Tag Archives: cheating

About that Reformed ‘Wolf’ of Wall Street

Jordan Belfort, who did jail time for fleecing investors at Stratton Oakmont, the Long Island brokerage firm he founded, has put himself out there as a reformed man. Indeed, he has been making money legitimately, giving speeches to audiences enthralled with the idea of spending an hour or so in the same room as a convicted felon who claims to have seen the light.

Belfort is, of course, the author of the 2007 book “The Wolf of Wall Street,” which was made into a movie starring Leonardo DiCaprio (playing Belfort) that was released last month. He’s taken to social media to inform the public that he’s a good guy who is giving all the movie proceeds back to the investors he defrauded. But the prosecutors who put him in jail say he’s not telling the story just right. I write about it in my story today in The New York Times.

 

 

Black Marks Routinely Expunged from Brokers’ Records

Stock brokers who settle with an aggrieved customer are able to get the go-ahead to delete the customer’s complaint from their records almost every time they ask, according to a study released Oct. 16. I wrote about it in today’s New York Times.

To understand the history of these broker shenanigans, take a look at an earlier story that I wrote for The Times on June 10: A Rise in Requests From Brokers to Wipe the Slate Clean.

It’s a topic I’ve been watching for some time. Eleven years ago, brokers were on an earlier push to make their bad records look good, and I wrote about that for Bloomberg Markets Magazine — How Wall Street Protects Bad Brokers. So when Wall Street’s self-regulators at The Financial Industry Regulatory Authority (Finra) tell you this problem emerged in 2009, consider this article from 2002:

Jury Largely Sides With Bank in Madoff-Related Case

A Hartford jury said Wednesday that the Connecticut bank that was custodian for two investors in Bernard Madoff’s Ponzi scheme was not liable for their losses.

I wrote about the Alice-in-Wonderland-style trial in a story for The New York Times on July 8. The bank’s former president said he didn’t know what due diligence the bank might have done to be sure the customer’s assets existed, and didn’t know how the bank maintained accurate records. The president, who’d been in the banking business for 36 years, had a degree in finance from Georgetown University.

Another doozy in the trial was the bank’s former custodial manager, who said he would get three or four “very thick envelopes” of trade confirmations from Madoff some weeks. He put them in a file drawer and never reviewed the documents. (Except that he occasionally took a peek because he was curious about what Madoff might be buying or selling, but not curious enough to do any checking on behalf of the bank’s customers.)

The Hartford trial began in June as a consolidation of three lawsuits with similar allegations. But two of those cases settled for $7.5 million just before the jury began its deliberations, leaving the jury with only the case of two elderly Florida investors to decide. You can read my story about the verdict today for The Times here. Take a lesson from this: When a financial outfit tells you it is your custodian, don’t make the mistake of assuming that means they have custody of your money.

When markets come undone from crisis fraud, regulators investigate something else

The public was pretty peeved about the financial crisis in 2008, and regulators felt the pressure to produce a few scalps in response. So what did the regulators do? They investigated something that had nothing to do with the crisis.

I reviewed Charles Gasparino’s new book “Circle of Friends: The Massive Federal Crackdown on Insider Trading — And Why the Markets Always Work Against the Little Guy” for Bloomberg Muse this week.

Gasparino tells the story of the all-out war on insider trading that began in 2008, and he questions the regulators’ priorities in pursuing inside traders when there were people who’d just about brought down the economy roaming free.

The book has some problems, but Gasparino is right that our regulators are chasing all the wrong people. Here’s the review.

Best investment advice: Vet brokers yourself, because regulators aren’t doing it for you

Just because a stock broker has a license to do business doesn’t mean they’ve received a meaningful stamp of approval from regulators. Next time some financial person is pitching you for business, go back and read the stunning coverage of Mark C. Hotton, a guy who allegedly was fleecing investors for years as regulators sat back and ignored a stream of red flags.

Hotton is the fellow who fooled the Broadway producers of “Rebecca: The Musical” into thinking he’d raised millions of dollars in financing for them. The producers of Rebecca only lost $60,000 doing business with Hotton. Others haven’t been so lucky.

Hotton is in jail today, and it’s a joke when you consider that, after years of alleged stealing of millions from investors, he finally got caught because he fleeced a few big-shots from show-biz. It’s even more of a joke that U.S. prosecutors took a deep bow for their “lightning speed” sleuthing after catching Hotton 22 years after his first crime — which should have been a reason to keep him out of the brokerage business altogether.

I wrote about Hotton’s capers in a recent Bloomberg column. A week after that story, I wrote a second one, this time for TheStreet.com, about a fresh complaint against (the now-incarcerated) Hotton filed by Finra, which is the Wall-Street-funded regulator that is overseen by the Securities and Exchange Commission. There really ought to be a special judicial forum where the public can bring complaints against regulators who are utterly clueless.

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.

$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.

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.