By Pam Martens: May 18, 2012

On May 16, the U.S. Senate Judiciary Committee convened a hearing on “Oversight of the Federal Bureau of Investigation.”  The hearing came less than a week after JPMorgan Chase announced it had lost at least $2 billion of insured deposits in a so-called hedging strategy it has yet to define.  (According to media reports today, that loss is now dramatically larger.) 

Senator Richard Blumenthal at Senate Judiciary Hearing

Senator Richard Blumenthal is a member of the Judiciary Committee with an impressive resume as a former prosecutor, serving five terms as Connecticut’s Attorney General as well as a former U.S. Attorney for Connecticut. 

When Senator Blumenthal’s turn came to question FBI Director Robert Mueller, the dialogue went as follows: 

Senator Blumenthal: “I would like to ask first about the JPMorgan Chase investigation.  Can you tell us what potential crimes could be under investigation, without asking you to conclude anything or talk about the evidence.  Would it be false statements to the Federal government or what area of criminal activity?” 

FBI Director Mueller: “I’m hesitant to say anything other than what is available under Title 18 or available to the SEC would be the focus of any ongoing investigation.” 

Senator Blumenthal: “Can you talk at all about the timing of that investigation?” 

FBI Director Mueller: “All I can say is we’ve opened a preliminary investigation and, as you would well know, having been in this business for a long time, it depends on a number of factors.” 

Senator Blumenthal: “And, I’m not going to press you further but I would just encourage you – without your needing any encouragement I’m sure – to press forward as promptly and aggressively and expeditiously as possible because I think that the American public really has lost faith in many other enforcement agencies partly because of the delay and lack of results and I think that the FBI’s involvement is a very constructive and important presence in this area.” 

The reference to Title 18 of the U.S. Code by FBI Director Mueller is the law governing a broad cross section of crimes and criminal procedure.  It includes false statements to Federal investigators. 

What might have been behind Senator Blumenthal’s thinking when he specifically asked about false statements? 

There are a number of red flags and they all center around Jamie Dimon, Chairman and CEO of JPMorgan Chase. On a conference call with Wall Street analysts on April 13 to discuss JPMorgan’s first quarter earnings, Dimon and CFO Douglas Braunstein made an upbeat assessment of where the firm stood in terms of revenues, profits and risk management. Dimon dominated the answer and question part of the call. There is now growing suspicion that Dimon intentionally withheld information about losses.

FBI Director Robert Mueller at Senate Judiciary Hearing

Because of the swift action by the FBI to open a preliminary investigation, and take the unusual step of acknowledging the fact, there may be a current or former employee of JPMorgan acting as a whistleblower and providing a solid evidentiary base for the investigation.  If Dimon is aware of the whistleblower’s existence, that would explain why he held an unexpected conference call on short notice with analysts on May 10 to alert them to the mind numbing losses of depositor funds.

Regulators have briefed the Senate Banking committee and it did not like what it heard.  Dimon will be testifying before that committee at some point within the next few weeks.

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JPMorgan to Return Some MF Global Customer Funds

News Update: The Trustee, James Giddens, representing customers in the MF Global missing customer funds debacle has obtained $168 million of the funds JPMorgan improperly held, according to a statement his office issued this afternoon.   That amount constitutes just a portion of what the Trustee says JPMorgan is improperly holding that rightfully belongs to customers.  Negotiations continue for the balance.

Now that the FBI is nosing around JPMorgan, maybe Jamie Dimon will decide that hanging on to illegally obtained customer funds is not worth the risk of yet another FBI probe.

By Pam Martens: May 14, 2012

Jamie Dimon, the red-faced Chairman and CEO of JPMorgan Chase, who last week reported a $2 billion trading loss at the firm, has a rare quality.  He talks really fast, uses a lot of plain, folksy words, and leaves us dumber than when he started speaking.

Jamie Dimon, Chairman and CEO of JPMorgan Chase, which holds over $1 Trillion of the life savings of customers: "Just because we’re stupid doesn’t mean everybody else was."

It feels like Dimon is hoping to talk fast enough and call himself stupid often enough that no one  notices that he hasn’t told us a thing we need to know:

Like – exactly how did you lose $2 billion of your depositors’ money?

Like – when will you cut your losses short and unwind this “stupid” trade?

Like – why haven’t you already unwound this “stupid” trade?

Like – how is this different from AIG Financial Products selling credit default insurance, collecting the big quarterly premiums on that insurance to boost revenues, profits and pay big bonuses to staff, then owning up to huge losses that crippled the firm.

Like – why are you allowing “stupid” derivative trading to be conducted in London, 3400 miles away from where you and your regulators are?

Like – what part of never stay in a losing trade, cut your losses short, don’t you understand? 

May 1, 2012

At approximately 10:28 p.m., after a large presence of New York City Police broke up a general assembly of Occupy Wall Street protestors in lower Manhattan, announcing by megaphone that protestors would be arrested if they didn’t disperse, the police began to indiscriminately arrest peaceful participants.  

After forcing protestors out of Battery Park and onto the street, a wall of police surrounded the protestors, preventing their movement, while simultaneously telling protestors they would be arrested if they didn’t disperse.  There were multiple reports of police brutality.  At 11:00 p.m., about 200 occupiers had reassembled in Zuccotti Park, birthplace of the movement. 

There were reports of violent confrontations between police and occupiers in Seattle and Oakland.

Photos of police action between 10:30 p.m.  and 11:00 p.m. in New York City. 

May 1, 2012

As video and photos from citizen journalists showed the largest May Day turnout since the inception of Occupy Wall Street in New York City, the international news wire, Reuters, ran the following headline: “Occupy Wall Street Resurgence a Dud.”  The headline was accompanied with the following text:

“Occupy Wall Street was planning to make a big comeback, taking aim at old targets like Bank of America and headquarters of Rupert Murdoch’s News Corp. empire. But the demonstration lacked the crowds of the protest’s early days, leading many to question if the movement has any movement left.”

First, using the word “movement” twice within a span of five words is, well, bad journalism.  Failing to peek out a window in Manhattan is just plain dumb.

NYPD Guarding JPMorgan Chase, May Day 2012

May 1, 2012

Members of the New York City Council and participants in the Occupy Wall Street protests filed a lawsuit in Federal Court on April 29, chronicling an out of control New York City Police Department that is systematically crushing civil rights and quashing dissent through brutal force, lies, cover-ups and attempting to block both mainstream media and citizen journalists from covering the illegal acts.

A stunning video reminiscent of brutal dictator regimes that documents the police brutality and crackdown on peaceful protestors was included in the exhibits provided to the court.  The video can be viewed here:

The lawsuit charges the Mayor of New York City, Michael Bloomberg, and Police Commissioner, Raymond Kelly, with conspiring with private corporations to suppress the constitutional rights of citizens.  JPMorgan Chase is named as a defendant in the lawsuit and one of the co-conspirators for illegally blocking access to a public plaza.

Despite the lawsuit, the NYPD was out in force in front of JPMorgan Chase today as protestors held a demonstration in front of the bank.

Protestors Chant Outside JPMorgan Chase, May Day 2012

Jon Corzine Giving Testimony Before House Financial Services' Subcommittee on Oversight and Investigations, December 15, 2011

By Pam Martens: April 27, 2012 

Jon Corzine, former CEO of MF Global, the financial firm that collapsed with a $1.6 billion hole in customer accounts, has wealth, a top criminal attorney, and political clout in Washington.  But there’s another lesser known John in the MF Global story who is proving himself to be a tenacious thorn in the side of the former U.S. Senator and Governor from New Jersey.  

John Roe has what Jon Corzine should fear most: he’s an industry executive and former insider at the predecessor firm of MF Global — Refco, Inc. — and understands how its accounting technology works.  He’s not buying the “official” story that $1.6 billion of customer money just innocently fell into the wrong hands during the last week of the firm’s existence. 

John Roe, Co-Founder, Commodity Customer Coalition

Since MF Global filed for Chapter 11 bankruptcy on October 31, 2011, Roe has led a whirlwind assault on Corzine’s version of events and the Wall Street power players who hoped to pocket customer funds with no questions asked. 

Roe quickly co-founded the Commodity Customer Coalition with attorney James Koutoulas, a nonprofit which is advocating in the courts and public arena on behalf of over 8,000 customers of MF Global.  

In an April 2, 2012 letter to U.S. Attorney Eric Holder, U.S. Attorneys General for the Chicago and New York districts where MF Global maintained offices, and members of the Senate and House committees investigating the collapse, Roe wrote that there was “intent to commit an actual fraud…” 

“Our assertion that intent to commit an actual fraud occurred in the MF Global collapse centers on the combination of two different sets of transfers. Documents obtained by the CCC show that in the final week of October 2011, MF Global converted customer wire transfer requests to payments by check. At the same time, MF Global sent wire transfers to counterparties from that same customer segregated account to satisfy proprietary obligations. Specifically, we are referring to a wire transfer of $200 million from MF Global’s customer segregated account to a proprietary MF Global account held by JPMorgan in the UK. This account in London was overdrawn by $175 million. At the same time MF Global was wiring this money to its creditors out of customer segregated funds, it was sending money by check to customers seeking withdrawal of their funds, despite the fact that customers asked for wire transfers and MF Global’s standard practice was to send customers their funds by wire. These activities—paying creditors quickly while returning customer funds as slowly as possible—provide strong evidence that MF Global knew or should have known that it was sending customer funds (not excess segregated funds) to its creditors in its final days.” 

Roe gets some evidentiary backup to this assertion from an internal document that has surfaced.  Just eighteen days before MF Global filed for bankruptcy, its top fiduciary departments prepared a hypothetical death spiral scenario titled “Break the Glass.” The document mapped out a playbook of how the firm should respond if its debt was downgraded by the ratings agencies.  The following statement appears in the document: 

“How quickly do we want to send cash back to clients, what is the message if we do not send immediately, what is the strategy if we want to keep the customer and wait until the storm passes…”

The checks mailed to customers bounced because they were received after the firm had filed for bankruptcy and the bank accounts were frozen.

JPMorgan Chase has also come into Roe’s cross hairs for still holding on to customer funds six months after the firm failed.  On April 23, 2012, Roe and Koutoulas filed a letter with the same investigators who had received the April 2 letter, calling out JPMorgan Chase’s “pattern and practice of improperly using customer funds.”  The two wrote: 

“In terms of relief, the CCC first requests that U.S. Government officials demand that JPMorgan Chase disgorge all MF Global customer property immediately. Second, given JPMorgan Chase’s apparent business pattern and practice of improperly using customer segregated funds—as evidenced by the recent CFTC nominal fine of $20 million for similar misconduct in Lehman —the CCC requests that lawmakers and the regulatory agencies work together to implement a ‘three strikes rule’ for corporate bad actors like JPMorgan Chase because the current nominal fines are viewed as simply a cost of doing business rather than a legal deterrent.” 

James Koutoulas, Co-Founder of the Commodity Customer Coalition

Also on April 23, 2012, Roe wrote to the U.S. Senate Banking Committee to question the conduct of Louis J. Freeh, the former FBI director who was appointed as Trustee for MF Global’s parent holding company.  Roe believes the Chapter 11 bankruptcy should be converted to a Chapter 7 to prevent it from becoming a windfall for Wall Street lawyers. 

Roe wrote the following to the Senate Banking Committee: 

“Chapter 11 permits MF Global’s creditors to pay for their legal expenses out of the estate of MFGH. Two of those creditors are the two largest banks in the United States. While they receive the benefit of having assets of MFGH pay for their legal expenses, customers of MF Global have to pay their own way. If recoveries of MFGI customers are available at the holding company, as the SIPA Trustee now contends, the net effect of this will be that misappropriated customer property of farmers and ranchers pays for the legal expenses of large banks and financial intuitions. The legions of professionals now billing the assets of the MFGH estate will amount to a plundering of MFGI’s customer assets. The chilling effect this result would have on financial markets in the US cannot be overstated. A conversion to Chapter 7 corrects this patently unfair use of the bankruptcy laws for the direct financial benefit of ‘too big to fail’ banks who received taxpayer assistance in 2008.” 

While MF Global remains a black hole of opacity in many respects, it’s safe to assume that were it not for John Roe and James Koutoulas, both customers and the public would have far less clarity on the largest Wall Street collapse since Lehman Brothers.

By Pam Martens: April 21, 2012

MF Global’s Regulators Take the Oath Before Congress; They Have Yet to Explain What Happened to $1.6 Billion of Customer Funds

The U.S. Senate Committee on Banking, Housing and Urban Affairs will hold a hearing on Tuesday, April 24, to seek answers on how a brokerage firm teetering toward bankruptcy misplaced $1.6 billion of customer funds – funds that by law must be held in accounts that are segregated from the firm’s own money. Thus far, since December, Congress has held five hearings with no clarity emerging on precisely where the money is or who is responsible for dipping in to customer funds. 

The firm is MF Global, whose Chairman, CEO and Debt Trader in Chief, was Jon Corzine.  Corzine took the helm at MF Global in March 2010 and blew it up just 19 months later with a spectacularly ill-conceived bet on $8.1 billion of foreign sovereign debt in BIIPS – Belgium, Ireland, Italy, Portugal, and Spain – as well as Greece and France.  Before his stint at this, heretofore, obscure brokerage firm, Corzine traveled in the fast lane reserved for those anointed as a former co-head of Goldman Sachs, as well as former Senator and Governor from New Jersey. 

There have been thousands of headlines referring to the customer money as “missing.”  But Congress, the regulators, the former and current executives, as well as the two trustees administering the MF Global estate know that the money isn’t really missing.  The money was misappropriated. 

Edith O'Brien, former Assistant Treasurer of MF Global, Takes the Fifth Before Congress

A good chunk of these misappropriated funds are sitting in the vaults of the largest Wall Street firms, who hit MF Global with demands for additional collateral or held on to proceeds of trades to cover MF Global loans as the firm went into a death spiral in its final week of October 24, 2011.  Approximately $700 million is owed by the trustee for a foreign subsidiary, MF Global UK Limited, according to the trustee hired by the Securities Investor Protection Corporation (SIPC) to oversee the return of customers’ funds in the U.S. 

Questions that are likely to come up during Tuesday’s hearing are: why the Commodity Futures Trading Commission has asked the Chicago Mercantile Exchange to cease and desist from investigating the collapse of MF Global; why the trustee for the parent holding company has been unable to file a list of the corporation’s assets after five months since the bankruptcy filing; why there are news reports of animosity and the withholding of documents between the trustee for the customers’ accounts and the trustee for the creditors of the holding company; why MF Global’s self regulatory agencies gave waivers to Jon Corzine that released him from taking the necessary licensing exams to run a commodity, futures and securities firm.

The hearing on Tuesday, to run from 10:00 a.m. to 12:00 noon in Room 538 of the Dirksen Senate Office Building, will include testimony from the following: James W. Giddens, Trustee, for the liquidation of MF Global Inc.; Louis J. Freeh, former FBI Director and Trustee of the parent holding company, MF Global Holdings; Jill Sommers, Commissioner of the U.S. Commodity Futures Trading Commission which was MF Global’s primary regulator; Robert Cook, Director, Division of Trading and Markets, U.S. Securities and Exchange Commission; Richard Ketchum, President, Chairman and CEO, Financial Industry Regulatory Authority (FINRA); and Terrence A. Duffy, Executive Chairman, Chicago Mercantile Exchange.

Judith Mione (Left) Holds 1997 NOW "Woman of Courage Award." Pam Martens, Editor of Wall Street On Parade, Right.

April 16, 2012

An event honoring Judy Mione, Wall Street veteran and activist for women’s equality in the male dominated field of securities trading will be hosted by her daughter, Lynn Mione, on April 23 on Long Island, New York. 

Judy Mione, who died last year following a long battle with breast cancer, was a lead plaintiff in the high profile Federal lawsuit against the New York Stock Exchange, National Association of Securities Dealers and the retail brokerage firm, Smith Barney.  The suit forced out of the shadows Wall Street’s private justice system known as mandatory arbitration and its pivotal role in keeping Wall Street’s misdeeds hidden from public view in open courtrooms.  (Both the New York Stock Exchange and the National Association of Securities Dealers were successful in removing themselves as parties to the suit.) 

The lawsuit became infamously known as the “Boom Boom Room” case following media saturation revealing that Smith Barney had set up a frat house style drinking room in the basement of one of its brokerage offices which the branch manager dubbed the “Boom Boom Room.”  

Mione refused to take part in the settlement of the lawsuit (as did the Editor of this web site, Pam Martens) when it richly rewarded the plaintiffs’ lawyers but called for more private justice systems for claimants in the settlement. The five year legal battle was the focus of an award winning book by Susan Antilla, “Tales from the Boom Boom Room.”  Judy Mione was honored by the National Organization for Women (NOW) in 1997 and presented with a “Woman of Courage” award.

The event will be held at The Vine Bar, owned by Judy Mione’s daughter, Lynn, from 6 to 8 p.m. on Monday, April 23.  The Vine Bar is located at 2259 Merrick Road in Merrick, Long Island, New York. 

A donation to the St. Jude Children’s Research Hospital will result from the event. Admission is $40 per person and includes hors d’oeuvres and wine.  For more information, call (516) 812-7883.

By Pam Martens: March 19, 2012

The muppets are in revolt against their masters.  No, I don’t mean customers of Wall Street’s big firms.  I’m speaking of corporate media muppets.  Greg Smith lit a match and now there are smoldering embers dangerously burning at Bloomberg Views and Forbes.

Smith is the 33-year old derivatives executive at Goldman, Sachs & Co. who published his blistering resignation letter on the OpEd page of the New York Times.  According to Smith, managing directors at Goldman call their clients muppets and openly speak about “ripping their clients off.”  Smith said the environment at the firm is “as toxic and destructive as I have ever seen it.”

The OpEd was published on Wednesday, March 14, and went viral on the internet.  Next came a mesmerizing look at the underbelly of crony capitalism.  The Mayor of the city that sent its police in the dead of night to rough up journalists and censor press coverage of their raid and destruction of the Occupy Wall Street encampment at Zuccotti Park in lower Manhattan, is condoning Wall Street employees manning a spy center alongside NYPD cops to keep tabs on protestors, and rents out uniformed, armed cops to Wall Street firms, went into damage control mode for his pals at Goldman over Smith’s letter.

According  to the New York Times, by Thursday Mayor Michael Bloomberg, a former trader for the investment bank, Salomon Brothers, was shaking hands on the trading floor at Goldman and having a burger with CEO Lloyd Blankfein.   According to the 2012 Forbes list of billionaires, Bloomberg ranks number 20 with $22 billion stashed away.  As we previously reported, the Mayor’s business empire which bears his name, includes the expensive Bloomberg terminal, a computer that houses enormous pricing data for stocks, bonds, research, news, charting functions and much more. There are currently an estimated 290,000 of these terminals on Wall Street trading floors around the globe, generating approximately $1500 in rental fees per terminal per month. That’s a cool $435 million a month or $5.2 billion a year, the cash cow of the Bloomberg businesses.  In other words, when the Mayor paid a visit to Goldman on Thursday, he wasn’t just visiting an important employer in New York City, he was visiting one of his biggest clients, while on the taxpayer’s payroll.

At 6:41 p.m. on the same day that Smith’s OpEd ran, Bloomberg View, the opinion pages of the Mayor’s publishing empire, launched an unsigned, snarky and decidedly lop-sided attack on Greg Smith.  The anonymous editorial page authors sounded more like dodgy pr flaks:   

“We have some advice for Smith, as well as the thousands of college students who apply to work at Goldman Sachs each year: If you want to dedicate your life to serving humanity, do not go to work for Goldman Sachs. That’s not its function, and it never will be. Go to work for Goldman Sachs if you wish to work hard and get paid more than you deserve even so. (Or if you want to make your living selling derivatives but don’t know what a derivative is, as Smith concedes in passing that he didn’t at first.) 

“Goldman and other investment banks do perform an important role in our economy, and Goldman bankers — most of them, at least — can hold their heads up high. But it is not charity work. Goldman’s clients are mostly very well-off. Smith’s lament that the bank no longer serves their needs above and beyond its own does not tug at our heartstrings.” 

Just how do these anonymous authors know that most Goldman bankers “can hold their heads up high.”  How could anyone know that?  The SEC sure doesn’t know it, having charged Goldman with defrauding investors on April 16, 2010.  At the time, Robert Khuzami, Director of the SEC’s Division of Enforcement, said: “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.”  Goldman settled that complaint for $550 million and promised to reform its business practices.  Other examples of Goldman’s jaded ways with its customers abound, dating all the way back to 1928. 

In the asset bubble of 1928, Goldman ran the Goldman Sachs Trading Company, a closed end fund (called a trust in those days) that Goldman Sachs created and offered to the public at $104 a share.  The trust was stuffed with conflicted investments while paying Goldman a hefty management fee, only to end up a few years after the 1929 crash trading at a buck and change. On May 20, 1932, Walter Sachs, President of the Goldman Sachs Trading Company, was grilled by the Senate Committee on Banking and Currency. The implication was the same as the 2010  Senate hearings: Goldman royally fleeced its customers to line its own pockets. 

As of this morning, 658 reader comments have been posted to Bloomberg Views’ anonymous editorial.  Here’s a representative sampling: 

Zachariahwheeler writes: “…the manner in which you respond to Mr. Smith smacks of desperation and makes you sound dunce-like indeed…” 

FoolCount writes: “What kind of crap ‘editorial’ is that? Does the author really not see a difference between honest money-making and shamelessly screwing one’s own clients?” 

MarcusLim writes: “This editorial is, in one word: Disgusting. Making money, but not at the expense of your clients, and not to your clients disadvantage. If the Bloomberg editorial board cannot understand this simple concept, then they are not in a position to understand or conduct business of any sort.” 

And on and on it went.  The muppets were on a rampage.

The same type of fallout occurred at Forbes when it ran a snarky opinion piece, although reader comments were much fewer. A Forbes staffer, John Tamny, who says he interned at Goldman and then worked there from 1997 to 2001, titled his opinion piece “Greg Smith’s Gratuitously Opportunistic Departure from Goldman Sachs,” chiding Smith as follows: 

“My own perspective is that Smith is an opportunist of the first order, and worse for those taken in by his ‘insider’s account’ of what actually goes on within the walls of the world’s foremost investment bank, what he wrote was utterly nonsensical. This quickly will become apparent once his scribblings are analyzed against greater investment banking realities.” 

One Forbes’ reader, Mike Godsey, said: “…watching how Forbes has dealt with this entire issue I realize that the magazine has an agenda that does not include objectivity. Even in today’s toxic political climate I expect at least the pretense of presenting both sides of an issue. Sad to delete my Forbes bookmarks…”

Godsey is not the first person to charge Forbes with having an agenda.  In 1996, Fortune magazine reporter, Jeanie Russell Kasindorf, with associates Anne Faircloth, Tim Carvell, and Rajiv M. Rao, took an in-depth look at the Forbes publishing empire that Steve Forbes inherited from his famous father, Malcolm Forbes.  The article charged that during Steve Forbes’ stewardship, staffers “have seen stories changed if the writer has turned in a negative assessment of an advertiser. In other words, the magazine’s editors are turning downbeat stories into upbeat stories in order to keep advertisers happy–even at the risk of misleading their own readers.”

The article goes on to cite multiple examples of how negative stories were edited to be more favorable, or killed outright, if the company advertised in the pages of Forbes.

Greg Smith wrote an OpEd that caused a stir.  But the real scandal is how some corporate media outlets responded.