(photo: swanksalot / flickr)

What would it take to get the candy-ass prosecutors in the Department of Justice to indict banksters? We already knew that securities fraud wasn’t sufficient, but that got reinforced today with news that a hedge fund operator got off with civil case for taking money from the fund to pay his taxes and for manipulating the price of stocks and bonds. Phillip Falcone is facing a civil suit instead of leg shackles.

Also today we learn that manipulating LIBOR isn’t a crime. Barclays Bank paid $450 million to settle charges that it deliberately manipulated the bench-mark interest rate used to establish how much people pay on $350 billion worth of credit cards, student loans and mortgages. It’s also good news for other banksters who haven’t even been sued, like HSBC, Citigroup, JPMorgan Chase and other firms that are being looked at by regulators around the world.

Apparently the manipulation ran both ways, to increase the rate artificially for direct profit, and to reflect a lower rate to hide the fact that other banks were charging Barclays more than other banks because of its perceived weakness. Still, it’s hard to see a connection between a $450 million fine and the massive profits that could come by increasing LIBOR even fractionally. If LIBOR were .1% higher on $350 billion of debt, that comes to $350 million per year. The fraud went on for at least 4 years, which in my example means $1.4 billion in profits, all going directly to the bottom line.

Perhaps it will help to know that four executives gave up their bonuses. No? Me neither.

Joe Nocera points out that none of the banks that enabled Bernie Madoff’s Ponzi Scheme had to give back a nickel, despite the fact that they knew or should have known that he was a fraud. This bizarre outcome is the result of an old decision that the Bankruptcy Trustee for a cheating debtor is the same person as the debtor. The courts apply another old common law rule that a thief cannot sue a thief, or as we lawyers say, the Bankruptcy Trustee is in pari delicto with the thieving banks. Nocera thinks this is just fine: judges following the law. A good judge would ignore those old cases and follow the rule in state court receiverships that receivers appointed in state court proceedings aren’t in pari delicto, they are the agents of the state created to enforce the rights of the victims of crimes. That won’t happen, of course, SCOTUS would overrule that per curiam, 5-4, on the grounds that Banksters must be allowed to allocate capital to themselves no matter what.

J. Ezra Merkin was accused of lying to his hedge fund clients by charging them hundreds of millions in management fees for giving their money to Madoff. Good to know that isn’t a crime, especially because there may have been other people who did the same thing.

We know that stealing billions of customer assets from MF Global’s commodity brokerage clients is just the result of confusion and carelessness in the back office. And, now we know it was partly the use of a little-know rule that establishes an alternative method for calculating customer assets held in overseas accounts. As the New York Times explains:

The alternative calculation almost always resulted in a lower amount — sometimes much lower — that needed to be segregated in foreign accounts, because it covered only options and futures. Cash and securities held in customer accounts didn’t count. So if a customer held only cash and securities, the firm had no segregation requirement at all.

Now we know that not only is this not a crime, we can’t know the four other commodity brokerage firms who calculate customer balances using the MF Global loophole. It’s apparently enough to know someone is taking care of your money so you don’t have to worry.

The only people who have to worry about the federal government prosecutors are insider traders trying to steal a few million bucks. It’s disgusting.

Form W-2. See how easy it is?

In an article on the staggering compensation of CEOs of giant US companies, the New York Times adds arithmetic to the things that are too hard for the SEC, along with other hard things like investigating securities fraud on Wall Street. The Dodd-Frank bill requires corporations to state the ratio of CEO pay to the median income of employees of the company. But:

The requirement isn’t likely to come into effect any time soon, because many companies have complained to the S.E.C. that it would be a burden to comply with it, said Ms. Bowie of [Institutional Shareholder Services].

“There’s been a lot of pushback from companies on that,” she said.

Mary L. Schapiro, the chairwoman of the S.E.C., said at a Congressional hearing last month that the commission was trying to work through “a lot of technical issues” on how companies might calculate this.

Let me help.

Step 1. Make a list of your company’s subsidiaries and controlled entities and the company itself. HInt: see Exhibit 21 to your Annual Report on Form 10-K.

Step 2. Tell the accounting persons for each subsidiary on the list to prepare a list of each employee, and the sum of the amounts shown in Boxes 1, 10, 11,and 12, plus any contributions to a defined benefit plan for that employee which were not recorded in any of the boxes.

Step 3. Add all the lists to a database. Sort by the number next to the name.

Step 4. Count the names. Divide by 2. Count down that many names. Record the number. That is the median payment to employees. Call that X.

Step 5. Find the total amount paid to the CEO. Hint: see your Proxy Statement. Call that Y

Step 6. Divide Y by X.

Tell us the answer in boldface print at least as large as the font you use for the main document. I’m sure that isn’t perfect, but it’s close enough for government work, and see how easy it was?

Then add any explanation you like, using either Comic Sans or Symbol as you see fit. You will want to put in those technical details that might make it look less abusive. Show us your number, explaining how it is different from my number. Explain how awful the government is for making you do all this work. Tell us how many people you had to fire to pay for the intellectual effort of doing these calculations and making up your explanations about why that fabulous paycheck should go to the CEO instead of workers or shareholders. Explain the workings of the market in CEOs compared to the market in accounting and bookkeeping people, salespeople, the people who wrote the code that you sell and the people who actually put the steam turbines together. I love a good work of fiction.

Technical issues my foot. Try Captured Agency.