Receiving Wide Coverage ...
Fabulous Fab Continued: On a summer Monday when many Wall Streeters and journalists alike are pondering the sand between their toes, enough personnel remain on duty to produce a hefty dose of news on Goldman Sachs (GS) and its former trader, Fabrice "Fabulous Fab" Tourre. This morning's installments include one from the Wall Street Journal concluding that Tourre and his former employer have been inextricably linked for a while longer by a federal jury's decision last Thursday to find Tourre guilty in a civil case of aiding and abetting Goldman in duping investors. That case involved the now infamous Abacus 2007-AC1 subprime mortgage investment deal. One reason Wall Street firms have been so insistent over the years on "neither admitting nor denying" wrongdoing during settlement negotiations with the government is that fessing up provides smoking-gun evidence to those greedy class action and securities lawyers looking to file suits on the feds' coattails. (Goldman itself agreed in 2010 to a record $550 million civil settlement over Abacus but got off without admitting anyone had even jaywalked.) In Tourre's case, a victory might have helped Goldman prevail in other Abacus-related lawsuits, but now it must await a decision by its former trader over whether to appeal the verdict, the Journal says. Meanwhile, the firm intends to continue covering his hefty legal bills, the paper adds, citing "people familiar with the matter." Bloomberg characterizes the Securities and Exchange Commission's victory over Tourre in the civil trial as a "shot in the arm" that will help the agency "turn the page on years of criticism that it isn't holding Wall Street to account." The win also adds heft to pledges by newly installed SEC Chairman Mary Jo White to reinvigorate the agency, seek more onerous settlements in some cases, go to trial if necessary--and push Congress for a 27% larger budget. "The SEC needed at least one scalp from the financial crisis, or they were going to face a lot of heat from Congress," Adam Pritchard, a former SEC attorney who teaches law at the University of Michigan, told Bloomberg. However Congress reacts, certain hard-to-please members of the public may be more in sympathy with Naked Capitalism's Monday morning take: CEOs doing the perp walk was what the public wanted to see. Instead, six years later, we have one young guy at Goldman who will disgorge some income and be barred from working in the industry (for how long yet to be determined). This is so far short of what needed to happen that it's pathetic to see the SEC high-fiving over its win." Wall Street Journal, Bloomberg
Rust Never Sleeps: Speaking of ambulance-chasing lawyers...the London Metal Exchange and Goldman Sachs have been named by as co-defendants in a class-action lawsuit in the U.S. accusing them of anticompetitive behavior in aluminum warehousing, the New York Times reports. The news comes in the wake of a recent Times story alleging that Goldman, JPMorgan Chase (JPM) and other Wall Street firms have been exerting their grip on commodities markets to artificially limit supplies, hold them in warehouses for months on end and pump up prices paid by manufacturers and consumers. U.S. regulators are taking a look at the metals warehousing industry, and Britain's financial watchdog is also investigating the London Metal Exchange's warehousing system (of which Goldman is part), according to the Times. More broadly, the Federal Reserve is reportedly rethinking an exemption that has enabled banks to circumvent a ban on non-financial commercial activities and participate in commodities markets. Goldman last Wednesday tried to defuse complaints about waiting times and high prices at its metals warehouses by offering immediate access to aluminum to some end users. Even so, the new class action accuses the defendants of "anticompetitive and monopolistic behavior in the warehousing market in connection with aluminum prices." It was filed Thursday in Federal District Court in Michigan by Superior Extrusion, an end user of aluminum. Goldman and the LME's owner, Hong Kong Exchanges, quickly characterized the suit as meritless. In any case, Wall Street's love for commodities has come to an abrupt end, the Financial Times writes. As evidence, it cites JPMorgan Chase's recent decision to unload its physical commodities business. That move follows an embarrassing and costly episode in which the bank paid $410 million to settle federal allegations that it rigged U.S. electricity markets and is sure to spawn a class action cottage industry of its own. "The fact that JPMorgan is considering a sale is the clearest sign yet that Wall Street's commodities trading boom has fizzled out," writes the FT. New York Times, Financial Times
Wall Street Journal
Bitcoin, the digital currency, has a new fan. It's Joe Lewis, a billionaire foreign-exchange trader who teamed up with hedge-fund manager George Soros in a famously lucrative 1992 bet against the Bank of England. Lewis' Phoenix Fund, a Zurich-based private-equity shop, plans to invest $200 million on Tuesday in Avalon, a company that makes computer servers aimed at creating bitcoins, the Journal reports, citing people familiar with the situation. Bitcoin is a virtual currency that exists online and isn't backed by any government or central bank. Bitcoins were invented in 2008 by a computer programmer who goes by the pseudonym Satoshi Nakamoto and describes it as a peer-to-peer electronic cash system. The currency has garnered a near-religious following among supporters, many of whom tend skew libertarian and chafe at heavy-handed government. In the U.S. and elsewhere, government authorities have responded with unease, fearing digital currencies are refuges for terrorists, drug dealers and other criminals. The Thai government last week announced that it has banned the use of bitcoins within the kingdom.
Family office status is all the rage among hedge funds these days, according to the FT. New York and London-based hedge fund managers are returning external money to investors and restructuring as family offices to qualify for an exemption from the Dodd-Frank Act in the U.S. and the Alternative Investment Fund Managers Directive in Europe, it reports. Both sets of regulations have raised compliance and reporting costs for hedge fund managers. The decision by several hedge funds to opt for single family office status follows a similar move by billionaire George Soros, who returned money to investors in his Quantum fund and converted the business to a family office in 2011. Hundreds of London-based fund managers may choose to take this route in order to "reinvent themselves and avoid all of the additional regulation," according to Sean Donovan-Smith, funds partner at K&L Gates, a law firm. "There is a fair bit of creative thinking going on, and it really comes down to the cost of the additional operational procedures and increased liability provisions," he said.
Sen. Sherrod Brown "has arguably become one of the leading voices on banking policy in Washington." That's how the 54 year-old Ohio Democrat is described by Chris Krueger of Guggenheim Securities in the FT this morning. The article profiles the frumpy Brown's tireless lobbying to get Janet Yellen installed as Federal Reserve Chairman, his bipartisan efforts with Sen. David Vitter to hike bank capital requirements [http://www.americanbanker.com/issues/178_79/vitter-lays-out-capital-requirements-in-too-big-to-fail-bill-1058586-1.html] and his prospects for becoming chairman of the Senate banking committee if the Democrats hold onto the Senate in next year's midterm elections.
New York Times
Bank of New York Mellon (BNY) was found not guilty of sex discrimination in laying off Rochelle Cohen in 2010 from her $124,000-a-year job in its wealth management division, a federal jury decided on Friday. Such cases rarely go to trial (defendants typically settle the nettlesome ones by quietly writing checks or via industry arbitration) and involved a round of layoffs in which 10 of the 11 people let go were women. Cohen testified at trial that her managers became critical of her after she brought up gender issues. During testimony, a bank lawyer and witnesses countered that Cohen's two decades of experience at brokerage firms was downmarket to the fiduciary role Bank of New York Mellon provides to clients. The Federal District Court jury deliberated for one day before delivering its verdict.