|
 |  Apr-24-2008SEC internal watchdog reviewing agency's Bear probe(topic overview) CONTENTS:
SOURCES
FIND OUT MORE ON THIS SUBJECT
NEW YORK (Reuters) - Regulatory officials turned down a congressional request to reveal why they aborted an inquiry into whether Bear Stearns Cos (BSC.N: Quote, Profile, Research ) improperly valued complex debt securities, hurting investors in the process, the Wall Street Journal reported on Wednesday. The U.S. Securities and Exchange Commission cited confidentiality for its decision, the report said. Sen. Charles Grassley, an Iowa Republican, sent the SEC a letter on April 2 asking for details on why the regulatory body dropped its investigation into the Wall Street firm, the Journal said. [1] SEC regulators have declined requests from Congress to reveal why they stopped the investigation into Bear Stearns for mistakenly valuing debt securities and thereby harming investors. The Wall Street Journal report said the SEC cited '''confidentiality''' in its decision to drop the investigation.[2]
For a commission that's been accused of having lost its bite, the SEC bit back yesterday when it refused a congressional request to disclose why it dropped an investigation into whether Bear Stearns harmed investors by improperly valuing complex debt securities.[3]
U.S. Senator Jack Reed, a Rhode Island Democrat, said April 1 that the agency "appears to have been caught off-guard by the seriousness of the situation at Bear Stearns.'' Cox said last week that Congress could improve SEC oversight by passing legislation to back its supervision of investment banks and providing the agency with "dedicated funding'' to pay for it. Investment banks now submit to SEC scrutiny of their liquidity on a voluntary basis. In his letter, Cox declined to tell Grassley why the SEC dropped an investigation into Bear Stearns's pricing of debt securities, saying the agency pursues "inquiries on a confidential basis.''[4] The SEC is meeting with investment banks that have lost money on mortgage holdings to discuss raising capital, SEC Chairman Christopher Cox said in an April 16 letter to U.S. Senator Charles Grassley made public today. The agency is also reviewing whether securities firms should seek new loans to support their "less-liquid positions,'' Cox said. "A likely outcome of this process will be the articulation of additional supervisory expectations related to liquidity,'' Cox said in the letter to Grassley, an Iowa Republican who is reviewing Bear Stearns's forced sale to JPMorgan Chase & Co.[4] "Given the fact that we just lost a brokerage firm to a funding run on a Friday when it met all of the capital rules on a Thursday, then I would say that improvements in liquidity rules are a wise thing to do,'' said Sanford C. Bernstein's Brad Hintz, the third-ranked securities analyst according to Institutional Investor magazine. The SEC monitors Bear Stearns, Goldman Sachs Group Inc., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Morgan Stanley to make sure they have adequate capital and liquidity. The agency currently requires that those firms have enough funding to meet expected obligations for at least one year during periods of market turmoil, according to the agency's Web site. The mandate assumes securities firms will still be able to get new loans by putting up assets such as U.S. Treasuries as collateral. That requirement didn't prevent the "unprecedented'' situation at New York-based Bear Stearns, which couldn't secure loans even if it offered to put up "high-quality collateral,'' Cox said in April 3 testimony before the Senate Banking Committee. The SEC is urging securities firms to extend the duration of their funding agreements with other banks, he said.[4]
The probe is moving forward on two fronts, looking at whether the managers deliberately misled investors about the funds' health and whether Cioffi and his team conjured up fraudulent values for the funds' risky subprime securities. The latter is what matters most to other investment banks. The issue of how Wall Street priced those collateralized debt obligations, the values of which were based on internal models rather than actual values, has been controversial ever since the market for them evaporated last year. "If the valuations become a criminal issue Bear Stearns, it would send a warning shot across the bow of every firm that marketed these exotic products," says Steven B. Caruso, a litigator representing several Bear investors. Proof of such fraud is hard to find, much less explain to a jury.[5] The Wall Street Journal reported in December that investigators including the SEC had pulled back from bringing two cases begun in 2005 against Bear Stearns involving collateralized debt obligations, or thinly traded investments that package pools of loans.[6] Two SEC cases against Bear Stearns (BSC) that began in 2005, involving debt obligations and investments, were also dropped, according to the Journal.[2]
The SEC probed whether Bear Stearns improperly valued $63 million of collateralized debt obligations it sold to a Puerto Rican Bank.[4]
WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission's internal watchdog is investigating why the agency closed a 2005 probe into Bear Stearns Cos Inc's (BSC.N: Quote, Profile, Research ) pricing of collateralized debt obligations (CDOs), according to a letter released on Wednesday.[7] April 23 (Bloomberg) -- The U.S. Securities and Exchange Commission, responding to the collapse of Bear Stearns Cos., may require Wall Street banks to keep more cash on hand during periods of market stress.[4] The U.S. Securities and Exchange Commission cited confidentiality in its decision involving the late-stage probe of the Wall Street firm.[6]
The whole industry is corrupt especially when the fed and treasury give banks a license to print money (the banks should never lose). The best at the game are the firms like Goldman who when managed by the current Secretary of the Treasury made billions from shorting these types of securities while at the same time made billions in underwriting fees selling the very same type of securities to foreigners and pension funds. That was not even enough for these guys, when Bear was bailed out, Paulson and his wall street cronies again made 100s of millions just from the increase in the price of their Goldman stock the next day. Congress is no better, those guys have more money making scams than the banks (who do you think buys all those books generating millions of profits for those brilliant literary artists).[3] Reportedly, the first quarter of 2008 was the second-best of all time for fundraising by private-equity firms. Others with cash to splash include Warren Buffett, a legendary investor who for years has been complaining of his wish to make a big acquisition or two and of his inability to find a price he liked. Then there are those who manage very long-term money, such as university endowments, of whom the greatest is David Swensen of Yale. It will be no surprise if 2008 proves to be one of the better years in an investment career already so successful that it has recently inspired Yale alumni to launch a campaign to name a college at the university after him. The biggest question is whether the sovereign-wealth funds, some of which rushed prematurely into the distress market last year and are now treading more carefully, will now stay out, when arguably they should be returning to it. Some of their investments last year in private-equity firms, such as Blackstone and Wall Street banks, have since plunged in value. Again, this question puts a smile on the face of the axe-wielding private-equity boss. He expects to do business with several sovereign-wealth funds that want to make the most of this once-in-a-career buying opportunity, but think they will do it best in partnership with an investor with plenty of local knowledge.[8]
We can't justify that overhead." The private-equity boss was by no means downcast as he sharpened his axe. He describes the bail-out of Bear Stearns as "rearranging the deck chairs on the Titanic", and thinks it will be three years before the pendulum swings back from fear to greed. During the fearful period, he expects to make some "amazingly profitable investments", because even if the banks are no longer competing to lend to him on absurdly generous terms, he has huge amounts of equity to deploy. For those with plenty of cash and little debt, 2008 may turn out to be another opportunity to prove the rightness of the old nostrum about investing when there's blood in the streets--or, at least, when Wall Street is bleeding.[8] Bear Stearns was one of five major Wall Street banks whose cash positions and balance sheets were monitored closely by SEC examiners after the mortgage crisis erupted last year.[9]
The Wall Street Journal Wednesday, in a follow-up to a December piece revealing the closure of SEC and New York Attorney General's investigations of Bear's mortgage securities sales, reported the SEC has refused to tell Congress why its investigation was closed.[10] The New York Attorney General's Office, headed in 2005 by Eliot Spitzer, was looking into Bear's pricing of $16 million of mortgage securities sold to an institutional client, according to the Journal. It's unlikely that Spitzer, in the midst of the anti-Wall Street crusade that launched him into the governor's office, would have backed away if there was any hope of pinning a charge of wrongdoing on Bear.[10]

The Journal's original story framed the investigations, which were closed in 2005, as missed opportunities to get ahead of today's mortgage securities mess. In an April 2 letter to Sen. Charles Grassley of Iowa, SEC Chairman Christopher Cox refused to even acknowledge the existence of such an investigation. [10] "The Commission does not disclose the existence or nonexistence of an investigation or information generated in any investigation unless made a matter of public record in proceedings brought before the Commission or the courts," said SEC Chairman Chris Cox said in a letter to Sen. Charles Grassley (R-IA), the ranking member of the Senate Finance Committee.[3] Cox said the SEC's internal watchdog is conducting a probe into the agency's purported investigation into Bear Stearns at the request of Iowa Sen. Charles Grassley, the top Republican on the Senate Finance Committee. Grassley said earlier this month he wanted the SEC's inspector general to look into the matter in light of the federally backed bailout of Bear Stearns.[7]
Cox said it is the agency's policy not to reveal the existence or nonexistence of an investigation unless it is in the public record in proceedings brought before the commission or the courts. In late 2007, Bear Stearns revealed in an SEC filing that the agency had investigated its involvement in the pricing and valuation of $62.9 million of CDOs, and that the agency would not bring a case in the matter.[7]
The report added that SEC Chairman Christopher Cox replied in an April 16 letter, saying: "The Commission does not disclose the existence or nonexistence of an investigation or information generated in any investigation unless made a matter of public record in proceedings brought before the Commission or the courts."[1] SEC Chairman Christopher Cox said in the letter to a top lawmaker that the events related to the agency's purported CDO investigation "do not in fact relate to mortgage-backed securities."[7] The SEC is the primary regulator for investment banks. SEC Chairman Christopher Cox said in an April 16 letter to Republican Sen. Charles Grassley that agency staffers are meeting with the investment banks executives to discuss their plans to raise cash to protect against losses. As a result of those talks, there is likely to be "additional supervisory expectations related to liquidity" as well as "requirements that will increase resiliency in the event of disruption in secured funding markets," the letter said.[9] In March, Cox identified reasons beyond the balance sheet for Bears troubles. In a March 20 letter to international banking regulators, he said that "the fate of Bear Stearns was the result of a lack of confidence, not a lack of capital." The SEC monitors the financial stability of large investment banks such as Merrill Lynch Co Inc. and Goldman Sachs Group Inc., but has limited authority over those companies. Regulators such as the Federal Reserve and Federal Deposit Insurance Corp. have far greater power over commercial banks.[9]
An SEC spokesman declined to comment. Bear Stearns has said it cooperated with both investigations. Sens. Grassley and Max Baucus, a Democrat from Montana, chairman of the Finance Committee, said Tuesday they will continue to pursue the information from the SEC.[6] A spokesman for the committee said Grassley and committee chairman Max Baucus, a Montana Democrat, believe the SEC should work with lawmakers to provide the necessary information on the Bear Stearns investigation. She said they will continue to pursue the information they are seeking.[7]
The move sets the stage for further wrangling. Legislators could argue that they previously have sought'and received'much more-sensitive-classified data, and that the SEC investigations wouldn't harm the parties involved because they had been dropped. Bear Stearns soon will lose its independence, becoming part of J.P. Morgan Chase.[6] The SEC's inspector general is investigating circumstances related to the dropped Bear Stearns case, following a request by Sen. Grassley.[6] At issue is a move by the SEC to abort an enforcement case into activities at Bear Stearns several months before the firm imploded in March.[6]
Since last months near-collapse of Bear Stearns Cos., lawmakers have criticized the SEC for missing warning signs of the meltdown, one felt acutely by financial markets around the globe.[9] The SEC branch office in 2005 said it planned to recommend that Bear Stearns be charged for the way it priced and valued about $63 million of CDOs.[6]
The Securities and Exchange Commission isn't the only party withholding what they know about aborted investigations into Bear Stearns Cos.' pricing of mortgage-backed securities.[10] Until recently, cash-rich vultures worried that the financial crisis would drastically worsen. While nervousness about some parts of the American economy remains, the Bear Stearns rescue seems to have convinced these investors that no more financial institutions of any significance will be allowed to fail. That means they can stump up capital to banks and other financial institutions with relative confidence--as many have started to do in the past fortnight, with increasing enthusiasm. Judging by past investments in banks at the end of periods of financial stress, these investments have a good chance of paying off handsomely.[8] The problems seem to have permeated the entire financial system, given the $250 billion in subprime-related writedowns so far. "This was a Street-wide failure," says another former federal prosecutor. Those challenges may explain why prosecutors are spending so much time interviewing investors, pursuing a line of questioning that may prove more fruitful for making charges than the valuation angle. Investigators are focusing on what Cioffi and his team were saying and doing in the months before the funds fell apart, including whether they downplayed the number of investors rushing to the exits. They're also looking for inconsistencies between Cioffi's bullish comments on conference calls and his e-mails or other communications. As prosecutors debate how to proceed, Cioffi waits at his multimillion-dollar home in Tenafly, N.J. But he still has a hand in the finance game. Earlier this year, Cioffi and a former colleague started an investment vehicle called RCAM Capital. People close to Cioffi say it's only to manage family money. He has registered a domain name for RCAM and hired a Web designer to construct a site.[5]
Lawyers from the SEC and the DOJ bounce back and forth between roles as "regulators" and then as members of the very same BigLaw law firms and financial companies which they are supposed to regulate, investigate, and prosecute. Might some temps with attorney jobs at Federal agencies in securities and law enforcement perceive that being loyal to their oaths would be bad for their future careers? Might they understand the easy path to McWealth is to play along, and bury the misdeeds of their relations? BankruptcyMisconduct.com has an excellent SEC letter showing numerous failures make mandatory filings by a public company that was liquidated for the sole benefit of the hedge fund majority stockholder, all while failing to disclose director resignations and their replacement with operatives of the very same hedge fund.[3] However legislators could argue the SEC would be releasing the data to Congress--not to the public at large, according to the newspaper. The big question is why the SEC abandoned their investigation just a few months before the firm went into crisis in March and agreed to be purchased by JPMorgan (JPM).[2] Given that the SEC inspector general is already looking into why the matter was dropped, Cox's response appears disingenuous. It's hard to believe Grassley and Baucus can't muster up their own SEC sources to tell them what happened. Neither lawmaker is making hay about New York's decision to drop its investigation.[10] The move, reports the WSJ, could lead to more back-and-forthing between the SEC and Congress. Legislators could argue that they previously have received more classified data from the SEC, and that the SEC investigations wouldn't harm the parties involved because the investigations have already been dropped.[3] Everyone in the country should be pleased that the SEC is attempting to maintain a credible policy of not disclosing each and every detail of each and every investigation it undertakes which does not result in the bringing of charges. How many more people and companies would be unjustly defamed in the press if the SEC did otherwise? The creepy, leaking showboaters in Congress dont really need the SEC data; they can easily defame on their own, and do so with alacrity every day, safe from all legal process or redress.[3]
Compliance guy then FOIA's the information and low and behold the SEC can not identify anyone who communicated with Orrick about the investigation. It appears Orrick was able to ascertain information from SEC 2 years prior from compliance guy being able to ascertain same.[3] SEC had information under an exemption. Appears Orrick can not answer the complaint because it would implement them with improper contact with the SEC during an ongoing investigation.[3]
Orrick, Herrington & Sutcliffe has defaulted on the below lawsuit. Orrick claimed that the SEC provided them with certain facts during a confidential investigation that they then used to defame a compliance officer at JPM suring a SOX 806 investigation.[3] Point being the SEC would never discuss an ongoing investigation and thus Orrick could have never communicated with the SEC about facts at the time.[3] Orrick knew there was an ongoing SEC investigation. They knew it was improper to have any contact with the SEC without the other side knowing.[3]
The SEC, which can pursue a civil case, is also conducting an investigation into what happened at the funds.[5]
In an April 2 letter, U.S. Sen. Charles Grassley, an Iowa Republican, requested information from the SEC into the circumstances surrounding the dropped case.[6] Grassley, the ranking Republican on the Senate Finance Committee, has subsequently been joined by committee chairman Max Baucus, D-Mont., in asking the SEC to give up some details.[10]
The Treasury also proposed that new regulators take on most of the SEC's responsibilities. The SEC also faces scrutiny from members of Congress, who have questioned its supervision of investment banks.[4] The SEC is focused on "requirements that will increase resiliency'' when investment banks can't easily secure funding, Cox said.[4]
The SEC is reevaluating liquidity requirements after the Treasury Department released a report last month recommending the Fed gain more authority over Wall Street banks.[4] The Wall Street Journal reported Cox's refusal to discuss the investigation earlier today.[4] Wall Street is watching closely: If the Justice Dept. can't make a case against Cioffi, a prime figure in the mortgage mess, other criminal investigations may hit a dead end as well.[5]
Any change may crimp Wall Street profits, because firms would have to hold more cash and low-yielding securities instead of lending money or making investments.[4] For two years after the Refco CDO mess, a flashing neon warning sign, everyone in the Bush administration and on Wall Street did nothing but go to lunch while the big financial houses marketed gilt edged garbage, CDOs based on the value of NINJA (No Income check, No Job or Assets) mortgages.[3]
Will all the big private-equity firms. Steve Schwarzman, the boss of Blackstone, may have seen his personal net worth plummet since his firm's flotation last summer, but he remains in fine spirits as his firm even now is taking its pick of assets that banks such as Citigroup desperately try to get off their balance sheet. These big private equity firms have plenty of cash, after several years of strong fundraising; indeed, they continue to raise more capital, perhaps reflecting today's opportunities.[8] There will also likely be similar opportunities to buy corporate debt, especially the high-yielding sort, which is currently being priced at a point that implies a far more severe recession in America than all but the most bearish commentators think likely. This is especially attractive for those investors who already own significant equity positions in the firms whose debt they are buying. They bring both inside knowledge of those particular companies' risks as shareholders, and an ability to minimise the scope for battles between holders of debt and equity, as they are on both sides of the firm's capital structure. Who is being tipped by financial insiders to have a great 2008? One expert investor surely salivating at the current opportunities is Wilbur Ross, who most famously banked a billion dollars or so by rolling up troubled American steel firms at rock-bottom prices and then selling them to Lakshmi Mittal.[8] The securities in question are complex collateralized debt obligations that no one has figured out how to price properly.[10]

Orrick refuses to identify source at SEC. Compliance guy sues Orrick for defamation once FOIA request comes back with no proof. [3] Orrick received the information from the SEC only after OSHA issued its preliminary findings against its client JPM (wink wink). It appears compliance guy was forced to settle - negative inference. SEC gave facts to Orrick but not to him.[3]

Chris Cox is an excellent public servant in the tradition of the entire Bush Administration. He has helped hasten the day when the public will comprehend that the SEC's current purpose is to serve as a shield for big money interests while appearing to provide protection to public investors. [3] Legislators could also argue that the SEC wouldn't be releasing data to the public, but rather to Congress.[3]
Here's the background: The WSJ reported in December that investigators, including the SEC, had scrapped two cases begun in 2005 against Bear involving CDOs, thinly traded investments that package pools of loans.[3] In 2005, the SEC branch office said it planned to recommend that Bear be charged for the way it priced and valued about $63 million of CDOs.[3]

The agency told Bear Stearns in 2005 it may be sued over sales, people familiar with the matter said at the time. [4] Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms.[1]
SOURCES
1. SEC refuses to say why Bear enquiry dropped: report | Reuters 2. Report: SEC Rejects Congress' Bear Stearns Queries 3. Law Blog - WSJ.com : Faced With Questions Over Dropped Bear Case, SEC Bites Back 4. Bloomberg.com: U.S. 5. The Feds' Subprime Suspect 6. Financial News and Information from Financial News Online US 7. SEC internal watchdog reviewing agency's Bear probe | Reuters 8. Business.view | Masters of distress | Economist.com 9. Bear Stearns fall fixes US sights on banks cash reserves, bigger cushions may be the rule - International Herald Tribune 10. Don't Grassley, Baucus have SEC sources? (Dealscape)

GENERATE A MULTI-SOURCE SUMMARY ON THIS SUBJECT:
Please WAIT 10-20 sec for the new window to open... You might want to EDIT the default search query below: Get more info on SEC internal watchdog reviewing agency's Bear probe by using the iResearch Reporter tool from Power Text Solutions.
|
|  |
|