March 29, 2024

Longtime Madoff Employee to Plead Guilty

NEW YORK (Reuters) – One of Bernard Madoff’s longest-serving employees is expected to plead guilty to criminal charges in the multibillion-dollar Ponzi scheme, U.S. prosecutors said, the latest among a dozen former employees to face charges.

Irwin Lipkin, a former controller of Bernard L. Madoff Investment Securities LLC, will appear in Manhattan federal court on Thursday, prosecutors said in a letter to the judge.

He will plead guilty to charges of conspiracy to commit securities fraud and falsifying documents, prosecutors told U.S. District Judge Laura Taylor Swain in the letter, which was dated Tuesday, September 11.

The letter said Lipkin, 74, created “false financial records t hat were provided to BLMIS investors,” false filings with the U.S. Securities and Exchange Commission and false statements required under a federal law that sets standards for pension plans.

Lipkin’s lawyer, David Richman, was not immediately available to comment. The charges carry a maximum possible prison term of 10 years.

Lipkin’s son, Eric Lipkin, another former Madoff employee, pleaded guilty in 2011 to criminal charges of bank fraud and charges that he reported people were Madoff employees so they could receive retirement benefits.

Irwin Lipkin joined Madoff’s firm in 1964, according to court records. Court papers showed that he continued to draw a salary from the firm even after he stopped working there in 1999.

Madoff, 74, was charged in December 2008 with a decades-long fraud that the government originally estimated at as much as $64.5 billion. He pleaded guilty in March 2009 and is serving a 150-year prison sentence.

The trustee leading the search for money to return to Madoff’s victims says Madoff defrauded customers of about $20 billion. The trustee, Irving Picard, so far has won $9.1 billion in recoveries and settlement agreements.

On June 29, Madoff’s brother Peter pleaded guilty to criminal charges. He had been chief compliance officer at his brother’s firm. He has agreed to accept a 10-year prison term.

Of the dozen people charged in the case, apart from Bernard Madoff, five have pleaded not guilty and are awaiting trial.

The case is U.S. v. O’Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-00228

(Reporting By Grant McCool; Editing by Martha Graybow and Dan Grebler)

Article source: http://www.nytimes.com/reuters/2012/09/12/business/12reuters-madoff-controller-plea.html?partner=rss&emc=rss

DealBook: Lawmakers Push to Increase White House Oversight of Financial Regulators

Senator Rob Portman of Ohio says the bill would promote a more stable regulatory environment for economic growth and job creation.Charles Dharapak/Associated PressSenator Rob Portman of Ohio says the bill would “promote a more stable regulatory environment for economic growth and job creation.”

Financial regulators may face a new obstacle in their efforts to police Wall Street.

Lawmakers are pushing a bill that could curb the influence of the Securities and Exchange Commission, the Commodity Futures Trading Commission and other regulators, according to Congressional staff members and government watchdog groups.

The measure, which a Senate committee is planning to debate this month, aims to empower the president in the rule-writing process. The proposal would allow the White House to second-guess major rules and mandate that agencies carefully study the economic effects of new regulation. The change could, in effect, delay a number of rules for the financial industry.

Some legal experts say the White House already has ample authority to impose such demands on independent agencies like the S.E.C. But critics say that the bill would stymie financial reform and threaten the autonomy of regulators that operate outside the presidential cabinet.

“Those who support preserving the status quo where Wall Street regulates itself will find much to like in this legislation,” said Amit Narang, a regulatory policy advocate at Public Citizen, a nonprofit government watchdog group.

Senator Susan Collins of Maine backed Dodd-Frank, and the lawmakers point to support among several Democrats.J. Scott Applewhite/Associated PressSenator Susan Collins of Maine backed Dodd-Frank, and the lawmakers point to support among several Democrats.

The bill, introduced in the Senate last month, would offer a path to challenge the Dodd-Frank law, the sprawling regulatory overhaul passed in the wake of the 2008 financial crisis. Regulators have already encountered significant delays as the financial industry mounts legal challenges to the law.

The authors of the Senate bill — Rob Portman, Republican of Ohio, and Susan Collins, Republican of Maine — say they are not out to kill financial reform. Ms. Collins backed Dodd-Frank, and the lawmakers point to support among several Democrats, including their co-author, Mark Warner of Virginia.

“This is a bipartisan, consensus reform with broad support, and it will promote a more stable regulatory environment for economic growth and job creation,” Mr. Portman said in a statement.

The bill’s future is uncertain. Congress has little time to act during the election season, and the legislation is not on the Senate’s official agenda. But some Congressional staff members say it is rapidly gaining steam.

The bill was assigned to the Senate Committee on Homeland Security and Governmental Affairs, overseen by Joseph Lieberman, independent of Connecticut. The committee has discussed putting the proposal on the agenda for a Sept. 20 meeting, according to staff members briefed on the matter. The committee, which will most likely release its schedule on Wednesday, could use that meeting to amend and vote on the bill.

As a last resort, lawmakers may also include the measure in a broader appropriations bill. Such a move would be the latest Congressional jab at financial regulation. The House has passed a series of bills to temper Dodd-Frank. And this spring, President Obama signed the bill known as the JOBS Act, for Jump-Start Our Business Start-Ups, which loosened the rules surrounding initial public offerings as well as parts of a landmark settlement over stock research struck almost a decade ago.

Some regulators, sensing momentum around the new legislation, are resisting. The Federal Deposit Insurance Corporation and other financial regulators have raised concerns with lawmakers in recent days, in a bid to keep the bill off the Congressional docket, people briefed on the matter said. Regulators, whose cause is backed by advocacy groups like Public Citizen and Americans for Financial Reform, say the legislation would upend their way of doing business.

Under the bill, current and future White Houses would receive explicit authority to influence the rule-making process at independent agencies, a collection of several dozen government bodies as varied as the Federal Communications Commission and the F.D.I.C., S.E.C. and C.F.T.C. The Federal Reserve is exempt.

The president, through an executive order, would be allowed to mandate at the minimum a 13-point test for rule-making. That includes finding “available alternatives to direct regulation,” evaluating the “costs and the benefits,” drafting “each rule to be simple and easy to understand” and periodically reviewing existing rules to make agencies “more effective or less burdensome.”

For more “significant” rules — those that have an annual effect of at least $100 million on the economy — independent agencies would have to submit their proposals to the Office of Information and Regulatory Affairs, an arm of the White House that acts as a sort of regulatory referee. A negative review from the office would delay a rule for up to three months and force an agency to explain its approach.

Despite the change, some legal experts say the bill will have no trouble passing Constitutional muster.

“It doesn’t mean he can tell them how to decide, but it does mean they must consult with him — and that is the minimum required for the single executive the Constitution created,” said Peter L. Strauss, the former general counsel of the Nuclear Regulatory Commission who is now a professor of regulatory law at Columbia Law School. He added that he hoped “the bill will be enacted.”

The president currently exercises such power only over cabinet agencies like the Treasury and Commerce departments. That power was gained from executive orders issued by both Ronald Reagan and Bill Clinton.

Proponents of the bill say they are aiming to close what they call a “loophole” for independent agencies, which have struggled at times to fully evaluate the costs of their rules. The bill tracks a recommendation made in a report this year by the president’s jobs council.

But for years, Congress has balked before explicitly granting the White House such authority. Even Ms. Collins has questioned the approach, saying at a 2009 hearing that “the whole reason that Congress creates independent regulatory agencies is to insulate them from administration policies.”

Critics of Wall Street say the bill is an unnecessary check on regulatory power. The S.E.C. and its fellow financial regulators, they say, already draft cost-benefit analyses. The futures trading commission also recently tapped the Office of Information and Regulatory Affairs to advise on some of its rules.

If Congress and the White House ramp up the requirements, that will translate into months of additional delays, advocates say. The bill, they argue, will also spur court battles over financial regulation, potentially handing Wall Street another victory.

“Corporate interests will likely use negative White House reviews as a new weapon for challenging independent agencies in court,” Mr. Narang of Public Citizen said. “The bill could lead to increased litigation and greater regulatory uncertainty.”

Article source: http://dealbook.nytimes.com/2012/09/09/lawmakers-push-to-increase-white-house-oversight-of-financial-regulators/?partner=rss&emc=rss

DealBook: Regulators Clarify Timing of New Derivatives Rules

Gary Gensler, chairman of the Commodity Futures Trading Commission.Scott Eells/Bloomberg NewsGary Gensler, chairman of the Commodity Futures Trading Commission.

As Wall Street gears up for an overhaul of the $600 trillion derivatives business, big banks have grumbled that regulators failed to specify when the new policies will take effect.

After months of uncertainty, the issue reached a happy conclusion for the banks. Federal authorities now say the new regime will not kick in until Jan. 1, providing clarity and a brief — but important — extension to Wall Street.

Until now, the Commodity Futures Trading Commission had warned banks that they were likely to have to register as so-called swaps dealers by October. The agency’s chairman, Gary Gensler, also recently told Congress that “light will begin to shine on the swaps market,” a prominent area of derivatives trading, this fall.

But last week, Mr. Gensler expressed a more lenient timeline in a private meeting with Wall Street groups, according to people briefed on the meeting. His spokesman, Steve Adamske, confirmed on Wednesday that banks need not become registered swap dealers until January at the earliest.

It was the latest regulatory reprieve for Wall Street. Last week, the agency also granted an extension for rules that, for example, require firms to verify that their trading partners meet certain “eligibility standards.”

The Commodity Futures Trading Commission is planning to issue a formal document that spells out some of the agency’s due dates. The decision drew praise from Wall Street lawyers, whose clients have grown anxious about the unclear deadlines.

“In ending market uncertainty as to the registration date, the C.F.T.C. will provide a major service to the market,” said Annette L. Nazareth, a partner at the law firm Davis Polk and a former regulator at the Securities and Exchange Commission. “Entities planning to become swap dealers are working incredibly hard to implement a plethora of new C.F.T.C. requirements, and certainty as to the compliance timeline is a necessary prerequisite.”

The agency’s rules are a central component of the Dodd-Frank Act, which overhauled Wall Street regulation in the aftermath of the financial crisis. The law took particular aim at swaps trading, an opaque business that blew up in the crisis.

The swap-dealer designation, which applies only to firms that arrange more than $8 billion worth of swaps contracts annually, was among the most contentious aspects of the crackdown. The title carries requirements that banks, among other things, adopt internal risk management controls, bolster disclosures to trading partners and report their trades in real time.

But even the most sophisticated financial firms — and their high-priced lawyers — could not ferret out the registration deadline. The confusion stemmed from the vagaries of several overlapping rules. While the fine print of Dodd-Frank suggested that January was the likely deadline, some conflicting statements from the Commodity Futures Trading Commission confused the banks.

One Dodd-Frank provision implies, in effect, that banks must register by Oct. 12, when a rule that defines “swap” and other terms takes effect. But a separate provision requires only that banks start counting on that date to see if they hit the $8 billion threshold for swaps contracts in any given year. Big banks like Goldman Sachs and JPMorgan Chase are likely to pass that point in a matter of days.

At the end of the month in which a bank reaches the $8 billion mark, likely Oct. 31, banks then have an additional 60 days to sign up. That time frame will prompt most large banks to register by Jan. 1, while smaller firms might end up taking months to comply.

It is unclear if any banks will register early. Only one firm, Newedge, has opted to move ahead of the deadline.

Article source: http://dealbook.nytimes.com/2012/09/05/regulators-clarify-timing-of-new-derivatives-rules/?partner=rss&emc=rss

DealBook: Amid Insider Trading Inquiry, Tiger Asia Calls It Quits

Tiger Asia, a spinoff of Tiger Management, the hedge fund founded by Julian Robertson, told investors in a letter that the fund would be returning their money in the coming weeks as a result of a “prolonged legal situation.”

That situation is a three-year insider trading investigation by the Hong Kong authorities into allegations of trading improprieties at the hedge fund, which was founded by Bill Hwang. The Securities and Exchange Commission has also been investigating the fund.

“As you are aware, the firm has been the subject of government investigations of alleged trading based upon confidential information and engaging in certain manipulative trades in late 2008/early 2009 in Asian markets,” Mr. Hwang wrote in his letter to investors. “We continue to work to resolve these matters in the U.S. and overseas and look forward to putting them behind us.”

Mr. Hwang is the latest investor to throw in the towel as a hedge fund manager because of a government investigation. His fund has dwindled to about $1.2 billion from about $3 billion in 2010. Though he has not been formally charged with any wrongdoing in the United States, Mr. Hwang has decided to no longer manage outside capital.

He is not the first hedge fund manager to make that decision. David Ganek decided to shutter Level Global Investors, which was raided by the Federal Bureau of Investigation in late 2010. Mr. Ganek said at the time that with the government scrutiny, he did not feel he could comfortably make investment decisions for the long term. Later, Mr. Ganek’s co-founder, Anthony Chiasson, was charged with insider trading.

Mr. Hwang held on to his operation for several years, despite the allegations made by the Securities and Futures Commission of Hong Kong. Regulators there have accused Mr. Hwang of obtaining inside information during 2008 and 2009 about placements of shares in the China Construction Bank Corporation and Bank of China, tips that regulators say earned him $5 million.

The regulator sought to bar Tiger Asia from trading on Hong Kong exchanges altogether, the first time it had ever tried to exclude an entity from trading on its exchanges. That litigation is still pending.

The investigation spread to the S.E.C., which subpoenaed the fund in 2010. While Mr. Hwang has denied the allegations, those claims did little to quell investors or end the investigation.

Mr. Hwang founded Tiger Asia, which is based in New York, in 2001 after working for Mr. Robertson at Tiger Management. He focused his trading on Asia, and like his mentor typically bought and sold stocks.

“I am saddened by the news but certainly understand Bill’s decision,” said Mr. Robertson in a statement. “I have worked side-by-side with Bill for 20 years. I have enormous respect for him as an individual and an investor. He has always been a great partner, a great person and a great friend. I continue to hold him in the highest regard.”

Since its inception, the firm has returned about 16 percent a year for its investors, handily beating the indexes during the same period. In the letter, Mr. Hwang said Tiger Asia would continue as a family office with most employees remaining at the firm.

“It is my hope that someday I will again have the privilege to manage your capital,” he wrote in the letter.

Article source: http://dealbook.nytimes.com/2012/08/14/amid-insider-trading-inquiry-tiger-asia-calls-it-quits/?partner=rss&emc=rss

Mortgages: Mortgages

In a forbearance program, a lender agrees not to foreclose on a property and gives a borrower several months’ grace from or reduction in monthly mortgage payments. The programs work best for temporary setbacks, like job loss, health problems or natural disasters.

Along with the reprieve come drawbacks — most significantly a larger total debt from the smaller payments. “Your unpaid balance keeps getting higher and higher and higher,” said Jennifer Murphy, the director of lender-servicer relations for the nonprofit Center for New York City Neighborhoods.

The new temporary mortgage payment is often set to 31 percent of your household income; in some cases lenders agree to accept no payments. Fannie Mae’s extended unemployment program, first offered in the fall of 2010, limits any nonpayment or other forbearance plans to one year, with the second six months requiring its approval as well as the lender’s.

But even with the program in place, your lender could still report a mortgage as delinquent, which would adversely affect your credit, so ask about its policy, said Martha Cedeno-Ross, a foreclosure assistance counselor with Neighborhood Housing Services of Waterbury, Conn. Because some agreements may add onerous terms and conditions, homeowners should also consult with a real estate lawyer, or a housing counselor certified by the Department of Housing and Urban Development.

Some 26,801 homeowners completed Fannie Mae loan forbearance and repayment plans in the first nine months of 2011, up 13 percent from the same period in 2010. By comparison, the total for all of 2008 was 7,892, according to Fannie Mae’s financial filings with the Securities and Exchange Commission.

To qualify, borrowers must be unemployed, which means not working at all, though a co-borrower could still be employed, said Brad German, a Freddie Mac spokesman.

To get started, gather up your financial information and consider writing a “hardship letter,” an overview that clearly states what happened and when, Ms. Cedeno-Ross said. The letter could also serve as a starting point for a loan modification and other programs. Give details about your previous salary, severance payments and unemployment benefits; if you have had job interviews, include those details, she said.

You will need to fill out the four-page uniform borrower assistance form used by both Freddie and Fannie, Mr. German said. It is also good for government mortgage assistance programs like Making Home Affordable — http://www.makinghomeaffordable.gov — and Knowyouroptions.com.

Be sure to plan an “end strategy” well before the forbearance agreement runs out.

“The big question every homeowner should find out: Where will this forbearance lead me?” said Charles Das, a housing counselor for Brooklyn Housing and Family Services. Homeowners usually get a repayment plan or a loan modification, he said, but he has seen some denied the modification because of low income.

Ms. Murphy says homeowners should use the 6 to 12 months of reduced payments to work with a financial or housing counselor, and if possible, save money and pay off secured debts.

Sometimes borrowers may determine after counseling that they cannot afford the home, said John Walsh, the president of Total Mortgage Services of Milford, Conn. They may then need to sell the home or arrange for “a graceful exit” — for instance, agreeing to give up the deed in lieu of foreclosure, or pursuing a short sale, in which the lender agrees to accept less than the mortgage balance.

Article source: http://feeds.nytimes.com/click.phdo?i=4649334f2d56d550ad650967a9e8ad6d

S.E.C. Charges Alan Levan with Misleading Investors

Alan B. Levan, chairman and chief executive of BankAtlantic Bancorp, was accused of making misleading statements in public filings and on earnings calls in 2007 in order to hide mounting losses in much of the portfolio, which consisted of loans on large tracts of land intended for real estate development. The Securities and Exchange Commission complaint also names BankAtlantic Bancorp, the holding company for BankAtlantic, one of Florida’s largest banks.

The complaint says that Mr. Levan and the company committed accounting fraud when they “schemed to minimize BankAtlantic’s losses on their books by improperly recording loans they were trying to sell from this portfolio in late 2007.”

In a statement, Robert Khuzami, director of enforcement at the S.E.C., said that “BankAtlantic and Levan used accounting gimmicks to conceal from investors the losses in a critical loan portfolio.”

“This is exactly the type of information that is important to investors,” he said, “and corporate executives who fail to make that required disclosure will face severe consequences.”

Eugene Stearns, a lawyer for Mr. Levan and BankAtlantic’s holding company, said that the S.E.C.’s case was an example of “scapegoating” and that the company’s financial disclosures were adequate. He said that in the fall of 2007, the company voluntarily issued extra disclosures about the risk classifications of its loans and that even before that, the bank company was clear about its risk profile.

Mr. Stearns said that all of the bank regulators overseeing the company had taken the position that banks should not release details about the risk classifications on loans.

“There’s a war going on between banking agencies and the S.E.C.,” Mr. Stearns said, noting that bank regulators wanted less disclosure and the S.E.C., which watches out for investors in the public markets, wanted more.

This is not the first case of a bank executive blaming regulators. Michael W. Perry, the former chief executive of IndyMac, the failed California bank, is being sued by the S.E.C. and has also said in defense documents that some of his accounting decisions were approved by regulators.

Mr. Levan and BankAtlantic were featured in a 2010 New York Times article about the company’s battle with an analyst, Richard X. Bove. BankAtlantic sued Mr. Bove over a report he wrote at the height of financial crisis evaluating the health of a long list of banks, including the Florida bank. The report — titled “Who Is Next?” appeared just after IndyMac collapsed, and as bank investors fled from bank stocks.

Mr. Bove at the time said that he had to fight the suit to protect the interests of analysts to freely produce their research reports. The bank and Mr. Bove settled.

On Wednesday after the S.E.C. filed its case, Mr. Bove said he did not feel vindicated because he had $700,000 in legal fees. “There’s no vindication if all you did was walk away with a huge hole in your pocket,” he said.

According to the S.E.C. complaint, Mr. Levan knew in early 2007 that the loan portfolio had problems because borrowers were not able to make payments.

The complaint says that both Mr. Levan, who grew BankAtlantic into Florida’s second largest bank over a more than two-decade banking career, and the company knew that many loans had been internally downgraded to “nonpassing status,” reflecting deep concern by the bank. Nevertheless, BankAtlantic’s public filings for the first two quarters of 2007 made only general warnings about the dangers of Florida’s real estate downturn.

The problems were finally disclosed in the third quarter of 2007 when BankAtlantic announced an unexpected loss, causing its stock to drop 37 percent, the complaint says.

BankAtlantic said in November that it would sell its branches, some loans, and deposits to BBT Corporation.

Article source: http://feeds.nytimes.com/click.phdo?i=80fc84d0daade231273ecad621e6a9f1

Countrywide ‘V.I.P.’ Loans Linked to McKeon and Gallegly

The lawmakers, Howard McKeon and Elton Gallegly, both Republicans from Southern California, were not accused of any wrongdoing, and they denied having had any knowledge of being among the “V.I.P.’s” listed in a Countrywide program that granted loans at lower rates than were available to the public.

Their names were forwarded to the House Ethics Committee by Representative Darrell Issa, Republican of California, who is investigating the Countrywide loan matter in his capacity as chairman of the House Committee on Oversight and Government Reform.

The lawmakers’ appearance on the Countrywide list was first reported by The Wall Street Journal.

Representative Edolphus Towns, Democrat of New York, is the only member of the House who had been connected publicly to Countrywide’s special loan arrangement — the so-called Friends of Angelo program, named for Angelo Mozilo, the longtime chief executive of the now-defunct lender. Mr. Mozilo agreed to pay $67.5 million in penalties in a 2010 settlement with the Securities and Exchange Commission.

Mr. Towns, Mr. McKeon and Mr. Gallegly all said they never asked for special treatment on their loans, or gave any favor to Countrywide in Congress. The name of a fourth House member on the V.I.P. list has not been revealed.

Mr. Issa, through a committee spokesperson, declined to comment on his investigation.

A spokeswoman for Mr. McKeon described the lawmaker as “shocked and angry” upon hearing that his loan, worth $315,000, had come up in the investigation. “He had no knowledge of the Friends of Angelo designation,” said the spokeswoman, Alissa McCurley. Mr. McKeon, who is chairman of the House Armed Services Committee, “has never met or spoken to Angelo Mozilo,” Ms. McCurley said. “Mr. McKeon is going back trying to figure out what Countrywide did to this loan 13 years ago.”

Mr. Gallegly, who worked as a real estate broker before coming to Congress, announced last week that he would not seek re-election in 2012 after 25 years in the House. While he continues to invest in properties, he said he had never heard of the V.I.P. program until he was asked about it by a Journal reporter, his spokesman, Thomas Pfeifer, said.

“He takes out loans through various lending institutions,” Mr. Pfeifer said in an e-mail. “And even though Countrywide was the country’s largest mortgage lender at the time and its regional headquarters was literally a few miles from his home, Mr. Gallegly could only find a record of one loan from Countrywide, a home equity loan he took out in 2004 and paid off in 2005. The payoff was $77,000 at 5.75 percent interest.”

Mr. Gallegly said he had never met Mr. Mozilo.

Article source: http://feeds.nytimes.com/click.phdo?i=5245e00bbfadbe391fed2cff74cd6b40

Bucks: You’re Responsible for Your Own Behavior

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His new book, “The Behavior Gap,” was published earlier this month. Here is an excerpt from his book. His sketches are archived here on the Bucks blog.

Bernie Madoff spent most of the last two decades running the largest Ponzi scheme in history, defrauding thousands of investors of billions of dollars. Many of those investors were intelligent, sophisticated people. Some were top managers at major Wall Street firms.

So what happened? Same old, same old. He promised the moon, and we wanted to believe he could deliver it.

There were warning signs. Many people on Wall Street had their suspicions of Madoff. A few were flat-out convinced that he was a fraud (and tried to tell the Securities and Exchange Commission and other regulators). Some Wall Street firms avoided doing business with the guy.

Others kept sending clients to him.

Patricia Wall/The New York Times

It would be nice to blame the whole thing on a few dirty rotten scoundrels. But that’s too easy. Part of the problem lies with our almost universal tendency to believe what we want to believe. It’s really, really hard to resist a deal that looks too good to be true — especially when other people are buying into it.

I understand why people invested with Madoff. The guy had great credentials, and his record was very strong. Most folks didn’t ask questions. They wanted those returns, and they trusted their advisers to protect them. Their advisers, in turn, trusted regulators. And regulators didn’t get the job done.

Whatever. The fact remains that some pretty sophisticated people didn’t nail down the facts before they put money (their own and/or their clients’) at risk.

It happens all the time. Few people asked many questions when supposedly conservative bankers started offering high-yielding but risky new products to mainstream investors, like derivatives and securities backed by subprime loans. Meanwhile, we kept borrowing more money even as we sensed that no-money-down mortgages made little financial sense. The banks offered us cheap access to money, so we didn’t ask questions. We took it, and hoped for the best.

You, me, and most everyone else struggle to work up the nerve to question things that appear too good to be true. But as usual, it turns out that our financial security is our own responsibility. And sometimes, that means we have to be skeptics.

Excerpted from “The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money,” published by Portfolio/Penguin. Copyright © Carl Richards, 2012. Reprinted with permission.

Article source: http://feeds.nytimes.com/click.phdo?i=82a45962bf8332a409c157e77a0cb2e5

Bats: The Billionaire Steven A. Cohen Is Interested in Buying the Dodgers

Steven A. Cohen, the billionaire hedge-fund manager, explored buying a minority stake in the Mets earlier this year. Now he wants to buy all of another marquee franchise, the Los Angeles Dodgers.

He joins a growing list of potential buyers that includes a group led by Magic Johnson; a second being formed by Peter O’Malley, the former Dodgers’ owner; a third that features the former Dodgers Orel Hershiser and Steve Garvey; Dennis Gilbert, a former player agent who is now a Chicago White Sox executive; Rick Caruso, a Los Angeles real estate developer, and several others.

Initial bids for the team are due Jan. 13 with a sale expected to be completed in April. The team filed for bankruptcy protection last June; the court is overseeing the sale of the team.

Cohen never publicly discussed the depth of his interest in the Mets, but he was among those in the mix for some time to buy one-third of the team for $200 million. A deal was eventually made with David Einhorn, another star in the hedge-fund world. When that agreement unraveled in September, the Mets began their ongoing effort to sell 10 minority shares for $20 million each.

Cohen’s desire to buy the Dodgers appears to be quite strong. The Los Angeles Times said he had hired the investment banker Steve Greenberg, a former deputy commissioner of Major League Baseball who is representing the Mets in selling their minority shares and sold the Houston Astros for Drayton McLane.
Cohen has also hired Populous, the sports architecture firm, to design changes to Dodger Stadium.

He is known to Major League Baseball through his interest in the Mets as well as from reports that the Securities and Exchange Commission is investigating his firm, SAC Capital Advisors, as part of the government’s broad crackdown on insider trading. The S.E.C. has issued subpoenas to SAC; two of its former portfolio managers have pleaded guilty. No charges have been filed against Cohen or his firm.

Jonathan Gasthalter, a spokesman for Cohen, had no comment on Cohen’s interest in the Dodgers. Gasthalter has previously said that SAC is cooperating with the S.E.C.

In bidding for the Dodgers, Cohen has attracted the support of two members of the Los Angeles elite, the entertainment mogul David Geffen and the billionaire philanthropist Eli Broad. Each told The Los Angeles Times that he would be a good owner for the Dodgers.

Article source: http://feeds.nytimes.com/click.phdo?i=d2ad415fafa509eaecb8cf3dd3405872

DealBook: In Hunt for Securities Fraud, a Timid S.E.C. Misses the Big Game

Robert Khuzami, the S.E.C.'s enforcement directorLucas Jackson/Reuters Robert Khuzami, the S.E.C.’s enforcement director.

Does the Securities and Exchange Commission suffer from trialphobia?

Ever since Judge Jed S. Rakoff rejected the S.E.C.’s settlement with Citigroup over a malignant mortgage securities deal, the agency has been defending its policy to settle securities fraud cases. But the public wants a “Law Order” moment, and who can blame them?

Of course, there was one criminal trial. Federal prosecutors in Brooklyn brought a case against two Bear Stearns hedge fund managers who blew up the firm’s internal fund, eventually leading to the demise of Bear. They were acquitted.

But so far, there’s been no civil trial in a major case directly related to the biggest economic fiasco of our time: the financial crisis.

The S.E.C. contends that it has received more than $1.2 billion in penalties from financial crisis cases, having accused 81 people and entities, 39 of them chief executives and other senior officers. And it doesn’t avoid trials altogether. The agency has averaged almost 14 trials a year from 2008 to 2010, compared with about eight from 2001 to 2003. Finally, in cases that haven’t yet gone to trial, the S.E.C. has charged some low-level bankers from big Wall Street firms — but no masters of the universe.

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As for the near future, the agency might actually have a financial crisis trial. Right now, it looks as if cases against the mortgage bank IndyMac, the brokerage firm Stifel Nicolaus and the executives who blew up the Reserve Primary money market fund could go to court. But do you see the pattern? None of those is a major investment bank. The S.E.C. is just not hauling in the big boys.

That could change if the S.E.C. sued Citigroup. As Judge Rakoff noted, Citigroup is a “recidivist,” repeatedly flouting securities laws. In its settlement with the bank, the agency cited only one mortgage securities deal, but as my ProPublica colleague Jake Bernstein and I wrote, there are many more that look just as rotten.

Yet the reason for putting Citigroup in the dock goes beyond the bank itself. The S.E.C. is not getting big enough settlements out of the largest banks. It’s not bringing enough financial cases. It isn’t going after the big banks’ top executives. It’s being way too cautious in its interpretation of its role as defender of the fairness and sanctity of the markets. The frustration, shared by Judge Rakoff and the rest of humanity, is all the greater because the agency rarely, if ever, gets anyone to admit guilt when they settle.

This renders the settlements little more than turning on the light in a kitchen full of roaches. Instead of teaching the banks a lesson, the settlements merely show how the bad actors are scattered everywhere — and the public watches the banks scurry into the pantry to feast some more.

To the S.E.C., this view is profoundly unfair.

The agency’s message is, “if you want to resolve a case short of a contested proceeding, come in and be prepared to provide the type of relief we would obtain at the end of a trial,” said Lorin L. Reisner, the S.E.C.’s deputy director of enforcement.

“And where that’s not available, we’ll go to the mat.”

On a case-by-case basis, the S.E.C.’s argument for settling is strong. While the public loves a court case, lawyers often believe that trials are failures. They are expensive, time-consuming and capricious, especially in financial cases that are often so complex they challenge even sophisticated juries.

Generally, securities regulators can rack up more enforcement actions by settling. And the agency would do only civil trials anyway; it’s the Justice Department that undertakes criminal trials, which probably are a greater deterrent to white-collar crime.

Fair enough. But here’s the rub: By taking this doctrine too far, the S.E.C. has undermined its negotiating position.

Agency officials continually advertise how few resources they have, how costly trials are and how irresponsible it is to shareholders to force a trial when a reasonable settlement can be won instead.

Last month, for example, Robert S. Khuzami, the agency’s head of enforcement, trumpeted the S.E.C.’s “record-breaking performance during a period of resource constraints.”

In doing so, the agency has Beltway blinkers on. Sure, it’s speaking to Congress, but Wall Street is also listening. When it complains, even legitimately, about its budget or how costly and difficult trials are, the S.E.C. is inadvertently showing its belly to Wall Street in a sign of submission. It’s whimpering that it will shy away from a trial, afraid of draining its coffers.

When it’s not signaling its fear about spending money, S.E.C. officials are often talking about how complex financial crisis cases are. In a recent conversation with James B. Stewart of The New York Times, Mr. Khuzami almost sounded as if he were Citigroup’s counsel, a role for which he is well suited since he held that role at Deutsche Bank before joining the S.E.C. In that interview, he made Citigroup’s case for it. But the bank’s lawyers get paid enough and don’t need his help.

Above all, the S.E.C. worries about losing. That means it doesn’t push cases that would broaden definitions of securities fraud, the ambitious cases that penetrate the gray areas and eliminate murk as a defense against wrongdoing.

In his interview with Mr. Stewart, Mr. Khuzami worried aloud that Citigroup might have made the proper disclosure in its mortgage deal when it mentioned that it was possible the deal might have an adverse impact on its customers. Might have? It absolutely did have a clear adverse impact. If you raise an issue as a mere hypothetical when you know for a fact that it’s occurring, isn’t that misleading? Shouldn’t that be tested? And tested in court, so that a precedent is set?

To overcome its greatest fear, the S.E.C needs to realize that it can win even if it loses. A trial against a big bank could be helpful regardless of the outcome. It would generate public interest. It would put a face on complex transactions that often are known only by abbreviations or acronyms. Litigation would cost the bank money, too. And it could cast the way Wall Street does business in such an unflattering light that even if the bank won, it might bring about better behavior.

A trial would show boldness. And when the S.E.C. found itself at the negotiating table again, it would feel a new respect.


Jesse Eisinger is a reporter for ProPublica, an independent, nonprofit newsroom that produces investigative journalism in the public interest. Email: jesse@propublica.org. Follow him on Twitter (@Eisingerj).

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