I’ve got a new post up at Cato at Liberty about the Second Circuit’s sharply worded dismissal of two insider trading convictions, which alas came too late to avoid massive damage to the enterprises and people concerned. Quoting NYT “DealBook”:
The dismissal of the case also raises questions about the November 2010 raids of Level Global and Diamondback Capital Management by the Federal Bureau of Investigation. Soon after the raid on Level Global, the hedge fund, which was started by Mr. Chiasson and David Ganek, shut down, in part because of requests by investors to redeem their money after the raid. Mr. Ganek was never charged with any wrongdoing by federal authorities.
Diamondback, where Mr. Newman was a portfolio manager, continued to operate for another two years, but it decided to close its doors in December 2012 after receiving a wave of investor redemptions.
Mr. Ganek chided the government in a statement on Wednesday. “For the dozens of my high-integrity colleagues at Level Global who lost their jobs and their reputations because the F.B.I. improperly raided our firm in this now-discredited fishing expedition, today’s legal vindication is a reminder how prosecutorial recklessness has real impact on real people,” he said.
Raids, as opposed to subpoenas and other dull ways of obtaining information sought in an investigation, are irresistible to the press — and they greatly reinforce the public impression that there must have been serious wrongdoing at a target enterprise. That in turn can spell doom especially for financial undertakings, whose business will often be built on client and public trust. And if the case subsequently fails to stick by the evidence or the law, well, it’s on to the next prosecution, right?
More from Stephen Bainbridge and from Ira Stoll (more), who unlike many in the press gave skeptical attention to the case throughout its course.
House Republicans want answers on how federal agencies’ mega-settlements with issuers of mortgage-backed securities came to include tens of millions of dollars in payments to “housing counseling” groups allied with the Obama Administration [DS News] Earlier on banks’ payments to activists here, here, etc.
“The Justice Department has a suggestion for banks hoping to avoid criminal charges: Rat out your employees.” By agreeing to throw individuals under the bus, the company as a whole will qualify for valuable cooperation credits. [Ben Protess, New York Times "DealBook"] On a similar culture-of-informants theme, Eric Holder is proposing to further boost bounties for Wall Street informants into more massive contingency-fee territory: “Mr. Holder will urge Congress to allow bigger whistleblower rewards under the 1989 Financial Institutions Reform, Recovery and Enforcement Act…. Current law caps any Firrea whistleblower payment at $1.6 million.” [Wall Street Journal, earlier coverage and specifically]
On July 24 Cato held a book forum on Sidney Powell’s new book, “Licensed to Lie: Exposing Corruption in the Department of Justice” (earlier). Participants included the author Sidney Powell, with comments by Alex Kozinski, Chief Judge, U.S. Court of Appeals for the Ninth Circuit; and Ronald Weich, Dean, University of Baltimore Law School. My colleague Tim Lynch, who directs Cato’s work on criminal justice issues, moderated. From the description:
In Licensed to Lie, attorney Sidney Powell takes readers through a series of disturbing events, missteps, and cover-ups in our federal criminal justice system. According to Powell, the malfeasance stretches across all three branches of our government — from the White House to the U.S. Senate, to members of the judiciary. Even worse, the law itself is becoming pernicious. Americans can now be prosecuted, convicted, and imprisoned for actions that are not crimes. And if acquitted, there is no recourse against prosecutors who hid evidence vital to the defense.
Powell gives a detailed account of the prosecution and imprisonment of individual executives of well-known firms such as Merrill Lynch based on creative new theories of criminal liability, following dubious prosecutorial conduct including the withholding of evidence favorable to the defense, so-called Brady violations.
CALPERS, the giant California public-sector pension fund, is among the nation’s leading scolds of corporate governance. So as Ira Stoll points out, it’s kind of newsworthy that its CEO over most of the 2000s just pled guilty to taking $200,000 in bribes from a contractor, the money handed over in paper bags and a shoebox. [New York Sun]
The city of Providence R.I. has consented to serve as their client [Kansas City Star, Reuters, Center for Financial Stability, earlier on Michael Lewis book]
As you might have heard, Michael Lewis has a new book out [Tyler Cowen, Cato panel with Louise Bennetts, Holly Bell and Hester Peirce, Charles Gasparino/NY Post]
We’ve been reporting on Standard & Poor’s contentions for a while (here, here, here), and now allegations have surfaced in a new legal filing [Politico; background from Cato's Mark Calabria]
Marc Hodak: “The golden parachute became popular after passage of the Williams Act [of 1968, which insulated managements against "hostile" takeover offers] because the Act effectively gave CEOs a veto over the acquisition of their firm. … Note that this ‘rent extraction,’ as it’s termed by economists, was not the result of managerial power granted by a lazy or corrupt board to a greedy CEO. This was managerial power created by law.”
My new Cato post tells how on-site feds increasingly direct big business decisions.
P.S. Related thoughts on deferred prosecution agreements from Brandon Garrett and David Zaring at NYT “DealBook.”
Roger Parloff makes the story clearer and more understandable than I’ve seen it anywhere else. [Fortune cover story]
Matt Levine concludes that a large share of it was for making dumb trades, as opposed to intentional malfeasance. (Earlier on whether regulators had taken a bead on Morgan because of chief Jamie Dimon’s perceived bad attitude.) Will Morgan’s admissions materially help plaintiff’s lawyers in the inevitable shareholder class action? Don’t be so sure [Alison Frankel, Reuters] More: WSJ (sees politics), Hank Greenberg via FedSocBlog, Iain Murray.
“Ratings agency Standard and Poor’s (S&P) has claimed the lawsuit filed against it by the US Justice Department was ‘retaliation’ against its decision to downgrade the US’s credit rating.” [BBC; earlier here, here] My Cato colleague Mark Calabria, a specialist on banking and finance issues, sees a pattern at work in which businesses that make life hard for the government get hit with enforcement actions:
Maybe S&P can compare notes with Craig Zucker of Buckyballs fame.
“Standard & Poor’s is trying to show it was unfairly singled out in a $5 billion fraud lawsuit 18 months after it downgraded U.S. sovereign debt. Getting the government to provide supporting evidence will prove difficult.” [Bloomberg Business Week]