By Pam Martens and Russ Martens: December 20, 2019 ~
All three major stock indices set new highs yesterday. The Nasdaq led with a 0.67 percent gain; the Dow Jones Industrial Averaged closed with a 0.49 percent increase while the S&P 500 inched up 0.45 percent. Stocks have been setting new highs all week as the New York Fed funnels tens of billions of dollars each day to Wall Street’s trading houses to quench a “liquidity” crisis whose existence has seemed to escape stock trading desks on Wall Street.
The stock markets’ week of new highs comes at a curious time. For only the third time in history, a sitting U.S. President was impeached this past week by the U.S. House of Representatives and the Democratic candidates for President wasted no time in last night’s debate drilling down to why this happened. The words “corrupt” and “corruption” were used repeatedly by candidates to describe the state of affairs in Washington. But not one candidate mentioned Wall Street – the epicenter and financier and primary beneficiary of that corruption.
Just how deep that nexus between corruption on Wall Street and corruption in Washington runs was on display yesterday as the Wall Street Journal reported that the U.S. Department of Justice is prepared to settle its criminal investigation of Goldman Sachs in exchange for a fine of approximately $2 billion from one of its subsidiaries. The criminal investigation stems from the Wall Street behemoth twiddling its thumbs as $4.5 billion it had raised in bond sales was looted from its client, Malaysia’s sovereign wealth fund known as 1MDB. The looted funds were alleged to have been used to bribe foreign officials to obtain bond business for Goldman Sachs, pay kickbacks to employees of Goldman Sachs involved in the scheme, as well as to buy yachts, artwork and fund the production of Hollywood movies, including “The Wolf of Wall Street by outsiders involved in the scheme.
Tom Leissner, a former partner at Goldman Sachs who had worked for the firm for more than two decades, pleaded guilty in the U.S. in 2018 to charges of bribery, conspiracy and money laundering for his role in the 1MDB scandal. Another Goldman employee who was charged, Roger Ng, has pleaded not guilty and his case is currently pending in federal court in New York.
The attorney general of Malaysia has filed a criminal indictment against Goldman Sachs in the matter.
The stock market showed how it has become desensitized to criminal activities on Wall Street: it shaved just 0.22 percent off Goldman’s share price – but did force it to close in the red while the market was setting new highs.
Perhaps trading in sympathy with the Goldman criminal probe was JPMorgan Chase. Its stock also closed in the red yesterday with a loss of 0.50 percent. JPMorgan Chase, which received a combined three felony counts under deferred prosecution agreements during the Obama administration, is currently under a criminal probe over U.S. Department of Justice charges that its traders turned its precious metals desk into a racketeering criminal enterprise over a period of eight years.
Goldman Sachs and JPMorgan Chase closing in the red yesterday might not be so noticeable were it not for the fact that peer banks Citigroup and Morgan Stanley closed in the green on the same day.
The public has no way to know just how deep in the red the mega banks on Wall Street might have closed yesterday or in recent months because the U.S. Securities and Exchange Commission (SEC) is, insanely, allowing these banks to trade the shares of their own bank, as well as the shares of their peer banks, in Dark Pools they own and operate. Dark Pools function as lightly-monitored stock exchanges owned by the major banks on Wall Street. (See Wall Street Banks Are Trading in Their Own Company’s Stock: How Is This Legal?)
During the week of November 25, the most recent week for which data is made available by Wall Street’s self-regulator, FINRA, Goldman Sachs’ Dark Pool, Sigma-X, traded 22,136 shares of its own stock in 228 separate trades. The mega bank, UBS, however, with whom Goldman does a great amount of counterparty business, traded 262,804 shares of Goldman Sachs’ stock in 4,074 separate trades in just that one week in its Dark Pool, UBSA.
The public has no way to know just how many shares of Goldman’s stock its own Dark Pools traded because in addition to its U.S. Dark Pool, Goldman owns Dark Pools that trade on three other continents.
For the same week, JPMorgan Chase’s Dark Pool, JPM-X traded 265,906 shares of JPMorgan’s stock in 1,912 separate trades. That made it the second largest Dark Pool trader of its own stock that week, just behind UBSA which traded 475,306 shares of JPMorgan’s stock in 5,238 separate trades.
But JPMorgan also owns another, algorithm-based Dark Pool, JPB-X, that traded another 88,182 shares of JPMorgan’s stock the same week in 1,308 separate trades.
Under a sane and functioning Securities and Exchange Commission or federal regulatory regime, banks trading their own stocks in darkness while holding trillions of dollars in federally-insured deposits would result in perp-walks, not in elevating their outside counsel to Chairman of the Securities and Exchange Commission.
The data that FINRA is making available to the public has cleverly been gutted to make sure that no math whizzes in academia have the ability to reverse engineer the data into successful charges of market rigging, as occurred previously in a forensic probe by academics Christie and Schultz in 1994 into how Wall Street firms were engaged in tacit collusion on the Nasdaq stock market.
FINRA’s Dark Pool data does not show hourly or daily trading, just weekly totals; it does not show if the prices paid for the shares were in keeping with the rest of the market. And, it does not show what party was on the opposite side of the trade. For all the public knows, banks that own more than one Dark Pool could be making a two-sided market in their own shares.