Friday, April 23, 2010
Friday, April 16, 2010
As for now, here is what we know. Both the WSJ and the LA Times reports that Goldman was essentially passing profits to a hedge fund known as Paulson & Co. The LA Times article explains Goldman's fraud as follows:
The SEC's lawsuit alleges that Goldman did not tell investors in the securities that they were based on a portfolio of mortgage bonds selected by a hedge fund. The investment bank subsequently helped the hedge fund, Paulson & Co., place bets against the same bond portfolio, the suit says.Meanwhile, earlier in the week, The NY Times reported that Lehman's accounting methods are looking shadier by the minute. In particular, the Times article explains:
In the years before its collapse, Lehman used a small company — its “alter ego,” in the words of a former Lehman trader — to shift investments off its books.
I wonder which investment bank will be in the news for fraud tomorrow?
The firm, called Hudson Castle, played a crucial, behind-the-scenes role at Lehman, according to an internal Lehman document and interviews with former employees. The relationship raises new questions about the extent to which Lehman obscured its financial condition before it plunged into bankruptcy.
While Hudson Castle appeared to be an independent business, it was deeply entwined with Lehman. For years, its board was controlled by Lehman, which owned a quarter of the firm. It was also stocked with former Lehman employees.
None of this was disclosed by Lehman, however.
Friday, April 9, 2010
A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.
...I am interested in seeing how disclosure of the repo transactions varied across these firms. Assuming some firms were forthright in the effect that the repo transactions were having on their financial statements, did investors punish firms for being honest? I wonder if industry analysts were aware of the practice, and if so, did they expect most/all firms in the industry to engage in such transactions, regardless of whether or not the transactions were disclosed?
The data highlight the banks' levels of short-term financing in the repurchase, or "repo," market. Financial firms use cash from the loans to buy securities, then use the purchased securities as collateral for other loans, and buy more securities. The loans boost the firms' trading power, or "leverage," allowing them to make big trades without putting up big money. This amplifies gains—and losses, which were disastrous in 2008.
Wednesday, April 7, 2010
“The Center is intended to complement the work of the PCAOB in improving audit quality in this area, by identifying opportunities and incentives for fraudulent financial reporting,” Daniel L. Goelzer, the PCAOB’s acting chairman, said in a press release. “We believe the Center’s work will raise the awareness of the investing public, other regulators and interested parties of financial reporting fraud.”
According to the job listing, the PCAOB is searching for someone who, among other things, can monitor emerging fraud risks (financial and nonfinancial) and developments (geoeconomic and geopolitical) in domestic and foreign capital markets, industries and public companies and analyze and interpret financial trends, developments and anomalies to identify factors that may contribute to financial reporting fraud.
Health and Human Services Sec. Kathleen Sebelius said Tuesday she is warning state officials about a proliferation of scams involving phony health insurance policies. ...
Some of the hustlers are going door to door claiming there's a limited open-enrollment period to buy health insurance now. But the big expansion of coverage won't come for another four years, and door-to-door salespeople are unlikely to be part of the plan then.
"Unfortunately, scam artists and criminals may be using the passage of these historic reforms as an opportunity to confuse and defraud the public," Sebelius wrote in a letter to state insurance commissioners and attorneys general.
Thursday, April 1, 2010
Note: although this is a fraud blog where we frequently discuss deception, as far as I know, this is not an April Fool's joke.