Lawsuit Stunner: Half of Futures Trades in Chicago Are Illegal Wash Trades

By Pam Martens: July 24, 2014

Terrence Duffy of the CME Group Testifying Before the Senate on May 13, 2014

Terrence Duffy of the CME Group Testifying Before the Senate on May 13, 2014

Since March 30 of this year when bestselling author, Michael Lewis, appeared on 60 Minutes to explain the findings of his latest book, Flash Boys, as “stock market’s rigged,” America has been learning some very uncomfortable truths about the tilted playing field against the public stock investor.

Throughout this time, no one has been more adamant than Terrence (Terry) Duffy, the Executive Chairman and President of the CME Group, which operates the largest futures exchange in the world in Chicago, that the charges made by Lewis about the stock market have nothing to do with his market. The futures markets are pristine, according to testimony Duffy gave before the U.S. Senate Agriculture Committee on May 13.

On Tuesday of this week, Duffy’s credibility and the honesty of the futures exchanges he runs came into serious question when lawyers for three traders filed a Second Amended Complaint in Federal Court against Duffy, the Chicago Mercantile Exchange, the Chicago Board of Trade and other individuals involved in leadership roles at the CME Group.

The conduct alleged in the lawsuit, backed by very specific examples, reads more like an organized crime rap sheet than the conduct of what is thought by the public to be a highly regulated futures exchange in the U.S.

The lawyers for the traders begin, correctly, by informing the court of the “vital public function” that is supposed to be played by these exchanges in “providing price discovery and risk transfer.” They then methodically show how that public purpose has been disfigured beyond recognition through secret deals and “clandestine” side agreements made with the knowledge of Duffy and his management team.

The most stunning allegation in the lawsuit is that an estimated 50 percent of all trading on the Chicago Mercantile Exchange is derived from illegal wash trades.

Wash trades were a practice by the Wall Street pool operators that rigged the late 1920s stock market, leading to the great stock market crash from 1929 through 1932 and the Great Depression. Wash trades occur when the same beneficial owner is both the buyer and the seller.  Wash trades are banned under United States law because they can falsely suggest volume and price movement.

The lawsuit says Duffy and his management team are tolerating wash trades “because they comprise by some estimates fifty percent of the Exchange Defendants’ total trading volume and also because HFT transactions account for up to thirty percent of the CME Group’s revenue.”

The complaint indicates that the plaintiffs have a “Confidential Witness A,” a high frequency trader, who has given them a statement that wash trades are used by high frequency traders as part of a regular strategy to detect market direction and “to exit adverse trades when the market goes against their positions.”

The strategy works like this, according to the complaint:

“HFTs [high frequency traders] continuously place small bids and offers (called bait) at the back of order queues to gain directional clues.  If the bait orders are hit, the algorithm will place follow-up orders to either accumulate favorable positions or exit ‘toxic’ risks, a process which leverages bait orders to gain valuable directional clues as to which way the market will likely move.  The initial bait orders are very small while subsequent orders, once market direction has been identified, are very large.  A portion of the large orders that follow the smaller bait orders are wash trades.”

Another very serious charge is that some of the defendants in the lawsuit who are in leadership roles in management at the futures exchanges, have “equity interests” in the very high frequency trading firms that are benefitting from these wash trades. The complaint states:

“The Exchange Defendants profit from the occurrence of wash trades and have a vested interest in not having more robust safeguards against them because they contribute significantly to the Exchange Defendants’ volume numbers and revenue.  Were the volume of wash trades excluded from the Exchange Defendants’ volume and revenue numbers, the radically reduced volume numbers would exert adverse pressure on the CME Group’s stock price, not to mention the revenue to members of CME Group’s governance who have equity interests in participating HFTs in addition to stock ownership in the CME Group, Inc.”

In addition to wash trades, the lawsuit charges that the CME Group has entered into “clandestine” incentive agreements.

“Defendants have entered into clandestine incentive/rebate agreements in established and heavily traded contract markets with favored firms such as DRW Trading Group and Allston Trading, paying up to $750,000.00 per month in one of the most heavily traded futures contracts in the world.  At no time during the Class Period have Defendants voluntarily revealed to the trading public that these material agreements exist in established markets.  Defendants through their lawyers have repeatedly ridiculed the suggestion that clandestine agreements exist.”

The complaint identifies another “Confidential Witness B” who has provided information on “the existence of a clandestine rebate agreement between the CME and a very large volume HFT firm that trades in the S&P500 E-Mini contract.” That’s a stunning allegation since the S&P500 E-Mini was thought to be one of the most liquid contracts in the U.S. The complaint correctly notes that “there can be no economically justified reason, such as to develop thinly traded markets, that would justify the CME and CME Group to maintain clandestine incentive agreements in this particular market, other than the improper intent.”

Another trick to get an early peek at trading information is referred to in the complaint as the “Latency Loophole,” which “allows certain market participants to know that orders they entered were executed and at what price, and to enter many subsequent orders, all before the rest of the market participants found out the status of their own initial orders.”

The complaint explains that the ability to continuously enter orders and get trade confirmations “of the price at which these orders are filled, before the rest of the public even knows about the executed trades,” empowers high frequency traders with “a massive informational and time advantage in discerning actual price, market direction and order flow before anyone else.”

By providing just a select group of market participants and high frequency traders with this “sneak peek” advantage, says the complaint, the defendants engaged in a “fraud on the marketplace.”

The Justice Department and FBI have opened investigations into high frequency trading. Let’s hope that includes both stock and futures exchanges.

The traders bringing the lawsuit, which is filed as a class action, are William Charles Braman, Mark Mendelson and John Simms. Lawyers for the plaintiffs are R. Tamara de Silva, who maintains a private practice, and lawyers from O’Rourke & Moody.

The suit was filed in the U.S. District Court for the Northern District of Illinois. The Civil Docket for the case is #: 1:14-cv-02646 and has been assigned to Judge Charles P. Kocoras. The CME Group is represented by the law firm Skadden, Arps, Slate, Meagher & Flom, LLP.

 

Documents Emerge in Senate Hearing from William Broeksmit, Deutsche Exec Alleged to Have Hanged Himself in January

By Pam Martens and Russ Martens: July 23, 2014

Satish Ramakrishna of Deutsche Bank

Satish Ramakrishna of Deutsche Bank

Anshu Jain, Co-CEO of Deutsche Bank, was not having a good day yesterday. First the oath-taking, subpoena-issuing Senate Permanent Subcommittee on Investigations released a detailed email to him from William Broeksmit, the 58-year old former Deutsche risk executive alleged to have hanged himself in his London home on January 26. By the end of the day, someone had leaked to the Wall Street Journal a deeply critical letter of Deutsche Bank from the New York Fed which said that “The size and breadth of errors strongly suggest that the firm’s entire U.S. regulatory reporting structure requires wide-ranging remedial action.”

What the U.S. Senate’s Permanent Subcommittee on Investigations was taking testimony on yesterday, however, was far from an “error” committed by Deutsche Bank. Both Deutsche Bank and Barclays were shown, through emails, marketing materials and witness testimony, to have set up elaborate schemes to effectively loan out their balance sheet to hedge funds to conduct billions of trades each year in trading accounts under the bank’s name, deploying massive leverage that is illegal in a regular Prime Brokerage account for a hedge fund client.

The banks got paid through margin interest, fees for stock loans for short sales, and trade executions. The hedge funds got paid not only from trading profits but also through a tricked up “basket option” offered by the banks that magically turned millions of short-term trades into long-term capital gains, saving the hedge funds about half the rate of taxes owed on the short-term trades, some of which lasted only minutes.

One hedge fund, Renaissance Technologies, was said by Senator John McCain to have ripped off the U.S. taxpayer to the tune of $6 billion in unpaid taxes on long-term capital gains.

Broeksmit’s name first emerged in yesterday’s Senate hearing as Senator Carl Levin, Chair of the Subcommittee, was questioning Satish Ramakrishna, the Global Head of Risk and Pricing for Global Prime Finance at Deutsche Bank Securities in New York. Ramakrishna was downplaying his knowledge of conversations about how the scheme was about changing short term gains into long term gains, denying that he had been privy to any conversations on the matter.

Levin than asked: “Did you ever have conversations with a man named Broeksmit?” Ramakrishna conceded that he had and that the fact that the scheme had a tax benefit had emerged in that conversation. Ramakrishna could hardly deny this as Levin had just released a November 7, 2008 transcript of a conversation between Ramakrishna and Broeksmit where the tax benefit had been acknowledged.

Another exhibit released by Levin was an August 25, 2009 email from William Broeksmit to Anshu Jain, with a cc to Ramakrishna, where Broeksmit went into copious detail on exactly what the scheme, internally called MAPS, made possible for the bank and for its client, the Renaissance Technologies hedge fund. (See Email from William Broeksmit to Anshu Jain, Released by the U.S. Senate Permanent Subcommittee on Investigations.)

At one point in the two-page email, Broeksmit reveals the massive risk the bank is taking on, writing: “Size of portfolio tends to be between $8 and $12 billion long and same amount of short. Maximum allowed usage is $16 billion x $16 billion, though this has never been approached.”

Broeksmit goes on to say that most of Deutsche’s money from the scheme “is actually made by lending them specials that we have on inventory and they pay far above the regular rates for that.”

Broeksmit’s death was the subject of a coroner’s inquest in March in London. The coroner ruled the death to be a suicide. A personal doctor’s report read at the inquest indicated he had been “anxious” about ongoing investigations of the bank. He had retired from Deutsche Bank in February 2013 after a German regulator had given his name a thumbs down to be the head of risk management for Deutsche.

The day after Broeksmit’s body was discovered, Eric Ben-Artzi, a former risk analyst turned whistleblower at Deutsche Bank, spoke at Auburn University in Alabama on his allegations that Deutsche had hid $12 billion in losses during the financial crisis with the knowledge of senior executives. Ben-Artzi said the bank effectively invented assets and hid losses.

Senate: Renaissance Hedge Fund Avoided $6 Billion in Taxes in Bogus Scheme With Banks

By Pam Martens: July 22, 2014

Senator Carl Levin, Chair of the U.S. Senate Permanent Subcommittee on Investigations

Senator Carl Levin, Chair of the U.S. Senate Permanent Subcommittee on Investigations

Only one word comes to mind to describe the testimony taking place before the U.S. Senate’s Permanent Subcommittee on Investigations this morning: Machiavellian.

The criminal minds on Wall Street have twisted banking and securities laws into such a pretzel of hubris that neither Congress, Federal Regulators or even the General Accountability Office can say with any confidence if the U.S. financial system is an over-leveraged house of cards. They just don’t know.

According to a copious report released last evening, here’s what hedge funds have been doing for more than a decade with the intimate involvement of global banks: the hedge fund makes a deposit of cash into an account at the bank which has been established so that the hedge fund can engage in high frequency trading of stocks. The account is not in the hedge fund’s name but in the bank’s name. The bank then deposits $9 for every one dollar the hedge fund deposits into the same account. Some times, the leverage reaches as high as 20 to 1.

The hedge fund proceeds to trade the hell out of the account, generating tens of thousands of trades a day using their own high frequency trading program and algorithms. Many of the trades last no more than minutes. The bank charges the hedge fund fees for the trade executions and interest on the money loaned.

Based on a written side agreement, preposterously called a “basket option,” the hedge fund will collect all the profits made in the account in the bank’s name after a year or longer and then characterize millions of trades which were held for less than a year, many for just minutes, as long-term capital gains (which by law require a holding period of a year or longer). Long term capital gains are taxed at almost half the tax rate of the top rate on short term gains.

There are so many banking crimes embedded in this story that it’s hard to know where to begin. Let’s start with the one most dangerous to the safety and soundness of banks: extension of margin credit.

Under Federal law known as Regulation T, it is perceived wisdom on Wall Street that a bank or broker-dealer cannot extend more than 50 percent margin on a stock account. But since the banks involved in these basket options called these accounts their own proprietary trading accounts, even though the hedge fund had full control over the trading and ultimate ownership of profits, the banks were justified (in their minds) with thumbing their nose at a bedrock of doing business on Wall Street.

We learn from a footnote in the Senate’s report that hedge funds have gamed Regulation T further. The report advises: “ ‘Joint Back Office’ (JBO) and international prime brokerage accounts offer two alternatives for hedge funds seeking higher leverage. JBO arrangements have been given an exemption from Regulation T and are permitted leverage of 6.7 times. JBO arrangements require the margin lender and margin borrower to form a joint venture, creating a closer association than is typical for a prime brokerage relationship.”

Another key issue is the falsification of books and records – a serious no-no for a bank. How can Federal regulators understand what is going on in a financial institution if the true ownership of accounts is not honestly indicated by name, address and tax ID number. This system sounds like a perfect cover for money launderers and insider trading.

According to the Senate’s report, at least 13 hedge funds engaged in these basket options to conduct over $100 billion in securities trades. Two banks mentioned by name for their involvement are Barclays and Deutsche Bank.

One hedge fund stands out in the report for using this strategy for more than a decade to obtain excess leverage with which to trade and to cut its tax burden. According to the Senate report, Renaissance Technologies may have engaged in “tax avoidance of more than $6 billion.”

It didn’t take more than a quick reading of the resumes of the multiple executives from Renaissance, who will be giving testimony before the Senate today, to see why it has landed in such hot water. One Executive Vice President, Mark Silber, wears all of the following hats: CFO, Chief Compliance Officer and Chief Legal Officer. And, by the way, he was previously a CPA with the accounting firm that now audits the books of Renaissance – BDO Seidman.

A CPA attempting to plead ignorance on what constitutes a long term capital gain should make for interesting theatre in the Senate today.

The potentially catastrophic danger these types of cavalier arrangements have on the overall U.S. financial system is impossible to quantify according to the Senate report. It tells us the following:

“Large partnerships – which include hedge funds, private equity funds, and publicly traded partnerships – are some of the most profitable entities in the United States.  According to a 2013 preliminary report issued by the U.S. Government Accountability Office (GAO), ‘[i]n tax year 2011, nearly 3.3 million partnerships accounted for $20.6 trillion in assets and $580.9 billion in total net income.’ That GAO report also found that the IRS was failing to audit 99% of the tax returns filed by large partnerships with assets exceeding $100 million.”

We don’t know what’s going on with those 3.3 million partnerships and their $20.6 trillion in assets. We don’t know if the biggest banks on Wall Street have similar arrangements where they are offering 20 to 1 leverage. Until we know, to borrow a phrase from bestselling author, Michael Lewis, we’re all “dumb tourists” when it comes to Wall Street.

Another Wall Street Inside Job?: Stock Buybacks Carried Out in Dark Pools

By Pam Martens: July 21, 2014 

The U.S. stock market looks more and more like that box of pasta on the grocer’s shelf. There’s less of it but it costs more.

According to data from Birinyi Associates, for calendar years 2006 through 2013, corporations authorized $4.14 trillion in buybacks of their own publicly traded stock in the U.S.

That should be good, right? Earnings are boosted on a per share basis because of fewer shares, making corporate prospects look brighter. Unfortunately, according to Standard and Poor’s, net equity issuance (the difference between buybacks, leveraged buyouts, etc. and Initial Public Offerings or secondary offerings) has been shrinking as corporate debt has been rising to fund those stock buybacks.

In 2013 alone, corporations authorized $754.8 billion in stock buybacks while simultaneously borrowing $782.5 billion from credit markets. Jeffrey Kleintop, Chief Market Strategist for LPL Financial reports that corporations are now the single largest buying source for all U.S. stocks and the swift pace of buybacks has continued into this year with Standard and Poor’s 500 companies buying back approximately $160 billion in the first quarter.

In addition to concerns over taking on corporate debt for reasons other than growing the franchise, investing in innovation, upgrading technology, etc. – there are also growing concerns over the use of dark pools to conduct these gargantuan share buybacks.

A dark pool is a private, unregulated trading venue that functions like a stock exchange by matching buyers with sellers – but it does so in the dark, without showing its bids and offers on stocks to the public. That has the potential for a great deal of price manipulation.

Starting with the week of May 26, 2014, the Financial Industry Regulatory Authority (FINRA) began releasing weekly dark pool trading data to the public. That sliver of sunlight shows that some of the corporations with the largest share buyback programs are also among the heaviest traded stocks within the dark pools.

Several dark pools, also known as ATS or Alternative Trading Systems, openly woo stock buyback programs. Barclays, the firm that was just charged by the New York State Attorney General with falsifying data to customers about what was really going on in its dark pool, told Traders Magazine in September 2013 that its dark pool pitches its execution franchise to corporations with buyback programs:

 “…when companies buying back shares meet with institutions in the firm’s alternative trading system, both sides of the transaction benefit. Having corporate buybacks handled by the electronic trading side of the firm gives Barclays an advantage over competitors…”

It’s safe to say that if Barclays is handling corporate share buybacks in its dark pool, other major investment banks are doing the same. Which raises yet another concern. How many hats can one Wall Street bank wear before it becomes a quagmire of conflicts?

Take the case of Apple Computer. According to FINRA data, in the five weekly periods of May 26 through June 23, dark pools traded over 103.6 million shares of Apple stock. The heaviest week was the week of June 9, 2014 when 39.9 million shares traded in dark pools. Goldman Sachs was responsible for trading 2,444,350 shares of Apple that week in its dark pool, Sigma-X, and has been in the top tier of dark pools trading Apple stock in all subsequent weeks reported by FINRA. (On July 1 of this year, FINRA administered a very mild wrist slap to Goldman Sachs for some very serious pricing irregularities in its dark pool.)

In addition to trading millions of shares of Apple stock each week behind a dark curtain, Goldman Sachs was the co-lead manager with Deutsche Bank in April of last year when Apple launched a $17 billion corporate debt offering in order to buy back its shares and increase its dividend.  Apple’s $17 billion debt deal was the largest in history at that point. Later in the year, its debt record was dramatically overtaken when Verizon issued a $49 billion debt deal.

Goldman was also Apple’s advisor in 1996 when the company was warding off bankruptcy and Goldman managed its $661 million convertible debt offering.

At the time of Apple’s debt deal last year, its stock price had lost around 40 percent over the prior seven months as iPhone sales and other Apple products weakened. According to CNBC, referring to 2013, “Apple bought the largest number of shares ever in a single quarter, when it spent $16 billion on stock buybacks in the second quarter. It bought $4.9 billion in the third quarter.” Apple’s share price, which did a 7-for-1 stock split in June of this year, has almost fully regained its lost ground.

The problem with pampering shareholders with sweets financed by debt is that it can become a habit. One year after the April 2013 $17 billion debt deal, Goldman Sachs and Deutsche Bank co-led another $12 billion debt offering for Apple this year in April.

Goldman Sachs, under current market structure, can underwrite stocks and bonds for its customers; trade stocks in its own private stock exchange it runs behind a dark curtain; put out buy and sell recommendations that move stock prices up or down; co-locate its computer servers next to the computers of the regulated stock exchanges in order to get a speed advantage and an early peek at other traders’ orders; and, to round out the picture, it’s allowed to own and operate an FDIC-insured commercial bank where it can dole out lines of credit.

And, despite all this, Mary Jo White, Chair of the Securities and Exchange Commission, wants to be sure all Americans understand one thing – the stock market is not rigged.

Growth of Credit Market Debt at Non-Finance Related Corporate Businesses, October 1, 1949 to January 1, 2014

Growth of Credit Market Debt at Non-Finance Related Corporate Businesses,  October 1, 1949 to January 1, 2014

 

Between Suspicious Deaths and Cy Vance Criminal Prosecutions, Technology Jobs On Wall Street Are Now Among the Most Dangerous in America

By Pam Martens: July 17, 2014

Manhattan District Attorney, Cyrus Vance

Manhattan District Attorney, Cyrus Vance

Wall Street On Parade has been reporting for the past six months on a series of tragic, sudden deaths of Information Technology workers at JPMorgan. Now coming to the fore are stories of relentless prosecutions of Wall Street’s IT workers by Manhattan District Attorney, Cyrus Vance. Bloomberg News reports today that Vance is engaged in at least four prosecutions of Wall Street workers over theft of computer code or other intellectual property.

Bestselling author, Michael Lewis, devoted a significant part of his latest book, Flash Boys, to the prosecution of Sergey Aleynikov over alleged stolen computer code. Aleynikov had been working for Goldman Sachs when he received an offer to move to a hedge fund and build a system from scratch. Aleynikov accepted the offer but agreed to stay at Goldman for six weeks to train his colleagues. (That does not seem like the action of a person on the run with stolen computer code.)

That was 2009. For the past five years, Aleynikov has been arrested and jailed by the Feds, had his conviction overturned by the Second Circuit Appeals Court, rearrested by the Manhattan District Attorney Cyrus Vance, and now faces more prosecution over the same set of facts: namely, that he took computer code that belonged to Goldman Sachs. Aleynikov is said to be among the best coders in the industry. He is increasingly being seen as the victim of malicious prosecution at the behest of the powerful Goldman Sachs.

According to the Lewis book, on the very same day that Kevin Marino, Aleynikov’s lawyer, gave his oral arguments to the Appeals Court, “the judges ordered Serge released, on the grounds that the laws he stood accused of breaking did not actually apply to his case.” He had been in prison for a year.

When the Second Circuit Appeals Court handed down its opinion of the case in December 2010, it found that Aleynikov had neither taken a tangible good from Goldman nor had he stolen a product involved in interstate commerce – noting that at oral argument the government “was unable to identify a single product that affects interstate commerce.”

But the hounds from hell were not finished with Aleynikov. Approximately six months after his vindication by the Second Circuit Appeals Court, the Manhattan District Attorney, Cyrus Vance, arrested Aleynikov, placed him in jail on essentially the same charges, and sought to have bail denied on the basis that he was a flight risk. Lewis notes in the book that the prosecutor put in charge of the case, Joanne Li, was actually the flight risk – Li soon fled the case, getting a job at Citigroup.

The ill repute that is now surrounding the Vance case is sending a message to close observers that this is more about harassing IT workers and delivering a cautionary warning to others than it is about punishing a real crime.

On Friday, June 20 of this year, New York State Judge Ronald A. Zweibel found that Aleynikov’s arrest at the hands of the Feds had been illegal. The Judge wrote that the FBI agent “did not have probable cause to arrest defendant, let alone search him or his home.” The Judge further noted that the “defendant’s Fourth Amendment rights were violated.”

The Judge also ruled that Aleynikov’s computer property seized by the FBI should have been returned to him after his case was overturned by the Federal Appeals Court. Instead, the Federal prosecutors turned the computers over to Vance’s office.

After Zweibel’s ruling, Aleynikov’s lawyer, Kevin Marino, released a statement saying that the Judge’s decision “represents a damning indictment of those assistant U.S. attorneys, assistant district attorneys and FBI agents who have now twice pursued an unlawful prosecution of an innocent man at the behest of Wall Street giant Goldman Sachs.” Marino added that Goldman “not only provoked but has been an active co-conspirator in the government’s case against Mr. Aleynikov.”

Is co-conspirator too strong a word? To comprehend the arrest and imprisonment of  IT workers on Wall Street, one has to have context.

For many decades, there was a saying on Wall Street that when the brokers left the building at 6 p.m., the firm’s assets walked out the door with them. That was owing to the fact that it was the brokers, not the firm, that had the close, long-term relationship with the clients and could simply move those accounts to a competitor.

Wall Street hated this and used the courts as their puppets to teach brokers a lesson. While brokers and other employees on Wall Street are forced to sign a mandatory arbitration agreement, contractually obligating them to bring any claims against their employer into Wall Street’s private justice system (viewed as a rigged Kangaroo Court by many), the Wall Street firms retained for themselves the right to sue their employees in a court of law.

The big powerhouses on Wall Street would routinely file a court request to grant a TRO (temporary restraining order) against the broker trying to move his clients and their assets to another firm. While clients have a right to hold their investment assets with any firm they want, overseen by any broker they want, the Wall Street firms would make the argument that the broker had taken records owned by the firm, for example, client account cards with phone numbers and addresses, etc.

In many cases, brokers were leaving for good cause: their manager was putting pressure on them to churn accounts to produce higher revenue; or sell in-house products over better performing outside products; or do various and sundry unethical acts. But the TRO had the effect of preventing the broker from contacting his clients for a long enough period of time for the firm to woo the clients to stay with promises of reduced commissions or other perks.

What has happened today on Wall Street is that the greatest source of profits is coming from high frequency trading using sophisticated algorithms and artificial intelligence which can deliver virtually riskless, profitable trading 24/7 by jumping in front of the slow moving order from public pensions, mutual funds and retail investors. As Senator Elizabeth Warren stated at a Senate hearing on June 18:

“For me the term high frequency trading seems wrong. You know this isn’t trading. Traders have good days and bad days. Some days they make good trades and they make lots of money and some days they have bad trades and they lose a lot of money. But high frequency traders have only good days.

“In its recent IPO filing, the high frequency trading firm, Virtu, reported that it had been trading for 1,238 days and it had made money on 1,237 of those days…The question is that high frequency trading firms aren’t making money by taking on risks. They’re making money by charging a very small fee to investors. And the question is whether they’re charging that fee in return for providing a valuable service or they’re charging that fee by just skimming a little money off the top of every trade…”

Wall Street’s incestuous relationship with law enforcement in New York City has grown to epic proportions. It includes the joint operation of a surveillance center in Lower Manhattan and the ability for Wall Street firms to hire off duty NYPD officers with the power to arrest.

It’s time for a truly independent investigation of the prosecutorial hubris that has built up in New York City under the banner of “protecting” Wall Street. As Cy Vance scurries about prosecuting IT workers on Wall Street, the FBI, Justice Department, and New York State Attorney General are investigating Wall Street firms for potentially designing computer code to fleece investors across America.

It would certainly not be the first time that a New York City defender of the public interest used his office to audition for a multi-million dollar job on Wall Street.

According to Lewis, Aleynikov has started a memoir. One line from the memoir reads: “The prisons are filled by people who crossed the law, as well as by those who were incidentally and circumstantially picked and crushed by somebody else’s agenda.”