Fraud

[tradingadvantage]

Occasionally the SEC and other regulators will castigate, actually punish, fraudulent events on Wall Street. Of course the real punishment is only meted out to individuals and small companies. Mega banks – the banking mafia – are largely immun

Martha Stewart was convicted of insider trading in 2004 – a relatively small amount – and was sent to jail. It was an act of fraud alright, but it pales in comparison to the fraud of Wall Street bank

Phil Falcone, a once high flying hedge fund manager, was just charged with fraud and it sounds like the regulators will throw him in jail for a very long time. Among other allegations, Mr. Falcone was charged with “granting favorable redemption and liquidity rights to certain strategically-important investors in exchange for those investors’ consent to restrict redemption rights of other fund investors” and “Falcone and two Harbinger investment managers through which Falcone operated manipulated the price and availability of a series of distressed high-yield b

Remember, like Martha Stewart, the government wants to throw Phil Falcone in jail and maybe he belongs there; but what about the mega banks?

Barclays was found guilty of MANIPULATION (like Falcone) and giving PREFERENTIAL TREATMENT to certain clients (like Falcone) but nobody is going to jail. Moreover, Barclay’s fraud was on a colossal scale, unlike Martha Stewart, and again I say: nobody is going to jail

From the FSA' breakdown of Barclays traders caught in the act of manipulation:

On Friday, 10 March 2006, two US dollar Derivatives Traders made email requests for a low three month US dollar LIBOR submission for the coming Monday:

i. Trader C stated “We have an unbelievably large set on Monday (the IMM). We need a really low 3m fix, it could potentially cost a fortune. Would really appreciate any help

ii. Trader B explained “I really need a very very low 3m fixing on Monday – preferably we get kicked out. We have about 80 yards [billion] fixing for the desk and each 0.1 [one basis point] lower in the fix is a huge help for us. So 4.90 or lower would be fantastic”. Trader B also indicated his preference that Barclays would be kicked out of the average calculation;

iii. On Monday, 13 March 2006, the following email exchange took place:

Trader C: “The big day [has] arrived… My NYK are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you’ll go for

Submitter: “I am going 90 although 91 is what I should be posting

Trader C: “[…] when I retire and write a book about this business your name will be written in golden letters [

Submitter: “I would prefer this [to] not be in any book

And further

Trader C requested low one month and three month US dollar LIBOR submissions at 10:52 am on 7 April 2006 (shortly before the submissions were due to be made); “If it’s not too late low 1m and 3m would be nice, but please feel free to say “no”... Coffees will be coming your way either way, just to say thank you for your help in the past few weeks”. A Submitter responded “Done…for you b

And further it goes

On 6 August 2007, a Submitter even offered to submit a US dollar rate higher than that requested:

Trader F: “Pls set 3m libor as high as possible toda

Submitter: “Sure 5.37 okay

Trader F: “5.36 is fin

And further

On Thursday 14 December 2006, Trader F emailed a Submitter, requesting a low three month US dollar LIBOR submission for the following Monday, 18 December 2006; “For Monday we are very long 3m cash here in NY and would like the setting to be set as low as possible…thanks”. The Submitter instructed another Submitter to accommodate the request; “You heard the man” and confirmed to Trader F “[X] will take notice of what you say about a low 3

Two seconds later, that Submitter sent himself an electronic calendar reminder to make a low three month submission at 11 am on Monday 18 December 2006: “USD 3mth LIBOR DOWN

And further it goes

For example, on 26 October 2006, an external trader made a request for a lower three month US dollar LIBOR submission. The external trader stated in an email to Trader G at Barclays “If it comes in unchanged I’m a dead man”. Trader G responded that he would “have a chat”. Barclays’ submission on that day for three month US dollar LIBOR was half a basis point lower than the day before, rather than being unchanged. The external trader thanked Trader G for Barclays’ LIBOR submission later that day: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of "

And further

Trader E communicated with traders at Panel Banks 1, 2 and 6 in advance of the IMM date. For example on 12 February 2007, Trader E stated in an instant message with a trader at Panel Bank 6:

“if you know how to keep a secret I’ll bring you in on it

we’re going to push the cash downwards on the imm day [

if you breathe a word of this I’m not telling you anything else [

I know my treasury’s firepower…which will push the cash downwards

please keep it to yourself otherwise it won’t work

And further the FRAUD goes

Various instant messages exchanged after the final benchmark rates were published on 19 March 2007 indicated that the traders involved considered that their strategy had been successful. Trader E commented to the external trader at Panel Bank 6 “this is the way you pull off deals like this chicken, don’t talk about it too much, 2 months of preparation […] the trick is you must not do this alone […] this is between you and me but really don’t tell ANY

LIBOR is a major international interest rate used for rate calculations that may have affected you. Let’s see; if you had and ARM loan at any time from 2005 until today, or student loans, or car loans…or any damn loan…you may have been harmed by this outrageous and blatant FRAUDULENT activity! In fact, LIBOR sets the interest rate for $350 TRILLION in interest-rate sensitive produc

So what was the penalty you’re wondering? The usual for big banks: a small fine of $200 million and a “promise” to never do it again

Why isn’t Phil Falcone being fined $1 million and why wasn’t Martha Stewart fined about $10,000? Oh yeah, they aren’t mega banks like Barclays, JPM, Shitibank, and Goldman Sac

If the government refuses to put one person in jail for this scandal, I personally hope Barclays is sued into permanent bankruptcy – never to rise again

Trade well and follow the trend, not the so-called “experts

___________

Larry Levin

President & Founder - TradingAdvantage

[Paul75]

Larry, fraud has been very common in trading business. It may be small or big but most of the traders complaint for it. You are right, big banks are still out of SEC's rang.