The Daily Caveat

The Daily Caveat has moved...

2010-05-17T10:37:00.002-04:00

Hi guys. Due to Blogger back end changes (and their abandonment of FTP publishing) this blog is now located at www.dailycaveat.com.

Many of you were already visiting via that link in the first place so very few folks should notice any change. You will be automatically redirected in 30 seconds, or you may click here.

Corporate Crime Comics

2010-08-25T21:35:00.000-04:00

Adorable, right?

Goldman Sachs (Criminally) Probed

2010-04-30T09:41:00.000-04:00

Ok, kids. This just got real.

I mean this is all routine and what, what. The SEC makes a referral to the U.S. Attorney who initiates an investigation that may or may not result in a criminal probe.

Criminal. Probe.

via ABC News

Goldman Sachs Faces Fraud Charges from the SEC

2010-04-16T13:30:00.000-04:00

Relating to their subprime-related securities business, unsurprisingly. A civil fraud complaint has been filed today by the SEC against the behemoth investment firm:

The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

Also at issue is the role of hedge fund Paulson & Co, the multi-billion dollar concern run by bespectacled billionaire, John Paulson. The firm participated significantly in the portfolio selection for Goldman's sub-prome CDO product, ABACUS and later adopted a short position on the product, entering in to credit default swaps with Goldman and placing itself in a position of financial interest should the ABACUS portfolio implode (which it did).

Interestingly, having bet for (and then against) the sub prime mortgage market, Paulson has, via his Recovery Fund, made more millions betting on a rise MBS value.

The tip on the Goldman / Paulson relationsip appears to have come via Paolo Pellegrini, a former Paulson & Co employee who has provided a deposition to the SEC relating to the case. Pellegrini (P-squared to his friends, a derivatives expert prior to joining the fund, was involved in orchestrating the firm's bets against the sub prime market. Pellegrini resigned from Paulson & Co in December of 2009.

While Paulson has not been charged by the SEC with any wrongdoing, the complaint specifically names Goldman Vice President, Fabrice Tourre, who structured the ABACUS CDO deal as being primarily responsible for the fraud.

The SEC's charges arise primarily from Goldman's failure to disclose Paulson & Co.'s role in portfolio selection in marketing and promotional materials concerning the ABACUS funds. Paulson's firm had no such obligation.

Goldman, as you might expect, denies any wrongdoing.

German Pensioners Jailed for Kidnapping and Torturing Financial Adviser

2010-03-25T12:26:00.000-04:00

Just a reminder of how far this went...

Victim James Amburn blew the four wealthy OAPs' £2.3million savings on the US sub-prime mortgage market. And in a bizarre caper that left police astonished, the elderly plotters snatched him off the street and threw him into a specially prepared dungeon in a bid to force him to pay back the cash.

The kidnappers hit Amburn over the head with a Zimmer frame and stuffed him in a cardboard box, then wrapped him in duct tape until he "looked like a mummy" after stopping to get their breath back.

They then bundled him into a car boot and took him 300 miles to a secret prison on the shores of picturesque Lake Chiemsee in Bavaria.

After stripping him him naked, they burned him with cigarettes and chained him up "like an animal". They also broke several of his ribs with a chair leg before 40 police commandos stormed the house and saved him.

While Amburn is being investigated for fraud, I think we can all agree that the cigarette burns were a bit much.

via Nothing To Do With Arbroath

Eliot Spitzer on the Government's Proper Role in the Market

2010-03-19T11:35:00.001-04:00

As Spitzer continues his slow, steady reputational rehab, I'd encourage you to check out his piece over at the The Boston Review, adapted from a lecture given at Harvard's Safra Center for Ethics. Also included are a series of rebuttals, along with Spitzer's own response to his rebuttalists.

Well worth your time.

Interfluidity - A Blog You Should KNow

2010-03-19T11:41:00.000-04:00

I am linking over to this particular article because the phrase found in the post script: "excising the tumors of parasitic finance" deserves to be highlighted. While your there, grab their feed or give them a bookmark.

Good stuff.

Warren Buffett Does GNR?

2010-03-18T14:31:00.003-04:00

What in the blue hell am I looking at here?

via NYTimes.com

Not the Nerds! -- Two Computer Programmers Indicted for Role in Madoff Scheme -- Daily Intel

2010-03-18T10:22:00.000-04:00

Madoff prosecutions march on - two computer programmers have been indicted on charges that they aided in concealing Madoff's ponzi scheme from regulators.

The two, Jerome O'Hara and george Perez, were both long time Madoff employees dating back to the mid-1990s. The pair face a twenty year sentence if convicted.

via Daily Intel

Counter Suit Filed in TD International Partners Dispute - Fleischmann Strikes Back!

2009-11-25T09:35:00.004-05:00

We've written several times about the recent legal disputes between Steven K. Fleischmann and his former partners at Washington, DC-based risk consultancy, TD International. The firm filed suit against Fleischmann claiming beach of contract and seeking to recover money they say Fleischmann pocketed by skimming business surreptitiously to a side-business, Tertuim Datur International.

The initial filings in the case have provided an interesting window into TD International's activities (Fleischmann contended that these sorts of side-ventures were common amongst the partners) and raised questions as to whether Fleischmann had ever officially signed off on his partner agreement in the first place. In late October, Fleischmann filed a counter suit against TD International principals, William Green and Ronald Slimp.

The countersuit lobs the breach of contract claims back at Green and Slimp, citing their failure to pay Fleischmann for his interest in the company when he agreed to exit the partnership in May of 2008. The suit also claims that Slimp and Green, in pursing their own third-party business ventures, failed to provide "best efforts and substantially all of their working time" to TD International, violating the terms of the partner agreement drafted back in 2004.

Fleischmann's complaint questions his level of compensation over the course of the partnership, citing numbers that would indicate his distributions from TD International were not commensurate with his position as a 1/3 partner in the business. Revenue and distribution numbers are provided in the complaint to illustrate that Fleischmann's distributions were insufficient, relative to the terms set forth in the TD International partnership agreement.

Also, intriguingly, as early as September 2004, Fleischmann contends that William Green and Ronald Slimp were operating an entity called TD Federal Services. In 2006, according to the complaint Ronald Slimp also conducted "substantial business" via TD Equity Partners. While Fleischmann states that he received some compensation from these entities, his complaint contends that these distributions were likewise insufficient.

Fleischmann is seeking damages to the tune of $4,000,000 in lost compensation and property.

No doubt, answers to these claims from TD International are forthcoming.

- MDT

Kroll Hiring in Big Pharma Slap-Fight Brings Calls for Congressional Investigation

2009-11-16T11:09:00.004-05:00

The bad blood between rival drug developers Amphastar and Momenta has bubbled over into public view. Questions over the firms' competing franchise for a generic version of the blockbuster blood thinner Lovenox has led to allegations of misconduct at the FDA, the hiring of a prominent security firm to investigate those accusations and the announcement of a Congressional investigation into the hiring of said security company.

Amphastar and Momenta are both seeking approval to sell a their own version of the blood thinner heparin. While the companies are neck-in-neck for approval, Amphastar actually applied two years ahead of Momenta. The years of regulatory delays, while billions of dollars hang in the balance, have seen the competition between the two pharmaceutical companies turn decidedly ugly. Squabbling over the fairness of the FDA's drug approval processes has led to charges of favoritism.

Amphastar has gone so far as to file a complaint alleging that Momenta had received preferential treatment from Janet Woodcock, director of the FDA/s Center for Drug Evaluation and Research. The Amphastar complaint sought Woodcock's recusal from the proceedings, and cited supposed special access to Woodcock enjoyed by Momenta and the fact that Woodcock had co-autored a scientific paper with Momenta researchers during the period both companies were pursuing FDA approval for their generic version of the blockbuster blood thinner.

For its part, Momenta contends that the contact with the FDA has been appropriate and that Momenta has certainly lobbied the government to utilize a higher standard for approving a heparin generic - one that presumably Momenta would be able to meet, but Amphastar might not. The FDA has seemed responsive to Momenta's line of argument citing evolving science and the complexity of the drugs in question.

The FDA has defended its neutrality, noting that their calls for more details on immune reactions affected both drug makers.

Not content with the FDA's administrative investigation into Woodcock (the FDA will not even confirm such an investigation) Amphastar sought outside help from noted investigative firm, Kroll. That move has caught the attention of senators Max Baucus and Chuck Grassley. The two informed Amphastar of their probe in late September via a joint letter, citing concerns over a drug company hiring an outside firm to investigate a Federal regulatory agency.

We'll see what comes of it...

Meet Zvi Goffer... The Octopussy

2009-11-16T10:10:00.000-05:00

Arrested late last week, Zvi Goffer's name has emerged as a lynchpin for insider information in the Galleon Group insider trading case.

The track suit-wearing Goffer's activities represent another crooked crew operating alongside and in concert with the Raj Rajaratnam-led hedge fund scheme.

One of Goffer's alleged key sources, Ropes and Gray attorney Arthur Cutillo, was also arrested.

Given how quickly the SEC's case has expanded, Bloomberg has provided a helpful rundown of all the folks swept up in the Galleon net.

You can also review the SEC's complaint here.

-- MDT

Back in the Swing...

2009-11-13T08:51:00.001-05:00

Returning from a bit of vacation and slowly getting back in the swing. Been dealing with a rather large to-do backlog so my apologies to the kind tipsters that have sent me things. I'll be back in full swing by Monday. In the meantime, here's a bit of what we got up to.

Governor Livingstone, I Presume

2009-10-29T13:04:00.005-04:00

Or more accurately, he presumes. Recent signs point to a run for the Montana Governorship in 2012 by notable (and occasionally controversial) investigator and intelligence old-hand, Neil Livingstone. Best known from his stints as a founder of GlobalOptions and Executive Action, Livingstone appears to be looking to add "Governor" to his resume.

IntelligenceOnline has the full tea leaves-reading details.

Galleon SEC Complaint, NY State Charging Docs - Online Now

2009-10-21T09:36:00.008-04:00

The SEC's got a brag page up devoted to the Galleon prosecutions. Included there, you'll find a summary of the case, a chart showing how the insider trading scheme operated as well as the commission's complaint against the firm. If you haven't reviewed it yet, well worth a look.

Also, you'll want to check out the New York State charging documents filed against other players in this multi-million dollar drama (via the White Collar Crime Prof Blog).

-- MDT

A Whole New Risk Model - Jules Kroll Profiled in the New Yorker

2009-10-15T11:04:00.001-04:00

Well worth a read - and the article doesn't skirt some of the form's more notorious public scandals - but to get more than the abstract you'll either need a login or pick up the issue from the news stand - October 19th issue, p42.

Also, for more on Jules Kroll's new post-retirement ventures - look left under the "Breaking" column and you'll see a recent and informative article from Pension & Investments.

-- MDT

What Failure at the SEC Gets You

2009-10-15T11:03:00.000-04:00

A promotion, or a plum job in the private sector. Helping the firms you formerly regulated successfully navigate the Swiss cheese of securities regulation has to be an exciting career opportunity, especially when you can draw so readily on your previous failures in that roll.

-- MDT

K2 Global Partners, or Kroll & Son

2009-10-01T14:58:00.006-04:00

By now any regular reader of this site (or the New York Times) is probably well aware of Jules Kroll 's splashy new credit rating adventure.

What received somewhat less attention was the announcement of K2 Global Holdings, a new risk assessment consultancy that will carry on the more famliar investigative and intelligence gathering work at which Kroll made his name and fortune.

You'll find details on the new venture at the predictable address, and also at JEMKroll.com, formerly the web address for Jeremy Kroll Holdings.

Sadly I missed Jules Kroll's recent appearance in DC. Anyone there and able to comment on the talk?

-- MDT

What You See Might Not Be Real

2009-09-29T15:30:00.003-04:00

Old Chinese proverb: "A picture is worth a thousand words." Or was that Japanese? Even old Frederick R. Barnard couldn't quite keep it straight.

In any case this work - What You See Might Not Be Real - from Chinese artist Chen Wenling captures quite a bit about the dynamics of our ongoing global economic woes.

I know I'll never think about financial "bubbles" in the same way again...

"Chinese artist Chen Wenling critiques the global financial crisis in What You See Might Not Be Real, on display at a Beijing gallery. The bull is said to represent Wall Street, while the man pinned to the wall represents jailed financier Bernard Madoff."

Via BBC.com

-- MDT

Jules Kroll's Ambitious Retirement

2009-08-31T15:27:00.001-04:00

As has been widely reported over the last few days, Jules Kroll is getting back in the game. Since departing the sprawling investigative, security and consulting enterprise that he founded many have speculated what Kroll would turn to next. Now they have their answer. According to recent interviews, Kroll is planning a competitor to existing credit rating agencies, Moodys, S&P, Fitch and the like. Details here.

--MDT

Fleischmann 1, TD International 0

2009-08-12T15:12:00.004-04:00

The latest on the TD International, Steven Fleischmann dispute... A few weeks ago TDI filed an injunction requesting that Fleischmann's bank accounts be frozen - accounts allegedly containing funds siphoned off from TDI company coffers. In an August 4th Memorandum, U.S. District Court Judge Richard Leon slammed the door on the request, concluding with the following:

"TDI's sole argument with respect to irreparable harm is that it holds an 'equitable interest' in the funds it seeks to freeze. (Pl. Mot. at 5-6.) Putting aside TDI's failure to advance ant legal or factual basis to support its claim to any "equitable interest in the funds, it does not establish what irreparable harm will befall it if the Court does not grant the injunction it seeks. Indeed, the mere existence of an equitable interest in the funds is not enough on its own to warrant injunctive relief."

I think that is legalese for "Zing!"

- MDT

What Might Have Been - Kroll at One Time Vied for Stanford Recievership

2009-08-05T09:12:00.001-04:00

It retrospect, this would have been bad:

...Antiguan authorities moved Friday to take control of Stanford's offshore bank, an action that could put the Caribbean island government at odds with the SEC. Antiguan regulators named British-based Vantis Business Recovery Service as a receiver for the bank that purported to have $8.5 billion in assets in December.

The SEC, which has installed its own receiver over Stanford Financial's US operations, says it can’t account for the money in the bank. The SEC and Antiguan officials could not be reached for comment. Vantis declined to comment. The little-known London-based firm is said to have beat out some better-known corporate clean-up firms for the job, such as Kroll.

It’s not clear if Antiguan authorities consulted with the SEC before making the pick. A person familiar with the Stanford investigation says for months Antiguan authorities were thumbing their noses at the SEC and rebuffing attempts by US regulators to get information on Stanford's offshore operation.

Not only is the Stanford investigation still unfolding. Now it seems it may get ugly too.

Ugly for more than just Allen Stanford, at this point.

-- MDT

Tour De France Doping Investigation Uncovers Espionage Scandal

2009-08-03T09:05:00.002-04:00

Perhaps you recall that back in 2006 American cyclist Floyd Landis, over vigorous and vocal protestations of his innocence, was stripped of his Tour De France victory when a doping test turned up abnormal levels of testosterone. At least that much about this New York Times story was familiar to me...

What didn't get much play stateside was a subsequent criminal complaint filed by the French cycling association alleging that confidential records relating to Landis's testing had been stolen from the ornately named Laboratoire National de Dépistage du Dopage. The test records were subsequently altered and released to the news media in an apparent attempt to discredit the tests.

An email spreading these altered documents was traced back to an IP address shared by a computer owned by Arnie Baker, Floyd Landis's coach. Baker has not denied distributing the testing documents but has denied any involvement prior to them entering the public domain. Baker claimed no knowledge of how the documents were accessed and has not been linked directly to the intrusion.

The cybercrime brigade of the French Interior Ministry was ultimately able to finger someone for the hack - one Alain Quiros. Nabbed in Morocco, Quiros confessed to investigators, after interrogation, that he had been paid a few thousand dollars retrieve the information from Laboratoire computers. So, then, who paid Quiros to do the deed?

According to Quiros's confession it was Thierry Lorho, head of Kargus Consultants, a Paris-based investigative firm. Based on a further review of Quiros's computers it looks like Kargus paid him to do quite a few other things as well. Files belonging to senior officials of Greenpeace, France and to noted litigator, Fréderik-Karel Canoy (think Euro Bill Lerach with better hair and no prison issued jumpsuit) were also found.

Lorho also acknowledged that, per the files found in Quiros's possession, his firm had indeed investigated Greenpeace's anti-nuclear activities, on behalf of pan-European utility provider, Électricité de France. He also claimed that EDF (the world's largest operator of nuclear reactors) was well aware of type of work that was taking place in their name - a claim EDF officials have denied.

Much of this broke back in April of this year, but the fallout continues. EDF is currently cooperating with the government's ongoing investigation - awkward when EDF is a majority government controlled entity in the first place. The utility has not yet been formally charged, but has been named an "assisted witness." Two senior security executives were been charged. EDF execs Pierre Francois, a power plant security chief and Pascal Durieux, EDF head of security, were suspended.

While EDF has defended its need to be vigilant against radical groups, as a result of the investigation, Kargus and EDF have parted ways. EDF has also acknowledged that they have ended an ongoing relationship with the Switzerland-based security firm, Securewyse, which according to news reports, has been hired by EDF to monitor representatives of Sortir du Nucléaire, an anti-nuclear group.

Regarding shareholder activist, Frédérik-Karel Canoy the government's investigation has led them to at least question Jean-Francois Dubos, the general counsel of Viviendi, a noted target of Canoy-led litigation - 13 cased and counting. While not under formal investigation, Dubos has seen his office searched and has been interviewed as a witness.

It remains to be seen how many different companies will become entangled in the French government's investigation - all of which flows out of the identification on one small time investigative subcontractor. I am sure it all must have seemed very distant when talking in theory about the work that would be directed via the protective veil of your corporate security or general counsels office, through a contractor who then separately hires one or more subcontractors whose names are never even known by the client.

Except of course when the work being conducted (perhaps without client knowledge or direction) is illegal on its face and an unlucky subcontractor's name becomes known to police. Once they start climbing the ladder, many corporate executives have found that it leads right to their boardroom door. Ask them at HP, or Hilton, or Wal-Mart or Deutsche Telekom. And there lies one of the most interesting aspects of this whole sorted affair - the dirty work of several different corporate entities is tied in to one small subcontractor.

--MDT

R. Allen Stanford Point-Man, Tom Cash, Out at Kroll

2009-08-03T13:24:00.002-04:00

Due to the controversy (and litigation) surrounding his connection to accused ponzi fraudster, R. Allen Stanford, Thomas V. Cash has stepped down from his position at Kroll. Cash had served as Kroll's Executive Managing Director in Miami. Cash's bio page on the Kroll website has already been removed.

-- MDT

That Was Quick - Make that TWO Stanford Investor Suits Filed Against Kroll

2009-07-23T09:28:00.006-04:00

UPDATE: A colleague in the know has clarified something for me. Despite what the FT said, there are not two separate lawsuits. Rather, there are two complaints, one from Electri as we've previously described. The second complaint comes from National Electrical Contractors Association, which is the organization behind Electri. So to the best of my understanding - two aggreived parties, two complaints, one lawsuit.

Via the FT:

The allegations have also cast a light on the close-knit world of business advisory. Kroll, a risk consultancy firm, has been accused in two separate investor lawsuits of "gross negligence" and of misleading investors via a "clean report" on Sir Allen's operations in 2007, court documents show. Kroll has denied any liability.

Thanks to our friends at Flaneur de Fraude for the tip. They also uncovered this ironic comment on Stanford from author and Kroll investigator William Brittain-Catlin:

"I'm amazed by the way people were taken in by Sir Allen," says William Brittain-Catlin from Kroll, the risk consultancy, and author of Offshore: The Dark Side of the Global Economy. "There’s so much stuff out there that any one who wanted to do a cursory check would have seen. Various allegations have been flying around for years."

Ahem, yes. Well. That is certainly awkward.

-- MDT