The Occupy lunatics have part of their equation correct in that there are greedy people on Wall Street who actively seek to rip-off the system, investors be damned. Of course, the Occupiers blanket the entire free-market system, which engulfs the average working family as well, and that’s their mistake. But getting back to the part they get right… the thieves.
Once again, the Securities and Exchange Commission has embarrassed itself. Last week it let off the hook two hotshot former Wall Street hedge-fund managers who lost a bundle for the investors trusting them to manage their money responsibly.
Instead of going to court on Feb. 13 and laying bare the sordid facts for a jury, at the last minute the SEC settled a civil suit against Ralph Cioffiand Matthew Tannin of the now defunct Bear Stearns Cos (2942331Q). These were the hedge-fund managers who five years ago loaded up their two funds with billions of dollars of lousy mortgage-backed securities and collateralized- debt obligations, leveraged them to the hilt and, when the market for the securities soured in July 2007, liquidated the funds.
According to the SEC’s 2008 civil complaint against the men, the collapse of the funds cost investors at least $1.6 billion. These problems were among the very first indications that serious trouble was looming in the housing market and securities tied to it. The liquidation of the two funds led to the effective bankruptcy of Bear Stearns itself in March 2008 and the subsequent financial crisis that nearly wiped Wall Street off the face of the earth.
Let me state it again to be clear… these two cost investors $1.6 BILLION through their crooked leveraging of junk mortgage backed securities. As my friend and economist Karl Denninger points out, these two got caught with their hand in the cookie jar, took 26 cookies and were only forced to put a single cookie back.
If you remember these are the two clown-car boys that set off the blowup in August of 2007, which was then followed by a discount-rate cut on Options Expiration that was obviously, from trading patterns, noticed to big Wall Street firms the day before and which wiped the floor with a whole host of people’s accounts. It also set in motion the consequences that led to the destruction of Bear Stearns.
The SEC “settled” the civil charges against these two esteemed gentlemen for just over $1 million. I will note that during the two year period of time during which the alleged fraud was committed, according to court documentation,an alleged fraud committed by actively lying to the investors in their hedge funds, they took out $26.4 million in pay and bonuses.
Theirs was not a small lie either — documents show that they stated in print on an investor’s 2007 account statements that the total exposure to subprime mortgages was 6% of the fund. In reality the exposure was 60%, ten times greater than stated.
The fund, if you remember, collapsed.
This is nothing short of jaw-dropping absurdity. These guys openly lie about their product, they cost investors $1.6 BILLION, they make $26 million, and they’re “fined” $1 million to make it all go away?
What a wild and wacky world we live in.