News Items

SEC Official Claims Over 50% of Private Equity Audits Reveal Criminal Behavior

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Last week, Yves Smith of Naked Capitalism penned a fantastic piece leveraging a talk by SEC official Drew Bowden. Mr. Bowden heads the SEC’s examinations unit, and at a private equity conference he explained that “more than 50 percent of private equity firms it has audited have engaged in serious infractions of securities laws.” What is so incredible about the talk, is that while Bowden goes into details of shady practice after shady practice, he ultimately admits that the SEC isn’t being particularly aggressive with the private equity industry because “we believe that most people in the industry are trying to do the right thing, to help their clients, to grow their business, and to provide for their owners and employees.”

Yes, go ahead and read that again. The industry regulator is assuming that private equity firms are trying to do the right thing, despite the fact that audits demonstrated to a tune of greater than 50% the opposite to be true.

Private equity managers are some of the savviest people in finance and they know exactly what they are doing. What the SEC is basically admitting, is that private equity firms are also “too big to regulate” and, of course, “too big to jail.” After all, every single person at the SEC is likely angling for a big payday at a PE firm via the revolving door. Of course they aren’t going to regulate.

Meanwhile, if you are just an average citizen, you will be prosecuted to the fullest extent of the law if you commit even the most minor infraction. This sort of behavior led to the death of prodigy Aaron Swartz, the incarceration of political prisoner Barrett Brown, a swat team raid on a young kid in Peroia, Illinois for a parody Twitter account, the firing of a constriction worker for not paying for a $0.89 soda refill. This list goes on and on. Yet private equity crimes, which likely run into the billions collectively, are treated with kid gloves. As I have maintained many times before, this is how the social fabric of a society dies.

From Naked Capitalism:

At a private equity conference this week, Drew Bowden, a senior SEC official, told private equity fund managers and their investors in considerable detail about how the agency had found widespread stealing and other serious infractions in its audits of private equity firms.

In the years that I’ve been reading speeches from regulators, I’ve never seen anything remotely like Bowden’s talk. I’ve embedded it at the end of this post and strongly encourage you to read it in full.

Despite the at times disconcertingly polite tone, the SEC has now announced that more than 50 percent of private equity firms it has audited have engaged in serious infractions of securities laws. These abuses were detected thanks to to Dodd Frank. Private equity general partners had been unregulated until early 2012, when they were required to SEC regulation as investment advisers.

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Tim Geithner Admits “Too Big To Fail” Hasn’t Gone Anywhere (and that’s the way he likes it)

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But it is now clear that Geithner never believed his own talking points. To him, too-big-to-fail and the so-called moral hazard, or safety net, that it would create can’t really ever be fully taken away. During his lecture to Summers’s class, one student asked a question about “resolution authority,” a provision of the reform laws that is supposed to let the government wind down a complex financial institution without creating a domino effect. The question prompted Geithner onto a tangent about too-big-to-fail. “Does it still exist?” he said. “Yeah, of course it does.” Ending too-big-to-fail was “like Moby-Dick for economists or regulators. It’s not just quixotic, it’s misguided.”

– From The New York Times Magazine article, What Timothy Geithner Really Thinks

Never in a million years did I think I’d ever use an article by Andrew Ross Sorkin as the basis of a blog post, but here we are. While certainly entirely unintentional, his article serves to further solidify as accurate the prevailing notion across America that former head of the New York Federal Reserve and Obama’s first Treasury Secretary, Timothy Geithner, is nothing more than an addled, crony, bureaucratic banker cabin boy.

There are so many choice nuggets in this article, all of which make Geithner look worse and worse as you read on. It’s almost as if he is some sort of lab created, android bankster butler sent back to earth from the future in order to ensure Wall Street bonuses never experience a downtick. It’s truly remarkable. Early in the article, we learn a little bit about Timmy’s family history, and how, shocker, it overlaps quite nicely with Obama’s own family history.

The following lines from this day forth should be forever referred to as the paragraph that launched a thousand conspiracy blogs. We learn that:

But Geithner and Obama had a somewhat natural rapport. Geithner, like Obama, had an itinerant childhood. His father worked for U.S.A.I.D., and the family lived in India, Zimbabwe, Zambia and Thailand. In the conversation, they discovered that Geithner’s father ran the Ford Foundation’s Asia grant-writing program in the 1980s at the same time that Obama’s mother was at its office in Indonesia. It was a nice coincidence, Geithner says, but it still didn’t make him want the job.

Well yes, quite the coincidence indeed. Also interesting that Geithner’s father worked for U.S. A.I.D., which is the organization recently revealed to have launched the fake Cuban Twitter in an attempt to overthrow the government there. In case you missed that, you can get caught up in my post: Conspiracy Fact – How the U.S. Government Covertly Invented a “Cuban Twitter” to Create Revolution. Meanwhile, Democracy now did an expose titled, Is USAID the New CIA?

While the above is certainly interesting and deserves more research on many fronts from folks far more qualified than me, let’s move on to the meat of the article and Geithner’s unique form of bankster worship. Moving along…

But Geithner’s refusal to condemn the bankers became a recurrent theme during his time at Treasury. According to Bernanke, “I didn’t and Tim didn’t go very far in lambasting individuals in Wall Street, maybe partly because we were more focused on the problem than on the politics.” Others, however, have suggested that Geithner was simply too cozy with Wall Street. He had never worked as a banker himself, but he grew up inside the bubble of elites. (Before going into government, his first job was working for Henry Kissinger at Kissinger Associates.) He was tutored at Treasury by Summers, who later worked for the hedge fund D. E. Shaw & Company, and Rubin, who came up through Goldman Sachs and eventually joined the board of Citigroup, where he has been blamed in some circles for its taking on excessive risky debt that nearly caused the firm to collapse. Each man played a significant role in deregulating the financial industry in the 1990s by supporting the repeal of the Glass-Steagall Act, which separated commercial and investment banking; they also pushed to limit future regulation of derivatives.

There you have it. Geithner and Bernanke never saw the bankers and their practices as a problem. Rather, they seemed to believe that Poseidon came out of nowhere and splashed a once in a million year tidal wave upon the system and only trillions in free money to financial criminals could save the world.

Oh, and Geithner’s first job was working for Henry Kissinger. Quite the pedigree…

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BitPay Purportedly Raises $30 Million from Investors Including Richard Branson in Largest Bitcoin Investment Round Ever

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Very, very big news just broke in the Bitcoin space. According to TechCrunch, Bitcoin payment processor Bitpay has just raised $30 million in what would be the largest single round of fundraising ever in the Bitcoin space. It slightly surpasses the prior largest round, announced late last year by the other major Bitcoin payment processor Coinbase for $25 million.

BitPay is a company that is very familiar to readers of this site. It has experienced exponential growth over the past year or so. I most recently highlighted this in my post: BitPay is Now Adding 1,000 New Merchants Per Week.

This round implies a total valuation for BitPay of $160 million and it makes me wonder whether or not it could herald the beginning of another major move higher in the Bitcoin price. All year, I have been saying that I didn’t think the price would move until the summer. With summer less than two months away, I will become much more sensitive to news.

What makes this investment even more exciting is that Richard Branson (and Yahoo co-founder Jerry Yang) is purported to be involved. Considering his company Virgin Galatic has already been accepting bitcoin via BitPay, he is clearly impressed with the company and sees a very bright future for Bitcoin. As do I. This is big.

From TechCrunch:

We’re hearing that BitPay, a platform that processes payments in bitcoin for merchants, is raising the field’s biggest round yet. The company is raising $30 million on a roughly $160 million valuation in a round led by Index Ventures, with Richard Branson and Yahoo co-founder Jerry Yang participating. BitPay declined to comment.

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When Asked if the U.S. is a Capitalist Democracy or Oligarchy, Janet Yellen Can’t Answer…

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During yesterday’s Senate hearings, Janet Yellen was asked by Senator Bernie Sanders if the U.S. was a capitalist democracy or has morphed into an oligarchy. While readers of this site already know the answer to this question, which was recently proved empirically by a Princeton and Northwestern academic study, it was still stunning to note … Read more

FEC Chairman Lee E. Goodman Warns of Forthcoming Government Media Censorship

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When I first read this story I wasn’t sure whether to highlight it or not. While the claims made by Federal Elections Committee (FEC) Chairman Lee E. Goodman are extraordinarily frightening, sometimes people with strong partisan leanings can exaggerate threats and so I like to be careful. I’m not certain if this is the case with Mr. Goodman, but since it is his word against other folks at the FEC and I don’t work there, it’s hard to know what the true state of affairs is.

Nevertheless, the fact that Ajit Pai, a commissioner at the FCC, recently warned in a Wall Street Journal editorial of government plans to “monitor” media organizations, makes me concerned enough to post on it. I highlighted the Ajit Pai editorial back in February in my post: The Obama Administration Plans to Embed “Government Researchers” to Monitor Media Organizations.

As far as the Goodman comments, The Washington Examiner reports that:

Government officials, reacting to the growing voice of conservative news outlets, especially on the internet, are angling to curtail the media’s exemption from federal election laws governing political organizations, a potentially chilling intervention that the chairman of the Federal Election Commission is vowing to fight.

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As Wall Street Looks to Copy Bitcoin, The Department of Defense Studies it as a “Terrorist Threat”

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Two very interesting Bitcoin related articles have emerged over the past week and demonstrate the total irrationality that surrounds the status quo’s understanding of this revolutionary and liberating technology. Let’s start with the Department of Defense story, the headlines of which most of you have probably seen by now.

A division of the U.S. military known as the Combating Terrorism Technical Support Office (CTTSO), which studies threats to national security (i.e., the status quo’s grip on power) has listed Bitcoin amongst a number of potential terrorist threats. Of course, as I and many others have noted repeatedly, anything which threatens the prevailing criminal status quo will be merely labeled a “terrorist threat” in order to neutralize it. Just in case you aren’t yet convinced of how insane the folks at CTTSO are, “also on the CTTSO’s list of terrorism research topics were Android, Motorola, social media and virtual reality.” What has happened to this country…

From International Business Times:

After attracting attention from law enforcement, financial regulators and old-school Wall Street investors, bitcoin is now on the U.S. military’s radar as a possible terrorist threat.

Friday was the deadline for submissions to a counterterrorism program seeking vendors to help the military understand state-of-the-art technologies that may pose threats to national security, and “bitcoin” and “virtual currencies” are listed among them.

The program is being conducted by the Combating Terrorism Technical Support Office, a division of the Department of Defense that identifies and develops counterterrorism abilities and investigates irregular warfare and evolving threats.

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Forget “Too Big To Fail”…We Now Have “Too Big To Audit”

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One of the primary themes discussed on this site over the past several years is the growing realization that there is a two-tier injustice system operating in these United States. This fact is more disruptive to the smooth and healthy functioning of a society than anything else. It is more disruptive than financial theft, it is more disruptive that feudalistic levels of wealth inequality, and it is more disruptive than Big Brother illegal spying. Nothing will tear the fabric of a culture apart more decisively than the appearance and recognition of a “justice” system which carves out immunity for the rich and powerful, yet comes down like a ton of bricks on even the slightest of crimes committed by the average peasants.

I have highlighted some examples over the past month or so. See below:

The “War on Street Artists” – Puppeteer Unlawfully Arrested and Harassed in NYC Subway

Charleston Man Receives $525 Federal Fine for Failing to Pay for a $0.89 Refill

The Homeless in NYC Are Now Living in Tiny Spaces in the Frame of the Manhattan Bridge

Additionally, The Guardian published an excellent piece just yesterday on the verdict of Cecily McMillan, an Occupy Wall Street protester who faces an incredible seven years in jail for elbowing a cop who has a history of violent tendencies.

Moving along, we now discover that at the same time the tax collecting agency known as the IRS (with its 89,500 employees) was pestering tea party groups, it failed to audit a single large partnership. Yep, that’s right, the financial oligarchs are not just “Too Big To Jail,” they are also “Too Big To Audit.”

From CNS News:

CNSNews.com – In 2011, while the Internal Revenue Service (IRS) was busy scrutinizing the tax-exempt status of 100 percent of Tea Party groups and other conservative non-profits, the tax agency did not audit a single high-value electing large partnership (ELP) with more than $100 million in assets.

That’s according to a preliminary report released to Congress by the Government Accountability Office (GAO) April 17th. (See GAO.pdf) 

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Big Brother is Coming…To Your Brokerage Account

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In the midst of the financial crisis, our “leaders” had a choice. They could’ve done what most Americans wanted, which was allow failing firms to fail and permit the chips to fall where they may. In contrast, our “leaders” settled on trillion dollar bailouts with zero strings attached for the criminals who destroyed the nation’s economy. At that point, the American people would’ve been at least somewhat satisfied if the rule of law was applied to the banksters, and those who deserved to go to jail were locked up. As we all know by now, the Justice Department decided to create a special “Too Big To Jail” untouchable class, and nobody was held accountable for anything. Once again, our “leadership” could’ve look at the situation honestly and responded appropriately. Rather, they doubled down on corruption and criminality and now nobody trusts anything. We don’t trust the Presidency, the Congress, the intelligence agencies, the banks, the financial system, the courts, the Federal Reserve, or any institutions at all. We certainly don’t trust Democrats and Republicans. In fact, millennials in particular have given up all trust in everything. They don’t even trust Jay-z anymore, which I suppose is what happens when you prance around with Warren Buffett and flash illuminati signs 24/7. This is how society breaks down.

Moving along, with confidence in “the system” already in the gutter by summer 2013, Edward Snowden released a bombshell of information on illegal government spying. It confirmed what so many of us had been saying for years, but had been dismissed pejoratively by the mainstream as “conspiracy theorists.” Once again, our “leaders” had a choice. Take the difficult steps and offer real reform, or merely pretend nothing really happened and defend the practices at all costs. Once again, they chose the latter. Just as no bankers were jailed for the financial crisis, no intelligence operatives were jailed for illegal spying. In fact, nothing at all has happened to James Clapper for perjuring himself in front of Congress.

Even more worrisome, we are now seeing a counter-attack consisting of expanded efforts to further remove privacy from the lives of Americans. Once again, rather than reforming the system, the status quo is doubling down. I have recently highlighted several such efforts with regard to the internet, which can be read below:

Say Goodbye to “Net Neutrality” – New FCC Proposal Will Permit Discrimination of Web Content

Obama Administration Launches Plan to Make an “Internet ID” a Reality

It now appears the status quo is moving to destroy any last semblance of privacy with regard to your personal brokerage accounts. Yep, in the name of “stopping fraud” and the practices of unscrupulous brokers, the Financial Industry Regulatory Authority (FINRA) wants to launch a program called Cards, or the Comprehensive Automated Risk Data System. This electronic system sounds a lot like the so-called metadata the NSA is collecting on everyone’s internet usage. This “robocop” would collect a weekly “record of activity at all of the more than 4,100 brokerage firms nationwide.”

For your own good of course. Oh, and yeah, to stop terrorists or something…

From the Wall Street Journal:

In December, the Financial Industry Regulatory Authority, which oversees how investments are sold, proposed what it calls Cards, an electronic system that would regularly collect data on balances and transactions in brokerage accounts.

If adopted, Cards would revolutionize how regulators do their jobs and could make it harder for unscrupulous brokers to bilk customers.

Give me a fucking break. The last thing the establishment cares about is stopping fraud. Fraud is the number one driver of American GDP at the moment. It is institutionalized, protected and endorsed. This is about nothing more than destroying your financial privacy.

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Leaked Documents Show How Blackstone Fleeces Taxpayers via Public Pension Funds

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The following story by David Sirota at PandoDaily is simply excellent. It zeros in on the secretive and rapidly expanding relationship between private equity firms and the public pensions that invest in them. It shows a crony capitalist love affair greased by lobbyist influence peddlers known as “placement agents,” as well as non-public agreements between PE firms and public pensions chock full of conflicts of interest, extremely high fees and underperformance. Unbelievably, in many instances the trustees of the public pensions are not allowed to know what funds the “fund of funds” invest in. This makes due diligence impossible, and in one particularly egregious example it led the Kentucky Retirement Systems to unknowingly invest in SAC Capital despite the fact it was under SEC investigation at the time.

Furthermore, with the Wall Street Journal reporting back in 2011 that $37 of every $100 dollars invested in Blackstone’s investment pool coming from state and local pension plans, it appears that taxpayers are once again being fleeced by the financial oligarch class. Additionally, it appears to answer a recent question I posed in my piece: Is the Credit Bubble Popping? Carlyle Group Warns on Frothiness and Junk Bond Deals Get Pulled. After reading about a growing pool of insane “dividend deals” and payment-in-kind” notes being issued, I wondered who in their right mind was buying these deals. Well, based on the complete lack of competence and due diligence happening at public pension funds, I think we have solved part of the mystery. 

The chief villain in this article will be no stranger to readers of this site. It is Blackstone, the private equity giant who I have criticized many times on these pages for buying up homes all across America in “all cash” deals, making homes unaffordable to average American peasants. Of course, Blackstone is just one of many, but given its size and influence, highlighting its practices is probably quite representative.

Here are some excerpts from the article. Read it and weep:

When you think of the term “public pension fund,” you probably imagine hyper-cautious investment strategies kept in check by no-nonsense fiduciary laws.

But you probably shouldn’t.

An increasing number of those pension funds are being stealthily diverted into high-fee, high-risk “alternative investments” that deliver spectacular rewards for the Wall Street firms paid to manage them – but not such great returns for pensioners and taxpayers.

And yet… despite the fact that they deal with the expenditure of taxpayer money, the agreements between public pension systems and alternative investment firms are almost entirely secret.

Until now.

Thanks to confidential documents exclusively obtained by Pando, we can now see some of the language and fee structures in the agreements between the “alternative investment” industry and major public pension funds. Taken together, the documents raise serious questions about whether the government employees, trustees and politicians overseeing major public pension funds are shirking their fiduciary responsibilities under the law when they are cementing “alternative” investment deals.

The documents, which were involved in a recent SEC inquiry into the $14.5 billion Kentucky Retirement Systems (KRS), were handed to us by SEC whistleblower Chris Tobe, an investment consultant and former trustee of the KRS. Tobe has also written a book — “Kentucky Fried Pensions” — about the scandalous state of the Kentucky public pensions system. 

The documents provided by Tobe (embedded below) specifically detail Kentucky’s dealings with Blackstone – a giant Wall Street investment firm which has deployed a platoon of registered lobbyists in Kentucky and whose employees are major financial backers of Kentucky U.S. Sen. Mitch McConnell (R).

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Obama Administration Launches Plan to Make an “Internet ID” a Reality

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It appears the status quo may be finally making its moves to getting control over the heretofore free and open internet. As I and many others have noted previously, the internet is one of the most powerful tools humanity has ever devised. It frees information in a way that was simply unimaginable decades ago and empowers each of us to be as informed or uninformed as we desire.

Just last week in my post, Say Goodbye to “Net Neutrality” – New FCC Proposal Will Permit Discrimination of Web Content, I mused that in so-called “first world” countries like the U.S. the illusion of freedom must be maintained even as civil liberties are eroded. Thus censorship must be administered surreptitiously and slowly. The following plan to implement an “Internet ID” will initially only be rolled out as a pilot program in two states (Michigan and Pennsylvania), and will only deal with government services. That said, we can see where all of this is ultimately headed, and the program, called the National Strategy for Trusted Identities in Cyberspace, should be monitored closely going forward.

Vice reported on this a few days ago:

A few years back, the White House had a brilliant idea: Why not create a single, secure online ID that Americans could use to verify their identity across multiple websites, starting with local government services. The New York Times described it at the time as a “driver’s license for the internet.”

Sound convenient? It is. Sound scary? It is.

The vision is to use a system that works similarly to how we conduct the most sensitive forms of online transactions, like applying for a mortgage. It will utilize two-step authentication, say, some combination of an encrypted chip in your phone, a biometric ID, and question about the name of your first cat. 

But instead of going through a different combination of steps for each agency website, the same process and ID token would work across all government services: from food stamps and welfare to registering for a fishing license.

The original proposal was quick to point out that this isn’t a federally mandated national ID. But if successful, it could pave the way for an interoperable authentication protocol that works for any website, from your Facebook account to your health insurance company.

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