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Flyover Country, photo by benjam1n
Two officers of Sentinel Management, a Chicago firm, were recently indicted in Chicago, Eric Bloom and Charles Mosley. The case was attributed to the phonyFinancial Fraud Enforcement Task Force, though the investigation was underway long before the alleged creation of that group. The case is typical of financial fraud enforcement today; there may be criminals in flyover country but ain’t no criminals on Wall Street.
Sentinel was in the business of investing idle funds held by investors and commodity brokers. Commodities brokers are required to segregate customer assets and are not allowed to use them for any purpose. Of course, that’s a crock, MF Global and now Peregrine Financial Group Inc. and who know how many more companies have stolen billions from their customers. Sentinel entered into agreements with a number of commodity brokers to hold and invest that money for customers in accordance with the CFTC’s rules applicable to commodity brokers.
Commodity brokers also have their own funds, house money, which they invest for their own benefit.
According to the indictment, Sentinel agreed to invest customer funds very conservatively, as required by the rules of the CFTC. It agreed to hold house money in pooled accounts that sought higher returns with higher risk. In both cases, Sentinel was paid a management fee. It sounds like a pretty good business model, but Bloom and Mosley wanted to increase the returns, presumably so they could collect larger management fees.
Beginning at least as early as 2004, they started buying low-quality collateralized debt obligations and other esoteric securities (CDOs) and financing the purchases with customer funds and lines of credit. The lines of credit were secured by a pooled group of collateral from all of the different funds managed by Sentinel, including those low-quality CDOs. The CDO market crashed in 2007, and Sentinel was forced into bankruptcy. About 70 clients lost more than $500 million.
And then, there’s this:
… Mosley received substantial personal benefits from Firm 1 and Firm 2 in the form of gifts, vacations, expensive tickets to sporting events, and parties.
Actually, that’s a weak description. The bankruptcy trustee for Sentinel, Frederick Grede, sued four individuals and three investment banks on grounds that sound exactly like the allegations concerning Firm 1 and Firm 2. The defendants moved to dismiss. The Court denied the bulk of the motion in a Memorandum Opinion and Order that gives a better account:
While at KBW, Defendants offered, and Mosleys [sic] accepted, tickets to professional sporting events and a Big 10 football game, expensive dinners, limousine rides, concert tickets, a trip to Florida including lodging, entertainment, limousine rides, and tickets to the Orange Bowl football game (in a luxury sky box), trips to strip clubs (lap dances included), and an expenses-paid trip to New York (hotel included). [After two of the brokers] moved to Cohen, the “gifts” continued, including more tickets to professional sporting events, expensive dinners, limousine rides, the purchase of $600 in Girl Scout Cookies from Mosley’s daughter, and an expenses-paid golf outing in Philadelphia. The complaint is also rife with offers of more event tickets, trips, and the use of vacation homes.
The Trustee identified three firms and four individuals in separate complaints containing similar allegations. The Trustee says that the bribes far exceeded the norms of the brokerage business in the “extent of the debauchery involved in many of the events.”
The Trustee alleges that the individuals knew or should have known all about the business of Sentinel, and knew that the securities they were dumping violated the promises made by Sentinel to its customers.
He also alleges among other things that the defendants lied about the quality of the CDOs, failed to provide copies of the offering materials, told Mosley that the securities were rated when they weren’t, and claimed that their firms would make a market in the CDOs, meaning that the firms would buy back the CDOs, when they knew that they couldn’t.
Two of the sued brokers joined Cohen and Company Securities in 2006, the same year Christopher Ricciardi joined Cohen. Ricciardi saw himself as the Grandfather of CDOs. The Wall Street Journal says he “helped turn Merrill into the Wal-Mart of the CDO industry”. At Cohen and Company, he formed 25 CDOs valued at more than $25 billion. It took a lot of selling to move that stuff in 2006-7, given the fear in the markets.
Other than the Trustee’s lawsuits, there is no evidence of any regulatory or enforcement activity directed at any of the Wall Streeters. We have many examples showing that lying and bribing people to buy crappy securities isn’t a problem. For example, JPMorgan Chase bribed officials in connection with the interest rate swaps that bankrupted Jefferson County, and paid off other brokers not to bid on the swaps.
Maybe prosecutors like Preet Bharara and the SEC/CFTC people just don’t believe their good neighbors on Wall Street acted with the requisite level of intent. It’s a parallel to the Bernie Madoff case, where despite years of hectoring from a whistleblower, the agencies and the prosecutors just wouldn’t investigate, because after all, he’s really respectable and he’s a big market maker on the NASDAQ, and was Chairman of the National Association of Securities Dealers.
Or, maybe it’s that everybody does it, so it’s just fine. Sort of like everybody manipulates LIBOR, so nobody gets indicted.
Or maybe the only prosecutors with backbones are in the heartland. Too bad they aren’t Co-Chairs of the Financial Fraud Enforcement Task Force instead of Eric Schneiderman. Maybe there would at least be a credible investigation.
32 Comments
This is the first girl scout cookie investigation I’ve heard of, I’ve always suspected they were involved somewhere! Chicago politics have sunk to a new low. lol Great post. Rec’d
The lack of prosecutions on Wall Street, and most everywhere else, is a prime example of agency capture. The agencies that are supposed to monitor and regulate financial firms become the firms lapdogs – looking the other way when rules are bent or broken.
Of course, this is a symptom of the more serious disease of special interest money flooding political campaigns over the past few decades. Until the money situation changes, we should not expect meaningful changes from the agencies.
We’re no longer governed by those we ellect, we’re governed by the people who own the people we elect.
We’re governed by the people who choose the people we’re allowed to vote for.
The people we think comprise our government, are actually straw men who allow our real rulers to remain invisible in the shadows.
When’s the last time you can remember an invisible man going to jail?
Ain’t No Criminals on Wall Street and There Ain’t Pedophiles in the Church?
Wrong. In fact there are many to be counted. Unfortunately, more than should ever be counted……….
Wall Street Fuckers and Pedophile priests? Give me a baseball bat and hard ball. Put me in coach I’m ready to play hardball with these fuckers. Give them a little of the old past time with a fast ball to the head or a bat which slipped… OOPS!
For if it prosper, none dare call it treason.
“…serious disease of special interest money flooding political campaigns over the past few decades.”
Jefferson’s and Madison’s fears realized concerning the undue influence of the monied interests and corporate aristocrats n the democratic process. Lets be honest here.
The brown shirting corporate fascist have bought the system usurping democracy! Corporate fascism is a serous disease which needs to be killed!
If so, their name sure isn’t Tom Miller.
Governments cannot afford to charge and prosecute those that lend them ‘gold’, because without ‘gold’, said governments will fall through their own incompetence. It’s been this way for centuries.
Not a democratic system.
Do criminals wear Armani?
cut them a little slack – O and DOJ don’t have time for the wall street group – they are to busy shuting down the MJ business – we just need to accept their priorities as gospel
Even if there were criminals on Wall Street Obama would likely pardon them.
0 has already said concerning the rot on w$ that what they did was not illegal, but possibly immoral. These are just “savvy businessmen.” So we will never see the real criminals prosecuted: they are 0′s friends and contributors.
Thank you for the Post. Keep the pressure on. Recommended.
Your and Daveparts’ diaries are becoming FDL must reads for me. You report on the vultures and he, their prey:
http://my.firedoglake.com/daveparts/2012/07/07/stagnation/
On second thought, “vultures” is just too nice for them. Some kind of creature from the the netherworld perhaps?
From a new piece by Gretchen Morgenson:
“One of the most revealing exchanges in the Barclays documents came when a bank official tried to describe why Barclays’s improper postings were not as problematic as those of other banks. “We’re clean but we’re dirty-clean, rather than clean-clean,” an executive said in a phone conversation. Talk about defining deviancy down.
“Dirty clean” versus “clean clean” pretty much sums up Wall Street’s view of cheating. If everybody does it, nobody should be held accountable if caught. Alas, many United States regulators and prosecutors seem to have bought into this argument.”
After they fleeced as many people as possible on Wall Street, the criminals moved to “Main Street” in the form of “commodity market manipulators”. Everyone has to eat and buy gas; the manipulators were able to extract money from the very poorest among us when they bid the prices of those commodities to their highest prices ever in the history of this country. This time they were led by someone in the United States Government. That’s what the commodity charts on this website http://wp.me/p2vRlu-4 tell us
If you will notice, all of these commodities bottom in January of 09; that was when the Bush Administration left office. Commodity market manipulators “sold short” in June and collected their loot in January of 09, that’s why all of those commodities bottomed at the same time the Bush Administration left office.
Those commodities took off again after Barack Obama was sworn in. Either he is unaware of all of this commodity market manipulation, or he has given it his tacit approval; you be the judge.
Just send all the jihadist bankers to guantanamo bay,O fuck i forgot they all work Obama..
“Everybody does it” is a standard Wall Street defense. It sometimes takes this form: We didn’t tell the entire truth in the offering materials, but all of the buyers knew we were lying so they didn’t rely on the offering materials, so we aren’t guilty.
That just means we need to indict the buyers too, and let them point the finger at each other. Both need to go to jail if it’s true, and if not, maybe we could add perjury charges to the indictment of the Wall Street crowd.
It’s the regulators’ defense as well, which is even worse. But I like your ‘they knew we were lying, so…’ theme.
It’s funny though, that we can become almost desensitized to a lot of this through familiarity, and then BAM: something will infuriate us all over again.
Next for me might be the Ben Bernank and ‘I am not a Regulator‘ Geithner speaking to the LIBOR (not) scandal.
As to your second paragraph: it works for me, masaccio. And the CTFC is busy this week okaying their final (they promise, this time is it!) rules on swaps, end-party exceptions, delays overseas, yada yada.
Sigh.
“…none dare call it treason.”
Indeed. And if we factor in the LIBOR outrage, I have to ask: when one betrays one’s country, it is treason, but what is it when one betrays one’s world?
Capitalism.
No, if “everybody” does it, it’s necessary.
The CFTC is no longer what it used to be. Bush and company set a precedent when they appointed someone who took orders from them as opposed to taking care of the business of that agency.
If you had a good government job, that you worked hard to qualify for, and someone told you to follow orders or hit the bricks; then you would understand the position of the people who work for the CFTC.
When I filed a complaint alleging market manipulation that involved MF Global, the investigation was stopped by someone higher up in the Bush Administration. The Obama Administration is no more than an extension of the Bush Administration, they follow the same policies.
Senator Leahy had a plan to probe Bush-Era wrongdoings, it was called a Truth Commission. The President said he would look at Leahy’s proposal, but that he was “more interested in looking forward than in looking back”. That was Tuesday, Feb. 17, 2009.
In other words, apply layoff fear to Gov and you get the same intimidation as in a capitalist enterprise.
I may be misunderstanding you, lakota, but wasn’t the CFTC’s major turning point when Clinton-appointed Brooksley Born fought tooth and nail for the agency to be able to regulate/make transparent derivatives? And Rubin, Summers, et.al. nuked her testimony before Congress, and she resigned in 1999 saying in effect, that she’d lost, and good luck to y’all? And the CFMA was passed?
Then Obama appointed Gary Gensler (former Goldman Sachs-ian, who’d worked schemes to deregulate derivatives, yada yada. Another Wall Street neoliberal/neocon who some folks *swear* has now done an about-face.
We’ll see what New Rules come out from their committee this week; I have severe doubts that he’s reformed, although I’m sure the press releases will sound upbeat and tough.
Born, however, was on the Financial Inquiry Commission.
There were no problems with the CFTC until “Dick Cheney” got involved. While we refer to the Bush Administration, in reality it was the Cheney Administration. That man ran everything and is never mentioned in anything. He is the invisible man who can not be prosecuted. It doesn’t matter whose name you pull out of the hat, after Bush was elected it comes out “Dick Cheney” when speaking about the commodities markets.
Biden told his dinnermates about the existance of a secret bunker under the U.S. Naval Observatory. The bunker is believed to be the secure undisclosed location where former Vice President Dick Cheney went into lockdown with his most trusted aids behind a massive steel door secured by an elaborate lock with a narrow connecting hallway lined with shelves filled with sophisticated communication equipment.
This is where he went to run the commodities markets with his most trusted aids. Since the commodities markets are acting as weird as they were when he was Vice President, I believe that he moved his communications equipment, and nothing else has changed.
No one realizes the truly astronomical amount of money that has been extracted from the multitudes through “commodity market manipulation”. Money attracts politicians like shit attracts flies. They can even be induced to turn into monkeys that “hear no evil, speak no evil, and see no evil”; “What commodity market manipulation? We ain’t seen no manipulators around here”.
I hope this fills you in from my perspective.
“It wasn’t illegal, just immoral.” – The Obama, the Change We Can Believe In!
I can just see Obama as President in 1945. “Nuremberg Trials? We’re looking forward, not back.”
Oh, and don’t forget the bang-up job Holder is doing on file downloading, too.
Very nicely stated. ON issue after issue, the citizens don’t own a thing. Just watched a great program on Sundance last night – about the Barnes Foundation in Philadelphia. And how the Big Monied “Charitable”Foundations, Annenberg and Pew among them, were able to rip Barnes’ last will and testament to shreds, seriously financially damage Lincoln University, AND take 100 million bucks from the tax payers of Pennsylvania while doing all this.
All the tactics were very familiar to me, as I have sat on a watchdog citizens group for about five years trying to keep the Corporate interests out of the pockets of our local “Community-owned” hospital.
One of the things that sticks in my craw is that when these tactics occur, we the citizens are told it is for “our own good,” that these Elite are only trying to help us us, as we the citizens cannot take care of some small detail that would involve a little bit of time and effort. Oh and then there is the small detail about how citizens’ groups rarely have the ability to get a secret 100 million dollars written into the state budget for the purposes that we need it. Only the Head Honcho One Percenters can manage that one.
Recommended.
Your title reminds me of a tour-de-force routine George Carlin performed in the late 80′s, called “Reagan’s Criminal Gang.”
It starts with him telling the audience, “I haven’t seen this many people in one place since they took the group pictures of all the criminals and lawbreakers in the Ronald Reagan administration!”
[snip]
“[And t]hese are the law-and-order people! They’re against street crime! They want to lock up all the street criminals to make life safer for the BUSINESS criminals! Yeah! They’re against all street crime, provided that street isn’t WALL STREET!”
A few years later, Carlin (always ahead of his time) had the same awakening many of us are now: It’s not about Republicans vs. Democrats. They’re ALL Wall Street-sponsored criminals.
Try this for size and ruminate over it; people who worked at the CFTC, who were “forced” to go along with the Bush Cheney shenanigans, donated to the Barack Obama campaign when he was running for president. They were looking for the “Lone Ranger”, in his big white hat to come along and straighten things out so they could do the job they were hired to do which was to police, and prevent “commodity market manipulation”. Somehow he never showed up.
Why would Obama appoint Gary Gensler from Goldman Sachs, when Goldman Sachs is a major part of the problem. Money makes very strange bed fellows. Can you imagine Dick Cheney, Barack Obama and Goldman Sachs in bed together.
While you will never see Barack Obama and Dick Cheney’s name together, I’ve discovered several times when they were on the same team “coincidentally”. Senator Obama and the 700 billion dollar Republican sponsored bailout of Wall Street is one example.
You’re right on in regard to the derivatives, but that’s just money. There was someone directing that money, and it wasn’t the people who donated it. The commodity markets moved in a synchronized manner, and that’s totally impossible in regard to anything normal.
When something happens that is “unbelievable”, nobody believes it.