Authors: Charles Ferguson
27
.
Financial Crisis Inquiry Report
, “Testimony of Richard M. Bowen,” III, 1–2.
28
. See the SEC complaint in the most publicized case, available at
http://dealbook.nytimes.com/2011/10/26/in-fight-against-securities-fraud-s-e-c-sends-wrong-signal/.
29
.
HSH Nordbank AG v. UBS AG and UBS Securities, LLC
, Summons and Complaint, Supreme Court of the State of New York, February 25,
2008.
30
. The discussion here is drawn from PSI,
Wall Street and the Financial Crisis
, 243–317.
31
.
Financial Crisis Inquiry Report
, “Interview of Robert Rubin,” March 11, 2010.
CHAPTER 5 All Fall Down: Warnings, Predators, Crises, Responses
1
. Raghuram G. Rajan, “Has Financial Development Made the World Riskier?” proceedings, Federal Reserve Bank of Kansas City, August
2005, 313–69, www.kc.frb.org/publicat/sympos/2005/pdf/rajan2005.pdf.
2
. Wyatt, Edward, “Judge Blocks Citigroup Settlement with SEC,”
New York Times
, November 28, 2011,
http://www.nytimes.com/2011/11/29/business/judge–rejects–sec–accord–with–citi.html?_r=1.
3
. PSI,
Wall Street and the Financial Crisis
, “Exhibits: Role of Investment Banks,” David Viniar to Tom Montag, e-mail,
December 15, 2006, and trail; Fabrice Tourre to Geoffrey Williams et al., e-mail, December 18, 2006.
4
. Ibid. “The Subprime Meltdown: Timeline of Recent Events,” presentation to Goldman Sachs board of directors, subprime mortgage
business, March 26, 2007; Daniel Sparks to Gary Cohn et al., e-mail and trail, February 8, 2007.
5
. Ibid. Sparks to Montag et al., e-mail, February 14, 2007.
6
. Ibid. Sparks to Josh Birnbaum et al., e-mail, February 22, 2007.
7
. Ibid. Sparks to Jon Winkelried, e-mail, February 21, 2007.
8
. Ibid. Viniar to Gary Cohn, e-mail, July 25, 2007.
9
. Ibid. Birnbaum to [redacted], e-mail, July 12, 2007.
10
. Ibid.
Code of Business Conduct and Ethics
, May 2009.
11
. Ibid. Fabrice Tourre to Jonathan Egol, e-mail, December 28, 2006.
12
. Ibid. Jonathan Egol to Geoffrey Williams, e-mail, October 24, 2006, and trail.
13
. Ibid. E-mails: Aliredha Yusuf to Sparks, March 9, 2007; Peter Ostrem to Sparks, March 9, 2007; Robert Black to ficc spcdo et al., March 21,
2007; Omar Chaudary to David Lehman, June 7, 2007; exchange of e-mails between Sparks and Bohra Bunty, April 19, 2007.
14
. Ibid. Darryl Herrick to Mahesh Ganapathy, e-mail, October 12, 2006; sales book, Hudson Mezzanine Funding 2006-1, Ltd., October 2006.
15
. Ibid. Sales book, Hudson.
16
. Ibid. Ostrem to team, e-mail, October 30, 2006; Sparks to Montag, e-mail, January 27, 2007.
17
. PSI,
Wall Street and the Financial Crisis
, Majority and Minority Staff Report, 585.
18
. PSI,
Wall Street and the Financial Crisis
, “Exhibits: Role of Investment Banks,” Salem Deeb to
Michael Swenson, e-mail, December 15, 2006, and trail.
19
. Ibid. GS Syndicate to T–Mail Subscribers, e-mail, March 28, 2007.
20
. Ibid. Montag to Sparks, e-mail, June 22, 2007.
21
. Ibid. Matthew Bieber to Christopher Creed, e-mail, September 17, 2007 and trail.
22
. Gregory Zuckerman, “Profiting from the Crash,”
Wall Street Journal
, October 31, 2009;
http://online.wsj.com/article/SB10001424052748703574604574499740849179448.html.
23
. Tourre to Egol, e-mail, December 18, 2006, “Wall Street and the Financial Crisis,” hearing exhibits.
24
.
Securities and Exchange Commission v. Goldman Sachs & Co. and Fabrice Tourre
, Complaint, U.S. District Court, Southern District
of New York, April 16, 2010, 10.
25
. PSI,
Wall Street and the Financial Crisis
, “Exhibits: Role of Investment Banks,” sales book, ABACUS 2007-AC1, March 23,
2007.
26
. http://www.nytimes.com/2010/04/21/business/21deals.html.
27
. The financial details are those stated in
SEC v. Goldman
, which were the basis for the settlement.
28
.
SEC v. Goldman
, Consent of Defendant Goldman Sachs & Co., July 16, 2010.
29
. See the series by Jake Bernstein and Jesse Eisinger, commencing with “The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble
Going,”
ProPublica
, April 9, 2010; Smith,
Econned
, 257–263.
30
. Smith,
Econned
, 260.
31
.http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax3yON_uNe7I.
32
.
Financial Crisis Inquiry Report
, 243–44, 265–75.
CHAPTER 6 Crime and Punishment: Banking and the Bubble as Criminal Enterprises
1
. http://www.nytimes.com/interactive/2011/11/08/business/Wall–Streets–Repeat–Violations–Despite–PromisesStsssss.html?ref=business.
2
. The standard account is Kurt Eichenwald’s
Conspiracy of Fools: A True Story
(New York: Broadway Books, 2005).
3
.
For the Citi and Chase transactions, see
In re Enron Corporation Securities Litigation
, First Amended
Consolidated Complaint, U.S. District Court, Southern District of Texas, May 14, 2003, 35–39 (this is the primary class-action suit filed by Enron shareholders);
SEC v. JPMorgan Chase
,
Complaint, U.S. District Court, Southern District of Texas, July 28, 2003; Securities and Exchange Commission, Accounting and Auditing Enforcement Release no. 1821, in the matter of Citigroup,
Inc., respondent, July 28, 2003.
4
.
In re Enron Corporation
, 500–501;
SEC v. Merrill Lynch, & Co., Inc., et al.
, Complaint, March 17, 2003, U.S. District
Court, Southern District of Texas at Houston.
5
. Harold Meyerson, “The Enron Enablers,”
American Prospect
, May 10, 2007.
6
. Charles R. Morris, “The Hole in the Economy,”
Boston Globe
, July 7, 2002.
7
. Geoff Lewis, “The Bloody Mess After the Internet Bubble,”
Registered Rep
, May 1, 2005.
8
. Ibid.
9
. William H. Donaldson, “Testimony Concerning Global Research Analyst Settlement,” Senate Committee on Banking, Housing and Urban
Affairs, May 7, 2003; Securities and Exchange Commission, Litigation Release, “Federal Court Approves Global Research Analyst Settlement,” October 31, 2003; Securities and Exchange
Commission, Administrative Proceeding,
In the Matter of Jack Benjamin Grubman
, October 31, 2003; Securities and Exchange Commission, Administrative Proceeding,
In the Matter of Henry M.
Blodget
, October 31, 2003.
10
. The account of this episode is drawn from
SEC v. Charles E. LeCroy and Douglas W. MacFaddin
, Complaint, U.S. District Court,
Northern District of Alabama, November 4, 2009; SEC, Administrative Proceeding,
In the Matter of JPMorgan Securities, Inc.
, Order Instituting Administrative and Cease-And-Desist Proceedings,
November 4, 2009; and William Selway and Martin Z. Braun, “JPMorgan Swap Deals Spur Probe as Default Stalks Alabama County,” Bloomberg, May 22, 2008.
11
. The narrative is from Martin Z. Braun, “Auction Bond Failures Roil Munis, Pushing Rates Up,” Bloomberg, February, 10, 2008; Liz
Rappaport and Randall Smith, “Credit Woes Hit Funding for Loans to Students,”
Wall Street Journal
, February 13, 2008; Floyd Norris, “Auction Market Chaos for Bonds,”
New York Times
, February 20, 2008.
12
.
SEC v. Banc of America Securities LLC et al.
, Complaint, U.S. District
Court, Southern District of New York,
June 9, 2009, 7. This and other complaints provide a complete description of the process.
13
. Expected settlement costs from SEC press releases on each case.
14
. SEC litigation releases.
15
. http://dealbook.nytimes.com/2011/02/15/del-monte-ruling-challenges-cozy-buyout-bids/.
16
. The account here is distilled from U.S. Department of Justice Press Release, “Justice Department & IRS Announce Results of UBS
Settlement & Unprecedented Response to Voluntary Tax Disclosure Program,” November 17, 2009; Carolyn B. Lovejoy, “UBS Strikes a Deal: The Recent Impact of Weakened Bank Secrecy on
Swiss Banking,”
North Carolina Banking Institute Journal
14 (February 10, 2010): 435–466; Joann M. Weiner, “Brad Birkenfeld: Tax Cheat and UBS Informant Doesn’t
Deserve Pardon,”
Politics Daily
, June 2010; Carlyn Kolker and David Voreacos, “UBS Tax Net Snares Credit Suisse, Julius Baer Clients,” Bloomberg, September 18, 2009; and
Cyrus Sanati, “Phil Gramm and the UBS Tax Case,” New York Times, August 20, 2009.
17
. William Wechsler, “Follow the Money,”
Foreign Affairs
, July/August 2001.
18
.
United States of America v. Credit Suisse
, AG, Deferred Prosecution Agreement, U.S. District Court for the District of Columbia,
December 16, 2008. Details from Exhibit A, Factual Statement.
19
. Press Release, New York County District Attorney’s Office, “Barclays Bank PLC Agrees to Forfeit $298 Million in Connection with
Violations of the International Emergency Economic Powers Act and the Trading with the Enemy Act,” August 18, 2010; and Press Releases, U.S. Department of Justice, “Credit Suisse Agrees
to Forfeit $536 Million in Connection with Violations of the International Emergency Economic Powers Act and New York State Law,” December 2, 2009, and “Lloyds TSB Bank Plc Agrees to
Forfeit $350 Million in Connection with Violations of the International Emergency Economic Powers Act,” January 9, 2009.
20
. See http://www.nytimes.com/2010/06/05/nyregion/05hawala.html.
21
. Kevin Roose, “JPMorgan to Pay $88.3 Million for Sanctions Violations,”
New York Times
, August 25, 2011.
22
. Robert H. Hast, “Private Banking: Raul Salinas, Citibank, and Alleged Money Laundering,” testimony before the Permanent
Subcommittee on
Investigations, Committee on Governmental Affairs, U.S. Senate, November 9, 1999 (Washington, DC: U.S. GAO, 1998).
23
. U.S. Senate, Permanent Subcommittee on Investigations, “Money Laundering and Foreign Corruption: Case Study Involving Riggs
Bank,” July 15, 2004.
24
. Ed Vulliamy, “How a Big US Bank Laundered Billions from Mexico’s Murderous Drug Gangs,”
Guardian
, April 2, 2011,
http://www.guardian.co.uk/world/2011/apr/03/us-bank-mexico-drug-gangs; Andrew Nill Sanchez, “Big Bank Ignored Warnings That It Was Being Used to Launder Money by Mexican Drug Cartels,”
Think Progress
, April 20, 2011, http://thinkprogress.org/economy/2011/04/20/159951/wachovia-banks-drug-cartels/.
25
. http://thinkprogress.org/economy/2011/04/20/159951/wachovia-banks-drug-cartels/.
26
. Michael Smith, “Banks Financing Mexico Gangs Admitted in Wells Fargo Deal,” Bloomberg, June 28, 2010; David Cay Johnston,
“Bank of America Acknowledges Illicit Funds Moved Through Manhattan Branch,”
New York Times
, September 28, 2006;
United States of America v. American Express Bank
International
, Deferred Prosecution Agreement, U.S. District Court, Southern District of Florida, August 6, 2007.
27
. For settlement and other statistical data, see
Securities Investor Protection Corporation v. Bernard Madoff Investment Securities,
LLC
, U.S. Bankruptcy Court, Southern District of New York, Trustee’s Fifth Interim Report for the Period Ending March 31, 2011.
28
. Andrew Cave, “Bernard Madoff Fraud: Increased Scrutiny in Hedge Fund Industry,”
Daily Telegraph
, December 20, 2008.
29
.
Irving H. Picard Trustee v. Citibank NA et al.
, Complaint, U.S. Bankruptcy Court, December 8, 2010;
Picard v. Merrill Lynch
International
, Complaint, U.S. Bankruptcy Court, December 8, 2010;
Picard v. ABN Amro
, Complaint, U.S. Bankruptcy Court, December 8, 2010.
30
. http://www.forbes.com/sites/robertlenzner/2010/11/28/suit-says-ubs-feeder-funds-knew-madoff-was-fishy-back-in-2006/.
31
. http://www.ft.com/cms/s/0/e544bb08–0954–11e0–ada6–00144feabdc0.html#axzz1fKjlttnW.
32
.
Picard v. UBS AG et al.
, Complaint, U.S. Bankruptcy Court, December 7, 2010, 24.
33
.
Picard v. JPMorgan Chase & Co., et al.
, Complaint, U.S. Bankruptcy Court, December 2, 2010, 44.
34
. Ibid., 1; Diana R. Henriques, “Bankers Named Who Doubted Madoff,”
New York Times
, April 14, 2011,
http://www.nytimes.com/2011/04/15/business/15madoff.html.
35
. http://www.whitehouse.gov/the–press–office/2011/10/06/news–conference–president.
36
. Karen Freifeld and Linda Sandler, “Cuomo Sues Ernst & Young for Assisting Lehman Brothers in ‘Repo 105’ Fraud,”
Bloomberg, December 21, 2010.
37
. The relevant FCIC transcript can be found here, as well as on the FCIC website: http://cybercemetery.unt.edu/archive/fcic/20110310173928/
and http://www.fcic.gov/hearings/testimony/subprime-lending-and-securitization-and-enterprises.
38
. The letter is available online at http://dealbook.nytimes.com/2010/03/19/the-letter-by-lehman-whistle-blower-matthew-lee/.
39
. See http://dealbook.nytimes.com/2010/03/15/auditor-could-face-liability-over-lehman/.
40
. For one discussion of the cartelistic nature of the industry as reflected in these fee structures, see
http://www.bloomberg.com/news/2012-01-09/cohan-how-wall-street-turned-a-crisis-into-a-cartel.html.