For FPM's enterprise entitled “No Smoke Without Fire: of Reputation Risk” we were reminded yet again that criminality is a servant of corporate enterprise. FPM joined-up thinking draws parallels from the widespread vogue of United States of America government enforcement prosecutions against financial and corporate crimes in capitalism.
The case involving Switzerland-based global bank UBS AG (UBSN.VX) (UBS.N) and its wealth management division head Raoul Weil resulted in an acquittal verdict from a legal technicality about burden of proof. Detrimental global bank tax-avoidance roguery was at issue with yet another case of combined American government authorities, this time Department of Justice (DoJ) and the Internal Revenue Service (IRS), seemingly taking retributive action against intrinsic corruption in capital markets, or indeed against capitalism itself. The DoJ spent six years trying prosecute Mr Weil, including extraditing him from Italy last year. Also, this particular case highlights increasingly onerous burden of proof towards incriminating senior executives with financial clout, while lower ranking corporate figures plead guilty and co-operate as witnesses for lighter plea agreement sentencing.
FPM will further follow closely this and similar tax-fraud cases as part of widening the FPM's “NSWF:Reputation” template; which was initially honed on SAC Capital insider trading amid their litany of legal proceedings, as understated in the financial media yet aggregated by FPM to display the sheer "iceberg theory" extent of insider trading that remains concealed. And we only focused on one solitary hedge fund founded by Steven A Cohen with his initials SAC Capital ("SAC")..
Remarkable that the FPM Reputation Blacklist or “Rogues Gallery” (shown above) is comprehensive with 20 plus insider-trading associated individuals. Compared to the pandering mainstream media (msm) accounts of only 8-10 criminally charged and convicted as one time SAC employee. With intention to deceive public opinion and interest, downplaying illegality and criminality at SAC is an artifice of Mr Cohen's external public relations firm Sard Verbinnen & Co. FPM list appropriately includes former or current SAC staff pleading guilty and co-operating with enforcement authorities, and those uncharged but implicated as co-conspirators in the “criminal club” cases. The mitigating factor is that staff turnover at SAC Capital, in line with other financial firms tend to be high, so association or links to a firm is exponential and inevitable, but their insider trading being synonymous with notorious ringmasters / hubs is unavoidable. For example, consider an FPM Reputation Blacklist for one time Goldman Sachs employees associated in insider trading and other securities fraud the list would be tediously exhaustive probably!
Bear in mind that DoJ and the SEC are boasting 85+ convictions or guilty pleas to-date since the crackdown began in October 2009. Also, as of October 23rd last month, SEC stated “…Galleon-related enforcement actions against 35 defendants.” And news typically report for a firm of “..Fourteen people pleaded guilty in the Galleon case, and at least nine others are charged”. Clearly, the numbers stack-up in validating FPM enumeration of SAC-connected criminality rather than msm financial press data.
Further, FPM list ONLY includes insider trading violations by one-time SAC Capital employees investigated, by the deliberately stymied and poorly resourced enforcement of the SEC. Remember that the SEC were set up as the police equivalent of the securities and investment industries. Their job is to enforce securities regulations and legislation – seemingly especially at lower ranking company men! To validate Steven A. Cohen as only ‘allegedly’ presiding over a “web-of-securities-fraud” and receiving an administrative “slap-on-the-wrist” by the securities regulator, despite the numerous foot-soldiers and lieutenants ensnared in multi-years insider-trading prosecutions, is utterly shambolic oversight and law court proceedings by the DoJ. We charge Eric Holder as the attorney general of USA. Our SAC-associated blacklist aimed at spreading historical knowledge or simply reputation is obviously even more exhaustive when including other types of securities fraud. An extended “Reputation Blacklist” of SAC-tainted individuals and firms, which FPM have compiled internally to assist external manager due diligence (available for a consultancy fee), for example includes publically disgraced Forrest Fontana in stock-shorting violation (more in “NSWF: Of Reputation”, a chargeable document).
Outstanding Issues Regarding Steven A. Cohen et al (“SAC”):
- A potential legal precedent from a landmark second circuit court appeal against Anthony Chiasson’s insider trading conviction may make insider trading prosecutions even more difficult to convict; and indirectly mocking and besmirching the legality of definition, interpretation and application of what constitutes insider trading after its 80 years of existence.
- The second circuit appeal court decision may be elitist by setting a new stringent burden of proof for “downstream tipee” cases; as affecting the legal conviction of Michael Steinberg and Mr Chiasson, as well as his co-defendant Todd Newman. FPM’s “elitist” accusation is based on higher-up corporate executives can deny knowledge of shenanigans lower down. That’s a corruption of capitalism - “where does the buck stop?”. Our long-memory or historical knowledge suggests most SEC cases in the past were based on circumstantial evidence. Also, FPM are not certain if this technical appeal is not a court ruse for the convicted perpetrators to delay starting their jail sentences (Mr Steinberg was convicted in December 2013 and still out on bail are Mr Chiasson and co-defendant Mr Newman after conviction December 2012), or other time extension ploys, or indeed a technical fudge in applying Rule 10b-5 of the Securities Exchange Act of 1934 relating to insider trading.
- Pending this second circuit court appeal decision the SEC is currently reviewing the industry ban imposed on Mr Steinberg and suspending other insider-trading administrative enforcement actions, including Mr Cohen’s. The DoJ “asked to stay the SEC's failure-to-supervise proceeding against the head of SAC Capital, Steven A. Cohen, 'until at least the Second Circuit issues a decision in the Newman/Chiasson Appeal.”.
- Incredibly, The Artful Dodger (another FPM nickname in “NSWF: Reputation”), Mr Cohen has not only evaded court prosecution but seems to be slipping out of SEC administrative admonishment: a) for failing to supervise convicted Mathew Martoma and Mr Steinberg and b) to ultimately ban him from the investment industry have been postponed in April and again in August this year. FPM wonders if this is a mock persecution to appease the public’s outraged indignation of a scandalous securities fraud ringmaster avoiding not just criminal justice, but also escaping exemplary industry defamation – by banishment from operating in it.
- Fresh new cases of insider trading allegations involving research / consultant group or “expert network” Height Securities, and its prior communication with senior politician on a government policy decision and announcement in April 2013; affecting the share price of health insurance companies. Yep, you guessed it, SAC Capital included in a list of hedge funds receiving “heads-up” information.
- Of the Government convictions and pleas gained in the insider trading cases FPM monitoring how many convicted cases will be given class-action litigation status by courts. This could open a flood of litigation benefitting class-action firms and harmed investment management firms and ultimately their investors in the litigated securities.
- Stop The Press! Preet Bharara, lead attorney at the important South District Court of New York and protagonist in NSWF was a front-runner to be elected for the top job of Attorney General at the DoJ. On 10 October yesterday, President Obama choice for the most powerful legal position of USA was given to another to replace running-for-the-hills incumbent of the post Eric Holder. Though we may never know the actual reasons for the choice of top judicial job, one reporter has intrepidly already suggested that his aggressive pursuit of corruption is not good politics for career progression: “…he has been relentless in his prosecution of Wall Street tycoons, domestic/ international terrorists, corrupt public officials, and even foreign diplomats as in the case of Devyani Khobragade”; remember Eliot Spitzer’s corruption crusade and subsequent downward spiralling career. FPM relationships resources suggest that headline top-jobs are not for those of Indian-American origin, as it may unsettlingly remind the American people of their non-nativity in North America, especially to follow on from the first Afro-American Attorney General, and no need to mention the first Afro-American president.
- As FPM have intimated before, that there is still a sting in the tail for this SAC-saga, and that rests on the shoulder Mathew Martoma and family. Or less possibly, Mr Cohen’s inner circle of Mr Steinberg, Richard Grodin and David Ganek may flip to give State evidence. Mr Martoma squealing to authorities for the chance to avoid 10 years jail and confiscation of his millionaire trappings may yet force him turn evidence to incriminate SAC. We think Mr Martoma or undeniably any others with evidence against Mr Cohen can be hero of humanity but they need divine courage to upset the applecart.
- The case of Patricia
Cohen against Mr Cohen for fraud and breach of fiduciary claims is still
pending; she stated in lawsuit filed in 2009 “he [Mr Cohen] had received inside information in advance of the
purchase of RCA Corp. by General Electric Co.”. The case is scheduled for a hearing on Nov. 13, 2014. Watch
this space! The case is Cohen v. Cohen, U.S. District
Court for the Southern District of New York, No. 09-10230.
The appalling journey of a 10 years’ probe into insider trading without catching few ringleaders is strong evidence that enterprise of a billionaire over-rides legal justice concerns in the modus operandi of capitalism. More alarmingly, as “FPM Reputation Blacklist” amendment proves, the public interest is only given propaganda lip-service by contrived and trite public relations communications and msm financial press. Such systemic imbalances and corruption leads to social disaffection and discord, perhaps explaining the strong raison d’etre of freedom and popular revolt movements gaining momentum globally, even heralding “Destroy Capitalism!” FPM’s shout is less radical but with similar aims: “Destroy Corruption of Capitalism”.
At the climax of US district court attorney Preet Bharara’s insider trading enforcement, if the “Unconscionable Mr Cohen” himself IS NOT criminally charged, while the firm bearing his name pleads guilty to criminality and settles for multi-billion dollars (US$1.8 bn plus legal expenses), then the attorney’s biggest scapegoats are Raj Rajaratnam of the Galleon Group and Messrs. Martoma and Steinberg of SAC Capital. Now compare the 1980s insider trading triple scalp of Ivan Boesky, Michael Milken and Dennis Levine. Whatever the merits and demerits of the American Politico-judiciary system, and clever technical litigation by Mr Cohen’s defence, it is clear that political expedience and multi-billion dollars remuneration for the capitalists’ infrastructure of DoJ and SEC, won the day. Pity the Poor Man’s Pocket Aye! Mr Bah
For Mr Bharara efforts at recouping money largely for the USA Government and an incommensurately smaller portion to reimburse other disadvantaged investors and ultimately pensioners and other long-term savers, validates incestuous politics and capitalism. “Democracy” or the rule of society by the people is ultimately defunct and only a pseudo notion. Where are the developments in laws enforcement in the securities industry to expand enforcement in the wider public interest? In 1972 John Wells a New York lawyer, led a panel on enforcement issues, which resulted in the Wells Notice many corporate America and portfolio manufacturers know only too well. FPM has an “enterprising execution” from its 3-pronged process).
Whereas “Plutocracy”, an organisation of society by wealth, is clearly alive and kicking. Witness Mr Rajaratnam penalty fine of under US$100 mn and jail sentence exceeding 10 years, a near record prison term for insider trading; versus Mr Cohen’s record US$1.8 bn global plea agreement / “payoff” and NO jail time and perhaps a slap on the wrist and told not to do it again. Proof that criminality is a servant of plutocrats. In astonishment, FPM echo “What the SAC is going?”