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What the heck does that mean? Is that good or bad? Never mind. It doesn't matter because nothing will happen regardless.
Sloth
Yes. The SEC has no prosecutorial power. It has no weapons to combat the criminals. They need the power to prosecute once illegalities are discovered.
Nobody gets charged and the fines are a mere fraction of the money made from illegal activities. Put people in jail for a good time and it will stop. This lack of SEC strength and overall corruption of the markets could bring down the whole U.S. financial system since people don't trust any investment today whether its a single equity, mutual fund or even a government bond. People think putting their money in the bank (FDIC insured) is risky nowadays since the governent is in the biggest financial problem of anyone.
Sloth
All the millions of people out there who were scammed by all these companies should of known better. They should have known the financials and press releases were forgeries. LOL
Our financial system is a failure and has been and still is scamming people. The reality so far is just the tip of the iceberg. Most people were trusting that our financial system had rules and regulations that bound companies to a legal standard of conduct. That has changed over the last 5 years. People consider Wall Street are corrupt as organized crime. It actually is worse since hardly anyone gets prison time and the system hides unders a misconception that it's fair. We, as Americans, should be confident that our financial system is fair. I don't know how they're going to get that confidence back but it's going to takes at least a decade to do it. We are back to "stuff you money in the mattress" days. That's if you even have any money to stuff.
This is another tragedy of our failed financial system but hardly the last.
No company can be trusted today.
Sloth
LOL - We should see $1 in no time with this kind of news.
I don't think that kind of news needs a bolded type face.
Sloth
It doesn't matter what evidence they have against Turek. Odds are he won't be prosecuted for stealing investors' money. The article is listing all the crooks, the evidence against them and how yet nothing is done. All these charges they accuse these individuals with never have any bite to them. They just go on their merry way without being punished.
If you read the whole article, it's pretty pathetic how nothing is ever done to these people who have destroyed America's financial well-being.
Sloth
KoenigSalomon, thanks for the reply. The topic of putting your shares up for sale to stop shorting has come up on these boards quite often. I didn't read through the new Nasdaq guidelines yet but previously, the only way to stop MMs from using your shares for shorting was having a "Cash" account that was not marginable. This was was TD Ameritrade and Etrade both told me.
Sloth
This grasshopper jumped on 1.5 million more shares today. My legs are sore.
I FEEL GOOD!
Sloth
ALAMAR RESOURCES LTD
(TO BE RENAMED MONGOLIAN RESOURCE CORPORATION LTD)
ACN 127 620 482
NOTICE OF GENERAL MEETING
Page 5:
9. RESOLUTION 9 – ELECTION OF DIRECTOR – JAMES BICKEL
To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:
“That, subject to settlement of the Acquisition occurring, for the purpose of
clause 13.3 of the Constitution and for all other purposes, approval is given for
the election of James Bickel as a director of the Company effective from the
date of settlement of the Acquisition.”
Page 25:
James Bickel
Mr. Jim Bickel is a senior management expert and with more than 40 years
experience in many sectors. After graduating from Middlebury College with a BA in Economics, his work experience includes President of five manufacturing companies and Vice President of the successful Uniglobe Travel Company managing more than 900 franchises across the USA with revenues exceeding US$3bn. Mr. Bickel has owned several successful businesses in China travelling throughout the country for more than 25 years.
http://www.asx.com.au/asxpdf/20110225/pdf/41x27dq8kfy2f8.pdf
I don't get it KoenigSalomon. Remember when WGMGY was at $3.50. That is what I would like but according to you I should ask for $10 which is where the price would have gone if the UIGEA was passed by the U.S. congress.
Are you saying we will be able to sell our shares for what we're asking? Logic tells me that can't be.
What price are you going to set yours? I will match. I have 180k shares. I have been invested about the same time as you (1999).
I can't think about exact questions but if you could just answer the obvious ones like:
WIll we be able to sell our shares for what we ask. If yes (which I highly doubt), there has to be a limit?
Is there an agreement that all the shares will have to be bought?
Who is the buyer?
WIll we get our money back? Plus profit?
You can probably guess other questions I should be asking so if you could add anything else I would be deeply grateful.
If I can sell my shares at "a limit in the sky", I will fly you and I to Las Vegas to celebrate this (and I'm not joking).
Sloth (send me an email if you can't say certain things here - jhb420@excite.com)
Another contract for Boyuan (S3 owns shares in BOY and will be receiving additional shares in BOY)
http://tmx.quotemedia.com/article.php?ne...
BOYUAN BEGINS NEW US$21.4 MILLION RESIDENTIAL PROJECT IN HAINAN'S CAPITAL CITY
Feb. 24, 2011 (Canada NewsWire Group) --
- Growing demand in region is fueling new opportunities -
TORONTO, Feb. 24 /CNW/ - Boyuan Construction Group, Inc., (TSX: BOY & BOY.DB) a fast-growing construction company in China of commercial, residential and municipal infrastructure projects, announced today that it has initiated the building of a 66,000 square meter residential project in Haikou, the capital city of Hainan Province. The project is valued at US$21.4 million.
"Demand for our construction and engineering services remains strong, particularly in Hainan, and we are very encouraged by our growing sales pipeline," said Mr. Cai Liang Shou, Chairman of Boyuan Construction Group. "The region's emergence as a major international tourist destination is leading to opportunities for us to construct tourism-related projects such as hotels and resorts as well as supporting infrastructure and residential projects throughout the province, and expand beyond our base of Sanya."
The new project is expected to be completed in the first quarter of calendar 2012.
Hainan Province is one of Boyuan's core markets. Demand for Boyuan's construction and engineering services in the region, especially in the major cities of Sanya and Haikou, is being driven by China's International Tourist Destination Policy, which aims at developing Hainan as a major international tourism destination by 2020.
Haikou is located on the north-east coast of Hainan Island, and has a population of approximately 1.8 million people.
About Boyuan Construction Group, Inc.
Based in Jiaxing City, China, Boyuan Construction Group, Inc. is in the business of commercial building and residential construction, municipal infrastructure and engineering projects. In its last three fiscal years ending June 30, 2010, Boyuan completed more than 80 projects for a number of private and public sector clients including Cargill and the Dalian Shide Group, a billion dollar conglomerate whose partners include DuPont, Mitsubishi and General Electric. Boyuan's current project backlog includes residential, commercial, industrial and mixed-use developments. From its operating bases in Zhejiang Province and in Hainan Province, Boyuan focuses on construction projects in China's fast-growing regions of the Yangtze River Delta, the city of Sanya and Shandong Province. For more information visit www.boyuangroup.com or follow us on Twitter @ www.twitter.com/boyuangroup
Good Morning all. First post but I've been following Duke for a while. Big numbers in the near future for Duke with the rollout of the smart grid. Duke has three agreements with the largest Chinese energy companies to help implement their smart grid. China has 1.3 billion people. Now with the merger of Progress Energy, Duke will have a larger customer base to implement the smart grid here in the U.S.. The CEO of Cisco stated that "The Smart Grid May Be "1,000 times larger than the Internet". This is a monumental project that will make companies very rich.
http://www.greenbiz.com/blog/2009/06/23/cisco-smart-grid-may-be-1000-times-larger-internet
Duke Energy is a customer of Ambient Corp who supplies their X-3100 Nodes for the smart grid. It's basically one of the backbones of Duke's system for the grid. Duke also uses Echelon. They've been working together for years and all reviews of the system are very positive.
Ambient's 10k was just released to show their growth. Duke is Ambient's only customer to date so these numbers indicate Duke's growth as well and where these companies are heading.
10K Highlights:
2010 v. 2009
Gross Revenue:
$20,358,040 - $2,193.338 (928% increase)
Gross Profit:
$8,334,708 - $356,792 (2,336% increase)
Gross Profit on Product Sales:
$11,177,367 - $291,431 (3,835% increase)
Overall Gross Margins:
41% - 16% (256% increase)
CASH AND CASH EQUIVALENTS - END OF YEAR
$6,986,881 - $987,010 (708% increase)
Cash balances totaled $6,986,881 at December 31, 2010 and $987,010 at December 31, 2009. As of February 21, 2011, we have approximately $7,494,525 cash on hand.
Additional $507,644 in 52 days.
Why Nothing will probably happen to Turek:
Rolling Stone Magazine
Why Isn’t Wall Street in Jail?
Financial crooks brought down the world’s economy — but the feds are doing more to protect them than to prosecute them
By Matt Taibbi
February 16, 2011 9:00 AM ET
Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.
“Everything’s fucked up, and nobody goes to jail,” he said. “That’s your whole story right there. Hell, you don’t even have to write the rest of it. Just write that.”
I put down my notebook. “Just that?”
“That’s right,” he said, signaling to the waitress for the check. “Everything’s fucked up, and nobody goes to jail. You can end the piece right there.”
Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.
This article appears in the March 3, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive February 18.
The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What’s more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even “one dollar” just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick “The Gorilla” Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.
Invasion of the Home Snatchers
Instead, federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements — whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice. “If the allegations in these settlements are true,” says Jed Rakoff, a federal judge in the Southern District of New York, “it’s management buying its way off cheap, from the pockets of their victims.”
Taibblog: Commentary on politics and the economy by Matt Taibbi
To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. “You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street,” says a former congressional aide. “That’s all it would take. Just once.”
But that hasn’t happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.
Just ask the people who tried to do the right thing.
Wall Street’s Naked Swindle
Here’s how regulation of Wall Street is supposed to work. To begin with, there’s a semigigantic list of public and quasi-public agencies ostensibly keeping their eyes on the economy, a dense alphabet soup of banking, insurance, S&L, securities and commodities regulators like the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), as well as supposedly “self-regulating organizations” like the New York Stock Exchange. All of these outfits, by law, can at least begin the process of catching and investigating financial criminals, though none of them has prosecutorial power.
The major federal agency on the Wall Street beat is the Securities and Exchange Commission. The SEC watches for violations like insider trading, and also deals with so-called “disclosure violations” — i.e., making sure that all the financial information that publicly traded companies are required to make public actually jibes with reality. But the SEC doesn’t have prosecutorial power either, so in practice, when it looks like someone needs to go to jail, they refer the case to the Justice Department. And since the vast majority of crimes in the financial services industry take place in Lower Manhattan, cases referred by the SEC often end up in the U.S. Attorney’s Office for the Southern District of New York. Thus, the two top cops on Wall Street are generally considered to be that U.S. attorney — a job that has been held by thunderous prosecutorial personae like Robert Morgenthau and Rudy Giuliani — and the SEC’s director of enforcement.
The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can’t balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC’s army of 1,100 number-crunching investigators to make their cases. In theory, it’s a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.
That’s the way it’s supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who’s in office or which party’s in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.
The systematic lack of regulation has left even the country’s top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. “I think you’ve got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street,” he says.
In the hierarchy of the SEC, the chief accountant plays a major role in working to pursue misleading and phony financial disclosures. Turner held the post a decade ago, when one of the most significant cases was swallowed up by the SEC bureaucracy. In the late 1990s, the agency had an open-and-shut case against the Rite Aid drugstore chain, which was using diabolical accounting tricks to cook their books. But instead of moving swiftly to crack down on such scams, the SEC shoved the case into the “deal with it later” file. “The Philadelphia office literally did nothing with the case for a year,” Turner recalls. “Very much like the New York office with Madoff.” The Rite Aid case dragged on for years — and by the time it was finished, similar accounting fiascoes at Enron and WorldCom had exploded into a full-blown financial crisis. The same was true for another SEC case that presaged the Enron disaster. The agency knew that appliance-maker Sunbeam was using the same kind of accounting scams to systematically hide losses from its investors. But in the end, the SEC’s punishment for Sunbeam’s CEO, Al “Chainsaw” Dunlap — widely regarded as one of the biggest assholes in the history of American finance — was a fine of $500,000. Dunlap’s net worth at the time was an estimated $100 million. The SEC also barred Dunlap from ever running a public company again — forcing him to retire with a mere $99.5 million. Dunlap passed the time collecting royalties from his self-congratulatory memoir. Its title: Mean Business.
The pattern of inaction toward shady deals on Wall Street grew worse and worse after Turner left, with one slam-dunk case after another either languishing for years or disappearing altogether. Perhaps the most notorious example involved Gary Aguirre, an SEC investigator who was literally fired after he questioned the agency’s failure to pursue an insider-trading case against John Mack, now the chairman of Morgan Stanley and one of America’s most powerful bankers.
Aguirre joined the SEC in September 2004. Two days into his career as a financial investigator, he was asked to look into an insider-trading complaint against a hedge-fund megastar named Art Samberg. One day, with no advance research or discussion, Samberg had suddenly started buying up huge quantities of shares in a firm called Heller Financial. “It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller,” Aguirre recalls. “And he wasn’t just buying shares — there were some days when he was trying to buy three times as many shares as were being traded that day.” A few weeks later, Heller was bought by General Electric — and Samberg pocketed $18 million.
After some digging, Aguirre found himself focusing on one suspect as the likely source who had tipped Samberg off: John Mack, a close friend of Samberg’s who had just stepped down as president of Morgan Stanley. At the time, Mack had been on Samberg’s case to cut him into a deal involving a spinoff of the tech company Lucent — an investment that stood to make Mack a lot of money. “Mack is busting my chops” to give him a piece of the action, Samberg told an employee in an e-mail.
A week later, Mack flew to Switzerland to interview for a top job at Credit Suisse First Boston. Among the investment bank’s clients, as it happened, was a firm called Heller Financial. We don’t know for sure what Mack learned on his Swiss trip; years later, Mack would claim that he had thrown away his notes about the meetings. But we do know that as soon as Mack returned from the trip, on a Friday, he called up his buddy Samberg. The very next morning, Mack was cut into the Lucent deal — a favor that netted him more than $10 million. And as soon as the market reopened after the weekend, Samberg started buying every Heller share in sight, right before it was snapped up by GE — a suspiciously timed move that earned him the equivalent of Derek Jeter’s annual salary for just a few minutes of work.
The deal looked like a classic case of insider trading. But in the summer of 2005, when Aguirre told his boss he planned to interview Mack, things started getting weird. His boss told him the case wasn’t likely to fly, explaining that Mack had “powerful political connections.” (The investment banker had been a fundraising “Ranger” for George Bush in 2004, and would go on to be a key backer of Hillary Clinton in 2008.)
Aguirre also started to feel pressure from Morgan Stanley, which was in the process of trying to rehire Mack as CEO. At first, Aguirre was contacted by the bank’s regulatory liaison, Eric Dinallo, a former top aide to Eliot Spitzer. But it didn’t take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm’s lawyers, Mary Jo White, was on the phone with the SEC’s director of enforcement. In a shocking move that was later singled out by Senate investigators, the director actually appeared to reassure White, dismissing the case against Mack as “smoke” rather than “fire.” White, incidentally, was herself the former U.S. attorney of the Southern District of New York — one of the top cops on Wall Street.
Pause for a minute to take this in. Aguirre, an SEC foot soldier, is trying to interview a major Wall Street executive — not handcuff the guy or impound his yacht, mind you, just talk to him. In the course of doing so, he finds out that his target’s firm is being represented not only by Eliot Spitzer’s former top aide, but by the former U.S. attorney overseeing Wall Street, who is going four levels over his head to speak directly to the chief of the SEC’s enforcement division — not Aguirre’s boss, but his boss’s boss’s boss’s boss. Mack himself, meanwhile, was being represented by Gary Lynch, a former SEC director of enforcement.
Aguirre didn’t stand a chance. A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. “It all happened so fast, I needed a seat belt,” recalls Aguirre, who had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal.
Rather than going after Mack, the SEC started looking for someone else to blame for tipping off Samberg. (It was, Aguirre quips, “O.J.’s search for the real killers.”) It wasn’t until a year later that the agency finally got around to interviewing Mack, who denied any wrongdoing. The four-hour deposition took place on August 1st, 2006 — just days after the five-year statute of limitations on insider trading had expired in the case.
“At best, the picture shows extraordinarily lax enforcement by the SEC,” Senate investigators would later conclude. “At worse, the picture is colored with overtones of a possible cover-up.”
Episodes like this help explain why so many Wall Street executives felt emboldened to push the regulatory envelope during the mid-2000s. Over and over, even the most obvious cases of fraud and insider dealing got gummed up in the works, and high-ranking executives were almost never prosecuted for their crimes. In 2003, Freddie Mac coughed up $125 million after it was caught misreporting its earnings by $5 billion; nobody went to jail. In 2006, Fannie Mae was fined $400 million, but executives who had overseen phony accounting techniques to jack up their bonuses faced no criminal charges. That same year, AIG paid $1.6 billion after it was caught in a major accounting scandal that would indirectly lead to its collapse two years later, but no executives at the insurance giant were prosecuted.
All of this behavior set the stage for the crash of 2008, when Wall Street exploded in a raging Dresden of fraud and criminality. Yet the SEC and the Justice Department have shown almost no inclination to prosecute those most responsible for the catastrophe — even though they had insiders from the two firms whose implosions triggered the crisis, Lehman Brothers and AIG, who were more than willing to supply evidence against top executives.
In the case of Lehman Brothers, the SEC had a chance six months before the crash to move against Dick Fuld, a man recently named the worst CEO of all time by Portfolio magazine. A decade before the crash, a Lehman lawyer named Oliver Budde was going through the bank’s proxy statements and noticed that it was using a loophole involving Restricted Stock Units to hide tens of millions of dollars of Fuld’s compensation. Budde told his bosses that Lehman’s use of RSUs was dicey at best, but they blew him off. “We’re sorry about your concerns,” they told him, “but we’re doing it.” Disturbed by such shady practices, the lawyer quit the firm in 2006.
Then, only a few months after Budde left Lehman, the SEC changed its rules to force companies to disclose exactly how much compensation in RSUs executives had coming to them. “The SEC was basically like, ‘We’re sick and tired of you people fucking around — we want a picture of what you’re holding,’” Budde says. But instead of coming clean about eight separate RSUs that Fuld had hidden from investors, Lehman filed a proxy statement that was a masterpiece of cynical lawyering. On one page, a chart indicated that Fuld had been awarded $146 million in RSUs. But two pages later, a note in the fine print essentially stated that the chart did not contain the real number — which, it failed to mention, was actually $263 million more than the chart indicated. “They fucked around even more than they did before,” Budde says. (The law firm that helped craft the fine print, Simpson Thacher & Bartlett, would later receive a lucrative federal contract to serve as legal adviser to the TARP bailout.)
Budde decided to come forward. In April 2008, he wrote a detailed memo to the SEC about Lehman’s history of hidden stocks. Shortly thereafter, he got a letter back that began, “Dear Sir or Madam.” It was an automated e-response.
“They blew me off,” Budde says.
Over the course of that summer, Budde tried to contact the SEC several more times, and was ignored each time. Finally, in the fateful week of September 15th, 2008, when Lehman Brothers cracked under the weight of its reckless bets on the subprime market and went into its final death spiral, Budde became seriously concerned. If the government tried to arrange for Lehman to be pawned off on another Wall Street firm, as it had done with Bear Stearns, the U.S. taxpayer might wind up footing the bill for a company with hundreds of millions of dollars in concealed compensation. So Budde again called the SEC, right in the middle of the crisis. “Look,” he told regulators. “I gave you huge stuff. You really want to take a look at this.”
But the feds once again blew him off. A young staff attorney contacted Budde, who once more provided the SEC with copies of all his memos. He never heard from the agency again.
“This was like a mini-Madoff,” Budde says. “They had six solid months of warnings. They could have done something.”
Three weeks later, Budde was shocked to see Fuld testifying before the House Government Oversight Committee and whining about how poor he was. “I got no severance, no golden parachute,” Fuld moaned. When Rep. Henry Waxman, the committee’s chairman, mentioned that he thought Fuld had earned more than $480 million, Fuld corrected him and said he believed it was only $310 million.
The true number, Budde calculated, was $529 million. He contacted a Senate investigator to talk about how Fuld had misled Congress, but he never got any response. Meanwhile, in a demonstration of the government’s priorities, the Justice Department is proceeding full force with a prosecution of retired baseball player Roger Clemens for lying to Congress about getting a shot of steroids in his ass. “At least Roger didn’t screw over the world,” Budde says, shaking his head.
Fuld has denied any wrongdoing, but his hidden compensation was only a ripple in Lehman’s raging tsunami of misdeeds. The investment bank used an absurd accounting trick called “Repo 105” transactions to conceal $50 billion in loans on the firm’s balance sheet. (That’s $50 billion, not million.) But more than a year after the use of the Repo 105s came to light, there have still been no indictments in the affair. While it’s possible that charges may yet be filed, there are now rumors that the SEC and the Justice Department may take no action against Lehman. If that’s true, and there’s no prosecution in a case where there’s such overwhelming evidence — and where the company is already dead, meaning it can’t dump further losses on investors or taxpayers — then it might be time to assume the game is up. Failing to prosecute Fuld and Lehman would be tantamount to the state marching into Wall Street and waving the green flag on a new stealing season.
The most amazing noncase in the entire crash — the one that truly defies the most basic notion of justice when it comes to Wall Street supervillains — is the one involving AIG and Joe Cassano, the nebbishy Patient Zero of the financial crisis. As chief of AIGFP, the firm’s financial products subsidiary, Cassano repeatedly made public statements in 2007 claiming that his portfolio of mortgage derivatives would suffer “no dollar of loss” — an almost comically obvious misrepresentation. “God couldn’t manage a $60 billion real estate portfolio without a single dollar of loss,” says Turner, the agency’s former chief accountant. “If the SEC can’t make a disclosure case against AIG, then they might as well close up shop.”
As in the Lehman case, federal prosecutors not only had plenty of evidence against AIG — they also had an eyewitness to Cassano’s actions who was prepared to tell all. As an accountant at AIGFP, Joseph St. Denis had a number of run-ins with Cassano during the summer of 2007. At the time, Cassano had already made nearly $500 billion worth of derivative bets that would ultimately blow up, destroy the world’s largest insurance company, and trigger the largest government bailout of a single company in U.S. history. He made many fatal mistakes, but chief among them was engaging in contracts that required AIG to post billions of dollars in collateral if there was any downgrade to its credit rating.
St. Denis didn’t know about those clauses in Cassano’s contracts, since they had been written before he joined the firm. What he did know was that Cassano freaked out when St. Denis spoke with an accountant at the parent company, which was only just finding out about the time bomb Cassano had set. After St. Denis finished a conference call with the executive, Cassano suddenly burst into the room and began screaming at him for talking to the New York office. He then announced that St. Denis had been “deliberately excluded” from any valuations of the most toxic elements of the derivatives portfolio — thus preventing the accountant from doing his job. What St. Denis represented was transparency — and the last thing Cassano needed was transparency.
Another clue that something was amiss with AIGFP’s portfolio came when Goldman Sachs demanded that the firm pay billions in collateral, per the terms of Cassano’s deadly contracts. Such “collateral calls” happen all the time on Wall Street, but seldom against a seemingly solvent and friendly business partner like AIG. And when they do happen, they are rarely paid without a fight. So St. Denis was shocked when AIGFP agreed to fork over gobs of money to Goldman Sachs, even while it was still contesting the payments — an indication that something was seriously wrong at AIG. “When I found out about the collateral call, I literally had to sit down,” St. Denis recalls. “I had to go home for the day.”
After Cassano barred him from valuating the derivative deals, St. Denis had no choice but to resign. He got another job, and thought he was done with AIG. But a few months later, he learned that Cassano had held a conference call with investors in December 2007. During the call, AIGFP failed to disclose that it had posted $2 billion to Goldman Sachs following the collateral calls.
“Investors therefore did not know,” the Financial Crisis Inquiry Commission would later conclude, “that AIG’s earnings were overstated by $3.6 billion.”
“I remember thinking, ‘Wow, they’re just not telling people,’” St. Denis says. “I knew. I had been there. I knew they’d posted collateral.”
A year later, after the crash, St. Denis wrote a letter about his experiences to the House Government Oversight Committee, which was looking into the AIG collapse. He also met with investigators for the government, which was preparing a criminal case against Cassano. But the case never went to court. Last May, the Justice Department confirmed that it would not file charges against executives at AIGFP. Cassano, who has denied any wrongdoing, was reportedly told he was no longer a target.
Shortly after that, Cassano strolled into Washington to testify before the Financial Crisis Inquiry Commission. It was his first public appearance since the crash. He has not had to pay back a single cent out of the hundreds of millions of dollars he earned selling his insane pseudo-insurance policies on subprime mortgage deals. Now, out from under prosecution, he appeared before the FCIC and had the enormous balls to compliment his own business acumen, saying his atom-bomb swaps portfolio was, in retrospect, not that badly constructed. “I think the portfolios are withstanding the test of time,” he said.
“They offered him an excellent opportunity to redeem himself,” St. Denis jokes.
In the end, of course, it wasn’t just the executives of Lehman and AIGFP who got passes. Virtually every one of the major players on Wall Street was similarly embroiled in scandal, yet their executives skated off into the sunset, uncharged and unfined. Goldman Sachs paid $550 million last year when it was caught defrauding investors with crappy mortgages, but no executive has been fined or jailed — not even Fabrice “Fabulous Fab” Tourre, Goldman’s outrageous Euro-douche who gleefully e-mailed a pal about the “surreal” transactions in the middle of a meeting with the firm’s victims. In a similar case, a sales executive at the German powerhouse Deutsche Bank got off on charges of insider trading; its general counsel at the time of the questionable deals, Robert Khuzami, now serves as director of enforcement for the SEC.
Another major firm, Bank of America, was caught hiding $5.8 billion in bonuses from shareholders as part of its takeover of Merrill Lynch. The SEC tried to let the bank off with a settlement of only $33 million, but Judge Jed Rakoff rejected the action as a “facade of enforcement.” So the SEC quintupled the settlement — but it didn’t require either Merrill or Bank of America to admit to wrongdoing. Unlike criminal trials, in which the facts of the crime are put on record for all to see, these Wall Street settlements almost never require the banks to make any factual disclosures, effectively burying the stories forever. “All this is done at the expense not only of the shareholders, but also of the truth,” says Rakoff. Goldman, Deutsche, Merrill, Lehman, Bank of America ... who did we leave out? Oh, there’s Citigroup, nailed for hiding some $40 billion in liabilities from investors. Last July, the SEC settled with Citi for $75 million. In a rare move, it also fined two Citi executives, former CFO Gary Crittenden and investor-relations chief Arthur Tildesley Jr. Their penalties, combined, came to a whopping $180,000.
Throughout the entire crisis, in fact, the government has taken exactly one serious swing of the bat against executives from a major bank, charging two guys from Bear Stearns with criminal fraud over a pair of toxic subprime hedge funds that blew up in 2007, destroying the company and robbing investors of $1.6 billion. Jurors had an e-mail between the defendants admitting that “there is simply no way for us to make money — ever” just three days before assuring investors that “there’s no basis for thinking this is one big disaster.” Yet the case still somehow ended in acquittal — and the Justice Department hasn’t taken any of the big banks to court since.
All of which raises an obvious question: Why the hell not?
Gary Aguirre, the SEC investigator who lost his job when he drew the ire of Morgan Stanley, thinks he knows the answer.
Last year, Aguirre noticed that a conference on financial law enforcement was scheduled to be held at the Hilton in New York on November 12th. The list of attendees included 1,500 or so of the country’s leading lawyers who represent Wall Street, as well as some of the government’s top cops from both the SEC and the Justice Department.
Criminal justice, as it pertains to the Goldmans and Morgan Stanleys of the world, is not adversarial combat, with cops and crooks duking it out in interrogation rooms and courthouses. Instead, it’s a cocktail party between friends and colleagues who from month to month and year to year are constantly switching sides and trading hats. At the Hilton conference, regulators and banker-lawyers rubbed elbows during a series of speeches and panel discussions, away from the rabble. “They were chummier in that environment,” says Aguirre, who plunked down $2,200 to attend the conference.
Aguirre saw a lot of familiar faces at the conference, for a simple reason: Many of the SEC regulators he had worked with during his failed attempt to investigate John Mack had made a million-dollar pass through the Revolving Door, going to work for the very same firms they used to police. Aguirre didn’t see Paul Berger, an associate director of enforcement who had rebuffed his attempts to interview Mack — maybe because Berger was tied up at his lucrative new job at Debevoise & Plimpton, the same law firm that Morgan Stanley employed to intervene in the Mack case. But he did see Mary Jo White, the former U.S. attorney, who was still at Debevoise & Plimpton. He also saw Linda Thomsen, the former SEC director of enforcement who had been so helpful to White. Thomsen had gone on to represent Wall Street as a partner at the prestigious firm of Davis Polk & Wardwell.
Two of the government’s top cops were there as well: Preet Bharara, the U.S. attorney for the Southern District of New York, and Robert Khuzami, the SEC’s current director of enforcement. Bharara had been recommended for his post by Chuck Schumer, Wall Street’s favorite senator. And both he and Khuzami had served with Mary Jo White at the U.S. attorney’s office, before Mary Jo went on to become a partner at Debevoise. What’s more, when Khuzami had served as general counsel for Deutsche Bank, he had been hired by none other than Dick Walker, who had been enforcement director at the SEC when it slow-rolled the pivotal fraud case against Rite Aid.
“It wasn’t just one rotation of the revolving door,” says Aguirre. “It just kept spinning. Every single person had rotated in and out of government and private service.”
The Revolving Door isn’t just a footnote in financial law enforcement; over the past decade, more than a dozen high-ranking SEC officials have gone on to lucrative jobs at Wall Street banks or white-shoe law firms, where partnerships are worth millions. That makes SEC officials like Paul Berger and Linda Thomsen the equivalent of college basketball stars waiting for their first NBA contract. Are you really going to give up a shot at the Knicks or the Lakers just to find out whether a Wall Street big shot like John Mack was guilty of insider trading? “You take one of these jobs,” says Turner, the former chief accountant for the SEC, “and you’re fit for life.”
Fit — and happy. The banter between the speakers at the New York conference says everything you need to know about the level of chumminess and mutual admiration that exists between these supposed adversaries of the justice system. At one point in the conference, Mary Jo White introduced Bharara, her old pal from the U.S. attorney’s office.
“I want to first say how pleased I am to be here,” Bharara responded. Then, addressing White, he added, “You’ve spawned all of us. It’s almost 11 years ago to the day that Mary Jo White called me and asked me if I would become an assistant U.S. attorney. So thank you, Dr. Frankenstein.”
Next, addressing the crowd of high-priced lawyers from Wall Street, Bharara made an interesting joke. “I also want to take a moment to applaud the entire staff of the SEC for the really amazing things they have done over the past year,” he said. “They’ve done a real service to the country, to the financial community, and not to mention a lot of your law practices.”
Haw! The line drew snickers from the conference of millionaire lawyers. But the real fireworks came when Khuzami, the SEC’s director of enforcement, talked about a new “cooperation initiative” the agency had recently unveiled, in which executives are being offered incentives to report fraud they have witnessed or committed. From now on, Khuzami said, when corporate lawyers like the ones he was addressing want to know if their Wall Street clients are going to be charged by the Justice Department before deciding whether to come forward, all they have to do is ask the SEC.
“We are going to try to get those individuals answers,” Khuzami announced, as to “whether or not there is criminal interest in the case — so that defense counsel can have as much information as possible in deciding whether or not to choose to sign up their client.”
Aguirre, listening in the crowd, couldn’t believe Khuzami’s brazenness. The SEC’s enforcement director was saying, in essence, that firms like Goldman Sachs and AIG and Lehman Brothers will henceforth be able to get the SEC to act as a middleman between them and the Justice Department, negotiating fines as a way out of jail time. Khuzami was basically outlining a four-step system for banks and their executives to buy their way out of prison. “First, the SEC and Wall Street player make an agreement on a fine that the player will pay to the SEC,” Aguirre says. “Then the Justice Department commits itself to pass, so that the player knows he’s ‘safe.’ Third, the player pays the SEC — and fourth, the player gets a pass from the Justice Department.”
When I ask a former federal prosecutor about the propriety of a sitting SEC director of enforcement talking out loud about helping corporate defendants “get answers” regarding the status of their criminal cases, he initially doesn’t believe it. Then I send him a transcript of the comment. “I am very, very surprised by Khuzami’s statement, which does seem to me to be contrary to past practice — and not a good thing,” the former prosecutor says.
Earlier this month, when Sen. Chuck Grassley found out about Khuzami’s comments, he sent the SEC a letter noting that the agency’s own enforcement manual not only prohibits such “answer getting,” it even bars the SEC from giving defendants the Justice Department’s phone number. “Should counsel or the individual ask which criminal authorities they should contact,” the manual reads, “staff should decline to answer, unless authorized by the relevant criminal authorities.” Both the SEC and the Justice Department deny there is anything improper in their new policy of cooperation. “We collaborate with the SEC, but they do not consult with us when they resolve their cases,” Assistant Attorney General Lanny Breuer assured Congress in January. “They do that independently.”
Around the same time that Breuer was testifying, however, a story broke that prior to the pathetically small settlement of $75 million that the SEC had arranged with Citigroup, Khuzami had ordered his staff to pursue lighter charges against the megabank’s executives. According to a letter that was sent to Sen. Grassley’s office, Khuzami had a “secret conversation, without telling the staff, with a prominent defense lawyer who is a good friend” of his and “who was counsel for the company.” The unsigned letter, which appears to have come from an SEC investigator on the case, prompted the inspector general to launch an investigation into the charge.
All of this paints a disturbing picture of a closed and corrupt system, a timeless circle of friends that virtually guarantees a collegial approach to the policing of high finance. Even before the corruption starts, the state is crippled by economic reality: Since law enforcement on Wall Street requires serious intellectual firepower, the banks seize a huge advantage from the start by hiring away the top talent. Budde, the former Lehman lawyer, says it’s well known that all the best legal minds go to the big corporate law firms, while the “bottom 20 percent go to the SEC.” Which makes it tough for the agency to track devious legal machinations, like the scheme to hide $263 million of Dick Fuld’s compensation.
“It’s such a mismatch, it’s not even funny,” Budde says.
But even beyond that, the system is skewed by the irrepressible pull of riches and power. If talent rises in the SEC or the Justice Department, it sooner or later jumps ship for those fat NBA contracts. Or, conversely, graduates of the big corporate firms take sabbaticals from their rich lifestyles to slum it in government service for a year or two. Many of those appointments are inevitably hand-picked by lifelong stooges for Wall Street like Chuck Schumer, who has accepted $14.6 million in campaign contributions from Goldman Sachs, Morgan Stanley and other major players in the finance industry, along with their corporate lawyers.
As for President Obama, what is there to be said? Goldman Sachs was his number-one private campaign contributor. He put a Citigroup executive in charge of his economic transition team, and he just named an executive of JP Morgan Chase, the proud owner of $7.7 million in Chase stock, his new chief of staff. “The betrayal that this represents by Obama to everybody is just — we’re not ready to believe it,” says Budde, a classmate of the president from their Columbia days. “He’s really fucking us over like that? Really? That’s really a JP Morgan guy, really?”
Which is not to say that the Obama era has meant an end to law enforcement. On the contrary: In the past few years, the administration has allocated massive amounts of federal resources to catching wrongdoers — of a certain type. Last year, the government deported 393,000 people, at a cost of $5 billion. Since 2007, felony immigration prosecutions along the Mexican border have surged 77 percent; nonfelony prosecutions by 259 percent. In Ohio last month, a single mother was caught lying about where she lived to put her kids into a better school district; the judge in the case tried to sentence her to 10 days in jail for fraud, declaring that letting her go free would “demean the seriousness” of the offenses.
So there you have it. Illegal immigrants: 393,000. Lying moms: one. Bankers: zero. The math makes sense only because the politics are so obvious. You want to win elections, you bang on the jailable class. You build prisons and fill them with people for selling dime bags and stealing CD players. But for stealing a billion dollars? For fraud that puts a million people into foreclosure? Pass. It’s not a crime. Prison is too harsh. Get them to say they’re sorry, and move on. Oh, wait — let’s not even make them say they’re sorry. That’s too mean; let’s just give them a piece of paper with a government stamp on it, officially clearing them of the need to apologize, and make them pay a fine instead. But don’t make them pay it out of their own pockets, and don’t ask them to give back the money they stole. In fact, let them profit from their collective crimes, to the tune of a record $135 billion in pay and benefits last year. What’s next? Taxpayer-funded massages for every Wall Street executive guilty of fraud?
The mental stumbling block, for most Americans, is that financial crimes don’t feel real; you don’t see the culprits waving guns in liquor stores or dragging coeds into bushes. But these frauds are worse than common robberies. They’re crimes of intellectual choice, made by people who are already rich and who have every conceivable social advantage, acting on a simple, cynical calculation: Let’s steal whatever we can, then dare the victims to find the juice to reclaim their money through a captive bureaucracy. They’re attacking the very definition of property — which, after all, depends in part on a legal system that defends everyone’s claims of ownership equally. When that definition becomes tenuous or conditional — when the state simply gives up on the notion of justice — this whole American Dream thing recedes even further from reality.
Rolling Stone Magazine
Why Isn’t Wall Street in Jail?
Financial crooks brought down the world’s economy — but the feds are doing more to protect them than to prosecute them
By Matt Taibbi
February 16, 2011 9:00 AM ET
Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.
“Everything’s fucked up, and nobody goes to jail,” he said. “That’s your whole story right there. Hell, you don’t even have to write the rest of it. Just write that.”
I put down my notebook. “Just that?”
“That’s right,” he said, signaling to the waitress for the check. “Everything’s fucked up, and nobody goes to jail. You can end the piece right there.”
Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.
This article appears in the March 3, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive February 18.
The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What’s more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even “one dollar” just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick “The Gorilla” Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.
Invasion of the Home Snatchers
Instead, federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements — whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice. “If the allegations in these settlements are true,” says Jed Rakoff, a federal judge in the Southern District of New York, “it’s management buying its way off cheap, from the pockets of their victims.”
Taibblog: Commentary on politics and the economy by Matt Taibbi
To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. “You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street,” says a former congressional aide. “That’s all it would take. Just once.”
But that hasn’t happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.
Just ask the people who tried to do the right thing.
Wall Street’s Naked Swindle
Here’s how regulation of Wall Street is supposed to work. To begin with, there’s a semigigantic list of public and quasi-public agencies ostensibly keeping their eyes on the economy, a dense alphabet soup of banking, insurance, S&L, securities and commodities regulators like the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), as well as supposedly “self-regulating organizations” like the New York Stock Exchange. All of these outfits, by law, can at least begin the process of catching and investigating financial criminals, though none of them has prosecutorial power.
The major federal agency on the Wall Street beat is the Securities and Exchange Commission. The SEC watches for violations like insider trading, and also deals with so-called “disclosure violations” — i.e., making sure that all the financial information that publicly traded companies are required to make public actually jibes with reality. But the SEC doesn’t have prosecutorial power either, so in practice, when it looks like someone needs to go to jail, they refer the case to the Justice Department. And since the vast majority of crimes in the financial services industry take place in Lower Manhattan, cases referred by the SEC often end up in the U.S. Attorney’s Office for the Southern District of New York. Thus, the two top cops on Wall Street are generally considered to be that U.S. attorney — a job that has been held by thunderous prosecutorial personae like Robert Morgenthau and Rudy Giuliani — and the SEC’s director of enforcement.
The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can’t balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC’s army of 1,100 number-crunching investigators to make their cases. In theory, it’s a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.
That’s the way it’s supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who’s in office or which party’s in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.
The systematic lack of regulation has left even the country’s top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. “I think you’ve got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street,” he says.
In the hierarchy of the SEC, the chief accountant plays a major role in working to pursue misleading and phony financial disclosures. Turner held the post a decade ago, when one of the most significant cases was swallowed up by the SEC bureaucracy. In the late 1990s, the agency had an open-and-shut case against the Rite Aid drugstore chain, which was using diabolical accounting tricks to cook their books. But instead of moving swiftly to crack down on such scams, the SEC shoved the case into the “deal with it later” file. “The Philadelphia office literally did nothing with the case for a year,” Turner recalls. “Very much like the New York office with Madoff.” The Rite Aid case dragged on for years — and by the time it was finished, similar accounting fiascoes at Enron and WorldCom had exploded into a full-blown financial crisis. The same was true for another SEC case that presaged the Enron disaster. The agency knew that appliance-maker Sunbeam was using the same kind of accounting scams to systematically hide losses from its investors. But in the end, the SEC’s punishment for Sunbeam’s CEO, Al “Chainsaw” Dunlap — widely regarded as one of the biggest assholes in the history of American finance — was a fine of $500,000. Dunlap’s net worth at the time was an estimated $100 million. The SEC also barred Dunlap from ever running a public company again — forcing him to retire with a mere $99.5 million. Dunlap passed the time collecting royalties from his self-congratulatory memoir. Its title: Mean Business.
The pattern of inaction toward shady deals on Wall Street grew worse and worse after Turner left, with one slam-dunk case after another either languishing for years or disappearing altogether. Perhaps the most notorious example involved Gary Aguirre, an SEC investigator who was literally fired after he questioned the agency’s failure to pursue an insider-trading case against John Mack, now the chairman of Morgan Stanley and one of America’s most powerful bankers.
Aguirre joined the SEC in September 2004. Two days into his career as a financial investigator, he was asked to look into an insider-trading complaint against a hedge-fund megastar named Art Samberg. One day, with no advance research or discussion, Samberg had suddenly started buying up huge quantities of shares in a firm called Heller Financial. “It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller,” Aguirre recalls. “And he wasn’t just buying shares — there were some days when he was trying to buy three times as many shares as were being traded that day.” A few weeks later, Heller was bought by General Electric — and Samberg pocketed $18 million.
After some digging, Aguirre found himself focusing on one suspect as the likely source who had tipped Samberg off: John Mack, a close friend of Samberg’s who had just stepped down as president of Morgan Stanley. At the time, Mack had been on Samberg’s case to cut him into a deal involving a spinoff of the tech company Lucent — an investment that stood to make Mack a lot of money. “Mack is busting my chops” to give him a piece of the action, Samberg told an employee in an e-mail.
A week later, Mack flew to Switzerland to interview for a top job at Credit Suisse First Boston. Among the investment bank’s clients, as it happened, was a firm called Heller Financial. We don’t know for sure what Mack learned on his Swiss trip; years later, Mack would claim that he had thrown away his notes about the meetings. But we do know that as soon as Mack returned from the trip, on a Friday, he called up his buddy Samberg. The very next morning, Mack was cut into the Lucent deal — a favor that netted him more than $10 million. And as soon as the market reopened after the weekend, Samberg started buying every Heller share in sight, right before it was snapped up by GE — a suspiciously timed move that earned him the equivalent of Derek Jeter’s annual salary for just a few minutes of work.
The deal looked like a classic case of insider trading. But in the summer of 2005, when Aguirre told his boss he planned to interview Mack, things started getting weird. His boss told him the case wasn’t likely to fly, explaining that Mack had “powerful political connections.” (The investment banker had been a fundraising “Ranger” for George Bush in 2004, and would go on to be a key backer of Hillary Clinton in 2008.)
Aguirre also started to feel pressure from Morgan Stanley, which was in the process of trying to rehire Mack as CEO. At first, Aguirre was contacted by the bank’s regulatory liaison, Eric Dinallo, a former top aide to Eliot Spitzer. But it didn’t take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm’s lawyers, Mary Jo White, was on the phone with the SEC’s director of enforcement. In a shocking move that was later singled out by Senate investigators, the director actually appeared to reassure White, dismissing the case against Mack as “smoke” rather than “fire.” White, incidentally, was herself the former U.S. attorney of the Southern District of New York — one of the top cops on Wall Street.
Pause for a minute to take this in. Aguirre, an SEC foot soldier, is trying to interview a major Wall Street executive — not handcuff the guy or impound his yacht, mind you, just talk to him. In the course of doing so, he finds out that his target’s firm is being represented not only by Eliot Spitzer’s former top aide, but by the former U.S. attorney overseeing Wall Street, who is going four levels over his head to speak directly to the chief of the SEC’s enforcement division — not Aguirre’s boss, but his boss’s boss’s boss’s boss. Mack himself, meanwhile, was being represented by Gary Lynch, a former SEC director of enforcement.
Aguirre didn’t stand a chance. A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. “It all happened so fast, I needed a seat belt,” recalls Aguirre, who had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal.
Rather than going after Mack, the SEC started looking for someone else to blame for tipping off Samberg. (It was, Aguirre quips, “O.J.’s search for the real killers.”) It wasn’t until a year later that the agency finally got around to interviewing Mack, who denied any wrongdoing. The four-hour deposition took place on August 1st, 2006 — just days after the five-year statute of limitations on insider trading had expired in the case.
“At best, the picture shows extraordinarily lax enforcement by the SEC,” Senate investigators would later conclude. “At worse, the picture is colored with overtones of a possible cover-up.”
Episodes like this help explain why so many Wall Street executives felt emboldened to push the regulatory envelope during the mid-2000s. Over and over, even the most obvious cases of fraud and insider dealing got gummed up in the works, and high-ranking executives were almost never prosecuted for their crimes. In 2003, Freddie Mac coughed up $125 million after it was caught misreporting its earnings by $5 billion; nobody went to jail. In 2006, Fannie Mae was fined $400 million, but executives who had overseen phony accounting techniques to jack up their bonuses faced no criminal charges. That same year, AIG paid $1.6 billion after it was caught in a major accounting scandal that would indirectly lead to its collapse two years later, but no executives at the insurance giant were prosecuted.
All of this behavior set the stage for the crash of 2008, when Wall Street exploded in a raging Dresden of fraud and criminality. Yet the SEC and the Justice Department have shown almost no inclination to prosecute those most responsible for the catastrophe — even though they had insiders from the two firms whose implosions triggered the crisis, Lehman Brothers and AIG, who were more than willing to supply evidence against top executives.
In the case of Lehman Brothers, the SEC had a chance six months before the crash to move against Dick Fuld, a man recently named the worst CEO of all time by Portfolio magazine. A decade before the crash, a Lehman lawyer named Oliver Budde was going through the bank’s proxy statements and noticed that it was using a loophole involving Restricted Stock Units to hide tens of millions of dollars of Fuld’s compensation. Budde told his bosses that Lehman’s use of RSUs was dicey at best, but they blew him off. “We’re sorry about your concerns,” they told him, “but we’re doing it.” Disturbed by such shady practices, the lawyer quit the firm in 2006.
Then, only a few months after Budde left Lehman, the SEC changed its rules to force companies to disclose exactly how much compensation in RSUs executives had coming to them. “The SEC was basically like, ‘We’re sick and tired of you people fucking around — we want a picture of what you’re holding,’” Budde says. But instead of coming clean about eight separate RSUs that Fuld had hidden from investors, Lehman filed a proxy statement that was a masterpiece of cynical lawyering. On one page, a chart indicated that Fuld had been awarded $146 million in RSUs. But two pages later, a note in the fine print essentially stated that the chart did not contain the real number — which, it failed to mention, was actually $263 million more than the chart indicated. “They fucked around even more than they did before,” Budde says. (The law firm that helped craft the fine print, Simpson Thacher & Bartlett, would later receive a lucrative federal contract to serve as legal adviser to the TARP bailout.)
Budde decided to come forward. In April 2008, he wrote a detailed memo to the SEC about Lehman’s history of hidden stocks. Shortly thereafter, he got a letter back that began, “Dear Sir or Madam.” It was an automated e-response.
“They blew me off,” Budde says.
Over the course of that summer, Budde tried to contact the SEC several more times, and was ignored each time. Finally, in the fateful week of September 15th, 2008, when Lehman Brothers cracked under the weight of its reckless bets on the subprime market and went into its final death spiral, Budde became seriously concerned. If the government tried to arrange for Lehman to be pawned off on another Wall Street firm, as it had done with Bear Stearns, the U.S. taxpayer might wind up footing the bill for a company with hundreds of millions of dollars in concealed compensation. So Budde again called the SEC, right in the middle of the crisis. “Look,” he told regulators. “I gave you huge stuff. You really want to take a look at this.”
But the feds once again blew him off. A young staff attorney contacted Budde, who once more provided the SEC with copies of all his memos. He never heard from the agency again.
“This was like a mini-Madoff,” Budde says. “They had six solid months of warnings. They could have done something.”
Three weeks later, Budde was shocked to see Fuld testifying before the House Government Oversight Committee and whining about how poor he was. “I got no severance, no golden parachute,” Fuld moaned. When Rep. Henry Waxman, the committee’s chairman, mentioned that he thought Fuld had earned more than $480 million, Fuld corrected him and said he believed it was only $310 million.
The true number, Budde calculated, was $529 million. He contacted a Senate investigator to talk about how Fuld had misled Congress, but he never got any response. Meanwhile, in a demonstration of the government’s priorities, the Justice Department is proceeding full force with a prosecution of retired baseball player Roger Clemens for lying to Congress about getting a shot of steroids in his ass. “At least Roger didn’t screw over the world,” Budde says, shaking his head.
Fuld has denied any wrongdoing, but his hidden compensation was only a ripple in Lehman’s raging tsunami of misdeeds. The investment bank used an absurd accounting trick called “Repo 105” transactions to conceal $50 billion in loans on the firm’s balance sheet. (That’s $50 billion, not million.) But more than a year after the use of the Repo 105s came to light, there have still been no indictments in the affair. While it’s possible that charges may yet be filed, there are now rumors that the SEC and the Justice Department may take no action against Lehman. If that’s true, and there’s no prosecution in a case where there’s such overwhelming evidence — and where the company is already dead, meaning it can’t dump further losses on investors or taxpayers — then it might be time to assume the game is up. Failing to prosecute Fuld and Lehman would be tantamount to the state marching into Wall Street and waving the green flag on a new stealing season.
The most amazing noncase in the entire crash — the one that truly defies the most basic notion of justice when it comes to Wall Street supervillains — is the one involving AIG and Joe Cassano, the nebbishy Patient Zero of the financial crisis. As chief of AIGFP, the firm’s financial products subsidiary, Cassano repeatedly made public statements in 2007 claiming that his portfolio of mortgage derivatives would suffer “no dollar of loss” — an almost comically obvious misrepresentation. “God couldn’t manage a $60 billion real estate portfolio without a single dollar of loss,” says Turner, the agency’s former chief accountant. “If the SEC can’t make a disclosure case against AIG, then they might as well close up shop.”
As in the Lehman case, federal prosecutors not only had plenty of evidence against AIG — they also had an eyewitness to Cassano’s actions who was prepared to tell all. As an accountant at AIGFP, Joseph St. Denis had a number of run-ins with Cassano during the summer of 2007. At the time, Cassano had already made nearly $500 billion worth of derivative bets that would ultimately blow up, destroy the world’s largest insurance company, and trigger the largest government bailout of a single company in U.S. history. He made many fatal mistakes, but chief among them was engaging in contracts that required AIG to post billions of dollars in collateral if there was any downgrade to its credit rating.
St. Denis didn’t know about those clauses in Cassano’s contracts, since they had been written before he joined the firm. What he did know was that Cassano freaked out when St. Denis spoke with an accountant at the parent company, which was only just finding out about the time bomb Cassano had set. After St. Denis finished a conference call with the executive, Cassano suddenly burst into the room and began screaming at him for talking to the New York office. He then announced that St. Denis had been “deliberately excluded” from any valuations of the most toxic elements of the derivatives portfolio — thus preventing the accountant from doing his job. What St. Denis represented was transparency — and the last thing Cassano needed was transparency.
Another clue that something was amiss with AIGFP’s portfolio came when Goldman Sachs demanded that the firm pay billions in collateral, per the terms of Cassano’s deadly contracts. Such “collateral calls” happen all the time on Wall Street, but seldom against a seemingly solvent and friendly business partner like AIG. And when they do happen, they are rarely paid without a fight. So St. Denis was shocked when AIGFP agreed to fork over gobs of money to Goldman Sachs, even while it was still contesting the payments — an indication that something was seriously wrong at AIG. “When I found out about the collateral call, I literally had to sit down,” St. Denis recalls. “I had to go home for the day.”
After Cassano barred him from valuating the derivative deals, St. Denis had no choice but to resign. He got another job, and thought he was done with AIG. But a few months later, he learned that Cassano had held a conference call with investors in December 2007. During the call, AIGFP failed to disclose that it had posted $2 billion to Goldman Sachs following the collateral calls.
“Investors therefore did not know,” the Financial Crisis Inquiry Commission would later conclude, “that AIG’s earnings were overstated by $3.6 billion.”
“I remember thinking, ‘Wow, they’re just not telling people,’” St. Denis says. “I knew. I had been there. I knew they’d posted collateral.”
A year later, after the crash, St. Denis wrote a letter about his experiences to the House Government Oversight Committee, which was looking into the AIG collapse. He also met with investigators for the government, which was preparing a criminal case against Cassano. But the case never went to court. Last May, the Justice Department confirmed that it would not file charges against executives at AIGFP. Cassano, who has denied any wrongdoing, was reportedly told he was no longer a target.
Shortly after that, Cassano strolled into Washington to testify before the Financial Crisis Inquiry Commission. It was his first public appearance since the crash. He has not had to pay back a single cent out of the hundreds of millions of dollars he earned selling his insane pseudo-insurance policies on subprime mortgage deals. Now, out from under prosecution, he appeared before the FCIC and had the enormous balls to compliment his own business acumen, saying his atom-bomb swaps portfolio was, in retrospect, not that badly constructed. “I think the portfolios are withstanding the test of time,” he said.
“They offered him an excellent opportunity to redeem himself,” St. Denis jokes.
In the end, of course, it wasn’t just the executives of Lehman and AIGFP who got passes. Virtually every one of the major players on Wall Street was similarly embroiled in scandal, yet their executives skated off into the sunset, uncharged and unfined. Goldman Sachs paid $550 million last year when it was caught defrauding investors with crappy mortgages, but no executive has been fined or jailed — not even Fabrice “Fabulous Fab” Tourre, Goldman’s outrageous Euro-douche who gleefully e-mailed a pal about the “surreal” transactions in the middle of a meeting with the firm’s victims. In a similar case, a sales executive at the German powerhouse Deutsche Bank got off on charges of insider trading; its general counsel at the time of the questionable deals, Robert Khuzami, now serves as director of enforcement for the SEC.
Another major firm, Bank of America, was caught hiding $5.8 billion in bonuses from shareholders as part of its takeover of Merrill Lynch. The SEC tried to let the bank off with a settlement of only $33 million, but Judge Jed Rakoff rejected the action as a “facade of enforcement.” So the SEC quintupled the settlement — but it didn’t require either Merrill or Bank of America to admit to wrongdoing. Unlike criminal trials, in which the facts of the crime are put on record for all to see, these Wall Street settlements almost never require the banks to make any factual disclosures, effectively burying the stories forever. “All this is done at the expense not only of the shareholders, but also of the truth,” says Rakoff. Goldman, Deutsche, Merrill, Lehman, Bank of America ... who did we leave out? Oh, there’s Citigroup, nailed for hiding some $40 billion in liabilities from investors. Last July, the SEC settled with Citi for $75 million. In a rare move, it also fined two Citi executives, former CFO Gary Crittenden and investor-relations chief Arthur Tildesley Jr. Their penalties, combined, came to a whopping $180,000.
Throughout the entire crisis, in fact, the government has taken exactly one serious swing of the bat against executives from a major bank, charging two guys from Bear Stearns with criminal fraud over a pair of toxic subprime hedge funds that blew up in 2007, destroying the company and robbing investors of $1.6 billion. Jurors had an e-mail between the defendants admitting that “there is simply no way for us to make money — ever” just three days before assuring investors that “there’s no basis for thinking this is one big disaster.” Yet the case still somehow ended in acquittal — and the Justice Department hasn’t taken any of the big banks to court since.
All of which raises an obvious question: Why the hell not?
Gary Aguirre, the SEC investigator who lost his job when he drew the ire of Morgan Stanley, thinks he knows the answer.
Last year, Aguirre noticed that a conference on financial law enforcement was scheduled to be held at the Hilton in New York on November 12th. The list of attendees included 1,500 or so of the country’s leading lawyers who represent Wall Street, as well as some of the government’s top cops from both the SEC and the Justice Department.
Criminal justice, as it pertains to the Goldmans and Morgan Stanleys of the world, is not adversarial combat, with cops and crooks duking it out in interrogation rooms and courthouses. Instead, it’s a cocktail party between friends and colleagues who from month to month and year to year are constantly switching sides and trading hats. At the Hilton conference, regulators and banker-lawyers rubbed elbows during a series of speeches and panel discussions, away from the rabble. “They were chummier in that environment,” says Aguirre, who plunked down $2,200 to attend the conference.
Aguirre saw a lot of familiar faces at the conference, for a simple reason: Many of the SEC regulators he had worked with during his failed attempt to investigate John Mack had made a million-dollar pass through the Revolving Door, going to work for the very same firms they used to police. Aguirre didn’t see Paul Berger, an associate director of enforcement who had rebuffed his attempts to interview Mack — maybe because Berger was tied up at his lucrative new job at Debevoise & Plimpton, the same law firm that Morgan Stanley employed to intervene in the Mack case. But he did see Mary Jo White, the former U.S. attorney, who was still at Debevoise & Plimpton. He also saw Linda Thomsen, the former SEC director of enforcement who had been so helpful to White. Thomsen had gone on to represent Wall Street as a partner at the prestigious firm of Davis Polk & Wardwell.
Two of the government’s top cops were there as well: Preet Bharara, the U.S. attorney for the Southern District of New York, and Robert Khuzami, the SEC’s current director of enforcement. Bharara had been recommended for his post by Chuck Schumer, Wall Street’s favorite senator. And both he and Khuzami had served with Mary Jo White at the U.S. attorney’s office, before Mary Jo went on to become a partner at Debevoise. What’s more, when Khuzami had served as general counsel for Deutsche Bank, he had been hired by none other than Dick Walker, who had been enforcement director at the SEC when it slow-rolled the pivotal fraud case against Rite Aid.
“It wasn’t just one rotation of the revolving door,” says Aguirre. “It just kept spinning. Every single person had rotated in and out of government and private service.”
The Revolving Door isn’t just a footnote in financial law enforcement; over the past decade, more than a dozen high-ranking SEC officials have gone on to lucrative jobs at Wall Street banks or white-shoe law firms, where partnerships are worth millions. That makes SEC officials like Paul Berger and Linda Thomsen the equivalent of college basketball stars waiting for their first NBA contract. Are you really going to give up a shot at the Knicks or the Lakers just to find out whether a Wall Street big shot like John Mack was guilty of insider trading? “You take one of these jobs,” says Turner, the former chief accountant for the SEC, “and you’re fit for life.”
Fit — and happy. The banter between the speakers at the New York conference says everything you need to know about the level of chumminess and mutual admiration that exists between these supposed adversaries of the justice system. At one point in the conference, Mary Jo White introduced Bharara, her old pal from the U.S. attorney’s office.
“I want to first say how pleased I am to be here,” Bharara responded. Then, addressing White, he added, “You’ve spawned all of us. It’s almost 11 years ago to the day that Mary Jo White called me and asked me if I would become an assistant U.S. attorney. So thank you, Dr. Frankenstein.”
Next, addressing the crowd of high-priced lawyers from Wall Street, Bharara made an interesting joke. “I also want to take a moment to applaud the entire staff of the SEC for the really amazing things they have done over the past year,” he said. “They’ve done a real service to the country, to the financial community, and not to mention a lot of your law practices.”
Haw! The line drew snickers from the conference of millionaire lawyers. But the real fireworks came when Khuzami, the SEC’s director of enforcement, talked about a new “cooperation initiative” the agency had recently unveiled, in which executives are being offered incentives to report fraud they have witnessed or committed. From now on, Khuzami said, when corporate lawyers like the ones he was addressing want to know if their Wall Street clients are going to be charged by the Justice Department before deciding whether to come forward, all they have to do is ask the SEC.
“We are going to try to get those individuals answers,” Khuzami announced, as to “whether or not there is criminal interest in the case — so that defense counsel can have as much information as possible in deciding whether or not to choose to sign up their client.”
Aguirre, listening in the crowd, couldn’t believe Khuzami’s brazenness. The SEC’s enforcement director was saying, in essence, that firms like Goldman Sachs and AIG and Lehman Brothers will henceforth be able to get the SEC to act as a middleman between them and the Justice Department, negotiating fines as a way out of jail time. Khuzami was basically outlining a four-step system for banks and their executives to buy their way out of prison. “First, the SEC and Wall Street player make an agreement on a fine that the player will pay to the SEC,” Aguirre says. “Then the Justice Department commits itself to pass, so that the player knows he’s ‘safe.’ Third, the player pays the SEC — and fourth, the player gets a pass from the Justice Department.”
When I ask a former federal prosecutor about the propriety of a sitting SEC director of enforcement talking out loud about helping corporate defendants “get answers” regarding the status of their criminal cases, he initially doesn’t believe it. Then I send him a transcript of the comment. “I am very, very surprised by Khuzami’s statement, which does seem to me to be contrary to past practice — and not a good thing,” the former prosecutor says.
Earlier this month, when Sen. Chuck Grassley found out about Khuzami’s comments, he sent the SEC a letter noting that the agency’s own enforcement manual not only prohibits such “answer getting,” it even bars the SEC from giving defendants the Justice Department’s phone number. “Should counsel or the individual ask which criminal authorities they should contact,” the manual reads, “staff should decline to answer, unless authorized by the relevant criminal authorities.” Both the SEC and the Justice Department deny there is anything improper in their new policy of cooperation. “We collaborate with the SEC, but they do not consult with us when they resolve their cases,” Assistant Attorney General Lanny Breuer assured Congress in January. “They do that independently.”
Around the same time that Breuer was testifying, however, a story broke that prior to the pathetically small settlement of $75 million that the SEC had arranged with Citigroup, Khuzami had ordered his staff to pursue lighter charges against the megabank’s executives. According to a letter that was sent to Sen. Grassley’s office, Khuzami had a “secret conversation, without telling the staff, with a prominent defense lawyer who is a good friend” of his and “who was counsel for the company.” The unsigned letter, which appears to have come from an SEC investigator on the case, prompted the inspector general to launch an investigation into the charge.
All of this paints a disturbing picture of a closed and corrupt system, a timeless circle of friends that virtually guarantees a collegial approach to the policing of high finance. Even before the corruption starts, the state is crippled by economic reality: Since law enforcement on Wall Street requires serious intellectual firepower, the banks seize a huge advantage from the start by hiring away the top talent. Budde, the former Lehman lawyer, says it’s well known that all the best legal minds go to the big corporate law firms, while the “bottom 20 percent go to the SEC.” Which makes it tough for the agency to track devious legal machinations, like the scheme to hide $263 million of Dick Fuld’s compensation.
“It’s such a mismatch, it’s not even funny,” Budde says.
But even beyond that, the system is skewed by the irrepressible pull of riches and power. If talent rises in the SEC or the Justice Department, it sooner or later jumps ship for those fat NBA contracts. Or, conversely, graduates of the big corporate firms take sabbaticals from their rich lifestyles to slum it in government service for a year or two. Many of those appointments are inevitably hand-picked by lifelong stooges for Wall Street like Chuck Schumer, who has accepted $14.6 million in campaign contributions from Goldman Sachs, Morgan Stanley and other major players in the finance industry, along with their corporate lawyers.
As for President Obama, what is there to be said? Goldman Sachs was his number-one private campaign contributor. He put a Citigroup executive in charge of his economic transition team, and he just named an executive of JP Morgan Chase, the proud owner of $7.7 million in Chase stock, his new chief of staff. “The betrayal that this represents by Obama to everybody is just — we’re not ready to believe it,” says Budde, a classmate of the president from their Columbia days. “He’s really fucking us over like that? Really? That’s really a JP Morgan guy, really?”
Which is not to say that the Obama era has meant an end to law enforcement. On the contrary: In the past few years, the administration has allocated massive amounts of federal resources to catching wrongdoers — of a certain type. Last year, the government deported 393,000 people, at a cost of $5 billion. Since 2007, felony immigration prosecutions along the Mexican border have surged 77 percent; nonfelony prosecutions by 259 percent. In Ohio last month, a single mother was caught lying about where she lived to put her kids into a better school district; the judge in the case tried to sentence her to 10 days in jail for fraud, declaring that letting her go free would “demean the seriousness” of the offenses.
So there you have it. Illegal immigrants: 393,000. Lying moms: one. Bankers: zero. The math makes sense only because the politics are so obvious. You want to win elections, you bang on the jailable class. You build prisons and fill them with people for selling dime bags and stealing CD players. But for stealing a billion dollars? For fraud that puts a million people into foreclosure? Pass. It’s not a crime. Prison is too harsh. Get them to say they’re sorry, and move on. Oh, wait — let’s not even make them say they’re sorry. That’s too mean; let’s just give them a piece of paper with a government stamp on it, officially clearing them of the need to apologize, and make them pay a fine instead. But don’t make them pay it out of their own pockets, and don’t ask them to give back the money they stole. In fact, let them profit from their collective crimes, to the tune of a record $135 billion in pay and benefits last year. What’s next? Taxpayer-funded massages for every Wall Street executive guilty of fraud?
The mental stumbling block, for most Americans, is that financial crimes don’t feel real; you don’t see the culprits waving guns in liquor stores or dragging coeds into bushes. But these frauds are worse than common robberies. They’re crimes of intellectual choice, made by people who are already rich and who have every conceivable social advantage, acting on a simple, cynical calculation: Let’s steal whatever we can, then dare the victims to find the juice to reclaim their money through a captive bureaucracy. They’re attacking the very definition of property — which, after all, depends in part on a legal system that defends everyone’s claims of ownership equally. When that definition becomes tenuous or conditional — when the state simply gives up on the notion of justice — this whole American Dream thing recedes even further from reality.
Echelon CEO Discusses Q4 2010 Results - Earnings Call Transcript
February 10, 2011
Echelon Corporation (ELON) Q4 2010 Earnings Call Transcript February 10, 2011 5:00 pm ET
Operator
Good day, ladies and gentlemen, and welcome to the Echelon quarterly earnings conference call. I would now like to turn the conference over your host for today, Annie Leschin.
Annie Leschin
Thank you, operator. And thank you, everyone, for joining us this afternoon for our fourth quarter 2010 earnings conference call. With me on today's call are Ron Sege, President and Chief Executive Officer; and Chris Stanfield, Executive Vice President and CFO, both of whom will present prepared remarks. By now, you should have received a copy of the press release we issued a short time ago. If you would like a copy, please visit our website at www.echelon.com.
Before we begin, here are few calendar items that we have in the first quarter that Echelon will be participating in. First, the Jaffray’s Global Clean Tech Conference on February 23 in New York, next Pacific Crest Emerging Technology Summit on March 1 in San Francisco, and Canaccord Sustainability Forum on March 3 in Deer Valley, Utah. As additional events are scheduled, we will make other announcements.
As a reminder, during the course of this conference call, we may make statements relating to our business outlook, future financial and operating results, accounting matters, and overall future prospects. These are forward-looking statements based on certain assumptions and are subject to a number of risks and uncertainties. We encourage you to read the risks described in our press release as well as in our SEC reports, including our report on Form 10-K and subsequent reports on Form 10-Q for a more complete disclosure of the risks and uncertainties related to our business.
The financial information presented in this call reflects estimates based on information that is available to us at this time. Actual results could differ materially. Echelon undertakes no obligation to update or revise these forward-looking statements, and guidance will not be updated after today's call until our next scheduled quarterly earnings financial release.
I would now like to turn the call over to Ron Sege.
Ron Sege
Thanks, Annie. And thank you, everyone, again for joining us today. I’m pleased to report that Echelon delivered on its promise of modest revenue growth for 2010 with a 7.5% annual increase. We ended the year with a particularly strong fourth quarter, slightly exceeding our guidance of $38.8 million in revenue and with a non-GAAP net loss of 4%. We are certainly encouraged by these results, but not satisfied.
I know that growth and profitability are top priorities for our investors and they are top objectives for me and the Echelon team as well. As you will hear on this call, we are making the hard decisions and taking the right steps to drive plus-20% revenue growth in 2011 and reach profitability in 2012.
Before discussing our results for the past quarter and year, I’d like to spend a few minutes reminding you of my view of Echelon’s differentiation and the markets we serve. I will then turn to steps we are taking to better align our operations to this view and then highlight progress we made in the fourth quarter. Finally, I will offer our view of longer term path to profitability.
My ongoing meetings with Echelon’s customers, prospects and partners have convinced me of three key points. First, the smart grid, or the reliable, survivable and instantaneous management of electricity, requires control networking, which is the unique core competency of Echelon. With the control network, data is collected and decisions are made at the edge of the network, which means maximum reliability, survivability and response time across a wide range of applications. The market worldwide now recognizes that the benefits of the smart grid result from control, a very important step beyond advanced meterings.
Second, the two markets we serve, utility and commercial, are converging as utilities around the world reach into buildings and homes and pursue new business models. Third, Echelon is uniquely positioned to benefit from this convergence because of the breadth of our control networking solutions, the range of applications they support, and the strength of our customer base.
As I talk to customers and partners, I am impressed again and again by the results our products are delivering. Our systems are performing extremely well, and utilities and commercial customers alike are very satisfied with the measurable return on investments they are receiving. Our challenge is that outside of customers and partners, too few know of our success. Great products and technologies do not sell themselves. So, as we have discussed previously, Echelon needs to invest more in marketing and sales to drive growth. Therefore, we will be intelligently increasing our spending in sales and marketing in 2011.
To achieve profitability and a balanced long-term financial model, it is necessary to offset this planned increase with reduction in other areas. Therefore, after a very careful strategic review, we have made the very difficult decision to reduce spending in engineering, operations, and G&A. Since the majority of our expenses are people-related, this is resulted in a reduction of approximately 8% of full-time equivalent employees. This was obviously a very tough decision, but the right one in order to fund our growing sales effort and to better equip the people selling Echelon’s innovative solutions.
While these reductions are meaningful, the core of our capabilities in R&D and operations as well as our product roadmap remains intact. We continue to make very substantial investments in our differentiated products and solutions to ensure that we maintain and extend our lead and continue to delight our customers. We have fully aligned our investments and our execution behind our vision for a plant-to-plug multi-function open-standard energy control network.
Now let’s turn to sales and marketing alignments. In our commercial markets, we have made several organizational changes to provide more accountability and better focus on growing and converting opportunity pipeline. Large global OEMs such as Honeywell and Siemens are an important component of our commercial business, and we have now established a single sales team focused on these accounts worldwide. This team is passed with developing lighter and deeper relationships with these OEMs to drive best practices across regions and to maximize design wins and revenue.
We have also simplified our regional sales structure and focused our selling efforts on three large and growing verticals; building energy management, intelligent street lighting, and renewable energy with an emphasis on solar. In these verticals, we intend to increasingly focus on selling complete solutions so we can better serve customers and grow share of wallets. We are already seeing results from these efforts that I will share with you in a moment.
In our Utility Group, we are codifying our go-to-market approach to expand and accelerate our global market reach, which is again measured by pipeline growth and conversion. This will bring the benefits of our Utility solutions, powered by NES and the Open Smart Grid Protocol, OSGP, to more customers more quickly. We will sell our complete flagship NES system along with our new Echelon Control System, ECoS, powered Edge Control Node for low-voltage distribution automation in Europe, North America and other markets with strong product market hit. We have a strong presence in these markets and we intend to build on best.
In other markets, such as Brazil, we will partner with local suppliers to build NES and OSGP compliant solutions based on Echelon’s subsystems. In markets where alternative standards and approaches have been established, our utility and commercial sales teams will go to market with components such as our best-of-breed power line communication products and our unique power line meshing modules that have been such a key part of our performance at our customer accolades. Overall, our goal is to sell as much value as we can, but in all cases to participate and sell in substantial high growth markets.
With that as background, let me give you some examples of the progress we have made in the quarter just completed. In commercial markets, revenue for 2010 grew by more than 10% over 2009, as emerging applications for energy savings took hold. This past week at AHR Expo, the largest industry event for buildings market in North America, we introduced the Echelon Building Energy Manager, a new multi-site energy management solution in partnership with Serious Materials.
Together we deliver a cloud-based energy management system that can cut building energy costs by 20% or more. Systems that used to take days to install can now be configured and deployed in hours. The system is very powerful and easy to use. We are running the Building Energy Manager here at Echelon, and from anywhere in the world, using my iPad, I can quickly see how our buildings are using energy. This announcement also illustrates a few other things that you will see repeated in our activities; the importance of partnerships and our focus on delivering solutions to increase value to our customers and share-of-wallet to Echelon.
In the intelligent street lighting vertical, we recently announced a number of projects in China, where we are seeing rapid adoption of our solution. Our partner Rongwen, one of the largest street lighting companies in China, has already installed over 16,000 intelligent lights that use Echelon’s Power Line Transceivers for local control and communication and Echelon’s SmartServer for coordinated segment control. They have seen energy savings about 55% and expect exponential growth to 500,000 lights by 2014. Two other partners, Telth [ph] China and Shanghai Hongyuan, are also announcing projects based on our products.
China is a very exciting opportunity for our commercial products. It’s an enormous market with a government focus on saving energy to fuel this rapidly growing economy from buildings to utilities to street lighting. We believe that Echelon energy control networks can be an important part of achieving this goal.
Finally, in the renewables market, one exciting new customer is Direct Grid, a leading developer of micro-inverters for the solar industry. Unlike traditional inverters where one large unit converts the output of an entire solar array from DC to AC power, micro-inverters are located at each panel and perform local conversion at the panel. By doing so, they significantly increase the efficiency and resiliency of the entire array.
This represents an exciting step forward in the solar industry. This is also an application that needs a reliable, survivable and instantaneous energy control network. By embedding our Power Line Transceivers into each micro-inverter and managing each array with our SmartServer, Direct Grid can keep the system running at peak efficiency and drive down operating and maintenance costs.
Turning to Utility side of our business, we performed well in 2010 growing nearly 19% year-over-year. As I said at the beginning of my remarks, we are setting a very high standard for performance with our solutions. For example, SEAS, Denmark’s largest consumer-owned energy company, is seeing our lead meter reads at 99.7% to 100% performance efficiency, using our NES system. And by providing customers with detailed usage information, they have achieved energy reductions of 16%.
Across the entire range of their customer types, rural, suburban and urban, SEAS has experienced exceptional results. Our ability of our system to perform so well at scale and to deliver a unique and valuable data that helps both the utility and its customers operate more efficiently is a key differentiator for us.
Here in the US, our project with Duke Energy continues to go very well. Shipments for Duke for deployment in Ohio ramped significantly this past quarter. We also shipped initial field trial units of our edge control node to Duke at the end of last year, and they have completed initial lab casts and are now deploying in the field for extended testing. The program remains on track for initial production shipments later in 2011 with larger rollouts planned for 2012.
Through the September launch of the ECN and ECoS platform for low voltage distribution automation, we have seen strong interest from utilities around the world. Customers see the ECN and ECoS as a significant differentiator as they look to bring energy control to the edge of their grid. Applications like volt/VAR control, integrating legacy meter types and demand response are of special interest to our prospects. While we are focused on Duke right now, I am optimistic about acquiring new customers in this market.
In Europe and Asia, we continue to see demand driven by local and regional mandates, as well as the European Union smart grid 20-20-20 energy efficiency program. In North America, as some of the euphoria surrounding smart meters has dissipated after the completion of stimulus funding, we are seeing a more pragmatic approach from utilities. Some are finding that RF mesh solutions may not be sufficient, especially in more populated areas with tall buildings, and we are seeing a resurgence of interest in power line technology. This presents an opportunity to Echelon as part of larger agreements to provide a proven, highly reliable fill-in solution for these territories.
In South America, our partnership with ELO is moving forward very well. As reflected in the pipeline we are building together, we are excited about the market activity anticipated for 2011 as Brazil gears up for large-scale deployments in 2012. In Asian markets, we see areas of strong demand driven by the need for conservation, debt control and prepaid metering.
In summary, the themes we laid out last quarter and repeated today are being reinforced as the industry enters 2011. The notion of the smart grid extending beyond the meter and the need for an energy control network are becoming mainstream. The blurring of the lines between the utility and commercial applications is taking place more and more often. As these trends develop, Echelon is taking the necessary steps to accelerate growth and become profitable. We are outlining behind the common vision of ubiquitous energy control networks for the smart grid and focusing all our activities on developing and delivering that vision to our customers.
Looking at 2011, I believe we are squarely on the path to achieve plus-20% revenue growth. Our utility business should expand at a significantly faster rate than last year, led by shipments to Duke and Fortum, you should note that a majority of orders for these shipments to Duke and Fortum in 2011 are already in hand. In our commercial markets, with long design cycles, we expect growth in 2011 will be similar to last year’s, and with important initiatives underway, we are focused on adding design wins and building pipeline for 2012.
As for profitability, careful investments in sales and marketing to grow revenue have already begun. Reductions in spending has started and will continue to benefit us into the second quarter as we wrap up key projects. From there, you will start to see real progress towards profitability that should put us in the position to be profitable in 2012 and on the path to a balanced income statement model.
Finally, before I turn the call over to Chris, I would like to thank all of our Echelon employees for their hard work, dedication and support of our tough decisions this quarter. Chris?
Chris Stanfield
Thanks, Ron. Good afternoon, everyone, and thank you for joining us on our fourth quarter earnings call. Please note that all references to non-GAAP amounts exclude stock-based compensation and expenses associated with restructuring actions in the last quarter. For ease of reference, we have prepared a complete non-GAAP statement of operations for the fourth quarter and full year ended December 31, 2010, which can be found on the Investor Relations section of our website.
Revenues of $38.8 million were slightly ahead of our expectations and in line with $38.8 million reported in the same period last year. Commercial revenues continued to improve year-over-year, coming in at $12.4 million for the quarter, up from $11.4 million last year. Sales of our utility products were $25.3 million this quarter, up from $21 million in the fourth quarter of 2009. Revenue from Enel in the fourth quarter was $1.2 million compared to $6.4 million in the same period last year.
Full year revenues grew 7.5% from $103.3 million in 2009 to $111.0 million in 2010. Year-over-year, revenues from Echelon’s utility product decreased 18.6% in 2010 to $57.3 million, while revenues from Echelon’s commercial products increased 10.3% to $49.1 million. And revenues from the Enel project decreased 55.8% to $4.6 million.
Fourth quarter non-GAAP gross margin was 44.3%, ahead of last year’s 42.7% and slightly better than our forecast. A 1.6 percentage point increase over the fourth quarter of 2009 was driven by a combination of improved margins from our utility products and a reduction in indirect cost of goods sold.
Non-GAAP operating expenses for the fourth quarter were $18.4 million, up from $16.7 million a year ago. Higher operating expenses were driven primarily by increased product development expenditures associated with the development of our recently announced (inaudible) the ECoS products.
Interest and other income was $13,000 in the fourth quarter, down from $130,000 in the same period last year. The reduction was driven primarily by a reduction in interest income on our investment portfolio and reduced foreign currency translation gains. Our GAAP net loss for the fourth quarter of 2010 was $6 million or $0.14 per share. This compares to a GAAP net loss of $3.7 million or $0.09 per share for the same period a year ago.
Our non-GAAP net loss for the quarter was $1.8 million or $0.04 per share compared to $74,000 or zero cents per share in the fourth quarter of 2009. GAAP net loss for the full year 2010 was $31.3 million or $0.76 per share compared to GAAP net loss of $32 million or $0.79 million during 2009. Non-GAAP net loss for the year was $17.8 million or $0.43 per share, which was in line with the same period a year ago.
Moving to the balance sheet, we ended the fourth quarter with cash, cash equivalents and short-term investments of $64.6 million, a $9.7 million decrease from last quarter. This was primarily due to cash used in our operating activities, which was driven by higher sales during the quarter.
Now I would like to turn to guidance for 2011.We expect total revenue for the first quarter of 2011 to be in the range of $27 million to $29 million with our commercial revenues accounting for approximately 45%, utility about 54%, and the remainder from Enel. We anticipate non-GAAP gross margin to be in the range of 46.1% to 47.4% for the quarter. Finally, we anticipate our GAAP loss per share will be between $0.20 and $0.23 and our non-GAAP loss per share will be between $0.13 and $0.16.
For full year 2011, we continue to believe that we are well positioned for continued improvement in both top and bottom line results. We currently expect revenue growth in the range of 20% to 30% over 2010. Within our specific markets, we expect that utility revenues will grow in the range of 25% to 40% driven by the claimants from Duke at Ohio as well as shipments to Telvent for our project at Fortum. And the commercial revenues will continue to grow in line with the 10% improvement we achieved in 2010.
Lastly, while Enel revenues declined during 2010, we expect them to increase by about 50% during 2011. We expect that our non-GAAP gross margin will slightly improve over the 45.2% generated in 2010. Lastly, in percentage terms, we expect our operating expenses will increase in the high-single digits over 2010 level. The increase is higher than our historical annual operating expense growth rates of 3% to 5% due to the fact that we anticipate significantly less customer funding of our product development expenses in 2011. This funding, which amounted to $4.5 million in 2010, was used to offset expenses we incurred during the year.
In 2011, the amount of offsetting payments is expected to decrease to $1.5 million. But all things being equal, we expect our product development expenses to increase by $3 million in 2011. This $3 million reduction in offsetting payments is contributing about one-half of the anticipated increase in 2011 operating expenses.
With that said, as Ron mentioned a few minutes ago in his remarks, we’ve undertaken the necessary actions to reduce our run rate spending in product development and G&A so that we can invest more heavily in our sales and marketing efforts, which we believe will lay the foundation for long-term growth and profitability. While we carefully lined down from the historical level of product development spending, we’ve already begun to increase our sales and marketing efforts significantly. As a result, the effects of spending reductions will have at our operating results will be taper and will become more prominent in the Q2 through Q4 timeframe.
Now I’d like to turn the call over to the operator for questions. Operator?
http://seekingalpha.com/article/252268-echelon-ceo-discusses-q4-2010-results-earnings-call-transcript?source=feed
Sloth
Garden, it was in their last 2009 - 10k also:
Notwithstanding the above, Ambient recognizes that our customer could alter its vision regarding the common communication infrastructure, determine that a competing company offers a more desirable product, or slow its deployments indefinitely, significantly affecting the prospects and outlook of the Company.
http://www.sec.gov/Archives/edgar/data/1047919/000135448810001042/abtg_10k.htm
Also, from the 2008 10k:
OTHERS MAY CHALLENGE OUR INTELLECTUAL PROPERTY RIGHTS WHICH MAY NEGATIVELY IMPACT OUR COMPETITIVE POSITION.
OTHER COMPANIES MAY DEVELOP AND SELL COMPETING PRODUCTS WHICH MAY REDUCE THE SALES OF OUR PRODUCTS OR RENDER OUR PRODUCTS OBSOLETE.
http://www.sec.gov/Archives/edgar/data/1047919/000111650209000371/ambient10k.htm
Take it for what you will,
Sloth
Think about the potential. With over 1.3 billion people and every age group a possible recipient of blood analysis for some reason or another, this tiny little Piccolo Blood Analysis machine could be a BIG revenue generator.
The beauty of the medical side is that S3 doesn't really seem to do a whole lot to profit from it. I think they are basically a middle man between the manufacturing company, in this case Abaxis, and China. Those two parties probably do almost all the work and we get money from setting it up. I am really not sure of the specifics but it seems to be easy money for us. Hopefully, this easy money trickles down to us shareholders eventually.
Sloth
Will S3 be here?
This is translated so some doesn't make complete sense.
The 9th China (Shanghai) International Medical Devices Exhibition 2011
June 27, 2011 - June 29, 2011
"Medical Devices China 2011" has a total exhibition floor area of 20000 sq.m. with more than 900 standard booths, creating a global top-level grand event on medical device applications. "Medical Devices China 2010" is recognized by the industry associations as the "China's Most Valuable Industry Expo of the Year 2011".
The overall promotion strategy of "Medical Devices China 2011" will be radiated at the buyers the Yangtze River Delta to the whole ChinaAsia-Pacific region. Let exhibitors open up the domesticoverseas markets more effectively more opportunities to network target buyers. On the strength of rich experience inganizing international exhibitions, Shanghai Zhangya Exhibition Service Co., Ltd. will closely cooperate with China International ExchangePromotive Association for MedicalHealth Care (CPAM) integrate resources of the medical devices industry to "Medical Devices China 2011" into the most professionaltop-level exchange platform , bring more splendid annual event for the medical devices industry.
Suppliers can:
• Through the “Medical Devices China 2011”, knowcontact high-quality buyers at low costbecome suppliers of many potential foreign buyers
• Through the "Medical Devices China 2011", knowcontact high-quality buyers at low costbecome suppliers of many potential foreign buyers
• Through the “Medical Devices China 2011”, have face-to-face communications with buyersdirectly know the needs, strategiespurchasing trends of buyers
• Through the "Medical Devices China 2011", have face-to-face communications with buyersdirectly know the needs, strategiespurchasing trends of buyers
• Through the “Medical Devices China 2011”, convey your own contact detailcorporate culture to buyers at the Expothis is a marketing opportunity at lowest cost.
• Through the "Medical Devices China 2011", convey your own contact detailcorporate culture to buyers at the Expothis is a marketing opportunity at lowest cost.
Suppliers can also: Suppliers can also:
Make use of concurrent event: China (Shanghai) International Home Medical & Healthcare Products Exhibition 2010 will provide a one-stop purchasing platform for enterprises. Make use of concurrent event: China (Shanghai) International Home Medical & Healthcare Products Exhibition 2010 will provide a one-stop purchasing platform for enterprises.
Reach transactions on the spot: Though the show time is limited, thanks to direct face-to-face talks with buyers, it is easy to reach agreement intention.
Reach transactions on the spot: Though the show time is limited, thanks to direct face-to-face talks with buyers, it is easy to reach agreement intention.
Search for potential customers: 3-days showover 30,000 visitors will help you meet new potential customers. Search for potential customers: 3-days showover 30,000 visitors will help you meet new potential customers.
Publicize your companyproducts: Exhibition is a kind of 3-dimentional advertisementcan enhance buyers' understanding of productsservices,it is easy to accept.
Publicize your companyproducts: Exhibition is a kind of 3-dimentional advertisementcan enhance buyers' understanding of productsservices, it is easy to accept.
Set up corporate image: Set up a fine corporate image in the same industryamong customers,uplift your status in the industry. Set up corporate image: Set up a fine corporate image in the same industryamong customers, uplift your status in the industry.
Deepen market understanding: Know more about market demandpotential a exchanges with buyers. It is more directaccurate than your routine market survey.
Deepen market understanding: Know more about market demandpotential a exchanges with buyers. It is more directaccurate than your routine market survey.
Open up marketestablish marketing channels: Use the exhibition to open up marketseek customers, look for agents t venture partners. Open up marketestablish marketing channels: Use the exhibition to open up marketseek customers, look for agents t venture partners.
Widen international horizons: Build up an effective platform for international cooperation so as to let your companyproducts enter into international market more properly. Widen international horizons: Build up an effective platform for international cooperation so as to let your companyproducts enter into international market more properly.
Interact supply-demand relationship: Your old customers suppliers will get together at the exhibition, so it is convenient for you to carry out interactionsthank-you activities. Interact supply-demand relationship: Your old customers suppliers will get together at the exhibition, so it is convenient for you to carry out interactionsthank-you activities.
Learn about development experience: By comparing with other suppliers, learn about others' experience in enterprise development. Learn about development experience: By comparing with other suppliers, learn about others' experience in enterprise development.
I think the fact that 100% of their revenue comes from Duke is a bit scary to the market. Their products have performed great and that leads us to believe there will be others in the near future but it's still the "all your eggs in one basket" scenario which stops some from diving in with a large investment. If Duke gets in China or announces some huge contract and PRs that Ambient is involved, I don't think anything will hold it back at that point. If/when a really big news event is announced, it will be too late for us small investors to accumulate a big position so we have to speculate if we want to get in before it's overpriced for us (if you want a decently sized position).
Institutional investors probably will wait to make sure others follow Duke's lead since they can easily afford to pay 3x, 5x, 10x the pps today. Ambient's latest reverse split news was focused on going after that big, institutional investment money.
All my opinion,
Sloth
10K Highlights:
2010 v. 2009
Gross Revenue:
$20,358,040 - $2,193.338 (928% increase)
Gross Profit:
$8,334,708 - $356,792 (2,336% increase)
Gross Profit on Product Sales:
$11,177,367 - $291,431 (3,835% increase)
Overall Gross Margins:
41% - 16% (256% increase)
CASH AND CASH EQUIVALENTS - END OF YEAR
$6,986,881 - $987,010 (708% increase)
Cash balances totaled $6,986,881 at December 31, 2010 and $987,010 at December 31, 2009. As of February 21, 2011, we have approximately $7,494,525 cash on hand.
Additional $507,644 in 52 days.
~~~~~~~~~~~~~~~~~~~~~~
Addition of 19 new employees and revenue growing to more than $9 million in the fourth quarter.
The Ambient Smart Grid platform was instrumental to the build-out of the smart grid network in the state of Ohio helping to move the smart grid concept from vision to reality.
The increase in the gross margin percentage in 2010 compared to 2009 is a reflection of the maturing of our product offerings, an enhanced ability to plan production and scale based on increased lead-time and transparency in the forecasting and purchasing process of our customer, and a stable and productive relationship with our contract manufacturer.
Sloth
S3 Investment Company Updates Status of Testing for Products Distributed in China by Redwood Medical Subsidiary
S3Investment Company, Inc. (Pink Sheets:SIVC) today updated the status laboratory and clinical trials for the first product that its Redwood Medical subsidiary will distribute in the China market. Redwood Medical has entered into an agreement with the testing laboratory, and the reagents, verification specimens, and instruments have been sent to the laboratory in Beijing. The company expects testing, which will take approximately one week to complete, to begin as early as this week.
Redwood Medical, which represents companies seeking to import Western medical technologies and products into China, has an exclusive distribution agreement to distribute the product in China market, which is seeing increased demand for the best available medical technologies for a growing number of hospitals and clinics in the country.
Redwood Medical has entered into an agreement with two hospitals in Beijing, one with 800 beds and the other with 1,200 beds, for the purposes of conducting the clinical trials. Testing at the two hospitals will begin immediately after the testing laboratory has completed their testing. The hospital clinical trials are expected to take two weeks, and the trials will occur at both hospitals at the same time.
The product itself has already secured State Food and Drug Administration (SFDA) clearance, China's equivalent of FDA clearance in the United States, and can be sold in the country. The additional approvals currently being sought are for reagents that are utilized as part of the product's operation. The clearance process requires certain laboratory testing at a state operated testing laboratory and clinical trials at two hospitals.
"We are extremely confident regarding the outcome of testing that will be done on the product reagents," said S3 Investment Company Chairman and CEO Jim Bickel. "This is a product that is currently in use in markets around the world, and SFDA clearance is just a necessary step to launch distribution in China. There was a brief delay in initiating the testing due the timing of China's New Year, but with that holiday behind us, we are moving full speed ahead with the testing."
More very good news in my opinion.
Sloth
Another thing to remember is small companies never have enough money. They can struggle and struggle for years and years to get themselves in a position where they're out of the hole of being a start-up company. If you invest in the companies at this stage, you'll be in that same hole with them. S3 is finally not only out of the hole but are profitable. This has taken about 10 years and we should finally start seeing some good, positive growth that should translate to shareholders. I invested way too early and you were just a little early. I believe you will climb out of that hole and be just fine in time.
I don't know how these small companies even do it and over 80% don't. We are finally in a position to start performing successfully as a company. I don't believe now is the time to lose all faith. I think you will begin to regain confidence in S3 over the coming months. They still have to earn it but they're in a position to start doing just that.
Sloth
Newbie, think of yourself as the Ranch owner of hundreds of heads of baby cattle. You just gotta be patient and let em grow to reap your rewards. In the meantime, focus on other things to curb your worries and anxieties on all the things that could possibly go wrong or not happen.
S3 has a bunch of good building blocks to grow this business. This is a first that we've had all these subsidiaries set up to grow the business with virtually no outside help. I think JB is onto something now but it's just been set up so give it a decent amount of time before getting too riled up. That's my advice but by no means am I telling you how you should react to your investment here. We all react differently and I react differently just about every week. Don't use my emotional swings as an example. lol
Good Luck on your investment and on maintaining your sanity.
Sloth
Probably a partial fill since there was an uptick in price. I always have that happen when I'm buying. They'll fill a few, move the price up and see if you'll chase it to make you fill it with multiple orders.
More games
The most informative info I've heard lately came from KoenigSalomon in post #296 about the administation. They can't start where they ended up since I believe all their software that used to be used by a lot of sites has been sold off but the name could be used by another company to start trading on an exchange.
I'm unsure about the whole situation but it seems a bit weird that so many shares have been traded lately on a stock that is supposedly dead.
Sloth
Unfortunately, any financial report by HTDS means absolutely nothing since they are not audited. If they released audited numbers, then I would share in some of your enthusiasm.
HTDS could tell us they are selling $50 billion worth of drugs since nobody is checking them to see if it's true.
Investors have lost trust in this company so any report won't be taken seriously in my opinion.
Sloth
If Vicis sells any shares, it would increase the float. Vicis has only bought Ambient stock so they are looking for big things from them. I'm not really that well informed about VCs, but I imagine they will be looking for some set price to sell their shares and I would guess to say that their shares will be bought by some company or group such as a buyout or possibly bought by Ambient in a share reduction (at least that's what I would hope). If things continue to progress really well with Duke, I would think they would want Ambient to be part of their company so they would be my guess to buy up most of the shares if the opportunity arises.
If Vicis started selling shares into the float, then the pps would naturally go down unless it was selling into some big news. I am hoping and expecting that Ambient shares will be very desirable in the future. I think that even if they don't uplist, the share price will dramatically increase. If they do uplist, I think it will go up even more since institutional investors will most likely get involved. Ambient is in a pretty good position and its going to get much better this year. If Ambient wants to promote shareholder value, they won't allow a scenario where Vicis is selling huge chunks on shares in the float. They are bringing in some very good revenue now and could stop any mass dilution of their stock by buying it back.
A lot of assumptions in this post so take it completely as my opinion,
Sloth
However, what I'm concerned about is Vicis' ability to dump additional shares into the float.
The RS doesn't make it easier or harder for them to sell their shares. An RS changes nothing regarding the companies market cap or an individual's or group's stock value.
If Vicis wants to sell $1,000,000 of ABTG stock, they could just as easily do it today as after a reverse split. Everything is based in dollars, not the number of shares outstanding, owned or the stock price. The only reason they need to do a reverse split is to increase the share price to be above the minimum required by Nasdaq. Nothing else changes.
Usually, there are limitations on selling such as not more than 10% of the daily volume over the last 3 trading days (check the financial reports for terms). If/ when there's an RS, volume will go down because the stock's price will be more expensive. So $100 will buy you only 10 shares (post split) as opposed to 1000 shares today but the dollar amount is the same. The variables are the stock's price and the number of shares.
I don't know if that helps but that's my opinion and the math of it.
Sloth
Yeah, I know. I've been invested in WGMGY for about 10 years and went through the company going into administration in the U.K. which is basically dissolution. There's not been too much volume and movement since the administration but in the last couple of weeks, there's has been.
I have no idea though what's going on. The company is a shell. They don't have any business operations or a BOD (that I know of).
Sloth
Yes. It was filed on 05-10-2010 last year. It should be filed in that ballpark. They always file a NT 10-K around March indicating their report will be late. They file every report late (but they always file).
Hoping to see the numbers before May. That seems a long ways off.
Sloth
WooHoo! Scoobey-do. Thanks for checking in. You were the first poster around here that suggested S3 change their name to Redwood... to reflect some company cohesiveness.
If you've read through some of the posts or have been keeping up with recent events, S3 has been slowly developing into a full service company for foreign companies to trade on these western exchanges.
If you haven't been keeping up, I would suggest reading though Karen's post about recent news releases. She does a good job of condensing all the news events into one place and moderating the board.
See: KarinCA post# 27626
Most Recent Press Releases from SIVC:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=59950738
Great to hear from you Scoobey. Hope your investments are overflowing your pockets.
Sloth
Yes, I agree. So many components lined up for some serious growth (our financing arrangements are powerful). We've lacked exposure which hopefully will change with a name change and more association with the subsidiaries. In time, this will change one way or another.
We still got a ways to go but the truck is all loaded with gas and supplies. Now we just got to get there without the wheels coming off.
GL,
Sloth
Yeah, I don't know why they announced it like they did unless they expected the pps to go up. There should be good numbers in the 10k coming up so maybe they're expecting a pop in price which will reduce the split number needed to uplist.
I don't know their logic but they've got something up their sleeve.
Sloth
We may take an initial hit because 9 out of 10 reverse splits are bad...unless it's to uplist. Everybody that has invested in a penny stock has endured a bad reverse split most likely.
When I hear reverse split, I think "Oh God". This case will be good for Ambient since it shows they are serious about being a large, influential player in the smart grid. Let's be honest, no institutional investor invests in the OTC or penny stocks.
Vicis is out to make some big money via Ambient and they approved it. The "x" date is before Dec. 31st so that's a pretty long time before it may happen so Vicis isn't going anywhere. They've only bought the stock in the past.
The only downside is right now I think. If the pps doesn't get hit with initial panic over the word, reverse split, then the pps will do much better once investors digest what's really going on here. This isn't to artificially inflate the pps or to allow room for dilution, it's to uplist so that Ambient will be taken seriously (as it should) in the investing world as an influential player in the industry and get big, institutional investors investing in the company and its future.
All my opinion of course,
Sloth
You're right. That's why I used "would be". A seemingly good signal of things to come.
Sloth
I'm fairly certain that Cyberlux's contract period has been extended through the Gov't GSA schedule for another 5 years to 2016. It was previously through 2011 as can be seen in the "contracts terms and conditions" doc and as I had remembered seeing it. (see link at bottom).
http://www.gsaelibrary.gsa.gov/ElibMain/contractorInfo.do?contractNumber=GS-07F-9409S&contractorName=CYBERLUX+CORPORATION&executeQuery=NO
Another 5 years of gov't contracts would be very nice.
Sloth
I don't know about you, but my portfolio starts looking really good when S3 begins to rise. I'm expecting it to rise big time within the year. I don't see why we can't be up 100x fairly easily. That would only take us to 2-3 cents and I think we're better than that. We're a lot better than that if we're in the process of correcting the share structure at the same time as doing a bunch of biz.
Sloth
P.S. Of course, we're both down a truckload but it improves quickly.
Apples and oranges at this point. Not even the same fundamentals. I'm okay with waiting because eventually, even the blind man will see the potential and the numbers (someone may have to read it to him - lol).
We are shaping up nicely and that's really exciting. This has been years in the making and pps will catch up with the fundamentals eventually. Gives people time to accumulate who agree.
Don't need pumping anymore. It will rise when it's ready.
Sloth
Yes. This sounds promising to speed up the whole process and make it very attractive to potential clients.
Sloth
Good Moring all. JB does a good job when it comes to building this business so I don't doubt that the synergy will be a good thing. The name change will be good in itself. I think we're building a pretty powerful looking company. We need to bring in the money and build assets to make it look financially strong. Right now, we seemingly have a good design and structure but not too much inside. I think this will change and when it does, I think it will change for the long term.
It's very good that we're not diluting for this since over-extending a business is one of the biggies for failure and we all don't want that.
We wait for the details to see what this all really means.
Sound good though,
Sloth
Good post Bill. Cyberlux's outlook is much brighter nowadays and that puts some in a very dark place. Doesn't make sense to me unless I come to the obvious conclusion.
Every true investor here in this company understands the risk. Nobody is overly optimistic but some see the potential. There is a time clock on achieving this potential which is crucial. We wait and see. I too am very curious about the next report.
I like to gamble, this is where I choose to gamble and I enjoy it. I really don't care if people get red in the face over it and curse their monitors. I have decided to focus on those that want to discuss Cyberlux and its potential rather than the doom and gloom. When I gamble, I like to think about winning.
Have a good weekend all. It's gonna be a good one.
Sloth
Good post Mike.
If you do choose to invest in Cyberlux, make sure you turn the volume down on the baby monitor. The crying around here can be incessant.
Sloth