Unstructured Finance

The curious Mr. Kotz and the SEC

By Matthew Goldstein

If we’ve learned nothing from the financial crisis, it’s that we need smart regulators to be minding the store. And we need someone to make sure the regulators are up to that job and not shirking their responsibilities.

So it was a breath of fresh air when David Kotz assumed the role of inspector general of the Securities and Exchange Commission in 2007.

Kotz attacked the job with a welcome aggressiveness and his exhaustive 477-report on the Madoff mess shed some much needed sunshine on the SEC’s fumbling and bumbling of the investigation into the world’s biggest Ponzi scheme. The report prodded regulators to speed up the creation of a new multi-million dollar database for handling tips and complaints from informants–a big failing of the SEC in Madoff.

But now questions are being raised whether Kotz has gone too far in trying to scour out the slackers at the SEC. Reuters reporter Sarah N. Lynch writes today about a number of SEC employees who have filed formal complaints about Kotz and his investigative tactics. Two of the women filing complaints were targeted by Kotz but ultimately cleared of any allegations of wrongdoing or improper behavior.

The complaints bring to light something that people close to the SEC have been whispering for a while–which is that Kotz’s many investigations are promoting a culture of fear within the agency. SEC lawyers who once responded to reporter emails or phones calls–even if politely to simply say ‘no comment’–now don’t even bother. SEC lawyers have told people they are afraid that by doing so, they will be investigated by Kotz for improperly leaking information.

MF Global a month later and still a mystery

By Matthew Goldstein

It’s been about a month since MF Global began spiraling towards bankruptcy and still there’s no clarity about what happened to the missing customer money that was supposed to be kept in untouchable, segregated accounts. It’s not even clear how much money is missing.

When the Jon Corzine-led firm filed for bankruptcy on Halloween, it was believed some $900 million in customer money couldn’t be accounted for in MF Global’s segregated accounts maintained at Harris Banks and other institutions. That sum was quickly revised downward to about $600 million. And the number remained at $600 million until the court-appointed liquidation trustee surprised everyone last week by saying more than $1.2 billion in customer money might be missing.

But now even that $1.2 billion figure is in doubt. Officials with the CME quickly questioned the much higher figure and so did other regulators. A law enforcement source tells me federal investigators also doubt the $1.2 billion figure and believe the missing money is still about $600 million.

Tyrone Gilliams keeps going and going despite charges

By Matthew Goldstein

It’s been an eventful month for hip-hop promoter and commodities trader Tyrone Gilliams, the man federal authorities allege defrauded investors out of at least $5 million.

The self-styled Philadelphia philanthropist was indicted by federal prosecutors on securities fraud charges on Nov. 14 after being arrested on criminal complaint in October. The Securities and Exchange Commission this week also filed civil fraud charges against the 44-year-old former University of Pennsylvania graduate and college star basketball player.

The SEC complaint and the indictment closely mirror the allegations we first raised against Gilliams in a Special Report in May, which revealed how Gilliams worked with a network of associates across the country to raise at least $5 million from two investment funds and then diverted that money to support his extravagant lifestyle. The money was supposed to be used for trading in Treasury STRIPS and to generate sky-high returns. But federal authorities contend Gilliams and his TL Gilliam LLC trading firm never did any trading as advertised.

At the intersection of Wall and Main

By Jennifer Ablan and Matthew Goldstein

Whether you agree with it or not, the Occupy Wall Street protests that began two months ago in New York have ignited a debate over income inequality and the political clout of the nation’s banks.

Before the protesters began camping out in Zuccotti Park in lower Manhattan, much of the conversation had  focused on the federal government’s debt and not the equally big debt run-up by U.S. consumers in the years before the financial crisis. Now it seems you can’t go a day without reading a story about the vast gulf between rich and poor and the shrinking middle class, or how the housing crisis won’t get fixed until something is done to alleviate the burden for millions of homeowners who are underwater on their mortgages.

Last month a group of graduate journalism students from Columbia University spent some time at the Occupy Wall Street encampment in Zuccotti where they did in-depth interviews with over 200 protesters. (This was before New York City moved to forbid people from sleeping out in the concrete plaza). And the students findings were surprising in that the OWS protesters weren’t just a bunch of unemployed hippies, who all vote Democratic. Rather, they found that the majority of protesters didn’t identify with either political party, 56 percent didn’t have private health insurance and just under 40 percent gave President Obame a grade of C for managing the economy.

MF Global and the rubber check

By Matthew Goldstein

With the mystery of the missing $600 million in customer funds at MF Global Financial still unresolved, a lot of customers of the failed futures firm are starting to complain about getting bounced checks.

It appears that 10 days ago, with speculation swirling that the Jon Corzine-led firm would soon file for bankruptcy, a good number of customers started to put in requests to pull their money from the New York-based outfit. But instead of simply wiring that money back to their customers, it seems MF Global tried to buy some time for itself by sending that money back via snail mail in the form of an old-fashioned check.

Those checks cut by the folks at MF Global began arriving in customer mailboxes this week, several days after the firm filed for bankruptcy on Oct. 31 in New York federal court. And by the time customers started depositing those checks, they were rejected as having insufficient funds.

The confession season

By Matthew Goldstein and Jennifer Ablan

The year is not yet over and already the confessions are starting to roll in from some of the biggest U.S. money managers.

Bill Gross, manager of the world’s biggest bond fund, sent out a “mea culpa” letter late Friday to his many mom-and-pop investors, saying he’s sorry for putting up such bad numbers this year. Mea culpas from Pimco’s guiding light and the self-styled “bond king” are rare, largely because his Total Return Fund has long been one of the industry’s top performers.

But this year has been a tough one for Gross, who guessed wrong by betting heavily against U.S. Treasuries, which have turned out to be one of the biggest out-performers of 2011. The fixed income guru, who helps manage more than $1.2 trillion at Pimco, wasn’t farsighted enough to foresee a flight to Treasuries prompted by events like the European debt crisis, the battle over the U.S. debt ceiling and the general anemic state of the global economy.

The law catches up to TL Gilliams

By Matthew Goldstein

Tyrone Gilliams Jr. wanted to live a larger than life story–with much of it playing out last year in videos he had produced and plastered all over the Internet. A year later, Gilliams true life drama has him fighting to maintain his freedom.

On Oct. 5, federal authorities arrested Gilliams and charged him with wire fraud in connection with a $4 million investment scheme that Reuters chronicled in a Special Report in May. As noted in yesterday’s arrest story, U.S. prosecutors in New York didn’t begin looking into Gilliams until Reuters reported that he allegedly had used some of his investors’ money to reinvent himself as a Philadelphia-area philanthropist.

Some might dismiss Gilliams as the architect of bizarre but  small-time scheme–especially when so many people across the country are suffering economic hardship. But as I point out in the below video, which  our ace online production team put together,  the sage of TL Gilliams may say more about our culture than we’d like to admit.

Wall Street protesters just want to be heard

Early morning at Occupy Wall Street

Updated Oct. 5

By Matthew Goldstein and Jennifer Ablan

There’s been a lot of talk that other than rallying against bankers and corporate greed, the message coming from Occupy Wall Street isn’t a clear one. And many of the college students, artists, unemployed, transients who’ve set-up camp in a concrete plaza in  lower Manhattan wouldn’t disagree with that assessment.

In fact, many of the young protesters–mostly in their 20s–seem to embrace the notion that it’s hard to define just what Occupy Wall Street is all about and what it hopes to achieve. For many, sleeping on the streets and staging a “Zombie March,” or getting arrested for blocking traffic on the Brooklyn Bridge is enough to bring attention to the fact that too many Americans are still suffering from the financial crisis.

“I’m here because in this recession, the rich have become richer — and it ties in to the bank bailouts,” says Dylan Bozlee, a college student from Hilo, Hawaii, who booked a one-way ticket to New York to join the protest. “Think about it? Wall Street got us into this huge mess, enabled by our government, and we are in the same state of affairs–recession.”

Debts no honest man could pay

By Matthew Goldstein

For months now we’ve been hearing a lot about the $14 trillion in debt owed by the U.S. government. But there’s been far too little talk about the almost equally high debt tab owed by U.S. consumers.

The Federal Reserve recently reported that total outstanding debt owed by U.S. consumers was $11.4 trillion, down from its third-quarter 2008 peak of $12.5 trillion. At that pace, it could take years for U.S. consumers to delever, or in plain English–reduce the debts they owe on their homes, credit cards, autos and student loans. But when it comes to the staggering sum of consumer debt in this country, it’s pretty clear that time is not on our side.

In fact, the longer it takes for consumers to pay-down their debts, it simply means demand for homes, autos and other big ticket goods will remain lax. And that means the unemployment rate won’t get much lower than its current 9 percent rate anytime soon. In fact, with all the signs pointing to a double-dip recession, unemployment could very well inch higher in the next few months.

Bank of Asbestos

By Matthew Goldstein

All too much of what we do in financial journalism is rush around to get the “scoop” on some big announcement by some corporate chieftain. Things like, the announcement of a new product, a management reshuffling or a bunch of firings. All important stuff and all stuff that could impact earnings and stock movements. But sometimes the big picture of what really is working for a company or is ailing it, gets lost in the scoop chase.

So that’s why we took a step back to look at some potentially radical solutions for fixing Bank of America, which right now has come to represent much of what remains broken with the U.S. housing market.

The point of the story was to look at ideas that bank CEO Brian Moynihan might be reluctant to do. Ideas that would drive shareholders and bondholders batty. But the kind of ideas that ultimately may be necessary to not only fix the bank, but also repair the nation’s sick housing market and equally sick economy.

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