And Another Word on Justice and Goldman Sachs

Over at wallstreetonparade.com, editor Pamela Martens has more to say about the lopsided priorities of prosecutors who won’t quit in pursuing Sergey Aleynikov, a small fish who has been arrested yet again on charges he stole data from Goldman Sachs. The most recent Aleynikov arraignment was on the same day that we learned that prosecutors will not be charging Goldman with any crimes related to a scathing government report on how the firm treated its customers in the period leading up to the financial crisis.

Aleynikov was tried and found guilty of stealing computer code from Goldman, but an appeals court reversed that on April 11, saying that prosecutors hadn’t properly applied corporate espionage laws. Martens writes:

“Then, on Thursday, August 9, 2012, the unthinkable happened.  Aleynikov was arrested and charged based on the same set of facts by Cyrus Vance of the Manhattan District Attorney’s office. Under the Fifth Amendment to the U.S. Constitution, an individual is not permitted to be tried twice for the same crime.  But when you take from Wall Street, all bets are off apparently.” Read article.

Why Mom and Pop Investors Are Taking a Pass on Stocks

There’s a lot of talk about the individual investor getting out — and staying out — of the stock market, but a column that ran over the weekend in The Washington Post does a good job of putting together all the reasons why. Barry Ritholtz, who runs the finance blog The Big Picture, raises the question “What has driven the typical investor away from equities?” and writes:

“The short answer is that there is no single answer. It is complex, not reducible to single variable analysis. This annoys pundits who thrive on dumbing down complex and nuanced issues to easily digestible sound bites. Television is not particularly good at subtlety, hence the overwhelming tendency for shout-fests and silly bull/bear debates.”

 

Mom and pop investors have had enough of Wall Street scandals and the portfolio whiplash that comes with high-frequency trading, Ritholtz says. And even if Wall Street’s problem with being ethically challenged doesn’t bother you, the lousy returns of the stock market probably does. Read article.

Is there Justice for Goldman Sachs?

Do you remember that 11-hour Senate hearing where there were more scatological references than you could find in a Beavis and Butthead movie? “How much of that sh**ty deal did you sell?” asked Senator Carl Levin, the Michigan Democrat who was running a hearing of the Senate Permanent Subcommittee on investigations. “Should Goldman Sachs be trying to sell the sh**ty deal?

Levin was grilling a Goldman executive about the over-the-top emails Levin’s committee had collected that made very clear that insiders at Goldman — and other firms — were privately trashing the same securities they were selling to their customers. One gem the investigators had come across: A Goldman executive emailing a colleague “Boy that Timberwolf was one sh**ty deal.”

When all was said and done, Levin asked the Justice Department to look into whether Goldman had broken the law by misleading clients. Last Thursday, Justice said it wouldn’t be bringing a case.

In my column for CNN.com today, I raise the question that’s on a lot of people’s minds: Do big banks like Goldman get special treatment? Read article

No Big Boy Pants for Banks That Whine Over Rules

Are you tired of it yet? “We are all for financial reform,” the Wall Street story goes. “But we can’t have regulations that make us anti-competitive.”

Another financial crisis like the last one and you have to wonder who we’d be worrying about competing against. Whatever. The financial industry is very busy trying to make the case that before we can make new rules, we have to prove that the benefits outweigh the costs. I write about it in my latest column for Bloomberg View:

To get an idea of who has the upper hand in this fight, consider what it entails to be the chump who has to explain the “benefits” side of financial regulation. Costs can be easy to figure out. But how do you put a dollar figure on credit markets that don’t collapse? Or the elderly who don’t lose their life savings because regulators have cracked down on rip-off artists who troll retirement villages?

The object of the exercise is to swamp regulators with work and make rule-making impossible. The strategy is working. Read article.

 

$200 Million of Customers’ $ Went Missing, But Iowa Sure Loved PFGBest

You can count on “the absolute dedication” of our company to protect your money. That’s what a futures trading firm in Iowa, PFG Best, said to customers just after MF Global filed for bankruptcy last Fall. Fast forward to July 11. PFG itself was filing for bankruptcy after $200 million of its customers’ money had disappeared.

PFG Best is the latest example of a lot of things that              are wrong with the financial industry and the people who purport to police it.

Its CEO, who said in a suicide note earlier this month (the suicide attempt failed) that he’d been stealing from customers for 20 years, sat on an advisory committee of one of his company’s regulators. In fact, the board of directors of the National Futures Association voted three times to put Russell Wasendorf, Sr. on the committee it consulted with about possible new regulations.

And then there are all the awards that Wasendorf got for his charity and civic-mindedness. Do keep that in mind next time you’re wowed by some business big-shot whose generosity is fueling a few too many press releases. I wrote about the PFG debacle in a column for Dealbreaker.com today. Read article.

Judge to Kleiner Perkins: Sex Suit Goes to Trial, Not Arbitration

A San Francisco Superior Court judge said this afternoon that he didn’t buy arguments by Kleiner Perkins Caufield & Byers that a sex discrimination case against it should be heard in private arbitration. The venture capital firm was sued in May by Ellen Pao, who said she was pressured into sex by a junior partner and then retaliated against when she complained.

Judge Harold Kahn had already told Kleiner that he wasn’t persuaded by its argument that Pao had no legal right to be in open court, but gave the firm a chance to file a revised motion. Today, Kahn told Kleiner “I thought your papers were terrific,” adding, “and I disagree with all of them.”

Here’s a story by the Mercury News about the action in court today.

I wrote about the Pao case in my Bloomberg column last month; Pao had said in her complaint that the top guys at Kleiner didn’t invite women to power dinners with big clients because women would “kill the buzz.” Kleiner denied her allegations.

Kleiner said today that it will appeal the judge’s decision. Companies fight hard to keep sex discrimination and other cases out of the public eye, and nothing serves that goal better than forcing cases into private arbitration. Here’s a story I wrote describing how the public has suffered from 25 years of business forcing litigants into closed-door arbitration hearings.

Scandal? What scandal?

Lloyd Blankfein, CEO of Goldman Sachs Group Inc., wrote an op-ed today for Politico.com. He talks about the challenges facing America and offers some solutions that might make America a more attractive place to invest.

He managed to carry on for 975 words without addressing the impact of his industry’s reckless behavior on investor confidence. Read article

Could It Get Any Worse? Don’t Answer That. Bankers, Regulators, High School Students Have Really Bad Week.

What a week. Not that we haven’t gotten accustomed to news of scandal upon scandal among our business leaders and the frequently useless regulators who are supposed to be keeping business in line. This week, though, was a doozey.

Though it was mostly a week of in-your-face reminders of ethical lapses and outright wrongdoing by movers and shakers, it began with news from New York City officials that 70 students at an elite high school had been involved in a cheating scandal.

In my column yesterday for The Huffington Post, I said it was little surprise that kids would be cheaters when cheating is all they see around them.

News of the student cheating scandal was quickly followed by word of serious problems among their grown-up role models in business and government.

– Wells Fargo – while denying it had done anything wrong — paid $175 million to settle accusations that it had charged blacks and Latinos higher interest rates and fees on mortgages.

– After attempting suicide, the founder of the collapsed brokerage firm Peregrine Financial Group said that, over a period of nearly 20 years, he’d defrauded clients out of more than $100 million.

–JP Morgan Chase & Co.’s CEO Jamie Dimon told investors that what had begun as nothing more than a “tempest in a teapot,” and then progressed to a $2 billion loss, was now in fact a $5.8 billion loss from derivatives trading gone sour. On top of that, it looks like traders at JP Morgan had been trying to hide their misguided trades.

– Trust me, this list is far from all-inclusive, but another highlight – or lowlight – of the week is the jaw-dropping trove of documents that The Federal Reserve Bank of New York released on Friday showing some of what they knew about the rigging of Libor – a key benchmark interest rate – back in 2007.

I recommend you take a few minutes to go through the amazing cache of Fed documents on your own, but if you ever wondered how much regulators might have to learn to catch up with the regulated, consider this telephone exchange between a Barclays Bank guy and an employee at the New York Fed: After explaining to the Fed employee which buttons to push on her Bloomberg terminal, the Fed woman, whose name is Peggy,  winds up looking at the same screen of Libor rates that the Barclays guy is looking at. This, it appears, is not something she’d previously known how to do. “Oooh wow!!” she says. “Okay. Oh this is great.”

How did we get to this point? Here’s some weekend reading.

– We’ve let business leaders shirk responsibility by giving them a way to stay out of the harsh glare of court. Here’s a look at how arbitration has – for 20 years – let business off the hook.

– We have regulations we don’t enforce.

– We put the wrong people on pedestals – and when I say “we,” I mean it. People in my business ought to knock it off with all the stupid “best CEO” and “most-admired companies lists.”

– We are too easily sucked in to the dumb idea that we need to lower our standards to compete with other countries.

– We pick the wrong regulators.

– And we sit back and do nothing even after we see evidence that our regulators are falling down on the job.

It wasn’t all bad this week. At least the Yankees won last night.

Kids Cheat Just Like Their Role Models in Business Do

Your kids are cheating at school? Well, what did you expect?

New York City officials said this week that 70 students at one of its most prestigious high schools had been involved in a cheating scheme. In the ensuing press coverage, much was made of the stressful demands on Stuyvesant teenagers to meet expectations in a school that sends graduates to places like MIT and Brown.

“Most of the students come from families where the goal is ‘Ivy League school or bust’; you either go to an Ivy League school or you haven’t lived up to your potential,” one Stuyvesant grad told the New York Times.

My column in The Huffington Post today takes a look at kids, cheating, and the bad role models in business that kids can’t help but notice. Read article

Rich Guys Who Face Jail Time Can Still Get a Break

Rajat Gupta, the former CEO of McKinsey & Co., was convicted of securities fraud last month, and has until October 18 before he’s sentenced by Federal Judge Jed Rakoff.

Cases like these are a real eye-opener on how things really work if you’ve got a lot of money and a bunch of friends in high places.

When Joe SixPack gets caught on some transgression like cheating on his taxes, little Joe, Jr. may wind up going through grade school without dad making it to his Little League games. But Joe SixPack doesn’t have lawyers like Gupta’s Gary P. Naftalis, who gets his name on those “super lawyer” directories the way some people get their names on the Police Benevolent Association cold-call list. The trick at this point is for Gupta to either win an appeal on his case, or to figure out a way to get Rakoff to hit him with the smallest possible term in prison.

In my Bloomberg View column published today, I discuss the ways that rich people who are found guilty of crimes attempt to influence the judge so that prison terms are minimal. One way to get a judge to go a little easier is to get the right people to make a case that you’re a good citizen who’s done great deeds for society. A web page supporting Gupta, friendsofrajat.com, gives a hint at what Rakoff may be hearing from Gupta’s supporters. Read article

I’m always happy to hear from readers. Please email me at susan.antilla15@gmail.com or send me a message at @antillaview.

 

So what’s an extra $7 billion anyway?

It could have been worse for JP Morgan and its CEO Jamie Dimon: The New York Times might have broken the story on some other day, like when readers weren’t on red alert for today’s Supreme Court ruling on health care. In any event, Jessica Silver-Greenberg and Susanne Craig broke the news this morning that the JPM loss that was supposed to be only $2 billion (aka, the “tempest in a teapot” loss) might wind up being $9 billion. You can read that article here.

I wrote about Dimon in my column “JPMorgan’s Dimon Goes From ‘Least-Hated’ to ‘Most-Embarrassed’” for TheStreet.com in May, calling Dimon “Wall Street’s most cooed-over magazine cover boy.” (I should note that I’ve never seen any cooing over Dimon by Craig, a refreshing exception among financial writers). I’ve seen a lot of top execs get fawned over by business writers over the years, but the adulation of Dimon has for a long time been over-the-top. You can read that story here.

I’m always happy to hear from readers, so feel free to email me at susan.antilla15@gmail.com, or send a message @antillaview.

Lots of secrets when your employer wants to keep your discrimination complaint out of court

Here’s a great example of how hard a company will work to keep its dirty laundry out of the public eye. Ellen Pao, a junior partner at the Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers, sued the firm for sex discrimination in May. Kleiner filed its response yesterday, denying Pao’s allegations. Along with its denials, Kleiner also said that Pao shouldn’t be in court at all — she signed documents agreeing to arbitration in the event of a dispute, according to Kleiner. If the firm prevails on that, there will be no public record of the dispute after these initial filings.

And it gets worse, according to the Mercury News, which has reported on documents that aren’t yet available on the San Francisco Superior Court website. Not only does Kleiner say that Pao’s case doesn’t belong in court. It also says that the documents that support that argument should be kept under wraps.

Take a look at my Bloomberg column marking the recent 25th anniversary of an important Supreme Court decision that let brokerage firms force customers to use industry-run arbitration instead of court. It’s only gotten worse for investors, consumers, and employees since that June 8, 1987 decision. It’s too early to make a judgment on either side’s arguments in Pao v Kleiner. But the push to keep things quiet is part of a long, worrisome trend.

I’m always happy to hear from readers. To get in touch with me about my articles, email me at susan.antilla15@gmail. com, or, if you’d prefer, send me a message @antillaview.

25 Years of Business Dodging the Courts: Happy Anniversary, Folks

It’s happy 25th anniversary to somebody today, but not to you if you’re an investor, a consumer, or an employee who toils outside of the executive suite. On June 8, 1987, the Supreme Court said it was OK for brokerage firms to require customers to give up their rights to court in the event that a broker ripped them off. Instead of open court with public records and annoying reporters who could chronicle the sordid details of abuse of the little guy, investors since then have been stuck in “mandatory arbitration” that’s run by — guess who? — the brokerage industry. Continue reading

Could Silicon Valley Sex Discrimination Case Get Kicked Out of Court?

Sex discrimination isn’t the iPad, folks. It’s more like
the electric typewriter.

When you see the words “tech” or “venture capital,” you think of brilliant geeks coming up with cool new stuff you’d never heard of before, right? Well tech types are in the 1980s when it comes to sex discrimination cases. Ellen Pao, who sued the Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers last month, is claiming that the guys she worked with excluded her from meetings and held fancy dinners with big clients and left the women out. One of her partners said it would “kill the buzz” to have women at one power dinner, according to her suit. We didn’t fix that leaving-the-girls-out thing a couple decades ago?

Kleiner has said the suit is “without merit,” and its star general partner, John Doerr, said in a letter posted on the firm’s website on May 30 that it all amounted to “false allegations against his firm, which boasts “the most” women of any leading venture capital firm. As luck would have it, Kleiner’s woman numbers rose by one the next day, when the firm announced a new partner to focus on investments in consumer internet business, Megan Quinn, would begin in late June.

We’ll see if Pao can even get to court. Kleiner spokeswoman Amanda Duckworth told me in an email that the firm believes Pao’s claims “are covered by an arbitration agreement.” Alan Exelrod, Pao’s lawyer, declined to comment when I asked him if she’d signed anything obligating her to arbitration. Kleiner hasn’t filed any request to have the complaint kicked out of court, but companies in employment disputes usually love the idea of getting a case out of the public eye. Here’s my Bloomberg column on the Pao case and its striking resemblance to lawsuits 20 years past. Read article