Yes, the Obama administration IS going after the financial fraudsters Part 2

So, you've heard the Obama administration  "hasn't gone after, arrested the financial fraudsters". You've heard they are only the "little fish". Wrong on all counts. It's complicated and the tentacles of the Justice Department's insider trading investigations are many. 

Galleon Group LLC co-founder Raj Rajaratnam, who was found guilty of all 14 criminal counts against him by a jury in May, lost a bid to have his convictions thrown out.

That doesn't seem like an important statement but this is a historic conviction. Even the WSJ admitted in 2009   "Where insider trading is concerned, the SEC always seems to (insert link to little fish).  But if the regulator’s allegations today result in any convictions, it will have reeled in a very big fish indeed,Raj Rajaratnam, founder of hedge fund Galleon Group." 


Note , this is from a WSJ blog, not an article-although the WSJ was a premier financial news source in its time, since Newscorp became the majority shareholder -it's understandably not  as reliable and not the best place to find kudos to the Obama administration for an amazing investigation.


You likely see articles that insider trading doesn't "hurt anyone" but picture this: Mr. Rajaratnam’s rise to wealth was driven by the technology stock boom of the 1990s. As the Nasdaq stock market soared, many hedge funds turned in extraordinary returns, including Galleon, whose main fund rose 93 percent in 1999. Among other funds, Galleon gained a reputation as a momentum investor that tried to ride rising stocks to their peak.  Imagine all of these hedge funds and other players engaged in insider trading that most certainly creates a volatile market that means a constant pattern of boom and bust. 


Raj Rajaratnam was #236 on the Forbes richest Americans List in 2009. He was born in Sri Lanka in 1957, earned an undergrad degree in engineering from the University of Sussex in 1980 and an MBA from the University of Pennsylvania in 1983. Soon after, he joined Needham & Company, where he became Chief Operating Officer. Needham & Company, is an independent investment bank and asset management firm specializing in advisory services and financings for "growth" companies.  Needham & Company is a wholly owned subsidiary of The Needham Group, which also operates a private equity investment business and an investment management business. Needham Investment Management, another wholly owned subsidiary of The Needham Group, offers mutual funds and hedge funds, most notably, The Needham Growth Fund (NEEGX), which has been rated a top-performing mutual fund in the past. Needham Asset Management, another affiliate, controls Needham Capital Partners, which manages private equity funds that invest primarily in growth companies.


You can see, at the very simplest level, how easy it is to get lost in all the holding companies and connections. It's also obvious that these various holding companies made so the parent company doesn't need customers-they sell to each other!  But, back to Raj. 


 In 1997, he founded Galleon, which "invested mainly in technology stocks." according to many sorces. They don't say when Galleon LLC and others were formed. Raj ran a hedge fund for Needham & Co and one article says he bought it, several say he started it....hard to find the truth.   But it's easy to see that it's complicated. Galleon is closed. The connections are many.


In the fall of 2008, as the financial world was in meltdown, Goldman received a $5 billion cash infusion from the celebrated investor Warren Buffett. Blankfein said he informed board members about it in a conference call on October 23, and expected them to keep the information secret. Sixteen seconds after that call ended, one board member, Rajat Gupta, got on the phone with Rajaratnam. Then, just before the closing bell, Rajaratnam purchased $43 million of Goldman stock.   


And, from Reuters - Goldman Sachs Chief Executive Lloyd Blankfein has hired high-profile Washington defense attorney Reid Weingarten, according to a government source, as the Justice Department continues to investigate the bank......"Why do you bring in someone like that?" said the source, who was not authorized to speak publicly, about Weingarten. "It says one thing: that they're taking it seriously."   


I want to note that many of the links I provide play down insider trading and the case. They do provide a few nice tidbits.


Since August 2009, prosecutors have charged at least 52 traders, company insiders and others. All but three of these have been convicted at trial or pleaded guilty. There are new ones daily, if you search for insider trading arrests  or trials. Here are just a few interested parties that I've found:

A US market regulator said former Goldman Sachs Group Inc and Procter & Gamble Co board member Rajat Gupta tipped Galleon hedge fund founder Raj Rajaratnam in phone calls about confidential company information. Gupta's lawyer said the allegations are baseless. (It was on tape)

Prosecutors also charged Rajiv Goel, who worked at Intel Capital as a director in strategic investments, Anil Kumar, who worked as a director at McKinsey & Co., International Business Machines Corp. executive Robert Moffat, and former officials at Bear Stearns Asset Management Danielle Chiesi and Mark Kurland, who were affiliated with the firm’s $1 billion New Castle Partners.

Roomy Khan, one of the key witnesses in the government’s insider trading case against the former hedge fund manager Raj Rajaratnam, has agreed to pay nearly $1.9 million to settle civil fraud charges filed against her, according to a court document. Ms. Khan, a former employee of Mr. Rajaratnam’s at the Galleon Group, has already pleaded guilty to criminal fraud and conspiracy charges and is cooperating with federal prosecutors. 

Danielle Chiesi, the former beauty queen turned stock trader was just sentenced to 30 months in prison by Judge Richard Holwell in Manhattan Federal court. Chiesi, who was once had the ear of hedge fund billionaire Raj Rajaratnam, pled guilty last January to three counts of conspiracy to commit securities fraud. (several others as well)

"I was pretty scared, pretty paranoid," testified Mark Anthony Longoria, a former AMD manager. "I thought I was the individual giving out information that they were referring to."

Longoria, who pleaded guilty in June and is cooperating with the U.S., is testifying at the insider-trading trial of James Fleishman, a Primary Global Research LLC executive. The Mountain View, California-based firm, also known as PGR, matches employees of public companies with fund managers for a fee.

Richard Choo=Beng Lee, a former hedge fund manager implicated in the Galleon case who 

, founded the California-based hedge fund Spherix Capital, had a relationship with Primary Global and 

began cooperating with authorities in April 2009.

More here. Exhausting although there are many more. The next time you see an article stating one or two got a slap on the wrist, remember there are many more that don't make the headlines. And many more to come. 

Did I mention GS Lloyd Blankfein just hired a lawyer?  I did? Well, you can't mention that too many times. 

Yes, the Obama administration IS going after the financial fraudsters...and there's a New sheriff in Town

Not a day passes that I don't see comments like these:  "Why has NO ONE been arrested?" or "Eric Holder doesn't do ANYTHING" or "Why haven't I seen ANY CEOs in prison jumpsuits?' 


Here's one:  Nice photo-Farkas in his prison garb. Gone are his houses and toys...From June 2011,  "A federal judge on Thursday sentenced Lee B. Farkas, a former mortgage industry executive accused of masterminding one of the largest bank fraud schemes in history, to 30 years in prison. "


"As chairman of Taylor Bean, Mr. Farkas orchestrated a plot that caused the demise of Colonial Bank and cheated investors and the government out of billions of dollars, prosecutors say." 


Then the story goes on say "Still, Taylor Bean was a minor financial firm based in Florida, and the crimes of Mr. Farkas began well before the crisis struck.. "  This is where I wish they'd done their homework. Exploring a little more we find  that Taylor Bean Whitaker was the largest "private" lending corporation in the USA. From Forbes (certainly not a liberal publication)


Lee Farkas, former chairman of Taylor Bean & Whitaker Mortgage Corp., was found guilty of all charges after a two week trial that had Farkas testifying on his own behalf."

In an unusual move by a defense team in a white-collar crime, they allowed Farkas to take the stand.  His testimony was that he was only trying to help keep his company stay afloat and that he did not believe that what he was doing was wrong.  What he was doing was essentially bundling and selling the same mortgages that his firm had originated twice.  Well the jury helped Farkas understand that what he did was wrong and found him guilty on all charges presented by the prosecution.  When sentenced on July 1^st, Farkas (58), who was taken into custody after the verdict, could be in prison for the remainder of his life.  His lawyers have asked for a hearing next week to allow Farkas to be out until his sentencing.

Lee Farkas built TBW from a small mortgage brokerage firm in 1991 into one of the biggest players in mortgages in the country. "

He also had to turn over $38 million in assets....the forfeiture of about eight properties in Florida, Maine and Georgia properties and nearly a dozen luxury cars as a substitute in partial payment for the money judgment against the convicted mortgage lender. He brought down TCW and Colonial bank-at one time, TBW was one of the largest privately held mortgage lending companies in the United States and Colonial Bank was one of the 25 largest banks in the United States.  

The fraud began in 2002, when Taylor Bean overdrew its main account with Colonial by several million dollars. Midlevel executives at Colonial agreed to transfer money into Taylor Bean's accounts at the end of each day to avoid generating overdraft notices, a process known as "sweeping."

As the hole grew to well over $100 million, Taylor Bean and a handful of Colonial executives concocted a scheme in which Taylor Bean sold hundreds of millions in worthless mortgages to Colonial - mortgages that had already been sold to other investors. More than $1 billion in such phony mortgages were eventually sold to Colonial, which listed them on its books and on its quarterly reports as legitimate assets, prosecutors alleged.

Six others have also pleaded guilty in the fraud scheme. As I see it, the mortgage and bank fraudsters are just like the mafia. And Eric Holder is using the same tactics as Eliot Ness. You catch the little ones and then the bigger ones. We are far from finished with this as more connections are made.

 The first sign of what would ultimately become a $3 billion fraud surfaced Jan. 11, 2000, when Fannie Mae executive Samuel Smith discovered Taylor, Bean & Whitaker Mortgage Corp. sold him a loan owned by someone else. Fannie Mae, the government-sponsored enterprise which issues almost half of all mortgage-backed securities, determined over the next two years that more than 200 loans acquired from Taylor Bean were bogus, non-performing or lacked critical components such as mortgage insurance.

Fannie Mae CEO Daniel Mudd received $12.2 million in total compensation last year, down 15 percent from 2006, the government-sponsored enterprise said on Wednesday. Mudd's pay included his $990,000 salary, a $2.23 million bonus and a $9 million "long-term incentive" award, the company said.

And Fannie Mae is a private corporation. They knew and said nothing....but Lee Farkas is proof that even if you resign, the Eric Holder Justice Department may be on your trail...