Wednesday, June 25, 2008

Citigroup's Joe Jett

"On Wall Street he traded complex energy derivatives. ... In May 2007, Craig Gile was sentenced to a year and a day in prison after pleading guilty in U.S. District Court in Manhattan to one count of conspiracy to falsify bank records and commit wire fraud at Citigroup, where he was head of American sales and trading on the commodities desk. ... Is Gile guilty? That's how he pleaded to avoid the risk of a much longer sentence. He told the judge he was 'truly sorry.' But his real sorrow was that he had to give up what he desparately wanted: the chance to clear his name. He had little hope that a jury would understand or accept his rationale for the valuation of compex derivatives, let alone that he could convince it that his efforts to fix the problem were a sign of his good intentions rather than a cover-up. ... He was following his boss's orders, he told them. He was probably too trusting. ... At sentencing, the judge said he was sorry too, but felt he had to make a point. U.S. District Judge Robert W. Sweet ordered Gile to repay the bank $185,819 as restitution for the inflated bonus. ... At what point does a stretch goal become a step over the line? ... As a result, it's also common for traders to book the highly subjective value of their own complicated and volatile derivative trades, despite the obvious conflict of interest. ... Roland Riopelle, Gile's lawyer [said] ... The kind of derivatives that Gile was 'attempting to value on the books of his employer are extremely hard to value and I believe are often overvalued by those who deal in them. I think this is a common practice. ... Gile's friend, Eric Blattman, [said] 'When you look at the whole scope of things, what Craig's accused of is like the fly on the back of the elephant.' ... Neither Gile nor his lawyers ever knew for sure why a case as relatively small as theirs would be the one prosecutors would decide to take on. But they later speculated it was because Citigroup, which had been front and center in scandals ranging from Enron to the securities-analysis, debacle, wanted to demonstrate its enthusiasm for law enforcement. Citigroup's only comment to Fortune: 'Mr. Gile was terminated after an internal investigation in 2004, and Citi cooperated with the authorities during their investigation of the matter.' ... Jonathan Streeter, the [AUSA] who handled the case, said he couldn't comment", my emphasis, Betsy Morris (BM) at Fortune, 9 June 2008.

Another Mike Garcia (MG) miscarriage of justice. MG's Gile prosecution raises the question: why? The $2 million alleged derivative overstatement was less than my Blankfein Test. Who cares? $2 million is immaterial to Citigroup. It appears someone in Citigroup set Gile up. Who? Why? What was he or she trying to divert attention away from? On what basis did Gile value the securities, instead of Citigroup's Comptroller? Did the much lauded Sally Krawcheck know of this? If not, why not? Did KPMG, Citigroup's CPAs? This case looks like Joe Jett's (JJ). KPMG also audited General Electric (GE). JJ was not charged by Mary Joe White's (MJW) office. Why not? In my opinion, because MJW realized JJ could take much of GE's and Kidder Peabody's management with him and she might not even convict! Streeter wouldn't comment. Why not? When will Streeter leave MG's office for his big payoff, a $2-3 million-a-year NY law firm partnership. Hey, MJW, have you a slot for this boy? See my 31 January 2008 post. Citigroup conducted an "internal investigation". Were its results preordained? Who conducted it? Independent Accountant didn't. Gile's treatment is disgusting.

Compare MG's office's treatment of Gile to what if anything it will do to Vikram Pandit (VP), Citigroup's "$800 million man". Citigroup writes off its Old Lane (OL) "investment" 11 months after VP signs on. 11 months ago Citigroup in good faith could have thought it would continue OL's operations. Then again, maybe not. Well MG, you have something new to look into, the bona fides of VP's contract and Citigroup's financial reporting with respect to OL. Well, how about it? See my 24 June 2008 post. What will MG's office do about the $49 billion in SIVs Citigroup put on its balance sheet, my 15 December 2007 post? Will anyone at Citigroup suffer for misreporting the SIVs? Well MG, here's something else for you to look into. YET, YOU PROSECUTED GILE, WHY?

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