Nope, No Crimes Here


Once again, the Securities and Exchange Commission has embarrassed itself. Last week it let off the hook two hotshot former Wall Street hedge-fund managers who lost a bundle for the investors trusting them to manage their money responsibly.

Instead of going to court on Feb. 13 and laying bare the sordid facts for a jury, at the last minute the SEC settled a civil suit against Ralph Cioffi and Matthew Tannin of the now defunct Bear Stearns Cos (2942331Q). These were the hedge-fund managers who five years ago loaded up their two funds with billions of dollars of lousy mortgage-backed securities and collateralized-debt obligations, leveraged them to the hilt and, when the market for the securities soured in July 2007, liquidated the funds.

If you remember these are the two clown-car boys that set off the blowup in August of 2007, which was then followed by a discount-rate cut on Options Expiration that was obviously, from trading patterns, noticed to big Wall Street firms the day before and which wiped the floor with a whole host of people’s accounts.  It also set in motion the consequences that led to the destruction of Bear Stearns.

The SEC “settled” the civil charges against these two esteemed gentlemen for just over $1 million.  I will note that during the two year period of time during which the alleged fraud was committed, according to court documentation, an alleged fraud committed by actively lying to the investors in their hedge funds, they took out $26.4 million in pay and bonuses.

Theirs was not a small lie either — documents show that they stated in print on an investor’s 2007 account statements that the total exposure to subprime mortgages was 6% of the fund.  In reality the exposure was 60%, ten times greater than stated.

The fund, if you remember, collapsed.

As part of the “settlement” neither of these “esteemed gentlemen” is required to admit to any wrongdoing, despite there being apparent iron-clad evidence of these false statements.  The “settlement” amounts to a fine of under 4% of their pay during the time in question, meaning that it amounts to exactly nothing in terms of deterring future behavior and simply reduces enforcement actions to a cost of doing business.

If we treated bank robbery the same way, requiring only that you give back 4% of whatever you steal if you get caught (and 0% if not of course) there would be a literal line down the block of ski-masked gun-toting men at every bank in town.

Oh yeah, these two can’t work in the securities industry for a couple of years.  I’m sure the $22 and $4 million will be more than enough to tide them over.

The Judge wasn’t impressed at all; he called the settlement “chump change” (and it is) and asked “am I just a rubber stamp here?”

The SEC’s counsel, incidentally, claims that neither of these guys got rich.

I’m sure the rest of the 99% would argue with that; indeed, I think essentially all of us out here would consider $4 million quite rich, say much less more than $22 million.

The only way you can claim “Nobody committed any crimes” is if you are intentionally not looking.  If you’re a politician, and this is your position when it comes to the most-outrageous set of frauds ever perpetrated in the history of the nation, exactly what else are you willing to intentionally overlook and why should we trust you with any delegated power greater than “Dog Catcher”?

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