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Wall Street – How Corrupt Is It? It’s Time for the Justice Department to Finally Answer that Question

Courtesy of Pam Martens

BusinessWeek Cover, May 13, 2002

BusinessWeek Cover, May 13, 2002

On May 26 business media reported that the U.S. Department of Justice had opened a probe into the March collapse of the Archegos family office hedge fund. Archegos is believed to have leveraged $20 billion of its own capital into more than $100 billion in stocks and derivative exposure through margin loans tricked up as derivatives by some of the largest banks on Wall Street.

One of the laws that the banks may have fallen afoul of is the Fed’s Regulation T. Under Reg T, broker dealers on Wall Street could not have loaned Archegos more than 50 percent to make its stock purchases. To get around this, the banks did not open a margin account for Archegos. Instead, the banks structured derivative contracts where they loaned as much as 85 percent of the money to Archegos to make the trades while claiming to retain ownership of the stock themselves.

The October 1996 Cover of Registered Rep Magazine Dealt with a Decade of Price Fixing by Major Wall Street Firms on the Nasdaq Stock Market; Taped Calls Showed a Wall Street Cartel That Manipulated Market Prices to Make Profits for the House.

This maneuver evaded another important rule that benefits both U.S. corporations and all investors. When an individual or other entity acquires 5 percent or more of a company’s stock, they have to make a public filing with the Securities and Exchange Commission – allowing the company and other investors to be aware of who is acquiring the company’s stock. But as Sung Kook “Bill” Hwang, the man behind Archegos, was amassing his giant stakes in publicly traded stocks like Viacom CBS, the public was deprived of this information because the banks were claiming ownership of the shares on their own 13F filings with the SEC. This denied the company and other investors of the knowledge that a man previously charged by the SEC with insider trading and manipulating stock prices was the dangerously leveraged force behind the runup in the share price of ViacomCBS and a number of other stocks. Those stocks immediately plunged back to earth when Archegos blew up.

In the runup to the Wall Street crash of 1929, Wall Street banks formed “pools,” which were actually cartels to drive a bull run or a bear raid in a particular stock. There is a striking similarity between the pools of the late 1920s and what was happening at Archegos — and many other, as yet unnamed, hedge funds.



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