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Archive for the ‘Securities and Exchange Commission’ Category

The SEC has successfully silenced the only ratings agency that consistently told the truth; only honest voice in ratings, silenced for 18 months.

SEC Bars Egan-Jones From Rating The US And Other Governments For 18 Months

It is refreshing to see that the SEC has taken a much needed break from its daily escapades into midgetporn.xxx and is focusing on what is truly important, such as barring Egan-Jones from rating the US and other governments. From the SEC: “EJR and Egan made a settlement offer that the Commission determined to accept. Under the settlement, EJR and Egan agreed to be barred for at least 18 months from rating asset-backed and government securities issuers as an NRSRO. EJR and Egan also agreed to correct the deficiencies found by SEC examiners in 2012, and submit a report – signed by Egan under penalty of perjury — detailing steps the firm has taken.” Hopefully the world is no longer insolvent in July of 2014 when this ban runs out.

From the SEC:

Egan-Jones and Founder Sean Egan Agree to 18-Month Bars from Rating Asset-Backed and Government Securities Issuers as NRSRO

The Securities and Exchange Commission today announced that Egan-Jones Ratings Company (EJR) and its president Sean Egan have agreed to settle charges that they made willful and material misstatements and omissions when registering with the SEC to become a Nationally Recognized Statistical Rating Organization (NRSRO) for asset-backed securities and government securities.

EJR and Egan consented to an SEC order that found EJR falsely stated in its registration application that the firm had been rating issuers of asset-backed and government securities since 1995 — when in truth the firm had not issued such ratings prior to filing its application. The SEC’s order also found that EJR violated conflict-of-interest provisions, and that Egan caused EJR’s violations.

EJR and Egan made a settlement offer that the Commission determined to accept. Under the settlement, EJR and Egan agreed to be barred for at least 18 months from rating asset-backed and government securities issuers as an NRSRO. EJR and Egan also agreed to correct the deficiencies found by SEC examiners in 2012, and submit a report – signed by Egan under penalty of perjury — detailing steps the firm has taken.

“Accuracy and transparency in the registration process are essential to the Commission’s oversight of credit rating agencies,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “EJR and Egan’s misrepresentation of the firm’s actual experience rating issuers of asset-backed and government securities is a serious violation that undercuts the integrity of the SEC’s NRSRO registration process.”

Antonia Chion, Associate Director of the SEC’s Division of Enforcement, added, “Provisions requiring NRSROs to retain certain records and address conflicts of interest are central to the SEC’s oversight of credit rating agencies. EJR’s violations of these provisions were significant and recurring.”

Egan and his firm were charged last year for falsely stating on EJR’s July 2008 application to the SEC that it had 150 outstanding asset-backed securities (ABS) issuer ratings and 50 outstanding government issuer ratings, and had been issuing credit ratings in these categories on a continuous basis since 1995. Egan signed and certified the application as accurate. According to the SEC’s order, EJR had not issued any ABS or government issuer ratings that were made available through the Internet or any other readily accessible means. Therefore, EJR did not meet the requirements for registration as a NRSRO in these classes. The Commission found that EJR continued to make material misrepresentations about its experience in subsequent annual certifications. EJR also made other misstatements in submissions to the SEC, and violated recordkeeping and conflict-of-interest provisions governing NRSROs — which are intended to safeguard the integrity of credit ratings.

EJR and Egan agreed to certain undertakings in the SEC’s order, including that they must conduct a comprehensive self-review and implement policies, procedures, practices, and internal controls that correct issues identified in the SEC’s order and in the 2012 examination of EJR conducted by the SEC’s Office of Credit Ratings. EJR and Egan consented to the entry of the order without admitting or denying the findings. The order requires them to cease and desist from committing or causing future violations.

The SEC’s investigation was conducted by Stacy Bogert, Pamela Nolan, Alec Koch, and Yuri Zelinsky. The SEC’s litigation was led by James Kidney with assistance from Alfred Day and Ms. Nolan. The related examinations of EJR were conducted by staff from the SEC’s Office of Credit Ratings, Office of Compliance Inspections and Examinations, and Division of Trading and Markets. Examiners included Michele Wilham, Jon Hertzke, Mark Donohue, Kristin Costello, Scott Davey, Alan Dunetz, Nicole Billick, David Nicolardi, Natasha Kaden, and Abe Losice.

And to think of all the actions the SEC took against S&P, Moodys and Fitch for rating AAA-rated suprime junk weeks before the market imploded. Oh wait, the SEC did nothing there, because, you see, they filed their NRSRO applications without any glitches.

So be careful S&P: you are on thin ice here with your 2011 downgrade of the US, and likely next in the SEC’s sights: better go through all those registration applications and make sure every comma is in place.

Now we look forward to news that Moodys and Fitch are about to get the Congressional medal of honor.

Zero Hedge

I love these guys.  Really.  But not in a gay sort of way….

While rereading the SEC’s flash crash report,  Findings Regarding the Market Events of May 6, 2010, and a very similar report written at the same time by some of the same authors, we came across statements that are clearly false, and grossly mischaracterize the algorithm that executed the 75,000 S&P futures contracts and blamed for causing the flash crash. Be sure to see our recently updated detailed analysis and charts of the contracts sold by the algo.

There’s this problem with hiring people who’s primary qualification if wanking off while watching porn — when they claim to do “analysis” they wind up spewing bullshit all over and eventually someone reads it and starts scratching their head as it does not make sense.

Soon after that they figure out that you claimed up is down, red is green and left is right and then the fur flies.

That’s what happened here.

For those who are interested in the details, follow the link and read it.  It’s fascinating.

For everyone else (and if you’re in the market in any form — 401k, etc — you ought to read this stuff because it bears on you) then here’s a quick summary that should be easily-understood.

When I have a resting order in the market — that is, I enter an order to buy or sell something at a given price without regard to attempting to hit someone else’s bid or offer — then I am providing liquidity to the market at that particular instant in time.

That is, I am adding to the depth of the order book at that given instant in time.

When I hit someone else’s bid or offer (that is, I hit an existing bid or offer in the market) I am taking liquidity away as I am removing depth from the order book at that instant in time.

What the SEC report argued is that W&R, through their orders, were taking liquidity.  But W&Rs orders were not hitting someone else’s bids or offers — they were all resting orders which Nanex was able to prove by matching them.

Therefore, W&R could not have caused the liquidity starvation at the root of the “flash crash” (a market can only crash if liquidity evaporates, as while a liquid market can move quickly by definition it cannot crash) and the SEC’s report authors through their characterization was factually wrong.

The back-and-forth that ensued on this with Nanex, however, is pretty amusing — and disturbing, particularly since the eventual outcome was that the author simply shut up and stopped answering them.

Rampant silver manipulation?  Rampant gold manipulation?  Rampant LIBOR manipulation?  Hiding MF Global client assets?  These are all happening at JP Morgan according to an open letter reportedly written by an anonymous employee of the firm.  The whistleblower also warns of a “cascading credit event being triggered” by derivatives related to Greek government debt.  Unlike Greg Smith at Goldman Sachs, this whistleblower has chosen to remain anonymous for now.  According to the letter, the whistleblower is still an employee of JP Morgan and has not resigned.  But that does make it much more difficult to confirm what he is saying.  With Greg Smith, we know exactly who he is and what he was doing at Goldman.  As far as this anonymous whistleblower is concerned, all we have is this letter.  So we must take it with a grain of salt.  However, the information in this letter does agree with what whistleblowers such as Andrew Maguire have said in the past about silver manipulation by JP Morgan.  And this letter does mention Greg Smith’s resignation from Goldman, so we know that it must have been written in the past few days.  Hopefully this letter will cause authorities to take a much closer look at the crazy things that are going on over at JP Morgan and the other big Wall Street banks.

This anonymous letter was addressed to the CFTC, but unfortunately it looks like the CFTC has already chosen to ignore it.

The original letter from this anonymous whistleblower has already been taken down from the CFTC website. When you go there now, all you get is this message….

“The Comment Cannot Be Found. Please Return to the Previous Page and Try Again.”

Fortunately, there are many in the alternative media that copied this entire letter from the CFTC website.

The following is a copy of the original letter that the anonymous whistleblower from JP Morgan submitted to the CFTC….

———-

Dear CFTC Staff,

Hello, I am a current JPMorgan Chase employee. This is an open letter to all commissioners and regulators. I am emailing you today b/c I know of insider information that will be damning at best for JPMorgan Chase. I have decided to play the role of whistleblower b/c I no longer have faith and belief that what we are doing for society is bringing value to people. I am now under the opinion that we are actually putting hard working Americans unaware of what lays ahead at extreme market risk. This risk is unnecessary and will lead to wide-scale market collapse if not handled properly. With the release of Mr. Smith’s open letter to Goldman, I too would like to set the record straight for JPM as well. I have seen the disruptive behavior of superiors and no longer can say that I look up to employees at the ED/MD level here at JPM. Their smug exuberance and arrogance permeates the air just as pungently as rotting vegetables. They all know too well of the backdoor crony connections they share intimately with elected officials and with other institutions. It is apparent in everything they do, from the meager attempts to manipulate LIBOR, therefore controlling how almost all derivatives are priced to the inherit and fraudulent commodities manipulation. They too may have one day stood for something in the past in the client-employee relationship. Does anyone in today’s market really care about the protection of their client? From the ruthless and scandalous treatment of MF Global client asset funds to the excessive bonuses paid by companies with burgeoning liabilities. Yes, we at JPMorgan that are in the know are fearful of a cascading credit event being triggered in Greece as they have hidden derivatives in excess of $1 Trillion USD. We at JPMorgan own enough of these through counterparty risk and outright prop trading that our entire IB EDG space could be annihilated within a few short days. The last ten years has been market by inflexion point after inflexion point with the most notable coming in 2008 after the acquisition of Bear.

I wish to remain anonymous as of now as fear of termination mounts from what I am about to reveal. Robert Gottlieb is not my real name; however he is a trader that is involved in a lawsuit for manipulative trading while working with JPMorgan Chase. He was acquired during our Bear Stearns acquisition and is known to be the notorious person shorting in the silver future market from his trading space, along with Blythe Masters, his IB Global boss. However, with that said, we are manipulating the silver futures market and playing a smaller (but still massively manipulative) role in manipulating the gold futures market. We have a little over a 25% (give or take a percentage) position in the short market for silver futures and by your definition this denotes a larger position than for speculative purposes or for hedging and is beyond the line of manipulation.

On a side note, I do not work directly with accounts that would have been directly impacted by the MF Global fiasco but I have heard through other colleagues that we have involvement in the hiding of client assets from MF Global. This is another fraudulent effort on our part and constitutes theft. I urge you to forward that part of the investigation on to the respective authorities.

There is something else that you may find strange. During month-end December, we were all told by our managers that this was going to be a dismal year in terms of earnings and that we should not expect any bonuses or pay raises. Then come mid-late January it is made known that everyone received a pay raise and/or bonus, which is interesting b/c just a few weeks ago we were told that this was not likely and expected to be paid nothing in addition to base salary. January is right around the time we started increasing our short positions quite significantly again and this most recent crash in gold and silver during Bernanke’s speech on February 29th is of notable importance, as we along with 4 other major institutions, orchestrated the violent $100 drop in Gold and subsequent drops in silver.

As regulators of the free people of this country, I ask you to uphold the most important job in the world right now. That job is judge and overseer of all that is justice in the most sensitive of commodity markets. There are many middle-income people that invest in the physical assets of silver, gold, as well as mining stocks that are being financially impacted in a negative way b/c of our unscrupulous shorts in the precious metals commodity sector. If you read the COT with intent you will find that commercials (even though we have no business being in the commercial sector, which should be reserved for companies that truly produce the metal) are net short by a long shot in not only silver, but gold.

It is rather surprising that what should be well known liabilities on our balance sheet have not erupted into wider scale scrutinization. I call all honest and courageous JPMorgan employees to step up and fight the cronyism and wide-scale manipulation by reporting the truth. We are only helping reality come to light therefore allowing a real valuation of our banking industry which will give investors a chance to properly adjust without being totally wiped out. I will be contacting a lawyer shortly about this matter, as I believe no other whistleblower at JPMorgan has come forward yet. Our deepest secrets lie within the hands of honest employees and can be revealed through honest regulators that are willing to take a look inside one of America’s best kept secrets. Please do not allow this to turn into another Enron.

Kind Regards, -The 1st Whistleblower of Many

———-

Another Enron?

If what this letter says is true, then the problems facing our financial system are more serious than most of us thought.

And the allegations of corruption at JP Morgan are absolutely shocking.

But this is not the first whistleblower to come forward to the CFTC with charges of rampant market manipulation by JP Morgan.

Back in 2010 I wrote about the stunning allegations that a former silver trader named Andrew Maguire presented to the CFTC.  The following is an extended excerpt from that article….

———-

Back in November 2009, Andrew Maguire, a former Goldman Sachs silver trader in Goldman’s London office, contacted the CFTC’s Enforcement Division and reported the illegal manipulation of the silver market by traders at JPMorgan Chase.

Maguire told the CFTC how silver traders at JPMorgan Chase openly bragged about their exploits – including how they sent a signal to the market in advance so that other traders could make a profit during price suppression episodes.

Traders would recognize these signals and would make money shorting precious metals alongside JPMorgan Chase.  Maguire explained to the CFTC how there would routinely be market manipulations at the time of option expiries, during non-farm payroll data releases, during commodities exchange contract rollovers, as well as at other times if it was deemed necessary.

On February 3rd, Maguire gave the CFTC a two day warning of a market manipulation event by email to Eliud Ramirez, who is a senior investigator for the CFTC’s Enforcement Division.

Maguire warned Ramirez that the price of precious metals would be suppressed upon the release of non-farm payroll data on February 5th.  As the manipulation of the precious metals markets was unfolding on February 5th, Maguire sent additional emails to Ramirez explaining exactly what was going on.

And it wasn’t just that Maguire predicted that the price would be forced down.  It was the level of precision that he was able to communicate to the CFTC that was the most stunning.  He warned the CFTC that the price of silver was to be taken down regardless of what happened to the employment numbers and that the price of silver would end up below $15 per ounce. Over the next couple of days, the price of silver was indeed taken down from $16.17 per ounce down to a low of $14.62 per ounce.

Because of Maguire’s warning, the CFTC was able to watch a crime unfold, right in front of their eyes, in real time.

So what did the CFTC do about it?

Nothing.

Absolutely nothing.

———-

You can read the rest of that article right here.

So will the CFTC do anything about all of this?

Based on past history, probably not.

Basically, the CFTC is a government agency that appears to do next to nothing.

Another scandal involving JP Morgan has come out in recent days as well.

This one involves their credit card division.  If you have a moments, you should really read the recent American Banker expose of credit card debt collection practices at JPMorgan Chase.  It exposes some things that will absolutely blow your mind.

Linda Almonte, a former executive at JPMorgan Chase’s Credit Card Litigation Support Group, has revealed some incredible stuff regarding the debt collection practices at the company.  Almonte says that she was shocked at what she saw when she began examining the details of a $200 million package of debt collection judgments to an outside debt collection agency….

Nearly half of the files her team sampled were missing proofs of judgment or other essential information, she wrote to colleagues. Even more worrisome, she alleged in her wrongful-termination suit, nearly a quarter of the files misstated how much the borrower owed.

In the “vast majority” of those instances, the actual debt was “lower that what Chase was representing,” her suit stated.

Almonte says that she warned that this sale of debt collection judgments must be stopped, but that a company executive told her that “she had better go along with the plan to sell the misrepresented asset“.

Almonte refused to go along, and she was fired on November 30th, 2009.

You are probably thinking that this sounds very much like the “robo-signing” foreclosure scandal and you would be right.

The more we dig into these giant financial companies the more corruption we find.

It really is shocking.

And remember, JPMorgan Chase is also the company that makes more money whenever the number of Americans on food stamps goes up.

JPMorgan Chase issues food stamp debit cards in 26 U.S. states and the District of Columbia, and they actually want more Americans to go on food stamps so that they can make bigger profits from the division that issues them.

So now are you starting to understand why so many Americans are upset about the corruption on Wall Street?

This isn’t a “conservative issue” or a “liberal issue” – it is an American issue and the outrageous behavior of these firms has brought our financial system once again to the edge of disaster.

Over the past six months, more than 350 prominent executives have resigned from major banks and financial institutions all over the globe.

Is this a sign that the rats are fleeing a sinking ship?

Do they know something that we don’t?

What we do know is that the financial crisis in Greece is far from over and the European financial system is getting closer to a complete meltdown with each passing day.

Very few of the things that caused the financial crisis of 2008 were ever corrected and our financial system is even more vulnerable today than it was back then.

In the end, this entire pyramid of debt, leverage and corruption is going to come crashing down really hard, and the consequences are going to be absolutely catastrophic.

The Economic Collapse

I’m getting rather defensive up here.

The squeeze is starting folks, although you certainly wouldn’t know it from the move in the stock market yesterday.  That move was all driven by the financials, with JP Morgan leading when they “broke embargo” with their mid-afternoon announcement that preempted The Fed.

Incidentally, doesn’t anyone think that’s a bit odd?  Jamie Dimon basically shoving Bernanke down on his knees and unzipping in front of him?  And the banks, incidentally, knew the results before we did, which begs the other question — why are they permitted to trade when market-moving news will be in their possession before the rest of the market has it?

You don’t think they were out in the market buying futures and such in the few hours before the press release blitz started, do you?  Why of course they were.  But not only would proving insider trading be difficult the SEC was too busy watching porn to care.

Now, however, the fun begins.  See, the TNX moved up strongly — the 10 year yield.  This in turn will force The Fed to sit on its bond holdings to maturity, lest they take a market loss (and given their thin capitalization that would bankrupt The Fed instantly!), which in turn ties Bernanke’s hands to a large degree.

I know many will argue that The Fed can always “print more”, but that’s not how it works.  This is a negative feedback situation and triggering a run out of the long end of the bond curve isn’t so much a problem for The Fed as it is for the Federal Government’s financing and deficit numbers.

Take a look at the FVX (5yr Treasury Yield) and you see a materially-more-frightening thing.  Yields have backed up from 0.7% to 0.97%.  Sounds trivial.  It’s not — it’s a huge move, close to 40% on yield since the end of January!

This matters because the Federal Government’s deficit spending in February is what has been driving the “improving” economic numbers, just as it has been for the last three years.  This is a pincer move; while yields have to normalize if and when they start to move in this direction that move will also choke off federal deficit spending capacity.

The Depression featured this sort of attempt at “repression” by The Fed and government and it was unsuccessful.  It looked successful for a while, but eventually the math caught up with them and we slumped back into the morass.  Our “exit” was war; we blew up all of our industrial competitor’s output capacity and by doing so rejiggered demand.  That’s a rather bleak way of looking at what was “death by all forms” for the common man, but from an economic perspective that’s what happened.  But “war as a solution” since that time hasn’t “worked” (and in fact can’t) since small-ball wars run into the broken-window fallacy; you can’t “win” by breaking windows as the economic damage from a war exceeds the benefit.  For war to be a “winning” strategy you have to literally flatten your economic competitors so that even with the economic damage you wind up with a net benefit.

Such a conflict in the modern era has a high risk of turning nuclear and then everyone loses.

In the next few days the market is likely to trade on euphoria from the financial sector, but I don’t buy it at all.  Repression destroyed net interest margin in gross earnings terms irrespective of the spread and makes earning a profit much more difficult.  Most of Europe is in recession now and that’s a huge market.  The ECB has no room to maneuver and further QE by The Fed will declare that the so-called “recovery” is false.

Bernanke, Obama and Congress have swam into the jaws of the shark and now the trick is to try to get back out before the teeth clamp down on all of us.  The problem is that extrication in one area will produce undesirable moves in another.  If the Federal Government pulls back on deficit spending then the economy softens materially, unemployment goes back up and with a falling labor participation rate tax receipts collapse, adding to the problem.  If The Fed pulls liquidity then interest rates go up, the deficit goes up, Congress finds itself up against the debt ceiling again in short order and a pullback on deficit spending will become inevitable.  If The Fed engages in aggressive acts to try to prevent the yield curve from backing up on them then oil will likely skyrocket, gas prices will go through $5 and we all know what comes next.  Finally, the corner we’ve painted ourselves into has occurred into a cyclical profit cycle peak.

Finally, the parade of pumpers on CNBC and elsewhere that are all on their knees before Bernanke performing obscene acts of thanks is nauseating — and historically, is almost always wrong.  Anyone remember Mozilo in his gaudy suits and ties on CNBC just before it all went to crap in the mortgage market?  I sure do, and yet a large number of people bought into his BS and wound up broke when Countrywide detonated shortly thereafter.

Meh.  Yeah, the market is up some 11% this year thus far.

It’s certainly possible that the can-kicking will continue to work in some form or fashion, but eventually when you’re playing with the spinning plates on sticks you put one too many up there and they all come down.  The election season is a prime time for mistakes of this sort as well, as despite the so-called “common logic” that “they’ll never let it happen during the election” the fact of the matter is that elections tie hands as the scrutiny level goes up a lot and the temptation to press into excess to try to jigger the election, when you’re the Federal Government and close to a quarter of the economy, is just too great to resist.  2008 is just one of many examples — 2000 was another when “happy days were here again” and we all know what happened in 2000, right?

Finally, last night the Shanghai index collapsed in the last bit of trade when China said it was not going to back off on halting property speculation.  The move was huge — about 4% straight down right at the end of the session, and it drew almost no notice in the media here and no reaction came through in our markets either.

This may look like a beautiful dawn but that thing over on the horizon is in fact a rolling wall cloud.

In this episode, Max Keiser and co-host, Stacy Herbert, discuss ‘no wrongdoing’ settlements, defrauding school children and a morbidly obese, bedridden Volcker Rule. In the second half of the show, Max talks to Karl Denninger of the Market-Ticker.org about rigging Libor, ruining Volcker and shorting Facebook.