Insider Trading: Massive Investigation in the Works

Various news outlets are reporting that federal authorities are working on what sounds like a massive case to prosecute about 120 individuals in an insider trading crackdown on Wall Street. 

The FBI has also released a video with Michael Douglas commenting on the problems of insider trading. It appears this is a focus of prosecution for federal authorities for the time being....

Olympus Fraud: More to the Story

Bloomberg-Business Week had a great story about Michael Woodford, former President and CEO of Olympus, and how he came to be the person to blow the whistle on the corrupt leadership of Olympus. The story includes everything from the Japanese Mafia (aka Yakuza) to the missing money that is in the billions and may never be found. Here is one paragraph to wet your appetite:

Woodford, 51, recounted how he had just returned from Hong Kong, having fled Tokyo after a board meeting in which Olympus Chairman Tsuyoshi Kikukawa had fired him. The cause for dismissal, according to Woodford: his insistence that Olympus officials come clean about a series of questionable purchases dating to 2006, totaling $1.6 billion, none of which had been adequately reported in the company’s consolidated financial statements. The deals had been approved by Kikukawa and the Olympus board, yet in several cases the parties receiving the sums were not even clearly identified in Olympus’s books.

This is a crazy story that I'm guessing will be made into a movie some day. In any case, the article says Woodford is working on a book. I may have to read that one... 

Affinity Fraud--A Radio Interview

Check out this radio segment (Segment 2) where Mark talks about affinity fraud.

Catching up on fraud in the news

Olympus Scandal Leads to Arrests: Seven employees have been arrested in conjunction with the alleged financial statement fraud at Olympus.  Whether those arrests will lead to criminal punishment remains to be seen:

Under Japanese securities laws, the men arrested Thursday could each serve up to 10 years if found guilty. But convictions for white collar-crime have been rare in Japan, and courts have been known to hand down suspended sentences even in egregious cases.

Alan Stanford's Ties to Soc Gen Probed: Stanford is alleged to have used a Swiss bank account with Societe Generale as a slush fund through which he bribed regulators and auditors.  Soc Gen is also being accused of having had knowledge of Stanford's dealings and to have profited thereby.  From the article:

“SG Suisse had a special, extensive, symbiotic and nefarious relationship with Stanford from which it greatly benefited,” the lawsuit says, alleging that by December 2008, bank officials “realized the Stanford Entities were insolvent,” and the bank wanted its money bank. 

What Do I Have Against Lance?

I was told by a friend that someone asked him what I have against Lance. Maybe others have also wondered that. Before I get to that, let me comment on some other news in pro cycling.

Lance Armstrong Investigation: Skeptics at ESPN

I just read a thought piece at ESPN about the Lance Armstrong investigation being suddenly dropped this past week. The author offers several thoughts on how this may have happened and is generally pretty skeptical that it wasn't--at least--a political move in the Obama administration. If so, we definitely have some corrupt politicians IMO...Check out the article, it's short but worth the time.

Lance Armstrong Investigation: Petition Opened

I received an email today that informed me about a petition on the White House website asking for President Obama's administration to look into and comment on the reason that the Justice Department dropped the Lance Armstrong investigation. The petition (click here to go to the petition) requires 25,000 signatures. Last I checked it only had about 100 signatures so it has a way to go. If you're interested in finding out more about why this investigation was closed, you might want to take a minute to sign the petition and pass this link on to friends who also might be interested.

Lance Armstrong Investigation: More to the Story

Several news outlets (including NPR, VeloNation and CyclingNews) are reporting that the decision to drop the criminal charges against Lance Armstrong came as a big surprise to several federal agencies that were working on the case. The word is that the other agencies believed they had a solid case against Lance. You have to wonder what motivated the individual at the US Attorney's Office who allegedly made this decision on his own, Andre Birotte, to take this action. Was Birotte given a donation like the UCI received a donation?! Here are some quotes to consider:

Contador Ruling: Stripped of Tour de France Title

VeloNation is reporting that the Court of Arbitration in Sport (CAS) has ruled on Alberto Contador and, to my surprise, they found that his doping violation will hold. What this means is that he is stripped of one of his Tour de France titles, a Giro d' Italia title and several wins in other races. Contador was given the full two-year ban. It appears that justice is sometimes served in pro-cycling!

The SEC's Record with Large Ponzi Schemes: Not So Hot

I've been listening to Harry Markopolos's book, "No One Would Listen: A True Financial Thriller" (I recommend it by the way) and have been surprised at how much of the book is devoted to criticizing the SEC. From Harry's account, the SEC totally dropped the ball and was incompetent, corrupt or both in how it handled the Madoff case. I personally think he has a pretty good argument and that the SEC has managed to avoid serious consequences even though the Madoff case was a tragedy that they could have prevented.

Well, now that the Stanford Ponzi scheme is being tried, we are learning that the SEC also dropped the ball with Sir Charles. It may be that the SEC really doesn't understand Ponzi schemes or that they are underfunded, undereducated, understaffed and under-incentivized. All we know for sure is that they appear to be underperforming. Reuters has an article that talks about how Sir Charles was able to keep the SEC at bay for so many years while he built his Ponzi empire, complete with retail offices in the U.S. I recommend it for further insight.

One claim by Markopolos is that the SEC staff are all basically looking for a job in industry to make more money. As such, when they go to investigate a firm, they also ask for a job application. The Reuters article seems to add a second witness to this claim as it describes a former SEC investigator by the name of Barasch and his role in helping Stanford stay out of the SEC's crosshairs:

Barasch was told at the time by an SEC ethics officer that he was legally precluded from representing Stanford. Barasch went to work for Stanford anyway. In a later investigation of the failure to catch Stanford earlier, the SEC Inspector General asked Barasch why he did so. His reply, according to the Inspector General's report: "Every lawyer in Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines." 

FBI agents and prosecutors also uncovered evidence that on at least two occasions Barasch sought confidential information regarding the SEC's probe of Stanford during his brief representation of the banker, Justice Department officials said in court records and a press release. 

In agreeing to pay the fine, Barasch denied any misconduct, settling the matter "to avoid the expense and uncertainty of protracted litigation," his attorney, Paul Coggins said.

Another claim by Markopolos is that the SEC seemed to avoid taking on the Madoff case because it was too large and complex. Instead, they went after cases that Harry describes as fleas while the elephant (Madoff) was running free. This Reuters article also seems to bear this out in the following quote:

In 1997, 1998, 2002, 2004, and 2005, according to internal agency records seen by Reuters, examiners for the SEC recommended that the agency investigate Stanford. In three of those instances, Barasch, at the time an SEC official in Ft. Worth, personally overruled the examiners' recommendations, according to those records. Those decisions helped the Ponzi scheme to continue unabated for several additional years, costing investors additional billions of dollars, according to a report by the SEC's Inspector General. 

Barasch told the SEC Inspector General that he made those decisions because he was not sure the SEC had the statutory authority or jurisdiction to investigate. He blamed his superiors and a broader culture within the SEC for pressuring the staff not to pursue complex and difficult cases, according to the Inspector General report. 

Apparently, Barasch was able to help Stanford both while he worked for the SEC and after he went to work for Sir Allen (i.e. Stanford) himself. Sounds like a bad case of a corrupted fraud investigator. I have a feeling I will be reading another book in the future about how the SEC dropped the ball in the Stanford Ponzi scheme too, costing thousands of people billions of dollars.

Lance Armstrong Investigation: What Did We Learn?

As you've probably heard, it was announced yesterday that the Grand Jury investigation that involved Lance Armstrong's alleged criminal activity on the U.S. Postal Service cycling team has been closed without any charges. When this investigation first opened, I remember talking with a friend about what would come of it. I thought at the time that the most likely scenario was that we would learn a lot more about Lance and that his reputation would be seriously damaged but that it was unlikely that he would find himself in jail. I never totally thought it was impossible that Lance would end up in jail but I thought it was a very long shot (like half court at the buzzer). After all, if they couldn't find his blood or urine with drugs in it then it would probably be hard to make the charges stick.

In my view, Lance's record has become extremely tainted from the news of the past two years. If you believe the saying that where there is smoke there is fire, then you have to observe all the smoke that came from this investigation and conclude there must be something causing it. The following points are what I think are some of the biggest stains on his record that came from this investigation. As I look at the list, I have to believe that those who followed the investigation will likely have lost most, if not all, respect for Lance (unless they are in complete denial and hero worship). Here is my summary (with links to the top posts on the topic) of the most interesting, and in many cases the most damaging, tidbits to come out from this investigation:

Stanford Trial: Two Friends Become Enemies

The NY Times discusses how the trial regarding the alleged Ponzi scheme run by R. Allen Stanford will pit Stanford against his long-time friend and CFO of Stanford Financial Group before it collapsed, James M. Davis. It's a classic example of the Prisoner's Dilemma. Here are some excerpts: