Friday, July 13, 2012 7:58:21 AM
Many Wall Street executives say wrongdoing is necessary: survey
Tue Jul 10, 2012 10:07am EDT
(Reuters) - If the ancient Greek philosopher Diogenes were to go out with his lantern in search of an honest man today, a survey of Wall Street executives on workplace conduct suggests he might have to look elsewhere.
A quarter of Wall Street executives see wrongdoing as a key to success, according to a survey by whistleblower law firm Labaton Sucharow released on Tuesday.
In a survey of 500 senior executives in the United States and the UK, 26 percent of respondents said they had observed or had firsthand knowledge of wrongdoing in the workplace, while 24 percent said they believed financial services professionals may need to engage in unethical or illegal conduct to be successful.
Sixteen percent of respondents said they would commit insider trading if they could get away with it, according to Labaton Sucharow. And 30 percent said their compensation plans created pressure to compromise ethical standards or violate the law.
"When misconduct is common and accepted by financial services professionals, the integrity of our entire financial system is at risk," Jordan Thomas, partner and chair of Labaton Sucharow's whistleblower representation practice, said in a statement.
The survey's release comes as the fallout from Barclays PLC's (BARC.L) Libor-rigging scandal continues and other banks including Citigroup Inc (C.N), HSBC Holdings PLC (HSBA.L), Royal Bank of Scotland Group PLC (RBS.L) and UBS AG (UBSN.VX) await the outcome of an industry-wide probe.
(Reporting By Lauren Tara LaCapra; Editing by Leslie Adler)
Copyright 2012 Reuters
http://www.reuters.com/article/2012/07/10/us-wallstreet-survey-idUSBRE86906G20120710 [with comments]
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Many on Wall Street say greed isn't just good -- it's necessary
A quarter of high-finance types say it's OK to bend the rules to get ahead; "Wall Street's" Gordon Gekko (Michael Douglas) would approve.
(Twentieth Century Fox / July 10, 2012)
They say it only takes a few bad apples to spoil the bunch. So how rotten can things get when a quarter of those apples are no good?
A survey of 500 top Wall Street execs [ http://www.reuters.com/article/2012/07/10/us-wallstreet-survey-idUSBRE86906G20120710 (above)] by the law firm Labaton Sucharow finds that 24% believe that professional money people need to engage in unethical or illegal behavior to be successful.
Moreover, 26% say they've seen or know of such behavior, while 16% would commit insider trading if they thought they could get away with it.
Nearly a third of survey respondents say their compensation plans create pressure to bend ethical standards or violate the law.
"When misconduct is common and accepted by financial services professionals, the integrity of our entire financial system is at risk," says Jordan Thomas, chair of Labaton Sucharow's whistle-blower representation practice.
As we all know, Wall Street has been saying for years that no further regulatory oversight is necessary. Banks and brokerages are basically straight arrows, execs say, and can be trusted to do the right thing.
Apparently not. Any industry in which a quarter of workers believe they need to violate rules to get ahead is an industry that's inherently messed up.
That's why adult supervision from agencies such as the Consumer Financial Protection Bureau is necessary.
That's why no one trusts these guys.
Copyright © 2012, Los Angeles Times
http://www.latimes.com/business/money/la-fi-mo-wall-street-ethics-20120710,0,3548235.story [with comments]
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FOR IMMEDIATE RELEASE: Tuesday, July 10, 2012
Financial Services Professionals Feel Unethical Behavior May Be a Necessary Evil and Have Knowledge of Workplace Misconduct, According to Labaton Sucharow Survey
Could You Blow The Whistle?
New York, NY (July 10, 2012) – Labaton Sucharow LLP today announced the results of its survey of 500 financial services professionals across the United States and United Kingdom. Conducted by Populus in June, Wall Street, Fleet Street and Main Street: Corporate Integrity at a Crossroads [ http://labaton.com/en/about/press/upload/US-UK-Financial-Services-Industry-Survey.pdf ] reveals startling data on corporate ethics, the regulatory landscape, and individuals' willingness to blow the whistle on wrongdoing. The survey is being released in conjunction with the launch of the firm's SEC Whistleblower Eligibility Calculator, an innovative web-based tool to enable users to assess their eligibility for the SEC Whistleblower Program.
According to the survey, 24 percent of respondents reported a belief that financial services professionals may need to engage in unethical or illegal conduct in order to be successful, while 26 percent of respondents indicated that they had observed or had firsthand knowledge of wrongdoing in the workplace. Particularly troubling, 16 percent of respondents reported that they would commit a crime—insider trading—if they could get away with it.
"When misconduct is common and accepted by financial services professionals, the integrity of our entire financial system is at risk," said Jordan Thomas, partner and chair of the Whistleblower Representation Practice at Labaton Sucharow. "In this era of corporate scandals, we must refocus our energies on corporate ethics and encourage individuals to report wrongdoing—internally or externally."
Labaton Sucharow's survey also revealed the following:
•39 percent of respondents reported that their competitors are likely to have engaged in illegal or unethical activity in order to be successful;
•30 percent of respondents reported their compensation or bonus plan created pressure to compromise ethical standards or violate the law, while 23 percent of respondents reported other pressures that may lead to unethical or illegal conduct; and
•30 percent of respondents feel that the SEC/SFO effectively deters, investigates and prosecutes misconduct—despite the new leadership, record enforcement actions and new reforms; 29 percent of respondents feel the same way about FINRA/FSA.
Chris Keller, partner and head of case development at Labaton Sucharow commented: "It is shocking that four years after the global economic crisis began there continues to be a fundamental lack of integrity in the financial services industry. For more than 50 years, Labaton Sucharow has been on the forefront of corporate governance reform. Given the results of this survey, our work is more important than ever."
Are Whistleblowers the Answer?
As a former assistant director and assistant chief litigation counsel in the Enforcement Division, Thomas played a leadership role in the development of the SEC Whistleblower Program. The program has broad extraterritorial reach and offers eligible whistleblowers, regardless of nationality, significant employment protections, monetary awards and the ability to report anonymously. Other jurisdictions around the world are considering initiatives that encourage individuals to break their silence and report possible violations of the law.
While Labaton Sucharow's survey found that 94 percent of respondents would report wrongdoing given the protections and incentives such as those offered by the SEC Whistleblower Program, only 44 percent of respondents were aware of this important investor protection program.
Scepticism and uncertainty about employers' handling of claims of misconduct persist. One in five of the professionals surveyed weren't sure of, or had serious doubts about, how their employers would handle a report of wrongdoing. In addition, in the U.S., gender was a factor in attitudes toward retaliation; 22 percent of female respondents believe that they would be retaliated against if they reported wrongdoing in the workplace, compared with 12 percent of male respondents.
Responding both to the lack of awareness of avenues to report wrongdoing and the personal challenges inherent in blowing the whistle, Labaton Sucharow has launched a first-of-its-kind SEC Whistleblower Eligibility Calculator, which may be found at http://www.secwhistlebloweradvocate.com/eligibility/ . This confidential web-based tool provides potential whistleblowers with a detailed eligibility report—empowering them to make an informed reporting decision. This is the latest addition to http://www.secwhistlebloweradvocate.com , an innovative website that uses videos, comprehensive legal primers and timely blog entries to help responsible organizations establish a culture of integrity and courageous whistleblowers to report possible securities violations.
Between June 19-25, 2012, Populus conducted 250 online interviews in the U.K. and 250 in the U.S. with senior individuals within the financial services industry. The full methodology is provided in the survey's executive summary at http://www.labaton.com/en/about/press/upload/ US-UK-Financial-Services-Industry-Survey.pdf .
About Labaton Sucharow LLP
Labaton Sucharow was the first law firm in the country to establish a practice exclusively focused on protecting and advocating for whistleblowers who report possible securities violations to the SEC. Building on the firm's market-leading securities litigation platform, the Whistleblower Representation Practice leverages a world-class in-house team of investigators, financial analysts, and forensic accountants with federal and state law enforcement experience to provide unparalleled representation for whistleblowers.
For more than 50 years, Labaton Sucharow has been one of the country's premier law firms comprehensively representing businesses, institutional investors and consumers in complex securities and business litigation. It is consistently among the top plaintiffs litigation firms based on its rankings in Chambers & Partners, The Legal 500, The National Law Journal's Plaintiffs' Hot List, and Benchmark Plaintiff. More information about Labaton Sucharow and the Whistleblower Representation Practice is available at http://www.labaton.com .
CONTACT:
Steve Bodakowski
CJP Communications
212.279.3115 x141
sbodakowski@cjpcom.com
Copyright © 2012 Labaton Sucharow LLP
http://www.labaton.com/en/about/press/Labaton-Sucharow-announces-results-of-financial-services-professional-survey.cfm
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Barclays Criminal Probe Begins, Experts Speculate Other Banks Involved In Libor Manipulation
07/06/2012
http://www.huffingtonpost.com/2012/07/05/barclays-criminal-probe-libor-manipulation_n_1652697.html [with comments]
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Geithner made recommendations on Libor in 2008, documents show
Secretary Geithner’s ascendance: After a rocky start in his role as Treasury secretary, Timothy F. Geithner has not only survived but grown in stature, using his newfound influence to push President Obama to focus on curbing the nation’s soaring debt.
July 12, 2012
While president of the Federal Reserve Bank of New York, Timothy F. Geithner pressed British regulators to reform the way a critical global benchmark called the London interbank offered rate, or Libor, is calculated, according to a June 1, 2008, e-mail obtained by The Washington Post.
Writing to the head of the Bank of England, among others, Geithner made six recommendations, which included eliminating incentives that could encourage banks to manipulate the rate and establishing a “credible reporting procedure.”
“We would welcome a chance to discuss these and would be grateful if you would give us some sense of what changes are possible,” Geithner wrote.
[...]
http://www.washingtonpost.com/business/economy/geithner-drawn-into-libor-scandal/2012/07/12/gJQArDhbgW_story.html [with comments]
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Eliot Spitzer On Libor Scandal: 'I Think The Mob Learned From Wall Street, Not Vice Versa'
By Bonnie Kavoussi
Posted: 07/09/2012 4:36 pm Updated: 07/09/2012 4:36 pm
Eliot Spitzer thinks that bankers are the ultimate thugs.
"I think the mob learned from Wall Street, not vice versa," Spitzer said on his Current TV show [ http://4closurefraud.org/2012/07/06/a-must-see-the-mob-learned-from-wall-street-eliot-spitzer-on-the-cartel-style-corruption-behind-libor-scam-video/?utm_source=rss&utm_medium=rss&utm_campaign=a-must-see-the-mob-learned-from-wall-street-eliot-spitzer-on-the-cartel-style-corruption-behind-libor-scam-video ] "Viewpoint" on Tuesday. "Seriously! I think the mob looked at the business practices, whether it's Rockefeller and the oil trusts or Wall Street, and they said, 'Hey, you know, cartels are good. They're better than hitting people on the head with a baseball bat.'"
Spitzer was referring largely to Wall Street's alleged conspiracy to fix the Libor rate, a key interbank lending rate that acts as a benchmark for interest rates around the world. Barclays agreed to pay $450 million last month [ http://www.huffingtonpost.com/2012/07/09/libor-scandal-manipulation-spanned-decades_n_1658696.html ] to settle charges that it had rigged the Libor rate. But it is unlikely that Barclays acted alone. Governments also are investigating [ http://www.huffingtonpost.com/2012/07/05/barclays-bankers-libor-scandal_n_1651761.html ] JPMorgan Chase, Citigroup, Bank of America, UBS and the Royal Bank of Scotland for allegedly helping fix the Libor rate.
Wall Street's rigging of Libor [ http://www.huffingtonpost.com/2012/07/09/libor-scandal-manipulation-spanned-decades_n_1658696.html ] may have spanned decades, according to multiple reports.
Spitzer, the disgraced ex-governor of New York [ http://www.nytimes.com/2008/03/12/nyregion/12cnd-resign.html?pagewanted=all ], famously went after big banks as the state's attorney general. "Virtually nobody has been chased out of the business despite the massive, unbelievably expansive corruption that we’ve seen month after month," he added.
Rolling Stone writer Matt Taibbi, a guest on Spitzer's show, said that it is highly unlikely that Barclays acted alone in fixing the Libor rate. Taibbi said that since about 16 banks help set Libor, "Really in the end, it's probably going to come out that it's going to be all of them were involved in this. And that's what it's critical for people to understand: that this is a cartel-style corruption."
Copyright © 2012 TheHuffingtonPost.com, Inc.
http://www.huffingtonpost.com/2012/07/09/eliot-spitzer-wall-street-libor_n_1655260.html [with embedded video, and comments]
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Warren Buffett: Libor Scandal Involves 'The Whole World'
Warren Buffett said on CNBC on Thursday morning that the Libor scandal is a "big deal."
07/12/2012
http://www.huffingtonpost.com/2012/07/12/warren-buffett-libor-scandal_n_1668649.html [with embedded video, and comments]
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The Market Has Spoken, and It Is Rigged
By SIMON JOHNSON
July 12, 2012, 5:00 am
In the aftermath of the Barclays rate-fixing scandal, the most surprising reaction has been from people in the financial sector who fully understand the awfulness of what has happened. Rather than seeing this as an issue of law and order, some well-informed people have been drawn toward arguments that excuse or justify the behavior of the Barclays employees.
This is a big mistake, in terms of the economics at stake and the likely political impact.
The behavior at Barclays has all the hallmarks of fraud [ http://www.houston-opinions.com/law-fraud.html ] – intentional deception for personal gain, causing significant damage to others.
The Commodity Futures Trading Commission [ http://topics.nytimes.com/top/reference/timestopics/organizations/c/commodity_futures_trading_commission/index.html ] nailed the detailed mechanics of this deception in plain English in its Order Instituting Proceedings (which is also a settlement and series of admissions by Barclays). Most of the compelling quotes from traders involved in this scandal come from the commission’s order, but too few commentators seem to have read the full document. Please look at it [ http://www.nytimes.com/interactive/2012/07/10/business/dealbook/20120710-bank-scandal-documents.html ] now, if you have not done so already.
The commission’s order portrays a wide-ranging conspiracy (or perhaps a set of conspiracies) to rig markets, including, but not limited to, any securities for which the price is linked to a particular set of short-term interest rates.
The collective term for these rates is the London Interbank Offered Rate, known as Libor, but the use of this nomenclature sometimes hides the fact that there is a separate Libor daily for each of 10 currencies at 15 maturities, from overnight to 12 months, according to the British Bankers Association [ http://www.bbalibor.com/bbalibor-explained/the-basics ]. The notional size of the derivatives involved is on the order of $360 trillion [ http://www.ft.com/intl/cms/s/0/bae7fed4-c9e1-11e1-844e-00144feabdc0.html#axzz20JMg5FtB ].
Barclays could not have manipulated those rates by themselves – and that is not what the C.F.T.C. found or the basis of the Barclays settlement. Rather, some Barclays employees colluded with people at other banks in a way that, over a period of years, moved Libor rates up and down, depending on what would favor the trading positions of the people and organizations involved.
Each Libor “panel” of banks involves seven to 18 banks [ http://www.bbalibor.com/bbalibor-explained/the-basics ]. Participating banks submit the rate at which they can supposedly borrow at a particular maturity and in a specified currency, and an average is calculated (taking out high and low values). No one bank is likely to be able to move the calculated Libor rates by itself.
Once the global financial crisis began to bite, there appears to have been a more systematic manipulation of Libor reporting by Barclays management in a particular direction – downward, to make it seem that the bank was healthier and therefore able to borrow from other banks at a cheaper rate.
George Osborne, Britain’s chancellor of the Exchequer (the equivalent position to the secretary of the Treasury) and a Conservative Party member, said recently [ http://www.newlawjournal.co.uk/nlj/content/banks-big-bother ], “Fraud is a crime in ordinary business; why shouldn’t it be so in banking?” The answer, of course, is that fraud is not allowed in any well-run country.
Anyone who takes personal responsibility seriously should want all those involved to be held accountable – to the full extent of the law in all jurisdictions. Anything that lets individuals escape consequences will further undermine the legitimacy that underpins all markets. Bankers should be leading the charge to clean up their industry.
Nevertheless, five arguments put forward in the last 10 days, singly or collectively, attempt to provide some sort of cover for what happened at Barclays. None of these arguments have any merit.
First, it is argued that this kind of cheating around Libor has been going on for a long time. This may be true, but it is a sad and lame excuse that is unlikely to get anyone off. The bigger question must be: Is the financial sector crooked at its core? Statements about a pattern of behavior only strengthen the case that incentives, culture and organizations are all badly broken at the heart of the world’s financial system.
Second, it is also asserted that “everyone does it.” This is not any kind of defense – try it next time you are accused of fraud. But the perception that many people could be involved is part of the reason why this scandal has legs. A broad range of involvement across the financial sector is consistent with what is in the C.F.T.C. order – although the full scope of the conspiracies has not yet been made clear.
There are three United States banks involved in Libor panels: JPMorgan Chase, Bank of America and Citigroup. Are they also implicated in some aspect of rigging interest rates and therefore securities prices?
Barclays was the first to settle with the C.F.T.C., presumably enabling investigators to gain better access to information about who else is involved. It would not be a surprise if bigger fish are still to come.
Third, Libor-rigging is defended as a “victimless crime.” This is untrue. Traders at Barclays and other banks gained from this series of manipulations, so someone else lost. That may have been investors, who received lower returns than they would have otherwise. Or it may have been borrowers, who paid higher interest rate and related costs than would have been necessary in an honest market. Other losers are presumably everyone who was effectively overcharged by all the intermediaries involved in crooked behavior. Some local governments have also lost heavily [ http://dealbook.nytimes.com/2012/07/10/libor-rate-rigging-scandal-sets-off-legal-fights-for-restitution/ ], at a time when these losses put pressure on essential services and will tend to increase taxes.
Honest people in the financial sector should be up in arms about the behavior of Barclays and other megabanks.
Fourth, some contend that it is the regulators’ responsibility and fault that there was cheating on Libor. It is certainly the case that there was regulatory capture at work — that is, officials in Britain, the United States and perhaps elsewhere should have been paying closer attention. I made exactly this point on National Public Radio’s “All Things Considered” last Saturday [ http://www.npr.org/2012/07/07/156428433/what-does-londons-libor-mean-to-the-u-s ].
The mystique of the financial sector wowed many people – including many prominent policy intellectuals, Democratic and Republican – in the years before 2008. But who does the capturing in regulatory capture? Big banks work long and hard and lobby at many levels to push regulators toward paying less attention.
Fifth, the weakest argument is, “It was only a few basis points, here and there” (where a basis point is a hundredth of a percentage point, i.e., 0.01 percent). Either the Libor reporting process and, consequently, the pricing of derivatives has been corrupted by a criminal conspiracy, or it has not. There is no “just a little” in this context for the enormous global securities market.
Robert E. Diamond Jr., who resigned last week [ http://dealbook.nytimes.com/2012/07/03/barclays-c-e-o-resigns-as-bank-frames-a-defense/ ] as chief executive of Barclays, reportedly said, “On the majority of days, no requests were made at all” to cheat on Libor. The Economist, which does not make a general habit of criticizing prominent people in the financial sector, observed [ http://www.economist.com/blogs/schumpeter/2012/07/barclays-and-libor-scandal ], “This was rather like an adulterer saying that he was faithful on most days.”
Mr. Diamond has fallen. Who is next? How will this play in American politics? There is still time for politicians on the right and on the left of the political spectrum to get ahead of the issue. Digging in around specious arguments in favor of price-fixing cartels is not the way to go.
Power corrupts, and financial market power has completely corrupted financial markets. Barclays and the other global megabanks involved in fixing Libor have brought their own industry very low – completely destroying the legitimacy on which sensible financial intermediation needs to be based.
Who trusts a banker at this point? The collateral damage is enormous. Who in their right mind would buy a complex derivative product from Barclays or anyone else implicated in this growing scandal?
Simon Johnson [ http://www.nytimes.com/2009/04/03/business/economy/simonjohnson.ready.html ] is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You [ http://whitehouseburning.com/ ].”
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http://economix.blogs.nytimes.com/2012/07/05/lie-more-as-a-business-model/
Dimon and the Fed’s Legitimacy
http://economix.blogs.nytimes.com/2012/05/24/dimon-and-the-feds-legitimacy/
Investigating JPMorgan Chase
http://economix.blogs.nytimes.com/2012/05/17/investigating-jpmorgan-chase/
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http://economix.blogs.nytimes.com/2012/03/15/when-populism-is-sound/
Opening Up the Fed
http://economix.blogs.nytimes.com/2012/02/23/opening-up-the-fed/
© 2012 The New York Times Company
http://economix.blogs.nytimes.com/2012/07/12/the-market-has-spoken-and-it-is-rigged/ [with comments]
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At Peregrine Financial, Signs of Trouble Seemingly Missed for Years
By AZAM AHMED and PETER LATTMAN
July 12, 2012, 9:16 pm
CEDAR FALLS, Iowa—It was a triumphant moment in 2009 when a delegation of Iowa lawmakers visited here to tour the gleaming, new headquarters of the Peregrine Financial Group.
“This is impressive,” Charles E. Grassley, the Republican senator from Iowa, said, admiring the futures trading firm’s state-of-the-art facility. “This is a company that’s on the top of things.”
Today, the only impressive thing about Peregrine is the depth of its problems. After a suicide attempt by its founder on Monday, regulators discovered about $215 million in customer money was missing. The Commodity Futures Trading Commission filed a lawsuit charging fraud. Criminal authorities are investigating. Peregrine has filed for bankruptcy and shut down.
As the founder Russell Wasendorf lies in critical condition in an Iowa City hospital, Peregrine’s angry customers are asking, How could futures industry regulators have missed another potential fraud? The scandal comes just months after MF Global, the defunct futures brokerage firm, lost more than $1 billion in clients’ money.
It now appears that regulators missed the red flags for years.
In 2004, a Peregrine client sent a letter to the National Futures Association, the firm’s primary regulator, and the C.F.T.C., asking it to intervene to prevent the firm from misusing its customers’ money, according to a person with knowledge of the correspondence and a copy of the letter obtained by The New York Times. Five years later, a tipster wrote to the N.F.A. asking it to review Peregrine’s bank account information for accuracy, according to people briefed on the matter who spoke on the condition of anonymity because the investigation was private. The tip was anonymous, and it is unclear how seriously the N.F.A. took it.
The auditor for Peregrine was a one-person shop run out of the accountant’s home in Glendale Heights, Ill., a Chicago suburb. As part of its investigation, the C.F.T.C. is looking into the role that the individual played, according to a person with knowledge of the case.
After the collapse of MF Global, the C.F.T.C. ordered a review of all futures firms to ensure the safety of customer money. The N.F.A. — where Mr. Wasendorf serves on an advisory committee — gave Peregrine a clean bill of health in January.
Government regulators are examining whether Mr. Wasendorf doctored bank statements provided to the N.F.A., according to people briefed on the matter who were not authorized to speak publicly because of the investigation. Authorities are also expected to question officials at U.S. Bank, which held the client’s money.
“The entire industry is outraged that it happened the first time, let alone a second time,” said Michael V. Dunn, a former commission of the C.F.T.C., referring to the collapse of two brokerages. “We need to do something about this.”
The N.F.A. declined to comment. Calls to Peregrine’s auditor were not immediately returned.
For Tom Power, a former MF Global broker, it is hard not to take the brokerage scandals personally.
After losing his job when MF Global went bust, Mr. Power, 31, started his own business. He has spent the last eight months signing up clients still circumspect about their losses at MF Global. For his new venture, he chose to clear his trades through Peregrine, which is commonly known as PFGBest.
“The customers are just heartbroken over what happened,” Mr. Power said. “To have to call these same guys that were with me at MF and tell them it happened again? It’s just devastating.”
Futures firms like Peregrine match buyers and sellers of contracts for commodities like wheat and oil, charging a thin commission for the service. Farmers and others use such contracts to protect themselves from large price fluctuations.
Speculators also play the futures market and they, too, have been burned. Mark Tucker, a part-time investor, has had the misfortune of dealing with both MF Global and PFGBest.
“You’re prepared to take risks,” said Mr. Tucker, who lost about $80,000 between the two firms. “But you don’t expect risks to come from money being stolen out of your account.”
Peregrine’s problems have also rocked Cedar Falls, a small town of about 40,000. An Iowa native, Mr. Wasendorf came here in the late 1960s to attend the University of Northern Iowa. He started a commodities trading business in 1967 in the basement of his Cedar Falls home. Eventually, the business moved to Chicago, the epicenter of the futures markets.
But during the middle of the last decade, Mr. Wasendorf decided to move Peregrine’s headquarters to Iowa. He persuaded many of his employees to move with him, promising a cheaper cost of living and a better quality of life. To entice them, he spent about $15 million on a new building adjacent to the exclusive Beaver Hills Country Club on the outskirts of town. The offices had a day care center with an outdoor playground, a Montessori school for the employees’ children, and free breakfast and lunch for the firms’ nearly 150 workers.
With the broad smile and clean-cut looks of a television news anchor, Mr. Wasendorf, 64, is a rock star in Cedar Falls. He has given generously to his alma mater, recently making a $2 million pledge to the school’s athletic program. His Peregrine Charities organizes a popular annual triathlon in town. Scheduled for next month, the race has been canceled “due to the recent emergency events,” according to the charity’s Web site.
Mr. Wasendorf has eclectic business interests beyond Peregrine, like a publishing company, and a real estate operation in Bucharest, Romania.
In Cedar Falls, he is best known as a restaurateur. When he moved Peregrine’s headquarters here, he opened an upscale Italian restaurant called My Verona, a name paying tribute to the Northern Italian town. The restaurant has been closed since Monday.
Mr. Wasendorf lives extravagantly. Though his primary residence is in Cedar Falls — a compound carved out of Iowa farmland on the outskirts of town — he regularly flew his private jet for meetings in Chicago, where his son ran the business. Employees jokingly referred to the plane as Air Wasendorf. He flew around the world to attend Lady Gaga concerts.
Adding to the mystery surrounding Peregrine’s collapse, Mr. Wasendorf had invited friends and employees to his wedding on Aug. 4, to be held at a Lutheran church in Cedar Falls with a reception at My Verona.
But records show that he married his fiancée, Nancy Paladino, who works in his restaurant business, at a chapel at the Bellagio Hotel in Las Vegas on June 30. Friends say he had planned to hire the band Styx to perform at the wedding, though the band declined.
Just nine days after his wedding, the local police found Mr. Wasendorf, the head of the firm, unconscious in his car behind the building with a tube running from the exhaust pipe into the car’s interior. An empty bottle of vodka rested by his side. He left a suicide note suggesting financial crimes had been committed.
“This whole thing is a shock,” said Jon Crews, the Cedar Falls mayor.
Beneath the surface there were signs of trouble.
In late May, the Wasendorfs hosted their annual brokers’ meeting in Cedar Falls. Brokers from across the country descended on the town, where they enjoyed beef Wellington and an open bar at My Verona. But by that time, employees had been told they would face a 10 percent pay cut in June, followed by another 10 percent cut the following month, according to employees and firm memos. Mr. Wasendorf also canceled the annual employee picnic, telling staff members that they would be invited to his reception.
Around the same time, Mr. Wasendorf boasted of a new restaurant he planned to open in neighboring Waterloo, to be called My Verona 2. Some employees wondered how Mr. Wasendorf could afford such expenditures when he was cutting their pay.
The brokerage firm started to unravel in [earnest] recently.
The N.F.A. was in the middle of changing part of its audit process to an online platform, where bank statement information would feed directly to the regulator. This month, Peregrine was facing its first audit under the new system, called confirmation.com, and Mr. Wasendorf was opposed to the system, according to people with knowledge of the matter.
He fought the directive for several days, the person said, until relenting on Sunday. The N.F.A. started getting confirmations through the system Monday morning.
As for the industry itself, lawmakers were already considering a move to crack down on futures firms after the MF Global fiasco. Now many participants are hoping the outrage will bolster those efforts.
Futures firms, anxious about the impact of the Peregrine collapse, are considering lining up for a voluntary audit to reassure clients, according to people familiar with the effort.
On Thursday, Mr. Grassley asked his colleagues on the Senate’s agriculture committee to address the Peregrine scandal at a hearing next month. He also requested that the C.F.T.C. provide information on what it did in response to red flags at Peregrine.
“People need to have confidence in our commodity trading system in order for it to work for farmers and investors the way it’s intended,” Mr. Grassley said.
Copyright 2012 The New York Times Company
http://dealbook.nytimes.com/2012/07/12/at-peregrine-financial-signs-of-trouble-seemingly-missed-for-years/ [no comments yet]
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Peregrin’s Fall Exposed by Electronic Shift
July 11, 2012
http://www.businessweek.com/news/2012-07-11/peregrine-s-fall-said-to-be-tied-to-electronic-reporting-shift [no comments yet]
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In PFG Scandal, JPMorgan Chase Had Surprising Role: It Held Customer Accounts
JPMorgan Chase held PFGBest customer funds in a segregated account, but has not yet been mentioned in the scandal.
07/12/2012
http://www.huffingtonpost.com/2012/07/12/pfg-customer-account-jpmorgan-chase_n_1668386.html [with embedded video, and comments]
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Fall of Peregrine’s Wasendorf Presaged in Christmas Toast
Wasendorf, 64, tried to asphyxiate himself July 9 in the parking lot of Peregrine’s headquarters near a country club in Cedar Falls, Iowa, police say.
Jul 12, 2012
http://www.bloomberg.com/news/2012-07-12/fall-of-peregrine-s-wasendorf-presaged-in-christmas-toast.html [with embedded video, and comment]
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Peregrine Customers’ Claims Priced at 25 Cents on Dollar
Jul 12, 2012
http://www.bloomberg.com/news/2012-07-11/peregrine-customers-claims-priced-at-25-cents-on-dollar.html [with embedded video; no comments yet]
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The Spreading Scourge of Corporate Corruption
Top, mortgage abuses contributed to the collapse of the housing market; middle and bottom, after years of dismal job prospects, Americans are losing trust in many institutions, like Congress.
From top: Gregory Bull/Associated Press; Paul Sancya/Associated Press; Michael Reynolds/European Pressphoto Agency
By EDUARDO PORTER
Published: July 10, 2012
Perhaps the most surprising aspect of the Libor [ http://topics.nytimes.com/top/reference/timestopics/subjects/l/london_interbank_offered_rate_libor/index.html ] scandal is how familiar it seems. Sure, for some of the world’s leading banks to try to manipulate [ http://www.economist.com/node/21558281?fsrc=scn/tw_ec/the_rotten_heart_of_finance ] one of the most important interest rates in contemporary finance is clearly egregious. But is that worse than packaging billions of dollars worth of dubious mortgages into a bond and having it stamped with a Triple-A rating to sell to some dupe down the road while betting against it? Or how about forging documents on an industrial scale to foreclose fraudulently on countless homeowners?
The misconduct of the financial industry no longer surprises most Americans. Only about one in five has much trust in banks, according to Gallup polls [ http://www.gallup.com/poll/155357/Americans-Confidence-Banks-Falls-Record-Low.aspx ], about half the level in 2007. And it’s not just banks that are frowned upon. Trust in big business overall is declining. Sixty-two percent of Americans believe corruption is widespread across corporate America. According to Transparency International, an anticorruption watchdog, nearly three in four Americans believe that corruption has increased [ http://archive.transparency.org/policy_research/surveys_indices/gcb/2010_11/results ] over the last three years.
We should be alarmed that corporate wrongdoing has come to be seen as such a routine occurrence. Capitalism cannot function without trust. As the Nobel laureate Kenneth Arrow observed, “Virtually every commercial transaction has within itself an element of trust.”
The parade of financiers accused of misdeeds, booted from the executive suite and even occasionally jailed, is undermining this essential element. Have corporations lost whatever ethical compass they once had? Or does it just look that way because we are paying more attention than we used to?
This is hard to answer because fraud and corruption are impossible to measure precisely. Perpetrators understandably do their best to hide the dirty deeds from public view. And public perceptions of fraud and corruption are often colored by people’s sense of dissatisfaction with their lives.
Last year, the economists Justin Wolfers and Betsey Stevenson from the University of Pennsylvania published a study [ http://www.nber.org/papers/w16891 ] suggesting that trust in government and business falls when unemployment rises. “Much of the recent decline in confidence — particularly in the financial sector — may simply be a standard response to a cyclical downturn,” they wrote.
And waves of mistrust can spread broadly. After years of dismal employment prospects, Americans are losing trust [ http://www.gallup.com/poll/155258/Confidence-Public-Schools-New-Low.aspx ] in a broad range of institutions, including Congress, the Supreme Court, the presidency, public schools, labor unions and the church.
Corporate wrongdoing may be cyclical, too. Fraud is probably more lucrative, as well as easier to hide, amid the general prosperity of economic booms. And the temptation to bend the rules is probably highest toward the end of an economic upswing, when executives must be the most creative to keep the stream of profits rolling in.
The most toxic, no-doc, reverse amortization, liar loans flourished toward the end of the housing bubble. And we typically discover fraud only after the booms have turned to bust. As Warren Buffett famously said [ http://www.economist.com/node/12796770 ], “You only find out who is swimming naked when the tide goes out.”
Company executives are paid to maximize profits, not to behave ethically. Evidence suggests that they behave as corruptly as they can, within whatever constraints are imposed by law and reputation. In 1977, the United States Congress passed the Foreign Corrupt Practices Act, to stop the rampant practice of bribing foreign officials. Business by American multinationals in the most corrupt countries dropped [ http://www.nber.org/papers/w5266 ]. But they didn’t stop bribing. And American companies have been lobbying against the law [ http://www.washingtonpost.com/business/economy/wal-mart-took-part-in-lobbying-campaign-to-amend-anti-bribery-law/2012/04/24/gIQAyZcdfT_story.html ] ever since.
Extrapolating from frauds that were uncovered during and after the dot-com bubble, the economists Luigi Zingales and Adair Morse of the University of Chicago and Alexander Dyck of the University of Toronto estimated conservatively [ http://www.business.illinois.edu/accountancy/events/symposium/audit/proceedings/proceedings_2010/papers/Summary_Morse.pdf ] that in any given year a fraud was being committed by 11 to 13 percent of the large companies in the country.
Yet it may be wrong to shrug off the latest boomlet of corporate crimes and misdemeanors as a mere reflection of the business cycle. Americans appear to believe that corruption has become more prevalent over the years. And some indicators suggest they may be right.
In 2001, Transparency International’s Corruption Perceptions Index ranked the United States as the 16th least-corrupt [ http://archive.transparency.org/policy_research/surveys_indices/cpi/2001 ] country. By last year, the nation had fallen to 24th place [ http://cpi.transparency.org/cpi2011/results/ ]. The World Bank also reports [ http://info.worldbank.org/governance/wgi/pdf/c228.pdf ] a weakening of corruption controls in the United States since the late 1990s, so that it is falling behind most other developed nations.
The most pointed evidence that breaking the rules has become standard behavior in the corporate world is how routine the wrongdoing seems to its participants. “Dude. I owe you big time!... I’m opening a bottle of Bollinger,” e-mailed one Barclays trader to a colleague for fiddling with the rate and improving the apparent profit of his derivatives book.
It’s difficult to know why corruption may be spreading. But there are a few plausible explanations. From globalization to rising income inequality [ http://topics.nytimes.com/top/reference/timestopics/subjects/i/income/income_inequality/index.html?inline=nyt-classifier ] to the growing role of corporate money in political campaigns, political and economic dynamics may have increased both the scope of corporate wrongdoing and the incentives for business executives to bend, or break, the rules.
Just consider the scale of recent wrongdoing. Libor is one of the most important rates in the economy. It determines the return on the savings of millions of people, as well as the rate they pay on their mortgage and car loans. It is the benchmark for hundreds of trillions of dollars worth of financial contracts.
Bigger markets allow bigger frauds. Bigger companies, with more complex balance sheets, have more places to hide them. And banks, when they get big enough that no government will let them fail, have the biggest incentive of all. A 20-year-old study [ http://papers.ssrn.com/sol3/papers.cfm?abstract_id=227162 ] by the economists Paul Romer and George Akerlof pointed out that the most lucrative strategy for executives at too-big-to-fail banks would be to loot them to pay themselves vast rewards — knowing full well that the government would save them from bankruptcy.
Globalization can encourage corruption, as companies compete tooth and claw [ http://www.nber.org/papers/w10269 ] for new markets. And the furious rush of corporate cash into the political process — which differs from bribery in that companies pay politicians to change laws rather than bureaucrats to ignore them — is unlikely to foment ethical behavior.
The inexorable rise of income inequality is also likely to encourage fraud, fostering resentment and undermining trust in capitalism’s institutions and rules. Economic research shows that participants in contests in which the winner takes all are much more likely to cheat [ ]. And the United States is becoming a winner-takes-all economy.
It’s hard to fathom the broader social implications of corporate wrongdoing. But its most long-lasting impact may be on Americans’ trust in the institutions that underpin the nation’s liberal market democracy.
© 2012 The New York Times Company
http://www.nytimes.com/2012/07/11/business/economy/the-spreading-scourge-of-corporate-corruption.html [with comments]
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UPDATE 1-France, Germany raid Swiss banks, clients on tax
* Credit Suisse clients under spotlight in shift from banks, employees
* Swiss bank believes exempt following German deal last September
* UBS raided in Lyon, Bordeaux, Strasbourg
* Probes casts shadow over Swiss tax deal
By Katharina Bart and Arno Schuetze
Wed Jul 11, 2012 8:50pm IST
ZURICH/FRANKFURT, July 11 (Reuters) - German tax authorities have launched raids into Credit Suisse clients and French officials searched the homes of UBS employees, part of crackdowns on foreigners suspected of evading taxes through the two largest Swiss banks.
Switzerland's strict banking secrecy rules, which have helped build a $2 trillion offshore financial sector, have infuriated cash-strapped governments elsewhere as they try to stop tax evasion by wealthy citizens.
Roughly 5,000 German clients of Credit Suisse are being probed on suspicion of tax evasion and some had their homes searched, a source at the bank said on Wednesday, as European tax officials broaden their investigation to clients from banks.
Meanwhile, the offices of UBS in Lyon, Bordeaux and Strasbourg were raided on Tuesday on suspicion of money-laundering and aiding tax evasion, according to a source at that bank.
The private homes of several high-ranking UBS employees in Strasbourg were also searched, the UBS source said.
UBS said it was cooperating with authorities. The French prosecutor's office declined to comment because the investigation was ongoing.
It was not immediately clear whether the raids in Germany and France were coordinated or in any way connected.
Credit Suisse said it was aware that German tax authorities were investigating its clients but gave no further comment.
The source at the bank said tax authorities in the German towns of Bochum and Duesseldorf were probing its clients over Bermuda-based life insurance products which may have been used to avoid tax. Tax officials in both towns declined to comment.
The Frankfurt prosecutor said one client was searched.
The German investigation comes against the backdrop of a deal reached with Switzerland to levy taxes on German assets stashed in Swiss bank accounts that is due to come into effect next year pending German parliament approval.
Peter V. Kunz, professor for business law at Berne University, said the new investigation into Swiss bank clients could add to scepticism over the deal, which German opposition politicians say is too lenient on tax evaders.
"I don't think it will derail the agreement altogether, but it does simplify things for its opponents," Kunz said.
"CRIMINAL EVADERS"
Duesseldorf and Bochum are in the German state of North-Rhine Westphalia, where the Social Democrat-led regional government has been one of the most vocal opponents of the deal that would also end prosecutions of Swiss banks and employees.
"Our tax inspectors must be able to do their work unimpeded, which is to root out criminal evaders. No tax agreement should prevent that," the region's finance minister, Norbert Walter-Borjans, said in a statement.
North-Rhine Westphalia bought names of Swiss bank clients from an informant in 2010. Two sources told Reuters the targets for the latest investigation were culled in part from that information.
Germany has long been trying to crack down on tax evasion. In 2008, data leaked from Liechtenstein's LGT bank revealed that wealthy citizens including former Deutsche Post chief Klaus Zumwinkel had stashed money in the tiny principality. Zumwinkel received a suspended jail sentence after admitting tax evasion.
Credit Suisse struck a deal with German tax authorities last September, agreeing to pay 150 million euros ($183.83 million) to end an investigation over allegations the bank and its employees helped Germans dodge taxes.
UBS was forced in 2009 to pay a fine and release the names of 4,500 clients to U.S. officials to end a damaging tax probe. U.S. authorities are still investigating Swiss banks including Credit Suisse and Julius Baer over tax offences.
Switzerland is trying to get the U.S. investigations dropped in exchange for the payment of fines and the transfer of names of thousands more U.S. bank clients.
Copyright 2012 Reuters
http://in.reuters.com/article/2012/07/11/swiss-banks-idINL6E8IB7FC20120711 [no comments yet]
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Credit Suisse German Clients Homes Raided by Tax Agents, HB Says
By Annette Weisbach - Jul 10, 2012 12:59 PM CT
Credit Suisse Group AG (CSGN)’s German client’s homes were searched by tax agents probing the possible use of so-called “Bermuda products” involving several billion euros to hide funds from the tax authorities, Handelsblatt [ http://www.handelsblatt.com/ ] reported, without saying where it got the information.
Some 7,000 customers, mainly German, that used accounts in Bermuda disguised as tax-free insurance products are affected, the newspaper said, citing unidentified banking officials. The investments averaged about 500,000 euros with individual cases of 12 million euros and more, the newspaper said.
To contact the reporter on this story: Annette Weisbach in Frankfurt at aweisbach1@bloomberg.net
To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net
©2012 BLOOMBERG L.P.
http://www.bloomberg.com/news/2012-07-10/credit-suisse-german-clients-homes-raided-by-tax-agents-hb-says.html [no comments yet]
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Romney's Donors Share His Love of Offshore Tax Havens
George Zornick on July 11, 2012 - 6:59 AM ET
Mitt Romney’s mysterious financial holdings have been the topic of furious discussion this week, after a Vanity Fair investigation [ http://www.vanityfair.com/politics/2012/08/investigating-mitt-romney-offshore-accounts (at http://investorshub.advfn.com/boards/read_msg.aspx?message_id=77227185 )] detailed how significant amounts of the Republican presidential candidate’s fortune may be parked in offshore bank accounts in low- or no-tax countries, allowing Romney to not only obscure how much he is actually worth but avoid paying the federal taxes he would otherwise owe.
While it’s extremely unusual for someone who wants to be president to abuse offshore tax havens like this, it’s an all too common practice for many major American companies—and is most popular in the financial sector from which Romney comes.
And perhaps not so mysteriously, some of the biggest abusers of offshore tax havens—along with some of the chief facilitators of this practice—seem to have gravitated to Romney’s re-election effort. Of the his campaign’s top eleven contributors, seven are financial firms with significant offshore tax haven activity.
Of the four that do not have extensive tax havens themselves, two are accounting firms that do prolific business in helping set up those havens, and one is a Swiss bank where employees are currently under a federal investigation for helping to facilitate potentially illegal abuse of offshore tax havens.
So while Romney is currently downplaying [ http://2012.talkingpointsmemo.com/2012/07/democrats-attack-romneys-offshore-holdings-swiss-bank-account-bermuda.php ] his use of offshore tax havens, maintaining those evasion structures is no doubt a top priority of the people and industries funding his campaign:
(Note that these companies did not give checks directly to the campaign, which is forbidden, but rather the money comes through the company’s political action committees and employees.)
As you can see, Wall Street is a big contributor to the Romney campaign, and is also heavily invested in the practice of moving money to tax havens. The Vanity Fair piece notes that “one cannot properly understand Wall Street’s size and power without appreciating the central role of offshore tax havens.” With massive inflows and outflows of cash and incentives to avoid paying taxes on it, along with strong legal and public relations incentives to sometimes hide the source of the money, offshore tax havens are invaluable to the financial sector.
Citigroup, the Romney campaign’s sixth-highest contributor, is the worst American abuser of offshore tax havens, according [ http://www.gao.gov/new.items/d09157.pdf ] to the Government Accountability Office—with a stunning 1,240 foreign subsidiaries. Morgan Stanley and Bank of America, both top Romney contributors, are also in the top ten offshore tax haven abusers listed in the GAO report, which examined offshore tax haven use by the country’s largest 100 companies.
Among Romney’s top donors there’s also PricewaterhouseCoopers and Deloitte, two of the “Big Four” American accounting firms. They all play a crucial role in setting up offshore tax havens for clients and no doubt derive massive incomes from it. As John Christensen, director of the Tax Justice Network, has explained [ http://taxjustice.blogspot.com/2011/01/big-four-accounting-firms-embedded-in.html ], “The Big Four are deeply embedded in the tax haven world. They’re major players in shaping the laws and regulations of these places and encouraging clients—high net worth individuals and corporate clients—to maximize their tax avoidance through such places.”
Then you have Credit Suisse—an actual Swiss bank where employees are under investigation [ http://articles.businessinsider.com/2011-07-15/wall_street/30092320_1_ubs-banker-credit-suisse-ubs ] by the Department of Justice for helping clients set up accounts in offshore tax havens. According to an indictment, “as of late 2008 Credit Suisse was maintaining thousands of secret accounts for U.S. customers with as much as $3 billion in assets.” Tax havens are legal, but failing to declare them to the IRS is not, and the Credit Suisse clients, apparently with the help of bank employees, were not. The indictment charges that bank employees “knew and should have known they were aiding and abetting U.S. customers in evading their U.S. income taxes.”
So that is ten of the Romney campaign’s top eleven donors deeply involved in the practice of creating offshore tax havens for the purpose of shielding money from income taxes and scrutiny. (The only one apparently not involved in that practice is the law firm Kirkland & Ellis, which most famously defended BP in litigation over the Deepwater Horizon spill).
Offshore tax havens are as damaging to the federal government and American taxpayers are they are lucrative for the culprits. They deprive the government of as much as $100 billion per year in tax revenue, according to one study [ http://leanforward.msnbc.msn.com/_news/2012/07/09/12647148-romneys-offshore-tax-havens-helping-cause-the-deficit-problem-he-complains-about?lite ] by the US Public Interest Research Group, which means it costs the average taxpayer $434 per year.
But with so many offshore tax haven abusers and facilitators bankrolling his campaign—not to mention his personal penchant for the practice—how likely is it President Romney would push for reform?
Nation DC intern Soumya Karlamangla contributed research to this report.
Copyright © 2012 The Nation
http://www.thenation.com/blog/168810/romneys-donors-share-his-love-offshore-tax-havens [with comments]
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Wells Fargo to Pay at Least $175M to Settle Lending Bias Claims
By Debra Cassens Weiss
Posted Jul 12, 2012 11:47 AM CDT
The U.S. Justice Department has announced that Wells Fargo will pay at least $175 million to resolve claims of bias against minority mortgage borrowers in the second largest fair-lending settlement in DOJ history.
According to the Justice Department’s complaint [ http://www.justice.gov/iso/opa/resources/9512012712113719995136.pdf ] (PDF), Wells Fargo discriminated against 34,000 African-American and Hispanic borrowers in residential mortgage lending during the mortgage boom beginning in 2004. A press release [ http://www.justice.gov/opa/pr/2012/July/12-dag-869.html ] and the New York Times [ http://www.nytimes.com/2012/07/13/business/wells-fargo-to-settle-mortgage-discrimination-charges.html ] have summaries.
About 30,000 minority borrowers who received loans through mortgage brokers during that period paid higher fees and costs for their mortgages than whites, the complaint says. Another 4,000 minority borrowers who received loans through brokers received more expensive subprime loans rather than prime loans.
The department says Well Fargo allowed mortgage brokers to set loan prices and place borrowers into loan products that were not connected to their creditworthiness. The bank created financial incentives by sharing increased revenues from the loans with employees and mortgage brokers.
Wells Fargo did not admit wrongdoing in the proposed consent decree [ http://www.justice.gov/iso/opa/resources/14201271211384881962.pdf ] (PDF). The bank says it settled the case to avoid litigation and it treated all of its customers fairly.
Wells Fargo will provide $125 million in compensation for individual borrowers and $50 million in funding for a program that provides down payment assistance. After an internal review, the bank will compensate any minority borrowers who were improperly steered into subprime loans by bank employees.
The government settled a similar suit [ http://www.abajournal.com/news/article/bank_of_america_to_pay_335m_to_alleged_victims_of_countrywide_discriminator/ ] involving Countrywide, now owned by Bank of America, for $335 million in December.
Copyright 2012 American Bar Association
http://www.abajournal.com/news/article/wells_fargo_to_pay_at_least_175m_to_settle_lending_bias_claims/ [no comments yet]
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Tue Jul 10, 2012 10:07am EDT
(Reuters) - If the ancient Greek philosopher Diogenes were to go out with his lantern in search of an honest man today, a survey of Wall Street executives on workplace conduct suggests he might have to look elsewhere.
A quarter of Wall Street executives see wrongdoing as a key to success, according to a survey by whistleblower law firm Labaton Sucharow released on Tuesday.
In a survey of 500 senior executives in the United States and the UK, 26 percent of respondents said they had observed or had firsthand knowledge of wrongdoing in the workplace, while 24 percent said they believed financial services professionals may need to engage in unethical or illegal conduct to be successful.
Sixteen percent of respondents said they would commit insider trading if they could get away with it, according to Labaton Sucharow. And 30 percent said their compensation plans created pressure to compromise ethical standards or violate the law.
"When misconduct is common and accepted by financial services professionals, the integrity of our entire financial system is at risk," Jordan Thomas, partner and chair of Labaton Sucharow's whistleblower representation practice, said in a statement.
The survey's release comes as the fallout from Barclays PLC's (BARC.L) Libor-rigging scandal continues and other banks including Citigroup Inc (C.N), HSBC Holdings PLC (HSBA.L), Royal Bank of Scotland Group PLC (RBS.L) and UBS AG (UBSN.VX) await the outcome of an industry-wide probe.
(Reporting By Lauren Tara LaCapra; Editing by Leslie Adler)
Copyright 2012 Reuters
http://www.reuters.com/article/2012/07/10/us-wallstreet-survey-idUSBRE86906G20120710 [with comments]
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Many on Wall Street say greed isn't just good -- it's necessary
A quarter of high-finance types say it's OK to bend the rules to get ahead; "Wall Street's" Gordon Gekko (Michael Douglas) would approve.
(Twentieth Century Fox / July 10, 2012)
They say it only takes a few bad apples to spoil the bunch. So how rotten can things get when a quarter of those apples are no good?
A survey of 500 top Wall Street execs [ http://www.reuters.com/article/2012/07/10/us-wallstreet-survey-idUSBRE86906G20120710 (above)] by the law firm Labaton Sucharow finds that 24% believe that professional money people need to engage in unethical or illegal behavior to be successful.
Moreover, 26% say they've seen or know of such behavior, while 16% would commit insider trading if they thought they could get away with it.
Nearly a third of survey respondents say their compensation plans create pressure to bend ethical standards or violate the law.
"When misconduct is common and accepted by financial services professionals, the integrity of our entire financial system is at risk," says Jordan Thomas, chair of Labaton Sucharow's whistle-blower representation practice.
As we all know, Wall Street has been saying for years that no further regulatory oversight is necessary. Banks and brokerages are basically straight arrows, execs say, and can be trusted to do the right thing.
Apparently not. Any industry in which a quarter of workers believe they need to violate rules to get ahead is an industry that's inherently messed up.
That's why adult supervision from agencies such as the Consumer Financial Protection Bureau is necessary.
That's why no one trusts these guys.
Copyright © 2012, Los Angeles Times
http://www.latimes.com/business/money/la-fi-mo-wall-street-ethics-20120710,0,3548235.story [with comments]
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FOR IMMEDIATE RELEASE: Tuesday, July 10, 2012
Financial Services Professionals Feel Unethical Behavior May Be a Necessary Evil and Have Knowledge of Workplace Misconduct, According to Labaton Sucharow Survey
Could You Blow The Whistle?
New York, NY (July 10, 2012) – Labaton Sucharow LLP today announced the results of its survey of 500 financial services professionals across the United States and United Kingdom. Conducted by Populus in June, Wall Street, Fleet Street and Main Street: Corporate Integrity at a Crossroads [ http://labaton.com/en/about/press/upload/US-UK-Financial-Services-Industry-Survey.pdf ] reveals startling data on corporate ethics, the regulatory landscape, and individuals' willingness to blow the whistle on wrongdoing. The survey is being released in conjunction with the launch of the firm's SEC Whistleblower Eligibility Calculator, an innovative web-based tool to enable users to assess their eligibility for the SEC Whistleblower Program.
According to the survey, 24 percent of respondents reported a belief that financial services professionals may need to engage in unethical or illegal conduct in order to be successful, while 26 percent of respondents indicated that they had observed or had firsthand knowledge of wrongdoing in the workplace. Particularly troubling, 16 percent of respondents reported that they would commit a crime—insider trading—if they could get away with it.
"When misconduct is common and accepted by financial services professionals, the integrity of our entire financial system is at risk," said Jordan Thomas, partner and chair of the Whistleblower Representation Practice at Labaton Sucharow. "In this era of corporate scandals, we must refocus our energies on corporate ethics and encourage individuals to report wrongdoing—internally or externally."
Labaton Sucharow's survey also revealed the following:
•39 percent of respondents reported that their competitors are likely to have engaged in illegal or unethical activity in order to be successful;
•30 percent of respondents reported their compensation or bonus plan created pressure to compromise ethical standards or violate the law, while 23 percent of respondents reported other pressures that may lead to unethical or illegal conduct; and
•30 percent of respondents feel that the SEC/SFO effectively deters, investigates and prosecutes misconduct—despite the new leadership, record enforcement actions and new reforms; 29 percent of respondents feel the same way about FINRA/FSA.
Chris Keller, partner and head of case development at Labaton Sucharow commented: "It is shocking that four years after the global economic crisis began there continues to be a fundamental lack of integrity in the financial services industry. For more than 50 years, Labaton Sucharow has been on the forefront of corporate governance reform. Given the results of this survey, our work is more important than ever."
Are Whistleblowers the Answer?
As a former assistant director and assistant chief litigation counsel in the Enforcement Division, Thomas played a leadership role in the development of the SEC Whistleblower Program. The program has broad extraterritorial reach and offers eligible whistleblowers, regardless of nationality, significant employment protections, monetary awards and the ability to report anonymously. Other jurisdictions around the world are considering initiatives that encourage individuals to break their silence and report possible violations of the law.
While Labaton Sucharow's survey found that 94 percent of respondents would report wrongdoing given the protections and incentives such as those offered by the SEC Whistleblower Program, only 44 percent of respondents were aware of this important investor protection program.
Scepticism and uncertainty about employers' handling of claims of misconduct persist. One in five of the professionals surveyed weren't sure of, or had serious doubts about, how their employers would handle a report of wrongdoing. In addition, in the U.S., gender was a factor in attitudes toward retaliation; 22 percent of female respondents believe that they would be retaliated against if they reported wrongdoing in the workplace, compared with 12 percent of male respondents.
Responding both to the lack of awareness of avenues to report wrongdoing and the personal challenges inherent in blowing the whistle, Labaton Sucharow has launched a first-of-its-kind SEC Whistleblower Eligibility Calculator, which may be found at http://www.secwhistlebloweradvocate.com/eligibility/ . This confidential web-based tool provides potential whistleblowers with a detailed eligibility report—empowering them to make an informed reporting decision. This is the latest addition to http://www.secwhistlebloweradvocate.com , an innovative website that uses videos, comprehensive legal primers and timely blog entries to help responsible organizations establish a culture of integrity and courageous whistleblowers to report possible securities violations.
Between June 19-25, 2012, Populus conducted 250 online interviews in the U.K. and 250 in the U.S. with senior individuals within the financial services industry. The full methodology is provided in the survey's executive summary at http://www.labaton.com/en/about/press/upload/ US-UK-Financial-Services-Industry-Survey.pdf .
About Labaton Sucharow LLP
Labaton Sucharow was the first law firm in the country to establish a practice exclusively focused on protecting and advocating for whistleblowers who report possible securities violations to the SEC. Building on the firm's market-leading securities litigation platform, the Whistleblower Representation Practice leverages a world-class in-house team of investigators, financial analysts, and forensic accountants with federal and state law enforcement experience to provide unparalleled representation for whistleblowers.
For more than 50 years, Labaton Sucharow has been one of the country's premier law firms comprehensively representing businesses, institutional investors and consumers in complex securities and business litigation. It is consistently among the top plaintiffs litigation firms based on its rankings in Chambers & Partners, The Legal 500, The National Law Journal's Plaintiffs' Hot List, and Benchmark Plaintiff. More information about Labaton Sucharow and the Whistleblower Representation Practice is available at http://www.labaton.com .
CONTACT:
Steve Bodakowski
CJP Communications
212.279.3115 x141
sbodakowski@cjpcom.com
Copyright © 2012 Labaton Sucharow LLP
http://www.labaton.com/en/about/press/Labaton-Sucharow-announces-results-of-financial-services-professional-survey.cfm
===
Barclays Criminal Probe Begins, Experts Speculate Other Banks Involved In Libor Manipulation
07/06/2012
http://www.huffingtonpost.com/2012/07/05/barclays-criminal-probe-libor-manipulation_n_1652697.html [with comments]
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Geithner made recommendations on Libor in 2008, documents show
Secretary Geithner’s ascendance: After a rocky start in his role as Treasury secretary, Timothy F. Geithner has not only survived but grown in stature, using his newfound influence to push President Obama to focus on curbing the nation’s soaring debt.
July 12, 2012
While president of the Federal Reserve Bank of New York, Timothy F. Geithner pressed British regulators to reform the way a critical global benchmark called the London interbank offered rate, or Libor, is calculated, according to a June 1, 2008, e-mail obtained by The Washington Post.
Writing to the head of the Bank of England, among others, Geithner made six recommendations, which included eliminating incentives that could encourage banks to manipulate the rate and establishing a “credible reporting procedure.”
“We would welcome a chance to discuss these and would be grateful if you would give us some sense of what changes are possible,” Geithner wrote.
[...]
http://www.washingtonpost.com/business/economy/geithner-drawn-into-libor-scandal/2012/07/12/gJQArDhbgW_story.html [with comments]
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Eliot Spitzer On Libor Scandal: 'I Think The Mob Learned From Wall Street, Not Vice Versa'
By Bonnie Kavoussi
Posted: 07/09/2012 4:36 pm Updated: 07/09/2012 4:36 pm
Eliot Spitzer thinks that bankers are the ultimate thugs.
"I think the mob learned from Wall Street, not vice versa," Spitzer said on his Current TV show [ http://4closurefraud.org/2012/07/06/a-must-see-the-mob-learned-from-wall-street-eliot-spitzer-on-the-cartel-style-corruption-behind-libor-scam-video/?utm_source=rss&utm_medium=rss&utm_campaign=a-must-see-the-mob-learned-from-wall-street-eliot-spitzer-on-the-cartel-style-corruption-behind-libor-scam-video ] "Viewpoint" on Tuesday. "Seriously! I think the mob looked at the business practices, whether it's Rockefeller and the oil trusts or Wall Street, and they said, 'Hey, you know, cartels are good. They're better than hitting people on the head with a baseball bat.'"
Spitzer was referring largely to Wall Street's alleged conspiracy to fix the Libor rate, a key interbank lending rate that acts as a benchmark for interest rates around the world. Barclays agreed to pay $450 million last month [ http://www.huffingtonpost.com/2012/07/09/libor-scandal-manipulation-spanned-decades_n_1658696.html ] to settle charges that it had rigged the Libor rate. But it is unlikely that Barclays acted alone. Governments also are investigating [ http://www.huffingtonpost.com/2012/07/05/barclays-bankers-libor-scandal_n_1651761.html ] JPMorgan Chase, Citigroup, Bank of America, UBS and the Royal Bank of Scotland for allegedly helping fix the Libor rate.
Wall Street's rigging of Libor [ http://www.huffingtonpost.com/2012/07/09/libor-scandal-manipulation-spanned-decades_n_1658696.html ] may have spanned decades, according to multiple reports.
Spitzer, the disgraced ex-governor of New York [ http://www.nytimes.com/2008/03/12/nyregion/12cnd-resign.html?pagewanted=all ], famously went after big banks as the state's attorney general. "Virtually nobody has been chased out of the business despite the massive, unbelievably expansive corruption that we’ve seen month after month," he added.
Rolling Stone writer Matt Taibbi, a guest on Spitzer's show, said that it is highly unlikely that Barclays acted alone in fixing the Libor rate. Taibbi said that since about 16 banks help set Libor, "Really in the end, it's probably going to come out that it's going to be all of them were involved in this. And that's what it's critical for people to understand: that this is a cartel-style corruption."
Copyright © 2012 TheHuffingtonPost.com, Inc.
http://www.huffingtonpost.com/2012/07/09/eliot-spitzer-wall-street-libor_n_1655260.html [with embedded video, and comments]
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Warren Buffett: Libor Scandal Involves 'The Whole World'
Warren Buffett said on CNBC on Thursday morning that the Libor scandal is a "big deal."
07/12/2012
http://www.huffingtonpost.com/2012/07/12/warren-buffett-libor-scandal_n_1668649.html [with embedded video, and comments]
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The Market Has Spoken, and It Is Rigged
By SIMON JOHNSON
July 12, 2012, 5:00 am
In the aftermath of the Barclays rate-fixing scandal, the most surprising reaction has been from people in the financial sector who fully understand the awfulness of what has happened. Rather than seeing this as an issue of law and order, some well-informed people have been drawn toward arguments that excuse or justify the behavior of the Barclays employees.
This is a big mistake, in terms of the economics at stake and the likely political impact.
The behavior at Barclays has all the hallmarks of fraud [ http://www.houston-opinions.com/law-fraud.html ] – intentional deception for personal gain, causing significant damage to others.
The Commodity Futures Trading Commission [ http://topics.nytimes.com/top/reference/timestopics/organizations/c/commodity_futures_trading_commission/index.html ] nailed the detailed mechanics of this deception in plain English in its Order Instituting Proceedings (which is also a settlement and series of admissions by Barclays). Most of the compelling quotes from traders involved in this scandal come from the commission’s order, but too few commentators seem to have read the full document. Please look at it [ http://www.nytimes.com/interactive/2012/07/10/business/dealbook/20120710-bank-scandal-documents.html ] now, if you have not done so already.
The commission’s order portrays a wide-ranging conspiracy (or perhaps a set of conspiracies) to rig markets, including, but not limited to, any securities for which the price is linked to a particular set of short-term interest rates.
The collective term for these rates is the London Interbank Offered Rate, known as Libor, but the use of this nomenclature sometimes hides the fact that there is a separate Libor daily for each of 10 currencies at 15 maturities, from overnight to 12 months, according to the British Bankers Association [ http://www.bbalibor.com/bbalibor-explained/the-basics ]. The notional size of the derivatives involved is on the order of $360 trillion [ http://www.ft.com/intl/cms/s/0/bae7fed4-c9e1-11e1-844e-00144feabdc0.html#axzz20JMg5FtB ].
Barclays could not have manipulated those rates by themselves – and that is not what the C.F.T.C. found or the basis of the Barclays settlement. Rather, some Barclays employees colluded with people at other banks in a way that, over a period of years, moved Libor rates up and down, depending on what would favor the trading positions of the people and organizations involved.
Each Libor “panel” of banks involves seven to 18 banks [ http://www.bbalibor.com/bbalibor-explained/the-basics ]. Participating banks submit the rate at which they can supposedly borrow at a particular maturity and in a specified currency, and an average is calculated (taking out high and low values). No one bank is likely to be able to move the calculated Libor rates by itself.
Once the global financial crisis began to bite, there appears to have been a more systematic manipulation of Libor reporting by Barclays management in a particular direction – downward, to make it seem that the bank was healthier and therefore able to borrow from other banks at a cheaper rate.
George Osborne, Britain’s chancellor of the Exchequer (the equivalent position to the secretary of the Treasury) and a Conservative Party member, said recently [ http://www.newlawjournal.co.uk/nlj/content/banks-big-bother ], “Fraud is a crime in ordinary business; why shouldn’t it be so in banking?” The answer, of course, is that fraud is not allowed in any well-run country.
Anyone who takes personal responsibility seriously should want all those involved to be held accountable – to the full extent of the law in all jurisdictions. Anything that lets individuals escape consequences will further undermine the legitimacy that underpins all markets. Bankers should be leading the charge to clean up their industry.
Nevertheless, five arguments put forward in the last 10 days, singly or collectively, attempt to provide some sort of cover for what happened at Barclays. None of these arguments have any merit.
First, it is argued that this kind of cheating around Libor has been going on for a long time. This may be true, but it is a sad and lame excuse that is unlikely to get anyone off. The bigger question must be: Is the financial sector crooked at its core? Statements about a pattern of behavior only strengthen the case that incentives, culture and organizations are all badly broken at the heart of the world’s financial system.
Second, it is also asserted that “everyone does it.” This is not any kind of defense – try it next time you are accused of fraud. But the perception that many people could be involved is part of the reason why this scandal has legs. A broad range of involvement across the financial sector is consistent with what is in the C.F.T.C. order – although the full scope of the conspiracies has not yet been made clear.
There are three United States banks involved in Libor panels: JPMorgan Chase, Bank of America and Citigroup. Are they also implicated in some aspect of rigging interest rates and therefore securities prices?
Barclays was the first to settle with the C.F.T.C., presumably enabling investigators to gain better access to information about who else is involved. It would not be a surprise if bigger fish are still to come.
Third, Libor-rigging is defended as a “victimless crime.” This is untrue. Traders at Barclays and other banks gained from this series of manipulations, so someone else lost. That may have been investors, who received lower returns than they would have otherwise. Or it may have been borrowers, who paid higher interest rate and related costs than would have been necessary in an honest market. Other losers are presumably everyone who was effectively overcharged by all the intermediaries involved in crooked behavior. Some local governments have also lost heavily [ http://dealbook.nytimes.com/2012/07/10/libor-rate-rigging-scandal-sets-off-legal-fights-for-restitution/ ], at a time when these losses put pressure on essential services and will tend to increase taxes.
Honest people in the financial sector should be up in arms about the behavior of Barclays and other megabanks.
Fourth, some contend that it is the regulators’ responsibility and fault that there was cheating on Libor. It is certainly the case that there was regulatory capture at work — that is, officials in Britain, the United States and perhaps elsewhere should have been paying closer attention. I made exactly this point on National Public Radio’s “All Things Considered” last Saturday [ http://www.npr.org/2012/07/07/156428433/what-does-londons-libor-mean-to-the-u-s ].
The mystique of the financial sector wowed many people – including many prominent policy intellectuals, Democratic and Republican – in the years before 2008. But who does the capturing in regulatory capture? Big banks work long and hard and lobby at many levels to push regulators toward paying less attention.
Fifth, the weakest argument is, “It was only a few basis points, here and there” (where a basis point is a hundredth of a percentage point, i.e., 0.01 percent). Either the Libor reporting process and, consequently, the pricing of derivatives has been corrupted by a criminal conspiracy, or it has not. There is no “just a little” in this context for the enormous global securities market.
Robert E. Diamond Jr., who resigned last week [ http://dealbook.nytimes.com/2012/07/03/barclays-c-e-o-resigns-as-bank-frames-a-defense/ ] as chief executive of Barclays, reportedly said, “On the majority of days, no requests were made at all” to cheat on Libor. The Economist, which does not make a general habit of criticizing prominent people in the financial sector, observed [ http://www.economist.com/blogs/schumpeter/2012/07/barclays-and-libor-scandal ], “This was rather like an adulterer saying that he was faithful on most days.”
Mr. Diamond has fallen. Who is next? How will this play in American politics? There is still time for politicians on the right and on the left of the political spectrum to get ahead of the issue. Digging in around specious arguments in favor of price-fixing cartels is not the way to go.
Power corrupts, and financial market power has completely corrupted financial markets. Barclays and the other global megabanks involved in fixing Libor have brought their own industry very low – completely destroying the legitimacy on which sensible financial intermediation needs to be based.
Who trusts a banker at this point? The collateral damage is enormous. Who in their right mind would buy a complex derivative product from Barclays or anyone else implicated in this growing scandal?
Simon Johnson [ http://www.nytimes.com/2009/04/03/business/economy/simonjohnson.ready.html ] is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You [ http://whitehouseburning.com/ ].”
Related Posts
From Economix
Lie More, as a Business Model
http://economix.blogs.nytimes.com/2012/07/05/lie-more-as-a-business-model/
Dimon and the Fed’s Legitimacy
http://economix.blogs.nytimes.com/2012/05/24/dimon-and-the-feds-legitimacy/
Investigating JPMorgan Chase
http://economix.blogs.nytimes.com/2012/05/17/investigating-jpmorgan-chase/
When Populism Is Sound
http://economix.blogs.nytimes.com/2012/03/15/when-populism-is-sound/
Opening Up the Fed
http://economix.blogs.nytimes.com/2012/02/23/opening-up-the-fed/
© 2012 The New York Times Company
http://economix.blogs.nytimes.com/2012/07/12/the-market-has-spoken-and-it-is-rigged/ [with comments]
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At Peregrine Financial, Signs of Trouble Seemingly Missed for Years
By AZAM AHMED and PETER LATTMAN
July 12, 2012, 9:16 pm
CEDAR FALLS, Iowa—It was a triumphant moment in 2009 when a delegation of Iowa lawmakers visited here to tour the gleaming, new headquarters of the Peregrine Financial Group.
“This is impressive,” Charles E. Grassley, the Republican senator from Iowa, said, admiring the futures trading firm’s state-of-the-art facility. “This is a company that’s on the top of things.”
Today, the only impressive thing about Peregrine is the depth of its problems. After a suicide attempt by its founder on Monday, regulators discovered about $215 million in customer money was missing. The Commodity Futures Trading Commission filed a lawsuit charging fraud. Criminal authorities are investigating. Peregrine has filed for bankruptcy and shut down.
As the founder Russell Wasendorf lies in critical condition in an Iowa City hospital, Peregrine’s angry customers are asking, How could futures industry regulators have missed another potential fraud? The scandal comes just months after MF Global, the defunct futures brokerage firm, lost more than $1 billion in clients’ money.
It now appears that regulators missed the red flags for years.
In 2004, a Peregrine client sent a letter to the National Futures Association, the firm’s primary regulator, and the C.F.T.C., asking it to intervene to prevent the firm from misusing its customers’ money, according to a person with knowledge of the correspondence and a copy of the letter obtained by The New York Times. Five years later, a tipster wrote to the N.F.A. asking it to review Peregrine’s bank account information for accuracy, according to people briefed on the matter who spoke on the condition of anonymity because the investigation was private. The tip was anonymous, and it is unclear how seriously the N.F.A. took it.
The auditor for Peregrine was a one-person shop run out of the accountant’s home in Glendale Heights, Ill., a Chicago suburb. As part of its investigation, the C.F.T.C. is looking into the role that the individual played, according to a person with knowledge of the case.
After the collapse of MF Global, the C.F.T.C. ordered a review of all futures firms to ensure the safety of customer money. The N.F.A. — where Mr. Wasendorf serves on an advisory committee — gave Peregrine a clean bill of health in January.
Government regulators are examining whether Mr. Wasendorf doctored bank statements provided to the N.F.A., according to people briefed on the matter who were not authorized to speak publicly because of the investigation. Authorities are also expected to question officials at U.S. Bank, which held the client’s money.
“The entire industry is outraged that it happened the first time, let alone a second time,” said Michael V. Dunn, a former commission of the C.F.T.C., referring to the collapse of two brokerages. “We need to do something about this.”
The N.F.A. declined to comment. Calls to Peregrine’s auditor were not immediately returned.
For Tom Power, a former MF Global broker, it is hard not to take the brokerage scandals personally.
After losing his job when MF Global went bust, Mr. Power, 31, started his own business. He has spent the last eight months signing up clients still circumspect about their losses at MF Global. For his new venture, he chose to clear his trades through Peregrine, which is commonly known as PFGBest.
“The customers are just heartbroken over what happened,” Mr. Power said. “To have to call these same guys that were with me at MF and tell them it happened again? It’s just devastating.”
Futures firms like Peregrine match buyers and sellers of contracts for commodities like wheat and oil, charging a thin commission for the service. Farmers and others use such contracts to protect themselves from large price fluctuations.
Speculators also play the futures market and they, too, have been burned. Mark Tucker, a part-time investor, has had the misfortune of dealing with both MF Global and PFGBest.
“You’re prepared to take risks,” said Mr. Tucker, who lost about $80,000 between the two firms. “But you don’t expect risks to come from money being stolen out of your account.”
Peregrine’s problems have also rocked Cedar Falls, a small town of about 40,000. An Iowa native, Mr. Wasendorf came here in the late 1960s to attend the University of Northern Iowa. He started a commodities trading business in 1967 in the basement of his Cedar Falls home. Eventually, the business moved to Chicago, the epicenter of the futures markets.
But during the middle of the last decade, Mr. Wasendorf decided to move Peregrine’s headquarters to Iowa. He persuaded many of his employees to move with him, promising a cheaper cost of living and a better quality of life. To entice them, he spent about $15 million on a new building adjacent to the exclusive Beaver Hills Country Club on the outskirts of town. The offices had a day care center with an outdoor playground, a Montessori school for the employees’ children, and free breakfast and lunch for the firms’ nearly 150 workers.
With the broad smile and clean-cut looks of a television news anchor, Mr. Wasendorf, 64, is a rock star in Cedar Falls. He has given generously to his alma mater, recently making a $2 million pledge to the school’s athletic program. His Peregrine Charities organizes a popular annual triathlon in town. Scheduled for next month, the race has been canceled “due to the recent emergency events,” according to the charity’s Web site.
Mr. Wasendorf has eclectic business interests beyond Peregrine, like a publishing company, and a real estate operation in Bucharest, Romania.
In Cedar Falls, he is best known as a restaurateur. When he moved Peregrine’s headquarters here, he opened an upscale Italian restaurant called My Verona, a name paying tribute to the Northern Italian town. The restaurant has been closed since Monday.
Mr. Wasendorf lives extravagantly. Though his primary residence is in Cedar Falls — a compound carved out of Iowa farmland on the outskirts of town — he regularly flew his private jet for meetings in Chicago, where his son ran the business. Employees jokingly referred to the plane as Air Wasendorf. He flew around the world to attend Lady Gaga concerts.
Adding to the mystery surrounding Peregrine’s collapse, Mr. Wasendorf had invited friends and employees to his wedding on Aug. 4, to be held at a Lutheran church in Cedar Falls with a reception at My Verona.
But records show that he married his fiancée, Nancy Paladino, who works in his restaurant business, at a chapel at the Bellagio Hotel in Las Vegas on June 30. Friends say he had planned to hire the band Styx to perform at the wedding, though the band declined.
Just nine days after his wedding, the local police found Mr. Wasendorf, the head of the firm, unconscious in his car behind the building with a tube running from the exhaust pipe into the car’s interior. An empty bottle of vodka rested by his side. He left a suicide note suggesting financial crimes had been committed.
“This whole thing is a shock,” said Jon Crews, the Cedar Falls mayor.
Beneath the surface there were signs of trouble.
In late May, the Wasendorfs hosted their annual brokers’ meeting in Cedar Falls. Brokers from across the country descended on the town, where they enjoyed beef Wellington and an open bar at My Verona. But by that time, employees had been told they would face a 10 percent pay cut in June, followed by another 10 percent cut the following month, according to employees and firm memos. Mr. Wasendorf also canceled the annual employee picnic, telling staff members that they would be invited to his reception.
Around the same time, Mr. Wasendorf boasted of a new restaurant he planned to open in neighboring Waterloo, to be called My Verona 2. Some employees wondered how Mr. Wasendorf could afford such expenditures when he was cutting their pay.
The brokerage firm started to unravel in [earnest] recently.
The N.F.A. was in the middle of changing part of its audit process to an online platform, where bank statement information would feed directly to the regulator. This month, Peregrine was facing its first audit under the new system, called confirmation.com, and Mr. Wasendorf was opposed to the system, according to people with knowledge of the matter.
He fought the directive for several days, the person said, until relenting on Sunday. The N.F.A. started getting confirmations through the system Monday morning.
As for the industry itself, lawmakers were already considering a move to crack down on futures firms after the MF Global fiasco. Now many participants are hoping the outrage will bolster those efforts.
Futures firms, anxious about the impact of the Peregrine collapse, are considering lining up for a voluntary audit to reassure clients, according to people familiar with the effort.
On Thursday, Mr. Grassley asked his colleagues on the Senate’s agriculture committee to address the Peregrine scandal at a hearing next month. He also requested that the C.F.T.C. provide information on what it did in response to red flags at Peregrine.
“People need to have confidence in our commodity trading system in order for it to work for farmers and investors the way it’s intended,” Mr. Grassley said.
Copyright 2012 The New York Times Company
http://dealbook.nytimes.com/2012/07/12/at-peregrine-financial-signs-of-trouble-seemingly-missed-for-years/ [no comments yet]
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Peregrin’s Fall Exposed by Electronic Shift
July 11, 2012
http://www.businessweek.com/news/2012-07-11/peregrine-s-fall-said-to-be-tied-to-electronic-reporting-shift [no comments yet]
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In PFG Scandal, JPMorgan Chase Had Surprising Role: It Held Customer Accounts
JPMorgan Chase held PFGBest customer funds in a segregated account, but has not yet been mentioned in the scandal.
07/12/2012
http://www.huffingtonpost.com/2012/07/12/pfg-customer-account-jpmorgan-chase_n_1668386.html [with embedded video, and comments]
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Fall of Peregrine’s Wasendorf Presaged in Christmas Toast
Wasendorf, 64, tried to asphyxiate himself July 9 in the parking lot of Peregrine’s headquarters near a country club in Cedar Falls, Iowa, police say.
Jul 12, 2012
http://www.bloomberg.com/news/2012-07-12/fall-of-peregrine-s-wasendorf-presaged-in-christmas-toast.html [with embedded video, and comment]
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Peregrine Customers’ Claims Priced at 25 Cents on Dollar
Jul 12, 2012
http://www.bloomberg.com/news/2012-07-11/peregrine-customers-claims-priced-at-25-cents-on-dollar.html [with embedded video; no comments yet]
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The Spreading Scourge of Corporate Corruption
Top, mortgage abuses contributed to the collapse of the housing market; middle and bottom, after years of dismal job prospects, Americans are losing trust in many institutions, like Congress.
From top: Gregory Bull/Associated Press; Paul Sancya/Associated Press; Michael Reynolds/European Pressphoto Agency
By EDUARDO PORTER
Published: July 10, 2012
Perhaps the most surprising aspect of the Libor [ http://topics.nytimes.com/top/reference/timestopics/subjects/l/london_interbank_offered_rate_libor/index.html ] scandal is how familiar it seems. Sure, for some of the world’s leading banks to try to manipulate [ http://www.economist.com/node/21558281?fsrc=scn/tw_ec/the_rotten_heart_of_finance ] one of the most important interest rates in contemporary finance is clearly egregious. But is that worse than packaging billions of dollars worth of dubious mortgages into a bond and having it stamped with a Triple-A rating to sell to some dupe down the road while betting against it? Or how about forging documents on an industrial scale to foreclose fraudulently on countless homeowners?
The misconduct of the financial industry no longer surprises most Americans. Only about one in five has much trust in banks, according to Gallup polls [ http://www.gallup.com/poll/155357/Americans-Confidence-Banks-Falls-Record-Low.aspx ], about half the level in 2007. And it’s not just banks that are frowned upon. Trust in big business overall is declining. Sixty-two percent of Americans believe corruption is widespread across corporate America. According to Transparency International, an anticorruption watchdog, nearly three in four Americans believe that corruption has increased [ http://archive.transparency.org/policy_research/surveys_indices/gcb/2010_11/results ] over the last three years.
We should be alarmed that corporate wrongdoing has come to be seen as such a routine occurrence. Capitalism cannot function without trust. As the Nobel laureate Kenneth Arrow observed, “Virtually every commercial transaction has within itself an element of trust.”
The parade of financiers accused of misdeeds, booted from the executive suite and even occasionally jailed, is undermining this essential element. Have corporations lost whatever ethical compass they once had? Or does it just look that way because we are paying more attention than we used to?
This is hard to answer because fraud and corruption are impossible to measure precisely. Perpetrators understandably do their best to hide the dirty deeds from public view. And public perceptions of fraud and corruption are often colored by people’s sense of dissatisfaction with their lives.
Last year, the economists Justin Wolfers and Betsey Stevenson from the University of Pennsylvania published a study [ http://www.nber.org/papers/w16891 ] suggesting that trust in government and business falls when unemployment rises. “Much of the recent decline in confidence — particularly in the financial sector — may simply be a standard response to a cyclical downturn,” they wrote.
And waves of mistrust can spread broadly. After years of dismal employment prospects, Americans are losing trust [ http://www.gallup.com/poll/155258/Confidence-Public-Schools-New-Low.aspx ] in a broad range of institutions, including Congress, the Supreme Court, the presidency, public schools, labor unions and the church.
Corporate wrongdoing may be cyclical, too. Fraud is probably more lucrative, as well as easier to hide, amid the general prosperity of economic booms. And the temptation to bend the rules is probably highest toward the end of an economic upswing, when executives must be the most creative to keep the stream of profits rolling in.
The most toxic, no-doc, reverse amortization, liar loans flourished toward the end of the housing bubble. And we typically discover fraud only after the booms have turned to bust. As Warren Buffett famously said [ http://www.economist.com/node/12796770 ], “You only find out who is swimming naked when the tide goes out.”
Company executives are paid to maximize profits, not to behave ethically. Evidence suggests that they behave as corruptly as they can, within whatever constraints are imposed by law and reputation. In 1977, the United States Congress passed the Foreign Corrupt Practices Act, to stop the rampant practice of bribing foreign officials. Business by American multinationals in the most corrupt countries dropped [ http://www.nber.org/papers/w5266 ]. But they didn’t stop bribing. And American companies have been lobbying against the law [ http://www.washingtonpost.com/business/economy/wal-mart-took-part-in-lobbying-campaign-to-amend-anti-bribery-law/2012/04/24/gIQAyZcdfT_story.html ] ever since.
Extrapolating from frauds that were uncovered during and after the dot-com bubble, the economists Luigi Zingales and Adair Morse of the University of Chicago and Alexander Dyck of the University of Toronto estimated conservatively [ http://www.business.illinois.edu/accountancy/events/symposium/audit/proceedings/proceedings_2010/papers/Summary_Morse.pdf ] that in any given year a fraud was being committed by 11 to 13 percent of the large companies in the country.
Yet it may be wrong to shrug off the latest boomlet of corporate crimes and misdemeanors as a mere reflection of the business cycle. Americans appear to believe that corruption has become more prevalent over the years. And some indicators suggest they may be right.
In 2001, Transparency International’s Corruption Perceptions Index ranked the United States as the 16th least-corrupt [ http://archive.transparency.org/policy_research/surveys_indices/cpi/2001 ] country. By last year, the nation had fallen to 24th place [ http://cpi.transparency.org/cpi2011/results/ ]. The World Bank also reports [ http://info.worldbank.org/governance/wgi/pdf/c228.pdf ] a weakening of corruption controls in the United States since the late 1990s, so that it is falling behind most other developed nations.
The most pointed evidence that breaking the rules has become standard behavior in the corporate world is how routine the wrongdoing seems to its participants. “Dude. I owe you big time!... I’m opening a bottle of Bollinger,” e-mailed one Barclays trader to a colleague for fiddling with the rate and improving the apparent profit of his derivatives book.
It’s difficult to know why corruption may be spreading. But there are a few plausible explanations. From globalization to rising income inequality [ http://topics.nytimes.com/top/reference/timestopics/subjects/i/income/income_inequality/index.html?inline=nyt-classifier ] to the growing role of corporate money in political campaigns, political and economic dynamics may have increased both the scope of corporate wrongdoing and the incentives for business executives to bend, or break, the rules.
Just consider the scale of recent wrongdoing. Libor is one of the most important rates in the economy. It determines the return on the savings of millions of people, as well as the rate they pay on their mortgage and car loans. It is the benchmark for hundreds of trillions of dollars worth of financial contracts.
Bigger markets allow bigger frauds. Bigger companies, with more complex balance sheets, have more places to hide them. And banks, when they get big enough that no government will let them fail, have the biggest incentive of all. A 20-year-old study [ http://papers.ssrn.com/sol3/papers.cfm?abstract_id=227162 ] by the economists Paul Romer and George Akerlof pointed out that the most lucrative strategy for executives at too-big-to-fail banks would be to loot them to pay themselves vast rewards — knowing full well that the government would save them from bankruptcy.
Globalization can encourage corruption, as companies compete tooth and claw [ http://www.nber.org/papers/w10269 ] for new markets. And the furious rush of corporate cash into the political process — which differs from bribery in that companies pay politicians to change laws rather than bureaucrats to ignore them — is unlikely to foment ethical behavior.
The inexorable rise of income inequality is also likely to encourage fraud, fostering resentment and undermining trust in capitalism’s institutions and rules. Economic research shows that participants in contests in which the winner takes all are much more likely to cheat [ ]. And the United States is becoming a winner-takes-all economy.
It’s hard to fathom the broader social implications of corporate wrongdoing. But its most long-lasting impact may be on Americans’ trust in the institutions that underpin the nation’s liberal market democracy.
© 2012 The New York Times Company
http://www.nytimes.com/2012/07/11/business/economy/the-spreading-scourge-of-corporate-corruption.html [with comments]
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UPDATE 1-France, Germany raid Swiss banks, clients on tax
* Credit Suisse clients under spotlight in shift from banks, employees
* Swiss bank believes exempt following German deal last September
* UBS raided in Lyon, Bordeaux, Strasbourg
* Probes casts shadow over Swiss tax deal
By Katharina Bart and Arno Schuetze
Wed Jul 11, 2012 8:50pm IST
ZURICH/FRANKFURT, July 11 (Reuters) - German tax authorities have launched raids into Credit Suisse clients and French officials searched the homes of UBS employees, part of crackdowns on foreigners suspected of evading taxes through the two largest Swiss banks.
Switzerland's strict banking secrecy rules, which have helped build a $2 trillion offshore financial sector, have infuriated cash-strapped governments elsewhere as they try to stop tax evasion by wealthy citizens.
Roughly 5,000 German clients of Credit Suisse are being probed on suspicion of tax evasion and some had their homes searched, a source at the bank said on Wednesday, as European tax officials broaden their investigation to clients from banks.
Meanwhile, the offices of UBS in Lyon, Bordeaux and Strasbourg were raided on Tuesday on suspicion of money-laundering and aiding tax evasion, according to a source at that bank.
The private homes of several high-ranking UBS employees in Strasbourg were also searched, the UBS source said.
UBS said it was cooperating with authorities. The French prosecutor's office declined to comment because the investigation was ongoing.
It was not immediately clear whether the raids in Germany and France were coordinated or in any way connected.
Credit Suisse said it was aware that German tax authorities were investigating its clients but gave no further comment.
The source at the bank said tax authorities in the German towns of Bochum and Duesseldorf were probing its clients over Bermuda-based life insurance products which may have been used to avoid tax. Tax officials in both towns declined to comment.
The Frankfurt prosecutor said one client was searched.
The German investigation comes against the backdrop of a deal reached with Switzerland to levy taxes on German assets stashed in Swiss bank accounts that is due to come into effect next year pending German parliament approval.
Peter V. Kunz, professor for business law at Berne University, said the new investigation into Swiss bank clients could add to scepticism over the deal, which German opposition politicians say is too lenient on tax evaders.
"I don't think it will derail the agreement altogether, but it does simplify things for its opponents," Kunz said.
"CRIMINAL EVADERS"
Duesseldorf and Bochum are in the German state of North-Rhine Westphalia, where the Social Democrat-led regional government has been one of the most vocal opponents of the deal that would also end prosecutions of Swiss banks and employees.
"Our tax inspectors must be able to do their work unimpeded, which is to root out criminal evaders. No tax agreement should prevent that," the region's finance minister, Norbert Walter-Borjans, said in a statement.
North-Rhine Westphalia bought names of Swiss bank clients from an informant in 2010. Two sources told Reuters the targets for the latest investigation were culled in part from that information.
Germany has long been trying to crack down on tax evasion. In 2008, data leaked from Liechtenstein's LGT bank revealed that wealthy citizens including former Deutsche Post chief Klaus Zumwinkel had stashed money in the tiny principality. Zumwinkel received a suspended jail sentence after admitting tax evasion.
Credit Suisse struck a deal with German tax authorities last September, agreeing to pay 150 million euros ($183.83 million) to end an investigation over allegations the bank and its employees helped Germans dodge taxes.
UBS was forced in 2009 to pay a fine and release the names of 4,500 clients to U.S. officials to end a damaging tax probe. U.S. authorities are still investigating Swiss banks including Credit Suisse and Julius Baer over tax offences.
Switzerland is trying to get the U.S. investigations dropped in exchange for the payment of fines and the transfer of names of thousands more U.S. bank clients.
Copyright 2012 Reuters
http://in.reuters.com/article/2012/07/11/swiss-banks-idINL6E8IB7FC20120711 [no comments yet]
*
Credit Suisse German Clients Homes Raided by Tax Agents, HB Says
By Annette Weisbach - Jul 10, 2012 12:59 PM CT
Credit Suisse Group AG (CSGN)’s German client’s homes were searched by tax agents probing the possible use of so-called “Bermuda products” involving several billion euros to hide funds from the tax authorities, Handelsblatt [ http://www.handelsblatt.com/ ] reported, without saying where it got the information.
Some 7,000 customers, mainly German, that used accounts in Bermuda disguised as tax-free insurance products are affected, the newspaper said, citing unidentified banking officials. The investments averaged about 500,000 euros with individual cases of 12 million euros and more, the newspaper said.
To contact the reporter on this story: Annette Weisbach in Frankfurt at aweisbach1@bloomberg.net
To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net
©2012 BLOOMBERG L.P.
http://www.bloomberg.com/news/2012-07-10/credit-suisse-german-clients-homes-raided-by-tax-agents-hb-says.html [no comments yet]
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Romney's Donors Share His Love of Offshore Tax Havens
George Zornick on July 11, 2012 - 6:59 AM ET
Mitt Romney’s mysterious financial holdings have been the topic of furious discussion this week, after a Vanity Fair investigation [ http://www.vanityfair.com/politics/2012/08/investigating-mitt-romney-offshore-accounts (at http://investorshub.advfn.com/boards/read_msg.aspx?message_id=77227185 )] detailed how significant amounts of the Republican presidential candidate’s fortune may be parked in offshore bank accounts in low- or no-tax countries, allowing Romney to not only obscure how much he is actually worth but avoid paying the federal taxes he would otherwise owe.
While it’s extremely unusual for someone who wants to be president to abuse offshore tax havens like this, it’s an all too common practice for many major American companies—and is most popular in the financial sector from which Romney comes.
And perhaps not so mysteriously, some of the biggest abusers of offshore tax havens—along with some of the chief facilitators of this practice—seem to have gravitated to Romney’s re-election effort. Of the his campaign’s top eleven contributors, seven are financial firms with significant offshore tax haven activity.
Of the four that do not have extensive tax havens themselves, two are accounting firms that do prolific business in helping set up those havens, and one is a Swiss bank where employees are currently under a federal investigation for helping to facilitate potentially illegal abuse of offshore tax havens.
So while Romney is currently downplaying [ http://2012.talkingpointsmemo.com/2012/07/democrats-attack-romneys-offshore-holdings-swiss-bank-account-bermuda.php ] his use of offshore tax havens, maintaining those evasion structures is no doubt a top priority of the people and industries funding his campaign:
(Note that these companies did not give checks directly to the campaign, which is forbidden, but rather the money comes through the company’s political action committees and employees.)
As you can see, Wall Street is a big contributor to the Romney campaign, and is also heavily invested in the practice of moving money to tax havens. The Vanity Fair piece notes that “one cannot properly understand Wall Street’s size and power without appreciating the central role of offshore tax havens.” With massive inflows and outflows of cash and incentives to avoid paying taxes on it, along with strong legal and public relations incentives to sometimes hide the source of the money, offshore tax havens are invaluable to the financial sector.
Citigroup, the Romney campaign’s sixth-highest contributor, is the worst American abuser of offshore tax havens, according [ http://www.gao.gov/new.items/d09157.pdf ] to the Government Accountability Office—with a stunning 1,240 foreign subsidiaries. Morgan Stanley and Bank of America, both top Romney contributors, are also in the top ten offshore tax haven abusers listed in the GAO report, which examined offshore tax haven use by the country’s largest 100 companies.
Among Romney’s top donors there’s also PricewaterhouseCoopers and Deloitte, two of the “Big Four” American accounting firms. They all play a crucial role in setting up offshore tax havens for clients and no doubt derive massive incomes from it. As John Christensen, director of the Tax Justice Network, has explained [ http://taxjustice.blogspot.com/2011/01/big-four-accounting-firms-embedded-in.html ], “The Big Four are deeply embedded in the tax haven world. They’re major players in shaping the laws and regulations of these places and encouraging clients—high net worth individuals and corporate clients—to maximize their tax avoidance through such places.”
Then you have Credit Suisse—an actual Swiss bank where employees are under investigation [ http://articles.businessinsider.com/2011-07-15/wall_street/30092320_1_ubs-banker-credit-suisse-ubs ] by the Department of Justice for helping clients set up accounts in offshore tax havens. According to an indictment, “as of late 2008 Credit Suisse was maintaining thousands of secret accounts for U.S. customers with as much as $3 billion in assets.” Tax havens are legal, but failing to declare them to the IRS is not, and the Credit Suisse clients, apparently with the help of bank employees, were not. The indictment charges that bank employees “knew and should have known they were aiding and abetting U.S. customers in evading their U.S. income taxes.”
So that is ten of the Romney campaign’s top eleven donors deeply involved in the practice of creating offshore tax havens for the purpose of shielding money from income taxes and scrutiny. (The only one apparently not involved in that practice is the law firm Kirkland & Ellis, which most famously defended BP in litigation over the Deepwater Horizon spill).
Offshore tax havens are as damaging to the federal government and American taxpayers are they are lucrative for the culprits. They deprive the government of as much as $100 billion per year in tax revenue, according to one study [ http://leanforward.msnbc.msn.com/_news/2012/07/09/12647148-romneys-offshore-tax-havens-helping-cause-the-deficit-problem-he-complains-about?lite ] by the US Public Interest Research Group, which means it costs the average taxpayer $434 per year.
But with so many offshore tax haven abusers and facilitators bankrolling his campaign—not to mention his personal penchant for the practice—how likely is it President Romney would push for reform?
Nation DC intern Soumya Karlamangla contributed research to this report.
Copyright © 2012 The Nation
http://www.thenation.com/blog/168810/romneys-donors-share-his-love-offshore-tax-havens [with comments]
===
Wells Fargo to Pay at Least $175M to Settle Lending Bias Claims
By Debra Cassens Weiss
Posted Jul 12, 2012 11:47 AM CDT
The U.S. Justice Department has announced that Wells Fargo will pay at least $175 million to resolve claims of bias against minority mortgage borrowers in the second largest fair-lending settlement in DOJ history.
According to the Justice Department’s complaint [ http://www.justice.gov/iso/opa/resources/9512012712113719995136.pdf ] (PDF), Wells Fargo discriminated against 34,000 African-American and Hispanic borrowers in residential mortgage lending during the mortgage boom beginning in 2004. A press release [ http://www.justice.gov/opa/pr/2012/July/12-dag-869.html ] and the New York Times [ http://www.nytimes.com/2012/07/13/business/wells-fargo-to-settle-mortgage-discrimination-charges.html ] have summaries.
About 30,000 minority borrowers who received loans through mortgage brokers during that period paid higher fees and costs for their mortgages than whites, the complaint says. Another 4,000 minority borrowers who received loans through brokers received more expensive subprime loans rather than prime loans.
The department says Well Fargo allowed mortgage brokers to set loan prices and place borrowers into loan products that were not connected to their creditworthiness. The bank created financial incentives by sharing increased revenues from the loans with employees and mortgage brokers.
Wells Fargo did not admit wrongdoing in the proposed consent decree [ http://www.justice.gov/iso/opa/resources/14201271211384881962.pdf ] (PDF). The bank says it settled the case to avoid litigation and it treated all of its customers fairly.
Wells Fargo will provide $125 million in compensation for individual borrowers and $50 million in funding for a program that provides down payment assistance. After an internal review, the bank will compensate any minority borrowers who were improperly steered into subprime loans by bank employees.
The government settled a similar suit [ http://www.abajournal.com/news/article/bank_of_america_to_pay_335m_to_alleged_victims_of_countrywide_discriminator/ ] involving Countrywide, now owned by Bank of America, for $335 million in December.
Copyright 2012 American Bar Association
http://www.abajournal.com/news/article/wells_fargo_to_pay_at_least_175m_to_settle_lending_bias_claims/ [no comments yet]
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upon the Right of Election, 1790
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