Friday, August 15, 2008

Why We Need Federalism-8

"A former Treasury Department official is at the center of a civil complaint recently filed by New York Attorney General Andrew Cuomo against UBS AG, in which the firm is accused of fraud in the auction-rate-securities market. ... The complaint, filed last week in New York City, alleges that [David Aufhauser, DA] and six other UBS executives sold $21 million of their personal holdings in auction-rate securities in the months leading up to the market's collapse, based on unique inside knowledge of the problems in the market. ... The Treasury Department awarded [DA] its highest honor, an Alexander Hamilton award. He also represented the Treasury Department on the Justice Department's Corporate Fraud Task Force. He joined UBS in 2004", Liz Rappaport, at the WSJ, 1 August 2008.

"Massachusetts regulators accused Merrill Lynch & Co. of co-opting 'supposedly independent' research anaylsts to help them dump collapsing auction-rate securities on unsuspecting customers. ... 'We've seen a corruption of research', says Massachusetts Secretary of the Commonwealth William Galvin, who oversees the state securities division. 'This is an issue that many of us on the enforcement side have seen years ago, and it's the same pattern.' ... In August 2007, Martin Mauro, a fixed-income research analyst, issued a report noting some of the less-than flattering features of auction rate securities. That alarmed Francis Constable, a managing director in charge of Merrill's auction-rate securities desk. Ms. Constable demanded that Merrill retract the report. ... Constable ... sent the following message: ' Shut this guy down'," John Hechinger at the WSJ, 1 August 2008.

"New York state's attorney general, Andrew Cuomo, threatened Friday to sue Citigroup Inc. for alleged fraud in the marketing and sales of auction-rate securities and for destroying evidence after being subpoenaed by his office. ... Citigroup said it is cooperating with Mr. Cuomo's investigation and 'acted in good faith and in the best interests of our clients both before and since auctions began to fail, and there is simply no basis for claims to the contrary.' ... The firm also disclosed Friday in a regulatory filing that it has received subpoenas or requests for information for the [SEC], among others, in connection with its handling of auction-rate securities. ... The letter, written by David Markowitz, the head of the investor-protection bureau in Mr. Cuomo's office, accused the bank of wrongly telling customers the securities were safe, liquid and cash-equivalent. It added that the bank failed to tell investors that, from last August until earlier this year, the market was kept afloat only because the bank placed bids in auctions for the securities", Amir Efrati at the WSJ, 2 August, 2008.

"Pushing to put one of the biggest debacles on the credit crisis behind them, Citigroup Inc. and Merrill Lynch & Co, agreed to buy back $17 billion in auction-rate securities", WSJ, 8 August 2008.

"A once obscure corner of the bond market is triggering one of the messiest Wall Street scandals in years--and potentially the largest mass bailout of American individual investors ever. On Friday, facing allegations of wrongdoing over its sales of so-called auction-rate securities, UBS AG agreed to buy back nearly $19 billion of the investments as part of a settlement with federal and a group of state regulators. ... Regulators from several states have also shown up on Wachovia's Corp.'s doorstep demanding documents; the bank says it's cooperating. A New York state official has accused Citigroup of destroying documents, a charge Citi has denied. Federal prosecutors are preparing to file criminal charges against two former Credit Suisse Group brokers who allegedly lied to investors about auction-rate securities. ... UBS said it didn't intentionally hide the risks of auction-rate securities, and sold them 'appropriately' to individuals for 20 years. ... Merrill categorized auction-rate securities as 'other cash' on its brokerage statements. ... Also, regulators say brokers were paid unusually rich commission to sell the securities. ... UBS said that, after its own internal probe, it 'found cases of poor judgment' but not illegality by certain individuals, and is 'evaluating appropriate disciplinary measures", Liz Rappaport and Ann Randall Smith (R&S) at the WSJ, 9 August 2008.

"Securities regulators are widening the list of Wall Street firms that are being told to fix the auction-rate securities mess. ... State regulators have subpoenaed roughly 30 financial institutions about their involvement in the auction-rate securities market. ... In an SEC filing, [Wachovia] said its individual retail-brokerage clients held $8.7 billion of auction-rate securities as of Aug. 1. That doesn't count other clients, such as corprate clients and charities", Liz Rappaport at the WSJ, 12 August 2008.

Doesn't DA's participation in a "Corporate Fraud Task Force" (CFTF) make you feel nice and warm inside? Was the CFTF's job to facilitate corporate fraud by getting corporations prosecutorial immunity? Why did UBS hire DA? Did DA do anything at Treasury that served USB's interests? It's Alice in Wonderland at Treasury. I await Chris Cox's SEC joining in Cuomo's case. That'll be a long wait.

Hey Chris Cox, now you have an opportunity, charge Constable with securties fraud and make a referral to Mike Garcia's office. Whaddayasay?

I wish Cuomo good luck with his Citigroup suit. I note the SEC is also investigating "C". I can't help but wonder what the SEC would have done absent Cuomo's investigation.

I wonder how Citigroup will account for the buy back.

Aren't you reasured that UBS found no illegality?

I'm crushed. Wachovia too!


Anonymous said...

Merrill Lynch has hired the last two heads of the Treasury Fraud Dept. They have also hired the head of the NYSE for their CEO. Gen Counsel Berkery will have a heart-to-heart discussion with Mr. Cox of the SEC. Of course these people tell them how to skirt the fraud dectors.

I just spent 5-1/2 years in Fed court fighting ML on aiding and abetting. They used every trick in the book: falsified statements, wrong names, transposed account #s,answered the wrong motions, lied to the court, but no one cares. I have written to SEC,NASD,NYSE and no one cares. It is all about greed and money! Gen Counsel of ML Berkery came to my "frivolous" hearing on a motion to compel discovery. I have evidence that they have stonewalled for years. Since I am only an individual, no one cares! They want to wait until the next big scandal where they steal millions of retirement accounts to make a noise. They stole my retirement accounts and my kids UGMA accts. They leave fractional shares behind when they transfer money so they can reopen them later. I have a letter from ML instructing Putnam to do just that. It is FRAUD! These people who are responsible should be in JAIL!

Independent Accountant said...

I am not familiar with your personal situation. That said, welcome to the real world. Not the world of say, Steve Forbes who fantasises about rapacious plaintiffs lawyers, but the world of no substance. The substance of a claim, does not matter, if you can't get it in front of a jury. We live in a world of "regulatory capture", which I have referred to before. Read C. Walton Hamilton's 1957 classic: "The Politics of Industry". The only way you could have won your case was if the press picked it up. Why isn't Joe Jett in prison, or for that matter the Duke Three? Because the press exposed the facts. The supposed "Justice" system had nothing to do with it. For some consolation read "No Contest" by Ralph Nader, 1998.