Larry Doyle wrote a post on Steve Cohen and an insider trading scandal, while also discussing the Libor scandal (third article down). I had just read an article yesterday in Vanity Fair (2010) on Steve Cohen (second article down). At first I mistakenly thought Larry was connecting Steve Cohen to the Libor scandal. He is not–the connection is to alleged insider trading at his former company SAC Capital Advisors.
For those who think insider trading should be legalized, I've heard the argument and completely disagree.
The following in the NY Times discusses the insider trading scandal:
New Trading Case Casts a Deeper Shadow on a Hedge Fund Mogul
BY PETER LATTMAN AND PETER J. HENNING
In 2010, the billionaire hedge fund manager Steven A. Cohen gave a rare interview to Vanity Fair. He said that he wanted to combat persistent rumors that his firm, SAC Capital Advisors, routinely violated securities laws by trading on confidential information.
“In some respects I feel like Don Quixote fighting windmills,” Mr. Cohen said at the time. “There’s a perception, and I’m trying to fight that perception.”
Federal prosecutors only heightened that perception on Tuesday, bringing a criminal case against a former SAC employee in what Preet Bharara, the United States attorney in Manhattan, who brought the charges in Federal District Court in Manhattan, called the most lucrative insider trading scheme ever charged.
And for the first time, the evidence suggests that Mr. Cohen participated in trades that the government says illegally used insider information — though prosecutors have not said that Mr. Cohen himself knew the information was confidential, and he has not been charged.
Any prosecution of Mr. Cohen would most likely hinge on the cooperation of Mathew Martoma, the former SAC employee charged in the case. Mr. Bharara said in the charges that Mr. Martoma obtained secret data from a doctor about clinical trials for an Alzheimer’s drug being developed by the companies Elan and Wyeth. The information enabled SAC to avoid losses of almost $194 million on the stocks, which it sold and then bet against, reaping $83 million in profit — a total benefit to the firm of more than $276 million. SAC executed the trades shortly after Mr. Martoma e-mailed Mr. Cohen and said he needed to discuss something important.
Key questions: What did Mr. Martoma know? What did Mr. Cohen know? If he knew what Mr. Martoma is accused of knowing, will Mr. Martoma make a deal with the prosecution and confess all?
See also: SAC Capital – Too Much Of A Good Thing.
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What’s Eating Steve Cohen?
But first, who is Steve Cohen?
Is Steve Cohen the embodiment of all that’s wrong with Wall Street—complete with $12 billion hedge fund, gigantic Greenwich mansion, world-class art collection, litigious ex-wife, and rumors of insider information? Or is he just a brilliant stock forecaster with a bad back, a bad temper, and really bad P.R.? Scoring one of only two published interviews SAC’s billionaire C.E.O. has given in his 30-year career, Bryan Burrough digs into Cohen’s Rain Man–like gift for reading the stock ticker, his reputation, and his suggestion that he may just walk away from it all.
By Bryan Burrough
Rarely in history have so many Americans detested so few, in this case the pin-striped bankers of Wall Street and their kissing cousins, the secretive hedge-fund billionaires hidden within their mansions in Greenwich, Connecticut. There is angry talk emanating from the White House of new government controls and taxes on the financial sector. A revered investment bank, Goldman Sachs, is under investigation and is being charged with fraud, while federal prosecutors are busy strapping recording devices to traders as part of a sprawling probe into alleged insider trading at Galleon Group and other hedge funds.
That makes it a dicey time to be a man whose $12 billion hedge fund was at one time said to trade as much as 3 percent of all the stock moved on the New York Stock Exchange. Especially if you are dogged by ominous whispers of insider trading and secret dealings, and are widely seen as the ultimate target of all those federal investigators. You risk becoming a symbol that embodies all that is wrong with high finance, as Michael Milken was the last time Wall Street was under siege, in the late 1980s. It doesn’t help to dwell in what reporters always call the greatest mansion in Greenwich, Connecticut, a 30-room palace set inside a compound featuring its own basketball court and two-hole golf course. Or that you are seen as a distant and vaguely threatening man so private that The Wall Street Journal likened you to Howard Hughes and Greta Garbo…
Keep reading: What's Eating Steve Cohen? | Vanity Fair.
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Libor Scandal Update: More Evidence from Mid-1990s
Courtesy of Larry Doyle
Headlines this morning highlight the fact that SAC’s “portfolio manager A”, aka Steven A. Cohen, is linked to the largest insider trading scandal brought to date by the US Attorney’s Office in New York.
This $276 million scandal and the fact that Stevie-boy might finally be hooked is sure to create ooh’s and aah’s across Wall Street and the nation. If proven, Cohen and other conspirators deserve what they get.
Meanwhile in the adult pool little attention is paid to the fact that the “institutional” Libor manipulation scandal had bombshell developments yesterday.
I think the Libor manipulation scandal is the single greatest financial fraud in our history. Wall Street firms would clearly like to ring fence this scandal to a handful of rogue traders going back only 5 years or so. In the process, senior managers and those even higher up in a whole host of banks can be protected. Classic Mob-style tactics of creating the wall of protection. Not so fast.
A few months back I highlighted the story of a trader at Morgan Stanley named Doug Keenan who indicated that Libor was being manipulated back in 1991. Now we learn that others warned of the potential likely manipulation of this most widely tracked overnight interest rate back in the mid-1990s. Reuters provides riveting details in a Special Report : How Gaming Libor Became Business as Usual,
In late 1996, Marcy Engel, then a lawyer for Wall Street heavyweight Salomon Brothers Inc, fired off a warning letter to U.S. regulators: If they approved a Chicago Mercantile Exchange plan to change how a popular futures contract was priced, they would put at risk the integrity of a key interest rate in the global financial system.
The CME was already doing big business in its Eurodollar futures contract – a derivative product that lets traders bet on the direction of short-term interest rates – and it had long set the price for these contracts using a benchmark rate it tabulated itself. Now, it wanted to adopt a more commonly used rate published by the British Bankers’ Association, known as the London interbank offered rate, or Libor. Using this benchmark, the CME said at the time, “will make our Eurodollar futures an even more attractive risk management tool.”
The problem with the CME’s plan, as Engel saw it: The banks that set the rates in London daily were also able to take positions in the CME’s Eurodollar contract. In her letter to the U.S. Commodity Futures Trading Commission, she said tethering the futures contract to Libor “might provide an opportunity for manipulation” of the interest rate. A “bank might be tempted to adjust its bids and offers … to benefit its own positions.”
That was saying a lot. Libor is the average of what a group of international banks in London say it costs to borrow from each other for durations ranging from overnight to one year. It was, and still is, a global benchmark, the basis for all sorts of interest rates – everything from corporate and student loans to financial contracts. Moving it by mere fractions of a percentage point would affect borrowing costs around the world.
The CFTC received Engel’s letter on October 10. In the ensuing weeks, it received one other similar written warning from another banker. The agency wasn’t moved. In late December, it approved the CME’s request. On January 13, 1997, trading of Eurodollar contracts priced to Libor began.
The CME was right about the allure of pricing the contract to Libor. Trading of the Eurodollar contract exploded after the switch – from average daily volume of 394,348 contracts in 1997 to a peak of 2.5 million in 2007. Today, the trading accounts for about 7% of revenue for CME Group Inc.
But Engel was right, too. Since 2008, investigators in the United States, Britain and elsewhere have been looking into whether at least some of the 19 banks that take part in the weekday ritual of setting Libor used their place at the table to try to routinely nudge the rate in their favor.
The investigations cover the period from 2005 to 2009. But as Engel’s letter – obtained from CFTC archives – shows, regulators were alerted to the possibility well before U.S. and British authorities began investigating the matter in 2008. Further, a review of investigation documents and public records, as well as interviews with dozens of traders, suggests that Libor manipulation began as early as the 1990s, driven in large part by the growth of the CME’s Eurodollar contract into a multi-billion-dollar casino for betting on interest rates. (LD’s highlight)
Indeed, by the mid-2000s, manipulating Libor to profit on Eurodollar futures and other derivatives had become standard operating procedure among banks in a position to do so, according to people familiar with the market.
$276 million is a BIG number. Steven A. Cohen is a BIG name. That said, that number and that name pale in comparison to the multiple billions of dollars and the senior management on Wall Street (and regulators in Washington) involved in the manipulation of Libor over the course of the last 15 to 20 years.
Will the truth of this scandal ever fully come out? Will those involved even at the senior most levels of these banks receive real justice?
Little wonder why investors are fleeing our markets in droves (see declining volumes across almost every market segment and accompanying continued layoffs on Wall Street) and have little confidence in our regulators.
Navigate accordingly.
Related Sense on Cents Commentary
Sense on Cents/Libor Scandal
