Tag Archive | "testimony"

Raj Rajaratnam Wanted To Make Sure (Alleged) Insider Trading Was Done Very Discreetly

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Not even Danielle Chieisi’s “little boyfriends could know.” All this business had to be on the total down low. Just Raj, Anil Kumar, Danielle Chiesi and the FBI.

“Keep conversations just personalized to the three of us … you know, so that we just protect ourselves,” Rajaratnam is heard telling two associates on one call, discussing the potential acquisition of Spansion technology company. “Yeah, we just have an email trail right, that uh … I brought it up and, you know, something like that.” The recording was played in a Manhattan federal courtroom during the testimony of disgraced former McKinsey & Co partner Anil Kumar, who has pleaded guilty. Other excerpts of phone taps were played to the 12-member jury last Thursday in a trial that is expected to last two months. “We have to keep radio silence on this. OK?” Rajaratnam tells ex-New Castle Funds LLC trader Danielle Chiesi on one call, and Chiesi responds, “Oh, Please. That is my pleasure.” Rajaratnam says, “not even to your little boyfriends you know?”

Affairs, tapes, bonus spill into Rajaratnam trial [Reuters]

Related: Bob Moffat Finally Accepting The Fact That Danielle Chiesi Never Really Cared About Him, Was Just In It For The Tip/Tips

Article courtesy of Dealbreaker

Mary Schapiro Says The SEC Needs More Money, Bodies To Do Its Job

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$123 million and a just under 800 people should do the trick.

“This year finds the S.E.C. at an especially critical juncture in its history,” Schapiro said in written testimony prepared for the Senate Banking Committee’s panel on securities, insurance and investment. “Dodd-Frank will require significant additional resources or a substantial reduction in the performance of our core duties.” The law granted the S.E.C. broad new authority over credit rating agencies, the vast and complex derivatives markets and — for the first time — many hedge fund advisers. Among other mandates of the Dodd-Frank Act, the S.E.C. is supposed to write more than 100 new rules, open five new offices and publish more than 20 studies. Quite simply, Ms. Schapiro said, the law has “added significantly to the S.E.C.’s workload.”

Yet the agency’s budget remains frozen at $1.1 billion…The Obama administration has proposed raising the agency’s budget by $264 million, to $1.4 billion for 2012. The Dodd-Frank law requires the S.E.C. to offset its entire budget by collecting fees on securities transactions. That means the agency’s funding would not cost taxpayers a dime, Ms. Schapiro said. The administration’s proposed funding increase would allow the S.E.C. to hire 780 people, 60 percent of which would be assigned to Dodd-Frank mandates, according to her testimony. Ms. Schapiro said the agency needs more than 100 new staff members just to focus on hedge funds. The requested increase is “designed to provide the S.E.C. with the resources required to achieve several high-priority goals,” she said.

Mary Schapiro Makes Plea For More Funds [Dealbook]

Article courtesy of Dealbreaker

Hank Paulson Apparently Still Somewhat Defensive About Criticism Over Taking Ski Vacation While Wall Street Burned To The Ground

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As you may know, in December 2008, when things were getting really fun on Wall Street and Ken Lewis was calling him in a fit of drunk tears to ask if it was too late to pull out of the whole BAC-MER thing, Hank Paulson was in Aspen was hitting the slopes. No big deal the former Treasury Secretary figured, telling Congress as much during his testimony in 2009.

Apparently he thought wrong and took a good amount of heat for the “me time.” But that was eons ago and while maybe we could understand bristling at the notion he was maxing and relaxing as the shit hit the fan while trying to hock his book, at this point, we figured he wouldn’t so much give a rat’s ass. Apparently such is not the case, as evidenced by this vehement denial that Hank was the Paulson who just bought an Aspen Lakes Ranch for $24.5 million, when in fact it was that other guy with the name last name. So, fuck hugh, hack reporters! (But confidential to JP, he will take an invite.)

Article courtesy of Dealbreaker

Paul Friedman Takes Back His Blame of Mismanagement at the Top of Bear Stearns

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Paul Friedman, a former senior managing director at Bear Stearns, once famously said “we did this to ourselves. . . . It’s our fault for allowing it to get this far, and for not taking any steps to do anything about it.” He told William D. Cohan there was “mismanagement at the top” of the firm.

But now, Freidman is taking back his words. “I was interviewed at a time when I was looking for someone to blame,” he told the Financial Crisis Inquiry Commission. “I’m sure you’ve read things where I blamed people I’ve never even met. It has bothered me for two years” he said. “I am human.”

It appears that all the former Bear executives have decided to coordinate their stories, blaming the collapse of the firm on fears, unsubstantiated rumors and innuendo. Freidman said there was nothing he could have done to save the firm from this fear-mongering.

“Bear Stearns was the smallest of the major investment banks, and I do not believe that obtaining more long-term secured financing or making any other changes in Bear Stearns’ funding strategies would have enabled the firm to overcome these unprecedented market forces or withstand the liquidity crisis that the firm experienced in March 2008,” he said in his testimony.

(Read all of the testimony to the FCIC here.)

Article courtesy of Dealbreaker

Dick Fuld Has Never Heard of Repo 105

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Dick Fuld plans to testify that not only did the infamous “Repo 105″ transactions play no part in Lehman’s bankruptcy, but they were so immaterial that he never knew about the accounting treatment until the bankruptcy examiner unearthed them.

In his prepared testimony, a copy of which was obtained by Deal Journal, he said the press has “unfairly vilified” Lehman by claiming the Repo 105 transactions were meant to hide the firm’s toxic assets. Instead the accounting gimmick, which Fuld says was totally legal, involved highly-liquid investment grade securities, mostly Treasury bonds.

Meanwhile, several hedge funds that supposedly shorted Lehman shares before the bankruptcy have been subpoenaed by investigators. They include SAC Capital, Och-Ziff Capital Management, Greenlight Capital and Citadel Investment Group.

Full Text of Fuld’s Statement: (Courtesy of Deal Journal)

Mr. Chairman, Ranking Member Bachus, and Members of the House Committee on Financial Services, you have invited me here today to address a number of public policy issues raised by the Lehman Brothers bankruptcy report filed by the Examiner.

Since September of 2008, I have given much thought to the financial crisis and the perfect storm of events that forced Lehman into bankruptcy. Everyone’s focus is now on how to prevent another crisis. The key is how regulation and governance should be deployed going forward to better protect the financial markets and the entire system.

The idea of a “super regulator” that monitors the financial markets for systemic risk, I believe, is a good one. To be successful in today’s challenging environment, this new regulator should have actual experience and a true understanding of the business of financial institutions, the capital markets and risk management and must be given the resources sufficient to accomplish its important mission.

My view is that the new regulator also should have access, on a real-time basis, to all information and data regarding transactions, assets and liabilities, as well as current and future commitments. In addition, we should put in place established and effective methods of communication between the regulator and the firms being regulated, all of whom should be guided by clear standards for capital requirements, liquidity and other risk management metrics. The job of the new regulator can only be done, in my opinion, with the creation and utilization of a master mark-to-market capability that determines valuations and capital haircuts on all assets, commitments, loans and structures. In short, to have a fair and orderly market, I believe we need a single set of transparent rules for all of the participants.

You have asked specifically about the role of the SEC and the Federal Reserve Bank of New York. Beginning in March of 2008, the SEC and the Fed conducted regular, at times daily, oversight of Lehman. SEC and Fed officials were physically present in our offices monitoring our daily activities. The SEC and the Fed saw what we saw, in real time, as they reviewed our liquidity, funding, capital, risk management and mark-to-market processes. The SEC and the Fed were privy to everything as it was happening. I am not aware that any data was ever withheld from them, or that either of them ever asked for any information that
was not promptly provided. After an extended investigation into Lehman’s bankruptcy, the Examiner recently published a lengthy report stating his views.

Despite popular and press misconceptions about Lehman’s valuations of mortgage and real estate assets, liquidity, and risk management, the Examiner found no breach of duty by anyone at Lehman with respect to any of these.

Speaking of asset valuations, the world still is being told that Lehman had a huge capital hole. It did not. The Examiner concluded that Lehman’s valuations were reasonable, with a net immaterial variation of between $500 million and $2.0 billion. Using the Examiner’s analysis, as of August 31, 2008 Lehman therefore had a remaining equity base of at least $26 billion. That conclusion is totally inconsistent with the capital hole arguments that were used by many to undermine Lehman’s bid for support on that fateful weekend of September 12, 2008.

The Examiner did take issue, though, with Lehman’s “Repo 105” sale transactions. As to that, I believe that the Examiner’s report distorted the relevant facts, and the press, in turn, distorted the Examiner’s report. The result is that Lehman and its people have been unfairly vilified.

Let me start by saying that I have absolutely no recollection whatsoever of hearing anything about Repo 105 transactions while I was CEO of Lehman. Nor do I have any recollection of seeing documents that related to Repo 105 transactions. The first time I recall ever hearing the term “Repo 105” was a year after the bankruptcy filing, in connection with questions raised by the Examiner.

My knowledge, therefore, about Lehman’s Repo 105 transactions, and what I will say about them today, is based upon my understanding of what I have recently learned.

As CEO, I oversaw a global organization of more than 28,000 people with hundreds of business lines and products and with operations in more than forty countries spread over five continents. My responsibility as the CEO was to create an infrastructure of people, systems and processes, all designed to ensure that the firm’s business was properly conducted in compliance with the applicable standards, rules and regulations.

There has been a lot of misinformation about Repo 105. Among the worst were the completely erroneous reports on the front pages of major newspapers claiming that Lehman used Repo 105 transactions to remove toxic assets from its balance sheet. That simply was not true. According to the Examiner, virtually all of the Repo 105 transactions involved highly liquid investment grade securities, most of them government securities. Some of the newspapers that got it wrong were fair-minded enough to print a correction.

Another piece of misinformation was that Repo 105 transactions were used to hide Lehman’s assets. That also was not true. Repo 105 transactions were sales, as mandated by the accounting rule, FAS 140.

Another misperception was that the Repo 105 transactions contributed to Lehman’s bankruptcy. That was not true either. Lehman was forced into bankruptcy amid one of the most turbulent periods in our economic history, which culminated in a catastrophic crisis of confidence and a run on the bank. That crisis almost brought down a large number of other financial institutions, but those institutions were saved because of government support in the form of additional capital and fundamental changes to the rules and regulations governing banks and investment banks.

The Examiner himself acknowledged that the Repo 105 transactions were not inherently improper and that Lehman vetted those transactions with its outside auditor. He also does not dispute that Lehman appropriately accounted for those transactions as required by Generally Accepted Accounting Principles.

I have recently learned that, in 2000, the Financial Accounting Standards Board published detailed accounting rules for transactions of this very type, described them and dictated how they should be accounted for. In 2001, Lehman adopted a written accounting policy for Repo 105 transactions that incorporated those accounting rules. E&Y, the firm’s independent outside auditor, reviewed that policy and supported the firm’s approach and application of the relevant rule, FAS 140.

As I now understand it, because Lehman’s Repo 105 transactions met the FAS 140 requirements, that accounting rule mandated that those transactions be accounted for as a sale. That was exactly what I believe Lehman did. Lehman should not be criticized for complying with the applicable accounting standards.

In other words, those transactions were modeled on FAS 140. The accounting authorities wrote the rule that expressly provided for those transactions and how they should be accounted for. To the best of my knowledge, Lehman followed those rules and requirements.

My job as the CEO was also to put in place a robust process to ensure that Lehman complied with all of its obligations to make accurate public disclosures. I had hundreds of people in the internal audit, finance, risk management and legal functions to ensure that we did, in fact, comply with all of our obligations.

Part of that process was E&Y’s role in auditing our financial statements and reviewing our quarterly and annual SEC filings. Each year, E&Y issued formal opinions that Lehman’s audited financial statements were fairly presented in accordance with GAAP, and they were.

We also had in place a rigorous certification process that was carried out in advance of every annual and quarterly SEC filing. That bottom-up process involved hundreds of people who had first-hand knowledge of the firm’s day-to-day business and the responsibility to review for accuracy and compliance the firm’s SEC disclosures before they were filed.

Before we made any annual or quarterly filing, the key people who were involved in this process signed certifications confirming that, to their knowledge, the filing did not contain any untrue statement of a material fact or any material omission and that it fairly presented Lehman’s financial position.

Our certification process culminated, every quarter, with a mandatory, allhands, in-person meeting, which was chaired by Lehman’s Chief Legal Officer. In addition to me, that meeting was attended by the firm’s President, Chief Financial Officer, Financial Controller, Executive Committee members, business heads, the principal internal audit, finance and risk managers, legal counsel and our outside auditors.

After we had reviewed the draft annual or quarterly filing in detail, the Chief Legal Officer and I would each ask everyone present to speak up if there was anything in the document that caused them concern, or if anything had been omitted that they thought should be included. Attendees were also told that they should speak separately with the Chief Legal Officer if they had an issue that they did not want to raise at the meeting. To my knowledge, no one ever, at any of those meetings, raised any issue about Repo 105 transactions.

I relied on this certification process because it showed that those with granular knowledge believed the SEC filings were complete and accurate. I never signed an SEC filing unless it was first approved by the Chief Legal Officer. Mr. Chairman, I thank you for allowing me to speak on these issues and I will be pleased to answer any questions this Committee may have.

Article courtesy of Dealbreaker