trade allowed Mr. Marovitz to avoid a $65,000 loss, the S.E.C. said.

The case against Mr. Marovitz originated during a routine S.E.C. examination of Mesirow Financial, the Chicago brokerage firm where Mr. Marovitz executed his trades.

Earlier this year, Mr. Hefner, the company’s dominant shareholder, took Playboy private in a deal valuing the company at about $207 million. The company had been publicly traded since 1971.

S.E.C. v. William A. Marovitz

Article source: http://feeds.nytimes.com/click.phdo?i=7d36c25e613fb7c073155254d7dc7d9d

DealBook: Chiesi Sentenced in Galleon Insider Trading Case

Shannon Stapleton/Reuters

3:40 p.m. | Updated Danielle Chiesi, a former beauty queen turned hedge fund trader, got a thrill about pumping insiders and snaring secret tidbits about companies.

“It’s a conquest,” she said on a call recorded by the government. “It’s mentally fabulous for me.”

But her passion has landed her in prison

On Wednesday, a federal judge in Manhattan sentenced Ms. Chiesi to 30 months in prison for trafficking inside information.

The hearing was the latest chapter in the government’s sweeping crackdown on insider trading. The investigation centered on Raj Rajaratnam, the co-founder of the Galleon Group hedge fund, who was convicted in May.

While Ms. Chiesi did not testify against Mr. Rajaratnam, her recorded voice became a regular feature at his trial. Their damning conversations, along with the testimony of Adam Smith, a former Galleon employee, proved crucial. Mr. Rajaratnam is set to be sentenced on Sept. 27 and could face up to 25 years in prison.

In January, Ms. Chiesi pleaded guilty to three counts of participating in the conspiracy. She acknowledged leaking information about I.B.M., Advanced Micro Devices and Sun Microsystems. Her activities, prosecutors have said, earned her $1.7 million.

Prosecutors sought a sentence of up to 46 months. Ms. Chiesi’s lawyers had asked for leniency, blaming her actions on a tormented love affair with her former boss. .

Standing before Judge Richard J. Holwell in a lower Manhattan courtroom, Ms. Chiesi apologized as she choked back tears.

“I know that there is a punishment for breaking the law, but it won’t happen again, said Ms. Chiesi, wearing a pink dress and matching pumps with her platinum-blond hair pulled back.

But Judge Holwell was unmoved. Along with the 30 month prison term, Ms. Chiesi was also sentenced to two years of supervised release, 250 hours of community service, $25,000 fine, and mandatory mental health and alcohol treatment. Prosecutors sought a sentence of up to 46 months.

“The message to Wall Street needs to be clear: if you trade on inside information, you will be caught,” Judge Holwell said.

The judge said the community service, in particular, would help “adjust her moral compass, which obviously fell by the wayside.” He did acknowledge that Ms. Chiesi, who previously told the judge that she was receiving psychiatric care, suffered from a borderline personality disorder.

On Wednesday, her lawyer Alan R. Kaufman said, “This is not a pleasant day by any means, but it is at least over.”

After the hearing ended, a smiling Ms. Chiesi approached federal prosecutors and agents for the Federal Bureau of Investigation. She told them that “if you’re ever going to knock on my door then do it in the afternoon,” in a nod to her early morning arrest in October 2009. Prosecutors wished her “good luck,” as Ms. Chiesi left with her mother, sister and two nieces,

The sentence brings her curious criminal saga to a close.

A Binghamton, N.Y., native, Ms. Chiesi began her Wall Street career in the late 1980s. She later landed at New Castle Funds, a hedge fund that was spun off from Bear Stearns.

Ms. Chiesi, 45, became known on Wall Street for her colorful personality and robust rolodex. Her specialty was the technology world, in which she built a network of sources whom she prodded for corporate secrets. Her tipsters included Robert W. Moffat Jr., a former senior executive at I.B.M., who has since pleaded guilty to participating in the scheme.

After gathering a few nuggets, Ms. Chiesi would pass on the information to Mr. Rajaratnam, among other traders. In July 2008, a source informed Ms. Chiesi that Akamai, an Internet company, was going to report less than stellar results. “I just got a call from my guy,” she later told Mr. Rajaratnam. “I played him like a finely tuned piano.”

Unbeknownst to the pair, the government was listening. Such secretly recorded tapes ultimately became the lynchpin in the government’s case.

They also provided a window into Ms. Chiesi’s flirtatious style.

She alternately referred to Mr. Rajaratnam as “baby” and “honey.” She also struck up romances with Mr. Moffat of I.B.M. and Mark Kurland, her boss at New Castle.

Her affair with the married Mr. Kurland lasted for nearly 20 years and spanned across jobs. A 22-year-old Ms. Chiesi met Mr. Kurland, then 40, in 1988 while working at a brokerage firm in New York. Mr. Kurland later launched New Castle, and hired his lover to join the team.

Both eventually joined the insider-trading ring. Mr. Kurland already pleaded guilty to insider trading, and was sentenced to 27 months in prison.

Ms. Chiesi’s lawyers blamed the affair — and Mr. Kurland — for involving her in the illicit plot.

Her “emotional and financial wellbeing were inextricably linked with Kurland,” her lawyer, Mr. Kaufman, said in a recent court filing. Her counsel continued to emphasize the connection at the sentencing.

“We continue to believe that Dani’s sentence should not have been any longer than the sentence received by her boss at New Castle,” Mr. Kaufman said on Wednesday. “But we respect the judges thoughtfulness and thoroughness.”

While Ms. Chiesi initially fought the charges, ultimately, the government’s secret recordings were insurmountable. Some of the recorded conversations even proved prophetic.

“You put me in jail if you talk,” she said on an August 2008 call with an associate. “I’m dead if this leaks. I really am, and my career is over.”

Article source: http://feeds.nytimes.com/click.phdo?i=249106a6f2072d9abe7ad1f738a2ff35