Outside of foreclosure fraud and the chain of title issues that could bring down the entire financial system, you still have your run-of-the-mill financial fraud. Wall Street executives and traders have only a passing familiarity with integrity, and the authorities may finally be catching up with them.
Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation, according to people familiar with the matter.
The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.
The investigations, if they bear fruit, have the potential to expose a culture of pervasive insider trading in U.S. financial markets, including new ways non-public information is passed to traders through experts tied to specific industries or companies, federal authorities say.
I think that anyone who has looked into this knows that there is fraud at the heart of Wall Street. This investigation concerns, if anything, small-time fraud comparatively; “tens of millions of dollars” is a rounding error in the grand scheme of things. But nevertheless, this is an important investigation. Basically, the FBI’s taking a look at the selling of inside information, through “expert network” services. Insiders at the largest Wall Street firms also worked for these consultants, who then told investors inside information about their companies for a fee. The individual investor without access to this information basically doesn’t have a chance, as those paying for the services thrive on this non-public, confidential information. And now the feds are looking to roll the whole thing up.
You can see the arrogance of those engaged in this practice from this anecdote:
Independent analysts and research boutiques also are being examined. John Kinnucan, a principal at Broadband Research LLC in Portland, Ore., sent an email on Oct. 26 to roughly 20 hedge-fund and mutual-fund clients telling of a visit by the Federal Bureau of Investigation.
“Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information,” the email said. “(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman’s gracious offer to wear a wire and therefore ensnare you in their devious web.”
Clearly, penitence is not their strong suit.
The Manhattan US Attorney is heavily involved in this, with a grand jury already hearing evidence. Yves Smith believes that the investigation focuses on the worst abusers rather than trying to end the entire seedy practice. But real criminal penalties would present a potential deterrence.
The SEC, which is part of the probe, has definitely stepped up their enforcement activities under the Obama Administration.



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Go! Go! GO! And use the results to probe more! Maybe Wesley Snipes will have some new roomies soon.!
Many thanks, David.
This is good. More please.
The only issue I’m going to take with it is that we aren’t dismantling the system whole cloth, and rolling up some insider traders who engaged in “only” millions worth of fraud. Unfortunately, this is probably going to be for show only. Sure, some people go to jail and some assets are seized. However, the whole elite economic criminal network will remain intact while the administration can point to this. It’s the Obama Administration plausible deniability routine. A handful are punished while the ringleaders continue to commit crimes and the administration can’t be accused of doing nothing.
I’ll get excited when Goldman is seized, liquidated, and the assets are redistributed and Blankenfein along with every other firm employee of the last ten years is wearing a jumpsuit and serving a life sentence in federal pound me in the ass prison.
Heh, I’d bet a fair amount of money that no one over mid to upper middle managers get anything. The top echelon, again I’d bet a fair amount of money, are responsible for this but won’t get a day in prison or a penny in fines.
Any takers?
I’ll be astonished if they get anything other than a “fine”, which will amount to a small fraction of what they have stolen.
Even John Kinnucan’s arrogance will only net him a small fine, and of course the usual no admitting of guilt.
But hey, remember those law and order politicians that like to lock up some poor slob for robbing a gas station.
There are not enough lawyers in the SEC to prosecute the insider trading and fraud engaged in by Investment Banks, Hedge Funds, “consultants,” etc., on a daily basis.
This is going to amount to low-level prosecutions, and no systemic change. GS is “too big to fail,” remember?
Not from me. Though occasionally the honor-among-thieves system breaks down, at which point the suckers turn on each other like rats in a slum fire, to use the late Dr. Thompson’s analogy.
As I typed about it this morning, how’s O gonna make this go away. Lookin’ forward, dontcha know. Guessing O will order Holder to order his minions not to prosecute.
Forgot to add: Boys will be boys.
I’ll believe it when I see it. We are far more concerned with making sure such miscreants as Martha Stewart, Tommy Chong, Paris Hilton, and Lindsey Lohan spend time behind bars.
Proof is in the pudding. Wouldn’t be surprising if they throw some very small bad-apples in jail to pretend they are cracking down, while turning a blind eye to massive fraud by the banksters.
Nice to see that we’re all a bunch of cynics. That must be the first in a 12-step program. Damned if I know what the other 11 steps are, though.
OT but… Well Worth the read!
Hateful Days
Hilton and Lohan earned their (shortened) jail time.
A return to rule of law is a welcome sight, but are we just going after minnows?
Are these the folks that crashed the economy, filled our pensions with goo and are in the process of kicking us out of our houses?
It should be interesting. This investigation started during the Bush administration and if the Obama administration is responsible for killing it, that would make Bush look like a Boy Scout by comparison – and Bush was no Boy Scout.
Excellent news. One thing does bother me a bit, however.
It’s a foot in the door, though, so good on all players involved. Squeeze the bit players and maybe we can start reeling in some bigger fish.
Why should multimillionaire celebrities be above the law? The problem is that celebrities still get special treatment…the problem isn’t that these celebrities are prosecuted too much.
O has already been worse than W in several ways, so I wouldn’t be a bit surprised. Gotta suck up to big donors even more now, ya know.
Book Salon up with Lt. Col. Anthony Shaffer’s Operation Dark Heart: Spycraft and Special Ops on the Frontlines of Afghanistan — And the Path to Victory hosted by Spencer Ackerman
Sounds great, but it will probably involve low level employees from a number of Wall Street firms. It is hard to imagine that Lloyd Blankfein doesn’t know what’s happening in his own company, but no doubt rather than having the opportunity to see him frog marched out of the building he does God’s work in, I doubt many of the names will be notable. Until people are placed in prison rather than a fine and a slap on the wrist which has been the case for many years, nothing will ever change, nor will mans greed.
Of course that will be the outcome. You don’t have to be a cynic to understand that’s the way our system works.
Someone on here (might’ve been you) once told me no matter how cynical one gets, they still can’t keep up.
IMO this gets proven so often that technically we’re probably no longer cynics, just realists.
I remember. Sigh.
This administration’s motto should be “The corporate and environmental rape will continue until morale improves.”
Yep. We would be cynics if we weren’t proven right every time.
The solution, obviously, is drug tests and louder clapping.
Securities fraud isn’t the only instance of arrogance in Portland. Try City Hall.
Lily Tomlin, OFG. Scroll down to the section “Search for SIgns of Intelligent LIfe in the Universe”
http://en.wikiquote.org/wiki/Lily_Tomlin
As Gordon Gekko says in the new movie, insiders trading is “so 1980s”. The real meltdown risk comes from _legal_ securitization and leveraging nowadays. Hope they catch the inside traders but this is small stuff.
Dubya and his dad had a real gift for dumping stocks the day before they nose dived. They also had a talent for banking. /S
Always got away clean as a whistle. As if it never happened.
Martha Stewart, OTOH, is a real criminal. /S
Remember their last big insider trading case, Angelo Mozilo of Countrywide? Paid a fine. No admission of guilt. No criminal charges.
Hopefully this investigation works out better.
The East emerges from the financial meltdown and grows, whilst the West does not.
As American Republicans who set the collapse into motion with folly’d laissez-faire policies in the 2000s, now kick and scream for their return…
– Balkingpoints / www
We see this dozens of times a day, we use insider’s moves to trade the market, it’s everywhere. Look at this article for proof.
http://www.trade-guild.net/2010/11/3c-and-smart-money.html#links
Investigators need look no further than Congress, which has earned a suspicious 16% annual return during the recession. Better than any other investment group, and has been for decades.
Thanks, I didn’t know that. And I still don’t know, or rather, can’t remember who said it to me once on this site. Whoever it was, thank you to as I’d never heard it before.
Please allow me to ask who you mean by “we”. Are you prepare to actually share some details with us or is this just a drive by?
some may go to jail. most will give back some of their winnings in out of court settlements. a few may cooperate and be left intact. you and i will still have to get up in the morning and go to work. the wheels on the bus go round and round.
They need to put these shysters into regular prisons-not the minimum security country club ones, but prisons for people who have committed major felonies, which is what these people have committed-fraud and theft on a massive scale. Put them in a cell with a bank robber, and let the shivs come out.
((modnote: no violence real or imagined, please.))
Sorry about that. My outrage momentarily got control of my keyboard.
Seriously, though, these people do need to do seriousl jail time-not merely one, two years. When they commit massive fraud, they should do 10, 20 years, minimum.