This is interesting
By Martha Graybow
NEW YORK, June 25 (Reuters) - U.S. prosecutors are expected to bring charges soon against employees at Wall Street banks and others over alleged kickbacks involving securities lending to traders who try to profit when shares fall, a person familiar with the matter said on Monday.
Federal prosecutors in the Eastern District of New York are preparing to file criminal charges against about a dozen people in the case, this person said, with charges likely to be announced within the next several weeks or possibly sooner.
Reuters, citing another source familiar with the situation, reported in May that federal prosecutors and the FBI were conducting a probe involving loans to so-called short sellers. The investigation began about 18 months ago.
A short sale is a bet that a stock price will fall. In a typical short sale, a trader borrows shares and sells them, hoping to purchase them again later at a lower price. Investment banks do a lucrative business in lending securities to hedge funds and other investors, sometimes turning to "finders" to track down shares the banks do not have on hand.
U.S. prosecutors are likely to allege that the finders of these hard-to-borrow shares provided cash kickbacks to employees in the stock-loan departments of some big Wall Street firms, according to the person who told Reuters on Monday that charges are expected soon.
The government is likely to bring charges including wire fraud, mail fraud and securities fraud in the case, this person said. Prosecutors have been probing whether the finders of hard-to-borrow stocks were performing any work that justified their commissions, this person said.
The U.S. Attorney's Office in Brooklyn, New York, declined to comment. An FBI representative was not immediately available.
BusinessWeek magazine, in a report on its Web site last week, said federal prosecutors had secured guilty pleas from three confidential witnesses in the case.
The magazine said that individuals under investigation in the probe who are drawing the most scrutiny are either current or former employees at Bear Stearns (BSC.N: Quote, Profile , Research), Janney Montgomery Scott and Morgan Stanley (MS.N: Quote, Profile , Research).
Bear Stearns, Janney Montgomery and Morgan Stanley representatives did not immediately return calls requesting comment. (Additional reporting by Paritosh Bansal and Joseph A. Giannone)
© Reuters 2007. All Rights Reserved.
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