Post by jcline on Jun 28, 2006 12:50:13 GMT -4
Location: Blogs Bob O'Brien's Sanity Check Blog
Posted by: bobo 6/28/2006 7:24 AM
Well, the Senate hearings yielded some remarkable testimony, from both the witnesses, as well as Senators Spector and Hatch.
Gary Aguirre single handedly ended the existence of the SEC as we know it with his testimony, IMO. He detailed his insider trading investigation being shut down due to the political clout of the person suspected of passing insider information, he talked about his supervisor throwing a spreadsheet at him, about interference on a Commission-wide basis, about gross negligence and active collusion to obstruct justice on an institutional basis. A believable, methodical, considered description of the co-opting of our regulator.
Marc Kasowitz detailed precisely how a short and distort scheme works, and described the damage that is done to the market when hedge funds scheme to manipulate the market using research firms and the media to disseminate false and misleading information, so that their short positions can generate greater financial results.
Compelling testimony came from Demetrios Anifantis, who, from an experience-based perspective, described how the firm he had worked for, Camelback/Gradient, would misrepresent the experience of the firm’s analysts, would want to know whether the client was long or short before they wrote their report, etc. He described a hatchet-job-for-hire firm.
CT AG Blumenthal was very political, but sent the clear and direct message that if the SEC didn’t do its job, they could expect that the states would.
Hatch plainly said that Reg SHO had failed to curb naked short selling, and that it had further put in place no meaningful penalties to curb the practice. He mentioned the grandfathering of all prior fails as an example where the SEC was acting in conflict with the public interests.
The Department of Justice waffled, and brought up a case brought against Bayou for screwing their investors – a straightforward fraud case – as the only example he could think of where hedge funds had been targeted. Spector got that pretty loud and clear.
Spector directed Biosite CEO Kim Blickenstaff to file a complaint with the Dept. of Justice in his company’s conflict with Sterling Research.
Spector additionally said that he found that civil fines, with no admission of guilt, were suspect, and usually designed to end matters before they got really uncomfortable for the perp. He seemed pretty intent upon taking this issue to the criminal level.
Hatch made the statement that naked short selling seemed like it was a big problem, and that regulators didn’t seem to be doing much to solve it, and that the states were important in this battle.
Spector said that he felt that this matter was of enormous importance, and felt that they were dealing with a topic that could destabilize the markets, and that his feeling was that jail sentences would be a good deterrent.
Hatch asked a number of questions regarding registering stock on foreign exchanges to avoid reporting the naked short selling thresholds.
The over-arching tone of the concluding statements was that what was being described was fraud, and that the Judiciary Committee was very concerned with the pervasiveness, the lack of registration or regulation of the hedge funds believed to be involved in this, the obvious fraudulent aspects of the manipulative devices, and the systemic risk posed as a result of the leverage that the bad apple firms could bring to bear – and the damage that leverage could cause if and when some of them blew up.
Owen Lamont gave a canned, shorts are good for your bones and teeth shpiel that avoided any of the allegations before the committee, and further used the post hoc reasoning that because some of the firms that had complained about short sellers were later shown to be frauds, that they should all be considered in that light. Completely expected and predicted.
All in all, the testimony supported the idea of a regulator co-opted by those they police, an industry run amok, large, anonymous pools of money behaving in criminal ways, and research firms violating every possible trust, for the almighty buck.
Pretty much what you would have gotten by reading this blog over the last year.
Did I miss anything of import? Please update me with the comments – I’m going by my real-time notes.
What were your impressions?
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