BofA Attorneys Abuse

"Attorneys for Bank of America Corp. [BofA] have agreed to reimburse lawyers for a Miami developer after a US bankruptcy judge in Florida criticized the bank's lawyers for trying 'to score a litigation point' in an ongoing foreclosure dispute. ... The judge scolded the attorneys for putting potentially defamatory fatcs in the pleading without investigating them fully. ... The rebuke is an extreme example of how lenders can end up on the wrong side of a judge when they make mistakes while moving aggressively against delinquent borrowers. It comes as growing stress in commercial real estate is sparking battles between owners and creditors throughout the country. ... [BofA] attorneys apologized in open court for not conferring with Cabi first before including the accusations in their pleadings. 'I regret and apologize on my behalf and on behalf of the bank for the mistakes,' said H. Peter Haveles Jr., a Kaye Scholer [KS] attorney. ... But Cabi, an affiliate of Mexico's Cababie family and the company, Grupo Gisca, filed for Chapter 11 protection the same day, halting any foreclosure attempt. ... Cabi's attorneys have said the bank's refusal to lower the condos' minimum price slowed sales, harming the project", Christina SN Lewis at the WSJ, 10 March 2010, link:

http://online.wsj.com/article/SB10001424052748704145904575111912605562920.html.

We know KS. Here's a link to my 31 January 2009 post: http://skepticaltexascpa.blogspot.com/2009/01/sdnys-lazarus.html. What will happen to KS from this? Likely nothing.

Death Bonds-2

"In a little-known practice, investors can recruit a terminally ill person and together they can scoop up these bonds on the open market for a discount. when the ailing bondholder dies, the surviving co-owner can then redeem them at face value and potentially turn a quick profit. ... But the market's turmoil has made this arrangement more attractive for professional investors, since some bonds are traded at a steep discount. Legal and financial experts say there is nothing to prevent investors from buying the bonds with a dying relative or even a stranger who is terminally ill. ... One investor who scored big on the money-back guarantee is Joseph A. Caramadre, an estate-planning lawyer in Cranston, RI. From 2006 to 2009, Mr. Caramadre recruited several dozen terminally ill people to serve as joint brokerage-account holders. He then brouight survivor's-option bonds trading below face value for each account, according to Mr. Caramadre's lawyer and federal court records filed in Providence, RI, over how to pay out proceeds from the investments. ... While issuers didn't intend for them to be used to make a quick buck, [Edward Best] said, 'there are people out there who will figure out how to game almost anything in the world'," Mark Maremont and Aparajita Saha-Bubna at the WSJ, 10 March 2010, link:

http://online.wsj.com/article/SB10001424052748704784904575112081251438468.html.

What's the problem here? Should only banksters be permitted to game the system? There would be no problem if the Vampire Squid were syndicating these bonds and reaping a nice fee for doing so.

Lehman's Enablers

"A bankruptcy examiner's report about the accounting practices at Lehman Brothers Holdings Inc [LBHI] is filled with legally charged language, calling the bank's financial statements 'materially misleading' and saying its executives engaged in 'actionable balance sheet manipulation.' ... But legal experts say hurdles remain to criminal prosecutions that, while potentially surmountable, also could be significant. ... The examiner wrote there was 'sufficient evidence' to support a legal claim that Mr. [Richard] Fuld was 'at least grossly negligent for failing to ensure' Lehman filed proper financial statements about its accounting for the transaction, and that a key former executive of the firm, the chief operating officer, personally briefed him on the matter. ... But legal experts say the report can and likely will be used as a roadmap for the Justice Department and other agenceis considering charges or lawsuits. Representatives for the [SEC] and US attorney's offices in Manhattan and Brooklyn declined to comment. ... Another hurdle: Lehman had the blessing of its outside auditor, [E&Y], which had reviewed its quarterly earnings reports in 2008 and was briefed on concerns about Repo 105 accounting, the report said. ... [E&Y] has said the accounting for the repo transactions complied with generally accepted accounting principles", Amir Efrati & Ashby Jones at the WSJ, 13 March 2010, link:

http://online.wsj.com/article/SB10001424052748703447104575117910207173620.html.

Blessing? Big 87654 firm? So? Didn't they bless backdated stock options? Didn't E&Y sanction the ".001" standard? Who cares what E&Y thinks? E&Y should be indicted for securities fraud along with anyone at LBHI who sanctioned the Repo 105 accounting. Disagreeing with the "legal experts", I think drafting indictments and securing convictions should be easy here. Just "flip" the supposed "advice of counsel" defense to "you secured professional advice to make it appear you wanted it as opposed to creating an after the fact rationalization". Then let the jury decide.

Tyler Durden had an interesting 14 March 2010 post on E&Y's Lehman adventure at Phil's Stock World, link:

http://www.philstockworld.com/2010/03/14/deconstructingfuncting-ernst-amp-young/

Whose Reserves?

"Argentine President Cristina Kirchner on Monday sidestepped stiff Congressional resistance to spending foreign reserves for debt payments, issuing a pair of decrees shifting about $6.6 billion from the central bank to the Treasury. ... The first decree allocates $2.2 billion in foreign reserves to pay international organizations, while a second orders the central bank to hand over $4.2 billion for other public-debt payments. The moves will help Argentina make the estimated $13 billion due in debt payments this year", Shame Romig at the WSJ, 2 March 2010, link:

http://online.wsj.com/article/SB10001424052748704358004575096010595724960.html.

There is no law anywhere when it comes to governments. Governments are the worst of all debtors to collect from. To do so, you need your own army.

Lehman's Fiddles

"A scathing report by a US bankruptcy-court examiner investigating the collapse of Lehman Brothers Holdings Inc. [LBHI] blames senior executives and auditor Ernst & Young [E&Y] for serious lapses that led to the largest bankruptcy in US history and the worst financial crisis since the Great Depression. ... The document runs thousands of pages and contains fresh allegations. In particular, it alleges that Lehman executives manipulated its balance sheet, withheld information from the board, and inflated the value of toxic real estate assets. ... The examiner said in the report that throughout the investigation it conducted regular weekly calls with the SEC and Department of Justice. There have been no prosecutions of Lehman executives to date. ... Mr. [Anton] Valukus, chairman of law firm Jenner & Block, devoted more than 300 pages alone to balance-sheet manipulation, accusing Lehman of using accounting methods to move assets off its books. But because the moved assets represented 105% or more of the cash it received in returns, accounting rules allowed the transactions to be treated as 'sales' rather than financings. The result: Assets shifted away from Lehman's balance sheet, reducing the amount of debt it showed to investors. ... Lehman's own global financial controller, Martin Kelly, told the examiner that 'the only purpose or motive for the transactions was reduction in balance sheet' and 'there was no substance to the transactions.' Mr. Kelly said he warned former Lehamn finance chiefs Erin Callan and Ian Lowitt about the maneuver, saying the transactions posed 'reputational risk' to Lehman if their use became publicly known. ... Mr. Valukus' report is among the largest undertakings of its kind. Those singled out in the report won't face immediate repercussions. Rather, the report provides a type of roadmap for Lehman's bankruptcy estate, creditors and other authorities to pursue possible actions against former Lehman executives, the bank's auditors and others involved in the financial titan's collapse. ... One party singled out in the report is Lehman's audit firm, [E&Y], which allegedly didn't raise concerns with Lehman's board about the frequent use of the repo transactions. ... '[E&Y] took no steps to question or challenge the non-disclosure by Lehman of its use of $50 billion of temporary off-balance sheet transactions,' Mr. Valukus wrote", Mike Spector, Susanne Craig & Peter Lattman at the WSJ, 12 March 2010, link:

http://online.wsj.com/article/SB10001424052748703625304575115963009594440.html.

"Many executives inside [LBHI] quietly fretted about the firm's accounting as the company headed to the brink in September 2008. Matthew Lee did something about it. In May 2008, the former Lehman senior vice president wrote a letter to senior management warning that the company may have been masking the true risks on its balance sheet. ... His warnings, disclosed for the first time in a report by a US bankruptcy-court examiner, could trigger legal consequences for Lehman's auditor [E&Y], as well as former senior officials. ... 'We are dealing with a whistle-blower letter, that is on its face pretty ugly and will take us a significant amount of time to get through,' William Schlich, a former lead partner on [E&Y's] Lehman team, wrote in a June 5, 2008, email to a colleague, which is included in the examiner's report. ... In a June 12, 2008 interview with [E&Y], Mr. Lee raised the issue that Lehman was moving as much as $50 billion off its balance sheet, using a practice the firm called 'Repo 105,' the report says", Michael Corkery at the WSJ, 13 March 2010, link: http://online.wsj.com/article/SB10001424052748703447104575118122594094284.html.

We know E&Y. Substance over form? From the Big 87654? You're joking! E&Y accepts the ".001 standard", my 5 March 2008 post: http://skepticaltexascpa.blogspot.com/2008/03/enron-accounting-redux.html. Did Uncle Sam know about LBHI's accounting chicanery? Probably. See my 6 February 2008 post: http://skepticaltexascpa.blogspot.com/2008/02/treasury-and-banks.html. Yves Smith has a related 11 March 2010 post at her Naked Capitalism: http://www.nakedcapitalism.com/2010/03/ny-fed-under-geithner-implicated-in-lehman-accounting-fraud.html.

China Buys Dollars?

"China's chief foreign-exchange regulator suggested the country's appetite for further gold purchases may be limited and offered soothing words about China's role as an investor in US Treasurys. 'Gold is not a bad asset, but currently a few factors limit out ability to increase foreign-exchange investment in gold,' said Yi Gang, director of China's State Administration of Foreign Exchange. ... China rarely revels its thinking on investment of its foreign-exchange reserves, which at $2.4 trillion are the world's largest. ... Mr. Yi said the past 30 years have shown that the return on gold hasn't been that great and that given China's heft as a gold buyer, any move it makes to purchase the precious metal would 'certainly' increase gold prices. ... China is the world's largest producer of gold and the second-largest consumer behind India, based on data from the World Gold Council", Aaron Back at the WSJ, 10 March 2010, link:

http://online.wsj.com/article/SB10001424052748704869304575110621920790934.html.

Suppose Yi is buying gold? Would he tell us? Got gold? Get more. Got bonds? Sell 'em to Yi. If he'll take them.

Executive Short-Sellers?

"For investors in Switch & Data Facilities, a telecom services startup, 2008 was a wild year. From a low of 8.60 in mid-March, shares more than doubled, to 18.17 three months later. ... One shareholder avoided much of that drop [to 4.21]: the CEO. On June 19, the day the stock peaked, [Keith] Olsen contracted with an investment bank to hedge 150,000 shares-- a quarter of his stock in the company--against losses if the price fell below 18. ... Olsen, who disclosed his hedging in public filings, declined to comment for this story. ... But the way hedging is done by CEOs, directors and other senior executives may deprice investors of clues about impending problems at companies. ... 'There is no question that these transactions should be a red flag for investors,' says Carr Bettis, the co-founder of forensic accounting firm Gradient Analytics and co-author of a recent study on hedging. ... Some 107 instances of hedging were reported to the [SEC] in 2009, up from a decade low of 48 in 2007, according to Bettis, and regulators are beginning to scrutinze these transactions. ... 'We wanted to make sure they couldn't undercut the links we created between compensation and long-term performance,' says [Kenneth] Feinberg. If executives at the companies could hedge their stock, he adds, 'they wouldn't have to worry about how [the stock does.' ... In a case pending before US tax court in Washington, the IRS is arguing that [Philip] Anschutz's deals were effectively stock sales rather than hedges, as is seeking $143.6 million in capital gains taxes. ... If the IRS wins its case, these hedgers could face big tax bills earlier than expected. Anschutz disputes the IRS's argument and would not comment for this story. ... Because he still technically owns the shares, the IRS doesn't consider a hedge a sale so long as the bank doesn't short the executive's own shares. So the executive need not pay capital gains taxes until the hedge expires. Meanwhile, he can still vote the shares and collect dividends. ... The hedge business helps the banks cement ties with top executives, which comes in handy when a bank is pitching other services. And the banks reap rich fees. ... Roughly 11% of the companies where an executive used a collar had to restate financials within two years of the hedge transaction: comparable companies where no hedging occurred had half as many restatements, Bettis says. ... 'The poor performance following hedging suggests a number of these trades are potentially based on privileged information,' argues Bettis. The trades 'appear to be tied to events that were known or could reasonably have been anticipated by the executives,' he adds", Jane Sasseen at Businessweek, 8 March 2010, link:

http://www.businessweek.com/magazine/content/10_10/b4169044647894.htm.

The SEC should ban this practice. Period. The SEC wants to limit short-sellers actions, but permits this. Amazing. The IRS should win its case against Anschutz.

UBS's New Savior

"Oswald J. Grubel gave a dazzling performance as head of Credit Swiss from 2004 to 2007, doubling the Swiss bank's profit and share price. ... The CEO has made no progress, however, on the bank's most pressing problem: withdrawals by wealthy clients, who have removed $214 billion over the past seven quarters. The outflow increased in the fourth quarter and will probably continue, analysts say, as uncertainty persists about the outcome of US efforts to investiagte alleged tax evasion by UBS clients. ... Grubel, known as 'Ossie,' says he is counting on the return to profitability to help make UBS 'a trusted bank again. ... UBS's tax dispute with the US will only complicate Grubel's task. ... The Swiss adminstrative court muddled the picture last month by blocking the government from passing some of the data to US authorities; judges ruled that the failure to file certain IRS forms, a key part of the UBS settlement, wasn't considered fraud in Switzerland", Elena Logutenova at Businessweek, 22 February 2010, link:

http://www.businessweek.com/magazine/content/10_08/b4167026005656.htm.

If UBS doesn't want to serve its clients by keeping their data from the IRS, it will lose them. Eventually these people will realize when push comes to shove, banks and the authorities will cooperate. When that happens, these people will leave the banking system and buy gold.

Iceland Rocks!

"Icelanders roundly rejected a deal to repay the UK and the Netherlands E3.9 billion ($5.3 billion) lost in the collapse of an Icelandic Internet bank, complicated the island's bid to access badly needed international aid funding and normalize its relations with the rest of the world. ... It was Iceland's first plebecite since the island's independence from Denmark in 1944. ... The government of Prime Minister Johanna Sigurdardottir has labored for the better part of a year to get a bill through a hesitant parliament, arguing that Iceland desperately needs money from an International Monetary Fund-led bailout program. ... After those talks ended Froday with no resolution, Ms. Sigurdardottir even encouraged citizens not the vote, hoping to blunt the referendum's effect with low turnout. ... A deal agreed by Iceland's parliament in December, under which Iceland would pay back the money over 15 years but wouldn't have to make payments for the first seven, was vetoed by the island's president, Olafur Ragnar Grimsson. In a rare display of power from a normally ceremonial post, he cited mass dissatisfaction for his veto, which led to the referndum. ... Many Icelanders are angry at the giant burden placed on them to clean up a mess widely seen as the fault of greedy, high-flying bankers", my emphasis, Charles Forelle at the WSJ, 8 March 2010, link:

http://online.wsj.com/article/SB10001424052748703391004575106452707894556.html.

Good show Iceland. Will Iceland's government ignore the will of 93% of Iceland's voters? What percentage of Americans would rather see our banksters hung than bailed out? Why does Iceland need IMF aid? Is Iceland AIG, passing through $13 billion to the Vampire Squid? If the UK and the Netherlands don't like Iceland's vote, let them invade or shut up.

TBTF?-4

"There is no US government guarantee to protect the largest financial firms, a Treasury Department official said, as a congressional watchdog criticized the $45 billion in government aid provided to Citigroup Inc. ... 'There is no "too-big-too-fail" guarantee on the part of the US government,' Mr. [Herbert] Allison said. ... 'The market clearly perceives that there is a too-big-too-fail guarantee,' Ms. [Elizabeth] Warren said. 'That gives Citi an advantage in raising capital. ... That is very valuable to Citi.' ... 'I do not understand why it is that the [US] government cannot admit what everyone in the world knows, which is that in that week that Citigroup was a failing institution,' Mr. [Damon] Silvers said. Citigroup Chief Executive Vikram Pandit, also appearing before the panel, said the bank owes a 'large debt of gratitude' to taxpayers for aiding the firm", Michael Crittenden and Matthias Rieker at the WSJ, 5 March 2010, link:

http://online.wsj.com/article/SB10001424052748704187204575101511215418730.html.

This is a joke. Can't Uncle Sam ever stop lying? Citigroup should be closed.