Blog on the Run: Reloaded

Monday, September 6, 2010 7:47 pm

Oh, please, oh, please …

Could Bank of America executives finally, finally be in the path of the kharma bus? It seems almost too much to hope for …

A federal judge yesterday allowed Ohio pension systems to proceed with their legal claims that Bank of America paid billions of dollars in bonuses to executives of a firm it was absorbing without informing shareholders, Ohio Attorney General Richard Cordray said.

U.S. District Judge P. Kevin Castel denied motions by Bank of America and Merrill Lynch, which the banking giant acquired in September 2008 amid the financial crisis, to dismiss the state’s lawsuit against the companies and their executives.

Ohio’s pension funds claim that the companies committed securities fraud and issued false proxy statements by issuing $5.8 billion in accelerated year-end bonuses to executives and employees and failed to disclose that information to shareholders before they agreed to allow the companies to merge.

Specifically, the court indicated that the following claims could proceed:

  • Securities fraud claims against Bank of America, Merrill Lynch and their respective CEOs, Ken Lewis and John Thain, for alleged misstatements related to the failure to disclose the agreement to pay up to $5.8 billion in discretionary bonuses, and against Ken Lewis and Bank of America for alleged omissions related to the bonus arrangement.
  • False proxy statement claims against Ken Lewis, John Thain, Bank of America, Merrill Lynch and certain Bank of America directors about the bonus arrangement.
  • False proxy statement claims against all defendants arising out of their failure to disclose Merrill’s fourth quarter 2008 losses.
  • Liability claims against certain officers and directors for issues under their control.
  • Claims relating to false offering statements that misstated or omitted Merrill’s bonus payments.

The district court dismissed certain securities fraud claims, including claims relating to the failure to disclose Merrill Lynch’s fourth quarter 2008 losses.

Cordray said he was very pleased with the ruling and that the language upholding the false proxy statement claims is particularly helpful. “In the order, Judge Castel held that liability under the false proxy statement claims in this case could be imposed if negligence is shown. He squarely rejected the defendants’ position that the lead plaintiffs must make a more stringent showing of ‘scienter’ — knowing or reckless intent to deceive or defraud. We are looking forward to developing evidence against the defendants under this negligence standard,” Cordray stated.

I, meanwhile, am looking forward, perhaps in vain, to the stripping of billions in assets from BoA officers and directors, followed, perhaps, by indictments. Hey, a guy can dream.

Tuesday, January 12, 2010 8:49 pm

Odds and ends for 1/12

War crime: An independent Dutch commission finds that the 2003 invasion of Iraq, and therefore the Netherlands’ support of same, “had no sound mandate in international law.” Somewhere, Dick Cheney’s shriveled testicles shrivel a little more.

The SEC mans up. Oops, no, wait, not really: The Securities & Exchange Commission asks the court for permission to file additional charges against Bank of America for failing to disclose Merrill Lynch losses to BofA shareholders before a takeover vote. And yet it also says no individual(s) can be held legally responsible for the royal hosing those shareholders received. All the deceit and fraud somehow just … happened, I guess. Yet one more reason why corporations, legally speaking, shouldn’t be people.

Pecora for the new millennium: A list of questions the banksters should be asked tomorrow by the Financial Crisis Inquiry Commission (also called the “New Pecora Commission,” after the panel that looked into the causes of the Depression), but almost certainly won’t be.

New Jersey legislature approves medical marijuana, and the gov says he’ll sign the bill within the week. The effects on “Jersey Shore” remain to be seen.

And speaking of “Jersey Shore,” watch out, “Jersey Shore,” there’s a new drinking game in town: Fox News hires Sarah Palin.

Anything that annoys the Financial Services Roundtable is probably a good idea: Obama considers taxing banks that got TARP money. It should happen … which means I’ll believe it when I see it.

“I am not a hero.”: The hell she says. Miep Gies, the Dutch woman who helped hide Anne Frank’s family and other Jews from the Nazis and later preserved Anne’s diary, is dead at 100.

He was not necessarily a hero, but he was one bad dude: Old-time Coney Island strongman Joe Rollino, who celebrated his 103rd birthday by bending a quarter with his teeth, is dead at 104. But only because he got hit by a minivan.

To see, or not to see: The Supreme Court supposedly will decide tomorrow whether to allow 1) closed-circuit broadcasting of the trial of Perry v. Schwarzenegger (the gay-marriage lawsuit) in other courthouses in California and/or 2) allow video to be posted to YouTube. Here’s some factual and legal background (more here); both writers think the Supremes, who don’t want their own proceedings broadcast, see this as a slippery slope. I bet they’re right.

Quote of the day, from commenter mjvpi at Firedoglake: “Health care reform is giving me Tourette’s syndrome.”

Another quote of the day, from washunate at The Seminal: “… the past three decades have witnessed the slow and steady transfer of the wealth generated by labor’s productivity into the hands of a few select families of already great wealth. If anything can capture an image of the consequences of the Reagan-Bush era, it’s gotta be 225 million Americans in 1979 buying more vehicles than 308 million Americans in 2009.” Yup. In absolute numbers, almost 33% more. Heckuva job, Georgie.

Wednesday, December 9, 2009 11:33 pm

Odds and ends for 12/9

The seat’s hot and he ain’t even in it yet: Bank of America’s chief risk officer, Greg Curl, considered a leading candidate to succeed Ken Lewis as CEO, is under investigation by the New York attorney general for his role in what BofA shareholders were and weren’t told about the bank’s acquisition of Merrill Lynch.

Your incompetence. Let me show you it: Former Fed Chairman Paul Volcker calls for the return of Glass-Steagall and tells the Wall Street Journal’s Future of Finance Initiative, a group of financiers and policy makers, “Your response [to the economic crisis], I can only say, is inadequate. You have not come anywhere close.”

Quote of the day, also from Volcker at this session: “I wish somebody would give me some shred of evidence linking financial innovation with a benefit to the economy.” For good measure, he said the best financial innovation of the past 25 years was the ATM. (Which actually was introduced earlier … but, hey, forget it, he’s rolling.)

Bonus quote of the day, from Gavin M. at Sadly, No!, characterizing hinky academic Stanley Fish: ” …oleoresinous of eye, exuding cheap 1970s tenure …”

Congressman Alan Grayson to Fed Chair Ben Bernanke: Dude, you’re screwing the taxpayers directly AND committing tax fraud!

Oh, snap!: Dick Cheney (laughably) claims trying terrorism suspects in New York will generate more terrorism and calls it treason, so Alan Grayson tells him to “STFU.” This will give Official Washington another case of the vapors, but when Cheney himself once told a senator on the Senate floor to “go [have sex with] yourself,” he really has no room to whine and neither does anyone else.

Crying poor: AIG’s general counsel is leaving because she can’t make it on $500,000 a year. Given her track record of driving companies into ditches, I’m sure she’ll be snapped up in no time. And, yes, I’m being snarky — twelve digits’ worth of my tax money going into AIG in one year entitles me — but, no, I’m not being snarky about her getting snapped up in no time.

“Extreme victimisation,” but not in the way he thinks: Britain slaps a 50% tax on bankers’ bonuses. Will the U.S. follow suit?

Memo to Howard Kurtz: There’s a reason we call you Howie the Putz. And you’re soaking in it.

Well, yeah, if, by “socialism,” he means “a scary word that conservative wankers scream to try to scare people”: Charles Krauthammer calls environmentalism “the new socialism.”

Well, the federal government can just rock *me* to sleep tonight: The TSA posts some of its most sensitive security information on the Internet. But let’s talk about White House party crashers. Or Tiger Woods.

Sauce for the goose other gander: Paul Wolfowitz lost his job for trying to line up a job for his girlfriend. Will Max Baucus?

Zero tolerance for zero tolerance: Confronted with indisputable evidence of an on-screen error, Fox News decides to abandon its zero-tolerance policy for on-screen errors.

Sarah Palin, Woman of the Year?: Pollak says it could happen.

Thursday, October 1, 2009 11:26 pm

Ken Lewis: Hasta la vista, baby

Bank of America CEO Ken Lewis is retiring. Or “retiring.” Take your pick.

It is a measure of the debasement of American journalism that the man can be due $53 million in retirement payouts and CNN can say he “doesn’t have a golden parachute” (it relies on the bank’s own, very attenuated definition of the term).

Questions of criminality aside for the moment, Lewis was a lousy fiduciary, by any measure at all and by the only one that matters. “Lewis took a bank in good shape into the credit crunch – and steered it into a position of needing a $45bn bailout,” England’s Guardian writes. And even CNN acknowledges that “people who bought the stock when he took the reins in 2001 are underwater on their investments.”

Lewis will now have both means and leisure with which to prepare his defense. We can only hope that that defense will include rolling over on then-Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke for their roles in forcing the BofA takeover of Merrill Lynch on undisclosed terms that royally screwed the bank’s stockholders. But because we live in an Era of Diminished Expectations, I confess I’d be deliriously happy even if all that were to happen was that Lewis and a few members of his board and BofA’s lawyers spent even a few years in Club Fed.

Tuesday, September 29, 2009 6:29 am

And speaking of BofA …

… televangelist Jim Bakker got 45 years in federal prison* for personally stealing $3.7 million, which is less than 1/1000th of what appears to have been stolen from investors in the BofA/Merrill buyout.

*The sentence later was reduced by a federal appeals court because the sentencing judge had the unmitigated gall to suggest that some real Christians might be upset at the notion of theft by a fake one. I’m sure there’s a basis in case law for a ruling like that, but if there is I ain’t ever come across it.

Not bad work if you can get it

Filed under: Weird — Lex @ 6:27 am
Tags: , ,

I admit it: I know next to nothing about economics and finance. So I have a couple of questions about a new round of debt being offered by Developers Diversified Realty, which owns a lot of commercial real estate … which, you may have heard, ain’t doing so hot.

First, when your aforementioned primary assets ain’t doing so hot, why would you pay a bank $5 million-plus in underwriting fees to refinance what you owe it, on which you’re currently paying 1.5%, for debt on which you’ll be paying 9.625%?

Second, is that even legal?

Third, even if there’s a good reason for it and it’s legal, why would your stockholders not want your head on a stick?

Fourth, even given the benefit to Bank of America/Merrill Lynch, why are they taking $5 million in fees on this rather than the customary 3%, which would be more like $9 million? Particularly when BofA soon may need quite a bit of cash just to pay the lawyers?

Tuesday, September 22, 2009 8:15 pm

When government doesn’t govern

Susan Antilla at Bloomberg has some suggestions about what we might do with the Securities & Exchange Commission, inasmuch as it is utterly failing to do its job, i.e., protect the interests of investors:

  • Shoot it like a horse with a broken leg. Problem is, to extend the metaphor, any new colts/fillies sired to replace it likely would have the same orthopedic problem. “There is a reason it is the way it is,” Antilla quotes Barbara Roper, director of investor protection at Consumer Federation of America and a member of the SEC’s Investor Advisory Committee, as saying, “and it’s because of the deference that Congress and various administrations have to the financial services industry.”
  • Move the enforcement division to where most other government enforcement is housed: the Justice Department. As Karl Rove and Alberto Gonzalez have shown us, it wouldn’t be completely immune from political pressure there, but it would be better protected there than it is now.
  • Appoint commissioners from the investment community, not the broker/dealer community. But again, you run into “the deference that Congress and various administrations have to the financial services industry.” Even if a president were bold enough to appoint them, the Senate would never confirm them.

And the deference goes even further:

In 2006, the SEC’s Office of Compliance Inspections and Examinations actually set up a hotline for firms that were feeling put out about being investigated. Amazingly, the hotline offers regulated firms “senior-level attorneys” to help resolve complaints.

The investing public, in the meantime, is relegated to filling out an online form when it has a complaint. An improved SEC might consider giving investors access to the top people and letting the brokerage firms sit there and fume if they don’t like the way they’re being treated.

Yeah, that’s gonna happen, particularly after our supposedly non-activist Supreme Court overrules 100 years of legislative precedent and lets corporations make unlimited political contributions.

There is one bright side: Current SEC chairwoman Mary Schapiro, in addition to being at best inept, may have a potentially fatal conflict-of-interest problem:

[Schapiro] was in charge of the self-regulators at the Financial Industry Regulatory Authority when the organization was staunchly defending the greatest gift ever to the brokerage industry: mandatory arbitration of investor disputes.

It’s worth noting that Finra is a defendant in three lawsuits dating from Schapiro’s tenure. One of them, by Standard Investment Chartered Inc., names Schapiro as a defendant and seeks to make unredacted versions of certain documents public. Those might wind up embarrassing the woman in charge of the SEC if they show that she misled brokerage firm members about the “special member payments” they got when Finra was formed in 2007.

You probably haven’t heard the last on this one: On Sept. 11, Standard and Finra heard from the court that the case had been assigned to Jed Rakoff.

Who, you ask, is Jed Rakoff?

I’m glad you asked. This is Jed Rakoff:

A federal judge on Monday rejected a $33 million settlement between the Securities and Exchange Commission and the Bank of America and accused the regulators of falling down on the job.

Manhattan Federal Judge Jed Rakoff said the proposed settlement – over bonuses paid to Merrill Lynch executives just before the bank took over Merrill – was little more than a sham to “provide the SEC with the facade of enforcement and the management of the bank with a quick resolution to an embarrassing inquiry.”

“The notion that Bank of America shareholders, having been lied to blatantly in connection with the multibillion-dollar purchase of a huge, nearly bankrupt company, need to lose another $33 million … in order to ‘better assess the quality and performance of management’ is absurd,” the judge wrote in a scathing ruling.

The SEC sued Bank of America on Aug. 3, claiming bank bosses lied to shareholders when they asked for permission to buy the nearly bankrupt Merrill Lynch for $50 billion.

The SEC charged Bank of America signed off on a plan to pay up to $5.8 billion in bonuses to the executives who ran Merrill Lynch to the brink.

In statements to shareholders, Bank of America said it had not agreed to such bonuses.

The same day the SEC sued, regulators agreed to a settlement with Bank of America and the $33 million fine.

The SEC claimed such a fine would actually help shareholders – alerting them that bad decisions had been made and enabling them to better assess the quality of bank management.

Rakoff called the SEC’s logic “absurd” and told both sides to be ready for trial by Feb. 1, 2010.

Quoting Oscar Wilde – who once said a cynic is someone “who knows the price of everything and the value of nothing” – the judge said the settlement suggested a “cynical relationship” between the bank and the SEC.

“The SEC gets to claim that it is exposing wrongdoing on the part of Bank of America in a high-profile merger; the bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators,” the judge wrote.

He added that “all this is done at the expense, not only of the shareholders, but also of the truth.”

If I were Mary S., and I’m glad I’m not, I’d be shipping resumes.

Wednesday, September 16, 2009 10:42 pm

Dang. If I’d known the service was this good, I’d’ve ordered a pony, too.

I suggested a couple of weeks ago that it might be a real good idea if Bank of America execs and/or the company’s lawyers were held responsible as individuals over how much info they withheld from BoA shareholders about what the Merrill Lynch takeover was going to do to their investments.

Wow. Someone listened:

The New York Attorney General’s office is preparing charges against several high-ranking Bank of America executives over the bank’s alleged failure to disclose details about its acquisition of Merrill Lynch, according to a person familiar with the investigation.

Attorney General Andrew Cuomo’s office is likely to file civil charges against the executives over their role in failing to alert shareholders to mounting losses as well as accelerated bonus payments at Merrill, said the person, who requested anonymity …

Honestly, I’m a layman and neither a banker nor a lawyer, but it’ s hard for me to see how there isn’t a basis for criminal charges as well. Therefore, I choose, for now, to comfort myself with the notion that civil charges are a necessary first step toward that outcome. Would the real lawyers please give me 30 or so minutes to enjoy this idea before you pour cold water on it in the comments? Many thanks.

UPDATE: Uh-oh, kids, grab your popcorn — it’s subpoena time! Let’s settle in for a snug, cozy period of embarrassing revelations and/or Fifth-taking, shall we? And let us, at least for now, maintain the tiny hope that the people who end up getting socked for this aren’t the investors.

Thursday, August 27, 2009 8:16 pm

Not just a fine. Time.

Tyler Durden of Zero Hedge on Bank of America’s legal problems — and, possibly, BofA’s lawyers’ legal problems — regarding what it told (or didn’t tell) its shareholders about the Merrill Lynch takeover:

The bottom line is that either Bank of America’s executive committee, or as the [Securities and Exchange Commission] claims, the lawyers advising it

… whom Durden identifies as the firm of Wachtell Lipton in general and partner Ed Herlihy in particular …

were responsible for one of the most blatant public filing misrepresentations in history. A $33 million slap on the wrist which comes out of BAC’s troubled investors and, by [extension], taxpayers, is a ludicrous way to “punish” those responsible. The Attorney General must see through the smoke and mirrors of this scam and has to seek criminal punishment for whoever ends up being the responsible party in this “hot potato” blame game.

Word. If we’re going to have long-term economic stability, we need to unrig the rigged game that investing has become, particularly when taxpayer dollars are involved. And the best way to do that is by packing the riggers off to prison, rather than looking the other way, as the SEC usually does, when huge crimes are committed.

Karl Denninger identifies another likely case (h/t: baum):

I [ran a search for] the highest-volume stocks with prices over ten cents (to exclude the little penny pumper stocks on the OTC market.)

Well gee, let’s add this up!

That would be about 2.126 billion shares in total for these four stocks, two of which (Fannie and Freddie) are so far underwater in their equity value (to the government no less!) that there is no chance they’re worth anything, yet they remain listed, and the other two are zombie banks with Citibank existing only because of $300 billion in asset guarantees by The Fed and Treasury (which, incidentally, is under investigation, and that assumes that the $300 billion is all there is. There is persistent chatter that the real amount of “back door support” that Citibank (C) has is closer to a cool trillion dollars, although I’ve never been able to get anyone to speak on the record in that regard.)

But I digress.

Here is the NYSE Volume for Tuesday – for all shares, right off NYSE Euronext’s page:

So let me see if I get this right. 2.126 billion shares traded in four stocks, two of which that accounted for some 900 million of those shares are in companies that by any measure of accounting have absolutely zero common equity value whatsoever (and never will under any rational view of the future), yet NYSE Euronext continues to list them.

These four stocks represented thirty seven percent of all shares traded Tuesday. …

If there was ever an argument to be made for the NYSE having turned into a gigantic “hot potato” parlor game, this is it – in your face in an impossible-to-explain-away fashion.

NYSE Euronext, of course, derives a fee from each share traded, so they have to love this sort of thing. The ordinary investor who has a brain sees it as an amusing sideshow, but the unfortunate fool who gets sucked into the maelstrom is going to get destroyed when the computers move on to some other issue and the price collapses as there is no authentic bid out there for any of this crap.

Beware. This is the sort of cheap parlor game that our capital markets have turned into as a direct and proximate result of our so-called “regulators” turning a willful blind eye while supposed “improvements” in liquidity and “customer access” are put in place by those who have one singular purpose in mind – find a way to steal a fraction of a penny at a time by playing “hot potato” with a handful of issues (sometimes starting a nice juicy rumor to go with it, aka the one last week about BAC allegedly being taken out by Goldman just to prime the pump a bit!) hoping that you will be the bagholder upon whom they can unload.

I certainly hope the companies that manage my (now significantly depleted) retirement and college savings know what the hell’s going on and are acting accordingly.

And this, too, has to be a crime, yet the government does nothing about it.

And on a philosophical level, how can anyone possibly call this anything approaching a free market?

And if no one can, then why aren’t the advocates of free markets screaming bloody murder about this? Is it because they don’t get it? Is it because they’re hypocrites? Or is it because they think they’ve got an edge in this rigged game, that when the music stops they won’t be “the bagholder upon whom they can unload”?

They need to stop kidding themselves. There is nowhere near enough room to keep every free-market advocate in this country, myself included, safe from exposure.

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