"We have said it before on this blog, the regulators are getting tough and are probably being backed by a political will to catch the big guys. Someone's scalp will be on the mantle of an ambitious politician soon, we are sure of it".
So we said in this blog back in October 07 and the regulators and politicians have not dissapointed us.
Two former Bear Stearns managers were arrested Thursday on securities fraud and other charges linked to the collapse of a hedge fund that bet heavily on subprime mortgages before the market collapsed, federal authorities said. Matthew Tannin was taken into custody outside his New Jersey home on Thursday morning and Ralph Cioffi was arrested at his New York City home, the FBI said. They became the first executives to be charged criminally in the wake of the subprime market debacle.
Fall out, however, is beggining to spread. Not only have these guys been arrested in cuffs, Wall Street style but the FBI announced Thursday that it had arrested about 300 real estate industry players since March, including dozens over the last two days, in its crackdown on incidents of mortgage fraud that have contributed to the country's housing crisis.
The Justice Department and FBI plan to announce the recent arrests, including apprehensions in Chicago, Atlanta, Miami, and suburban Maryland, at a news conference set for Thursday afternoon in Washington. An indictment unsealed in federal court charged both ex Bear Stearns men with securities and wire fraud, and Cioffi with insider trading. The U.S. attorney's office in Brooklyn planned a news conference later Thursday.
In a separate complaint also filed Thursday, the Securities and Exchange Commission alleges that in the first five months of 2007, Tannin and Cioffi "deceived their own investors, as well as the fund's institutional counterparts, by fraudulently concealing from them the full extent of the fund's deepening troubles."
The complaint says that in March 2007, Cioffi withdrew $2 million of his own money from a hedge fund without revealing to investors that he was substantially reducing his exposure to the toxic loans.
"Cioffi's clandestine redemption caused the Enhanced Leverage Fund to pay out $2 million at a time when the markets were weak and the fund was facing another month of losses, as well as escalating margin calls and forced sales," the SEC said.
"Although Cioffi had lost faith in the funds, as evidenced by his own redemption from the Enhanced Leverage Fund, he nonetheless falsely expressed his supposed confidence in the funds, encouraging investors to add money to the funds and attempting to dissuade them from redeeming," the complaint said.
The complaint alleges Cioffi and Tannin revealed their secret doubts about the survival of the funds in internal e-mails. Tannin, the complaint says, sent one e-mail last March to a third fund manager with only question marks in the subject line. The e-mail said, "Is Ralph doing what he should be doing right now?"
Around the same time, it adds, Cioffi wrote to a team economist, saying, "I'm fearful of these markets. ... As we discussed it may not be a meltdown for the general economy but in our world it will be. Wall Street will be hammered with lawsuits."
The complaint alleges violation of security laws and seeks an unspecified fine.
A law enforcement official told The Associated Press on Wednesday that an indictment naming the men was the result of a year-long federal securities fraud investigation. The official spoke on condition of anonymity because the outcome of the investigation is pending.
Tannin "is innocent," said his attorney, Susan Brune. "He is being made a scapegoat for a widespread market crisis. He looks forward to his acquittal."
Cioffi's attorney declined comment on Thursday.
The fallout from defaults on U.S. mortgages has rattled the global economy and the American housing market. Subprime mortgages, those issued to people with shaky credit, were repackaged as securities and sold across the globe.
Despite positive assessments by Cioffi and Tannin, the Bear Stearns hedge funds failed in June 2007. The funds had more than $20 billion in assets before crashing.
Cioffi, 52, and Tannin, 46, already have been named in lawsuits brought last year by hedge fund investors, including Barclays Bank PLC, who allege they were purposely misled. Barclays accused Bear Stearns of knowing for months that certain assets in the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund were worth "far less" than their stated values.
The bank alleged Bear Stearns managers "hatched a plan to make more money for themselves and further to use the Enhanced Fund as a repository for risky, poor-quality investments."
Er... Come again!..."Barclays accused Bear Stearns of knowing for months that certain assets in the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund were worth "far less" than their stated values". Forgive me but are they talking about the same Barclays bank that I know?
That would be this Barclays Bank (quoted from their website):
February 2008 Barclays Capital is named Commodity and Energy Derivatives House of the Year by Risk magazine.
February 2008 Barclays Capital wins two awards in Treasury Management International’s 2007 Awards for Innovation and Excellence in Treasury and Risk Management (doh!..that comment not taken from their site).
February 2008 Barclays Capital wins six awards, including Commodity House of the Year and FX House of the Year for the second year running, at mtn-I’s Global MTN Awards.
Are we therefore to believe that the bank who won an award for 'Excellence in Treasury and Risk Management' is blaming two guys for not telling them that "certain assets in the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund were worth "far less" than their stated values".
The words 'of', 'crock' and another one come to mind.
Yes..insider trading etc puts a slur on us all and tips the balance against investors in an unfair way, but that is what regulators are for, n'est pas? Did Bear Stearns pass its compliance audit last year? OK.. bang the guys who audited it up... who was dumb enough at Barclays to take the word of one guy (if that is how it happend, which I doubt), surely if he would have taken a trip over to the desk of the 'award winning' risk management guy he would have known that all was not as it should be in the sub prime market? ...bang him up for not doing his job properly.
In my opinion this is just another politically motivated situation with pictures of bankers being hauled off in hand cuffs meant to let everyone know that the authorities are roughty-toughty lawmakers, able to pin the blame for an exploding market at the door of a couple of highly paid schmucks.
Have we not been here before? Greedy and dim savings and loans guys invest zillions in junk bonds and get burnt. I know.. lets take the guy who was seen as the creator and bang him in prison. Micheal Milken got 8 years and pretty much the only thing they could pin on him was suspicion of insider trading for $300k... when the guy was on a salary that had him earn that every 5 hours!!!
If these guys are going to get banged up on a similar deal then this time we should line those up against the wall who said that 'this will not happen again' after the junk bond situation.
Oh and I don't see any law makers in cuffs.. do you?
What about the "1977 Community Reinvestment Act (CRA)", which compels banks to make loans to low-income borrowers and in what the supporters of the Act call "communities of color" that they might not otherwise make based on purely economic criteria?
CRA supporters claim that over $1 trillion in CRA loans have been made, although no one seems to know the magnitude with much certainty. That is a hell of lot of money that banks have been forced to lend at pain of law suits from the loony left. (if you want to read more there is an excellent article here)
So if you are a bank that has been saddled with a bunch of crappy (sorry 'subprime') loans, woudn't you want to bundled them up, securitise them and sell them to hedge funds???
The architects of this meltdown are many and varied. To blame two guys for doing their jobs and selling their fund is a little petty.
Two former Bear Stearns managers were arrested Thursday on securities fraud and other charges linked to the collapse of a hedge fund that bet heavily on subprime mortgages before the market collapsed, federal authorities said. Matthew Tannin was taken into custody outside his New Jersey home on Thursday morning and Ralph Cioffi was arrested at his New York City home, the FBI said. They became the first executives to be charged criminally in the wake of the subprime market debacle.
Fall out, however, is beggining to spread. Not only have these guys been arrested in cuffs, Wall Street style but the FBI announced Thursday that it had arrested about 300 real estate industry players since March, including dozens over the last two days, in its crackdown on incidents of mortgage fraud that have contributed to the country's housing crisis.
The Justice Department and FBI plan to announce the recent arrests, including apprehensions in Chicago, Atlanta, Miami, and suburban Maryland, at a news conference set for Thursday afternoon in Washington. An indictment unsealed in federal court charged both ex Bear Stearns men with securities and wire fraud, and Cioffi with insider trading. The U.S. attorney's office in Brooklyn planned a news conference later Thursday.
In a separate complaint also filed Thursday, the Securities and Exchange Commission alleges that in the first five months of 2007, Tannin and Cioffi "deceived their own investors, as well as the fund's institutional counterparts, by fraudulently concealing from them the full extent of the fund's deepening troubles."
The complaint says that in March 2007, Cioffi withdrew $2 million of his own money from a hedge fund without revealing to investors that he was substantially reducing his exposure to the toxic loans.
"Cioffi's clandestine redemption caused the Enhanced Leverage Fund to pay out $2 million at a time when the markets were weak and the fund was facing another month of losses, as well as escalating margin calls and forced sales," the SEC said.
"Although Cioffi had lost faith in the funds, as evidenced by his own redemption from the Enhanced Leverage Fund, he nonetheless falsely expressed his supposed confidence in the funds, encouraging investors to add money to the funds and attempting to dissuade them from redeeming," the complaint said.
The complaint alleges Cioffi and Tannin revealed their secret doubts about the survival of the funds in internal e-mails. Tannin, the complaint says, sent one e-mail last March to a third fund manager with only question marks in the subject line. The e-mail said, "Is Ralph doing what he should be doing right now?"
Around the same time, it adds, Cioffi wrote to a team economist, saying, "I'm fearful of these markets. ... As we discussed it may not be a meltdown for the general economy but in our world it will be. Wall Street will be hammered with lawsuits."
The complaint alleges violation of security laws and seeks an unspecified fine.
A law enforcement official told The Associated Press on Wednesday that an indictment naming the men was the result of a year-long federal securities fraud investigation. The official spoke on condition of anonymity because the outcome of the investigation is pending.
Tannin "is innocent," said his attorney, Susan Brune. "He is being made a scapegoat for a widespread market crisis. He looks forward to his acquittal."
Cioffi's attorney declined comment on Thursday.
The fallout from defaults on U.S. mortgages has rattled the global economy and the American housing market. Subprime mortgages, those issued to people with shaky credit, were repackaged as securities and sold across the globe.
Despite positive assessments by Cioffi and Tannin, the Bear Stearns hedge funds failed in June 2007. The funds had more than $20 billion in assets before crashing.
Cioffi, 52, and Tannin, 46, already have been named in lawsuits brought last year by hedge fund investors, including Barclays Bank PLC, who allege they were purposely misled. Barclays accused Bear Stearns of knowing for months that certain assets in the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund were worth "far less" than their stated values.
The bank alleged Bear Stearns managers "hatched a plan to make more money for themselves and further to use the Enhanced Fund as a repository for risky, poor-quality investments."
Er... Come again!..."Barclays accused Bear Stearns of knowing for months that certain assets in the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund were worth "far less" than their stated values". Forgive me but are they talking about the same Barclays bank that I know?
That would be this Barclays Bank (quoted from their website):
February 2008 Barclays Capital is named Commodity and Energy Derivatives House of the Year by Risk magazine.
February 2008 Barclays Capital wins two awards in Treasury Management International’s 2007 Awards for Innovation and Excellence in Treasury and Risk Management (doh!..that comment not taken from their site).
February 2008 Barclays Capital wins six awards, including Commodity House of the Year and FX House of the Year for the second year running, at mtn-I’s Global MTN Awards.
Are we therefore to believe that the bank who won an award for 'Excellence in Treasury and Risk Management' is blaming two guys for not telling them that "certain assets in the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund were worth "far less" than their stated values".
The words 'of', 'crock' and another one come to mind.
Yes..insider trading etc puts a slur on us all and tips the balance against investors in an unfair way, but that is what regulators are for, n'est pas? Did Bear Stearns pass its compliance audit last year? OK.. bang the guys who audited it up... who was dumb enough at Barclays to take the word of one guy (if that is how it happend, which I doubt), surely if he would have taken a trip over to the desk of the 'award winning' risk management guy he would have known that all was not as it should be in the sub prime market? ...bang him up for not doing his job properly.
In my opinion this is just another politically motivated situation with pictures of bankers being hauled off in hand cuffs meant to let everyone know that the authorities are roughty-toughty lawmakers, able to pin the blame for an exploding market at the door of a couple of highly paid schmucks.
Have we not been here before? Greedy and dim savings and loans guys invest zillions in junk bonds and get burnt. I know.. lets take the guy who was seen as the creator and bang him in prison. Micheal Milken got 8 years and pretty much the only thing they could pin on him was suspicion of insider trading for $300k... when the guy was on a salary that had him earn that every 5 hours!!!
If these guys are going to get banged up on a similar deal then this time we should line those up against the wall who said that 'this will not happen again' after the junk bond situation.
Oh and I don't see any law makers in cuffs.. do you?
What about the "1977 Community Reinvestment Act (CRA)", which compels banks to make loans to low-income borrowers and in what the supporters of the Act call "communities of color" that they might not otherwise make based on purely economic criteria?
CRA supporters claim that over $1 trillion in CRA loans have been made, although no one seems to know the magnitude with much certainty. That is a hell of lot of money that banks have been forced to lend at pain of law suits from the loony left. (if you want to read more there is an excellent article here)
So if you are a bank that has been saddled with a bunch of crappy (sorry 'subprime') loans, woudn't you want to bundled them up, securitise them and sell them to hedge funds???
The architects of this meltdown are many and varied. To blame two guys for doing their jobs and selling their fund is a little petty.
Thousands of tragic deaths in Iraq were caused by Bush over selling his particular story to the world and right now he is on a jaunt around Europeland picking up leaving-presents from Prime Ministers, Presidents and Queens, not sitting in a jail cell.
I believe if you are going to start imprisoning bankers and salesmen you should go all the way down the line and bang up the regulators who let it happen, the loony lefties who forced banks to lend sub prime and the murky politicians who allow such criminally stupid people to legislate on such ridiculous ideas in the first place...
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