More Hedge Funds Face Indictments As Federal Wiretaps Uncover Insider Trading Rings

It is about time the Feds started tracking some of the more eyebrow raising examples of insider trading. Whenever there is new, you see a spike in the volume and the options ahead of the announcement these days.

This is most likely the tip of the iceberg, and the hedge funds are not the only culprits.

Its a step in the right direction. Let's hope it is not diversion to placate people because of the lack of serious market reform from Washington.

Bloomberg
U.S. Plans to Charge 10 More After Rajaratnam Arrest
By Joshua Gallu and David Scheer

Oct. 19 (Bloomberg) -- Federal investigators plan to charge at least 10 securities professionals with insider trading, some linked to the criminal case against billionaire hedge-fund manager Raj Rajaratnam that shook Wall Street last week, people familiar with the matter said.

The pending crackdown, more than two years in the making and among the biggest undercover operations into insider trading, may yield charges against hedge-fund managers and their associates as early as this week, the people said, declining to be identified because the cases aren’t public. Authorities had planned to arrest Rajaratnam this week as part of a broader sweep, expediting it after learning he had bought a plane ticket to travel to London on Oct. 16, one person said.

The case against Rajaratnam, built on recorded conversations within a web of alleged conspirators, offers a glimpse of how U.S. investigators are using more aggressive tactics to identify illegal trades hidden within a blizzard of hedge-fund investments. Additional probes stem from a secret Securities and Exchange Commission data-mining project set up to pinpoint clusters of people who make similar well-timed stock investments. Some probes, like the one against Rajaratnam, rely on wiretaps.

“If you’re going to shoot the king, you better shoot to kill,” said Bradley Bennett, a law partner at Baker Botts LLP in Washington who formerly focused on insider-trading cases as an SEC investigator. “If they’re going to take on a billionaire, they need to have the strongest possible cases. The defendant’s own words are the strongest possible evidence....”

The US Needs to Get Less Competitive

"The whole aim of practical politics is to keep the populace alarmed, and hence clamorous to be led to safety, by menacing it with an endless series of hobgoblins, all of them imaginary." H. L. Mencken

The hobgoblin that is often used by the Wall Street banks is that if this or that reform is introduced, it will lessen their competitiveness, and their craftiest and most clever employees will leave the country to work for foreign banks.

Is that supposed to be a threat? That sounds like a plan. And let them deduct the price of a one way coach class ticket.

It should be painfully obvious by now, that despite his recent crocodile tears and phony fist waving, that Larry Summers and crew Obama are being bossed around by the banks, for whatever reasons that charity might prevent one from saying.

It is time for a real change, in most cases bringing back what was taken apart over the past twenty years.

If you are a bank, and you take deposits and obtain access to the Fed window and FDIC, you should do nothing other than traditional commercial on balance sheet banking. Period.

If you are an investment bank, you are a no better than a hedge fund. There should be strict limits on the quality and levels of the capital which you employ. And your partners should be exposed to the full extent of your losses. Yes, the full extent.

In the markets there needs to be position limits. If you exceed the position you get fined and surrender 100 percent of any gains. If you do it again your trader gets his license suspended. A third time and your trading license is revoked until you can prove you have gotten your internal controls together.

As for naked short selling. Forget about it. If you fail to deliver within 24 hours you are forced to cover on a market order, like a margin call.

If you receive an exemption for legitimate commercial hedging, your position is published with your name on it on a weekly basis. After all, your hedging decisions are based on information which should be disclosed, sooner rather than later.

The timely disclosure of pricing and volume information in any market is public information and should be disseminated to all parties at the same time, without predatory pricing that inhibits access by the average investor. Or better yet, just make the information feed free, and take the costs as a part of doing business as a licensed exchange.

There are criminal penalties on the books for white collar crimes. When corporations engage in fraud, those penalties should apply to the perpetrators within the firm. The current regime of wrist slap fines from the SEC to be absorbed by shareholders makes the risk-reward ratio an incentive for breaking the law. There needs to be a section of the FBI that deals only and specifically with white collar crime, not as a task force, but as part of its organizational structure.

Corporations, including non-profits, foundations and trusts, are not people, and they do not vote. Only voters should be able to contribute to political campaigns. If this creates a financial problem for politicians who rely on millions of dollar to fund elaborate media and public persuasion campaigns, well then, too bad. There is always the option to pursue public campaign funding. They might actually have to say things and stand on a genuine record actually reported by a legitimate news media.

Time to break up the media conglomerates. Period. The news organizations cannot be controlled by a few corporations. There were limitations on news outlet ownership for many years which were repealed. Bring them back. Diversity of ownership brings checks and balances.

And the financial activity of lobbyists should be limited, recorded, and disclosed on a monthly basis, and in detail. You or any member of your staff go to lunch with a lobbyist, the amount which you accept is reported along with the subject matter discussed. You are a registered lobbyist, and all your lobbying related phone calles and text messages become a matter of public record. The public deseves to hear your case as well as their representatives.

The revolving door between lawmakers, regulators, and the businesses with they oversee must be slammed shut for a period of no less than five years. Time to bone up on a trade besides influence peddling, congressman.

Would this prohibit the best minds from serving the public? Are you kidding me? Look at the government in Washington now. If those are the 'best minds' then the US is in real trouble.

If the US wants to get back on its feet, it is going to have to get serious about restoring its liberty and an even playing field for all its people.

This would be a start. Next up, tax code reform. You want a flat tax? I'll give you a flat tax....

ALBA Gives Nod for Regional Currency SUCRE in Central and South America

This is not the first time ALBA has discussed plans for a regional currency, and the proposal does not yet seem to be concrete to us. The countries have agreed in principle to proceed, with the details to be worked out over the next year.

Nevertheless, it does start to chip away at Wall Street's usual answer to any dollar challenge, "Where else will they put their reserves, what else will they use for trade if not the US Dollar?" This has always seemed to be among the most arrogant, self-centered observations of an empire in recorded history. "Without us, who will tell them what to do, who will lead them, who will manage their money?" Were even the British at the turn of the 19th century that self-deluded, so blineded by the rationale of the white man's burden to manage other people's affairs?

Ecuador’s currency was called the sucre before it shifted to the US dollar nearly a decade ago. Jose Antonio de Sucre was an early 19th century South American Independence leader who fought alongside Simon Bolivar. Sucre is also the capital of Bolivia.

In this proposal, it is known as the Sistema Único de Compensación Regional (SUCRE), a new currency for intra-regional trade, to replace the US dollar in trade among several countries: Venezuela, Bolivia, Cuba, Ecuador, Nicaragua, Honduras, Dominica, Saint Vincent and Antigua and Barbuda.

Most of these countries have already withdrawn their participation with the World Bank, and it's Center for International Trade disputes, which had sought to arbitrate disagreements among the countries and several western energy firms.

This may be important because Venezuela is a major source of oil imports to the US market. Will Chavez start demanding payment for his oil in the SUCRE? Will the US begin to discover the nuclear threat from Venezuela? Or merely encourage its neighbors and internal groups to challenge its sovereignty?

The exact composition of the SUCRE has not yet been disclosed, if it has been decided. Until that happens, and a firm timeline is disclosed, this is merely a proposal that has been discussed before.

The proposed sucre does not affect any discussions (if any are still continuing) with regard to the amero, which as we understand it is a potential North American regional currency amongst Mexico, the US, and Canada. If we were Canadian, we would resist that proposal with all the resources at our disposal.

But make no mistake, there are alternatives to the dollar and they are being discussed around the world. A broader based alternative that would include China and Russia among others would have more 'teeth.' Some composition including gold and silver backing of some sort, if it is sufficiently revalued higher, would give any regional currency a greater international acceptibility.

It made an impression, by the way, that this news story was first picked up here out of China, and not from any US mainstream news outlets.

And speaking of strategic moves, the US recently sought to obtain seven military bases in Colombia, strategically located in the midst of the ALBA countries.

CCTV China
ALBA member states plan new currency
2009-10-18 11:44 BJT

A meeting of the Bolivarian Alternative for the Americas, or ALBA, has announced plans to create a new single currency to replace the US dollar. The organization's 7th Summit has concluded with an aim to stop using the greenback for trade between member states next year.

ALBA groups Bolivia, Cuba, Ecuador, Nicaragua, Venezuela and other regional governments. A Russian delegation also attended the two-day meeting. Leaders announced a plan to eventually create a single regional currency, the SUCRE.

They also decided to explore creating state-sponsored food and mining multinationals.

The summit also touch the Honduras issue. The ousted Honduran Foreign Minister called on the Organization of American States to implement new measures to increase pressure on the de facto government of Honduras to end the political crisis.

Preparing for the Next Crash and Unexpected Consequences: Now Is the Time

A friend sent this along, and we thought it was worth publishing an extended excerpt. This is Part 1 of the essay, and we look forward to Part Two – Managing Your Own Money – Take Action Now.

That is really the challenge isn't it. Most people are financial non-specialists. Their lives are full enough as it is, with things that they understand and that are important to them.

Too often the call to 'take control of your own money' is a prelude to 'and buy into my advice, what I wish to sell to you.'

Financial advice is a difficult thing to provide in a blog. It would be like a doctor writing a prescription for the public at large, fitting for some, inappropriate for others, potentially deadly for a few. This is why I do not do it. Ever.

The prescription I use for my personal situation is the most that I will share, in addition to general opinions and analysis of the markets and the economy. I am 58 years old, and have amassed a fair amount of savings over the past twenty years. My general rules for the current period now are:

1. Get liquid. Have little or no debt. Be in cash and diversified. Reduce living expenses to essentials.
2. Get as far away as you can from Wall Street and riskier assets as is practical.
3. Put something you can spare from discretionary retirement savings into long term assets that are not directly contingent on anyone else whom you cannot trust:

a. Personal food production, preservation, and preparation
b. Precious metals as insurance against monetary inflation / breakdown
c. Essentials for daily living and personal health care
d. Investments in practical education
e. Personal infrastructure and efficiency
f. Have a contingency plan for a systemic shock.

4. Above all be flexible. If this stagflation we are in becomes a protracted deflationary spiral or an emerging hyperinflation, both possible outcomes, we will see it happening and may need to adjust. This is where being light on debt and long on liquidity is most helpful. There is no one right plan for the unexpected, ever.

If you have 401k plans you cannot cash in, you might consider some very long term 'leap' puts to hedge them. But Cash or short term Treasuries is preferable. I have all my discretionary cash scattered across several very highly rated banks within FDIC limits. I have some money available for investment in foreign currencies although I have cashed in my loon and aussie dollar positions now. I have sold some 'collectible assets' that might have done very well if we get a prolonged period of high inflation similar to the 1970's in order to raise cash levels. I may regret this, but so be it. The cash can be deployed as the situation develops. Cash can otherwise be kept your home currency which you use on a daily basis, as long as it is safe and liquid.

If you wish raise your voice or to peacefully demonstrate, be prepared with a simple set of coherent positions and specific demands, avoiding anger. The mainstream media likes nothing better than to portray demonstrators as cranks or fools. In general they are not sympathetic to the less powerful. They will not lead change, but they will eventually follow.

Try to avoid squabbling amongst yourselves. When the reformers fight over fine points and petty egotistical issues, the status quo rejoices, often formulating and encouraging the bickering. Debate television where no serious discussion occurs, but plenty of sound bites and ad hominem attacks get thrown, is the model for media distraction. But it 'works' for the short term opportunists, and generally adds to the bread and circuses atmosphere masking an historic wealth transfer and the decline of an empire, as it has done in the past.

And as always, the banks must be restrained, and the financial system reformed, and balance restored to the economy before there can be any sustained recovery.

Reality Arbiter
The Extinction of Ethics in Finance – The Fallout
by Greg Simmons
October 13, 2009

"...To revisit my original intention in writing this article, I cannot stress to you the importance of understanding exactly what is going on in the world. No one is to be trusted with your money. Not Wall Street, not the banks, not the government – nobody is to be trusted! Does the investing public not realize that Wall Street almost lost every penny of American wealth? Now we’re supposed to believe they’ve saved the day? I beg to differ. Those parasitic liars nearly took us to zero. Who knows, they still might.

The grossly deluded public has been at the mercy of brokers, financial advisors, Wall Street, the Fed, congress, and the US Treasury far too long. This moral hazard and subsequent uneven playing-field created by the current financial structure (the trifecta of the Fed, Treasury, and the “Banksters”) wherein the scales of balance tip only upward, hence siphoning this nation’s wealth into the coffers of those that create such hazards. Their current solutions to this crisis, a crisis of their own making, is nothing more than a replication of the same idiotic practices that got us here in the first place; corporate bailouts, homebuyer tax-rebates, foreclosure moratoriums, cash-for-clunkers, all designed to forego the inevitable sanctification of sins past and deliver them on to the US taxpayer.

The difference between the past and present is that now we have a government willing to set up shop and take over entire industries; mortgage lending, auto, banking, and who knows going into the future. Just wait, we’ll be in the airline business in no time. I feel like I’m in a perpetual state of Déjà vu - with a repeat of September 2008 barreling headlong around the next bend.

That we exist in a quasi public-private financial system wherein the government in collusion with the Fed and the “Banksters” take your money essentially by force (specifically through the leverage of ZIRP) or otherwise and shove it into new toxic instruments, bailouts, and ill-conceived stimulus programs that even these so-called best-and-brightest have no concept of the inherent risks, or hazard of unintended consequences, is proof that the entire game is rigged against you.

It is time to take control of your money.

Now, with regard to the subject of managing one’s own money, the rules of the game have officially changed. The EXTINCTION OF ETHICS in today’s financial markets IS the new rule. You must take total responsibility for the management of your own money and you must do it now! I don’t know how to make it any more clear. I could probably write an entire thesis about the utter abandonment of morality by today’s so-called investment community. I mean, does everybody have to cheat each other to make a dollar? The subject literally brings into question the human thread that binds our social fabric together.

Given the dire state of the global economy and the fact our collective economic situation has gotten significantly worse, not better, creates an opportune time to shift any misplaced philosophy of trust in a corrupt system and recognize that we’re in the middle of a COVER-UP, NOT A RECOVERY!

A comment I always appreciated and have tried to take credit for but know I plagiarized from somewhere is this; ANTICIPATING BAD LUCK IS GOOD LUCK; DEPENDING ON GOOD LUCK IS BAD LUCK. This so-called recovery is merely a papered-over facade made possible by trillions of newly created dollars. The time to prevent getting thrown back into the ditch is now. Remember, do not fall victim to the CNBC-induced epidemic of economic amnesia."

Read the entire essay here.