The Financial Importance of Being A Democrat

Corrupt Dems get away with theft while honest folks get prosecuted.

It's been long known that the power to tax is the power to destroy.  That's one of the reasons people are so upset that the awesome destructive power of the IRS was used for partisan political purposes in persecuting conservative organizations and leaking their donor lists to liberal groups.

Citizens are learning that regulatory agencies can destroy as effectively as the IRS.  The 200-year-old New York Stock Exchange was damaged to the point that it could be bought by a 17-year-old startup that trades in less regulated markets.  Government regulations are making it essentially impossible for ordinary citizens to invest in the most promising start-ups.

Now we find a highly profitable business being destroyed by the government's power to prosecute.

Prosecutorial Abuse

The New York Times reports that the power to prosecute is destroying a billion-dollar business that employees more than 1,000 people.

SAC Capital Advisers, the besieged hedge fund owned by the billionaire stock picker Steven A. Cohen, has told its employees that it will survive a wave of investor withdrawals during the government's intensifying investigation into insider trading at the firm.

Investors in SAC have asked to pull a significant amount of money from the fund by a quarterly deadline that expired on Monday, according to an internal e-mail sent by SAC's president, Thomas J. Conheeney.  The amount was not disclosed, but it was said to be more than the $1.7 billion taken out earlier in the year, according to a person briefed on the matter.  That would leave SAC with only a fraction of the $6 billion in outside capital with which it began 2013.

The Securities and Exchange Commission has convicted four of SAC's employees of insider trading.  Four others, including Mr. Martoma, a former portfolio manager, have pled not guilty.  The government claims that these employees obtained confidential information that would affect stock prices and made illegal profits by trading on that information.

Mr. Cohen divided his employees into 140 teams to which he allocates money investors give to him.  These teams get to keep as much as 25% of the profits they make.  This gives them incentives to make profitable trades.

In spite of rewarding employees so highly, the fund has returned nearly 30% per year on its investors' money since 1992.  This year, SAC has returned only about 7%.

Cooperation Ended

Mr. Cohen vehemently denies being involved in insider trading and states that it will not be tolerated in his firm.  His statement is backed up by his full cooperation with the S.E.C. in investigating wrongdoing by his employees.  Mr. Cohen and SAC ceased cooperating, however, when the S.E.C. spoke of charging Mr. Cohen and / or SAC with criminal misbehavior.

... the S.E.C. is also weighing a civil action against Mr. Cohen for failure to supervise his employees, according to people briefed on the case.

... prosecutors are weighing a number of possibilities, including bringing charges against SAC related to the Martoma case based on a theory of corporate criminal liability, according to people briefed on the case.  [emphasis added]

What Do We Know?

The S.E.C. brought charges of insider trading against 9 SAC employees, four of whom have admitted guilt.  Instead of stopping after exacting a record $616 million in penalties, the S.E.C. is considering bringing charges against the boss for failure to supervise his employees and is threatening criminal charges against the business for profiting from the employees' illegal activity.

What does this tells us?

We know with absolute certainty that Mr. Cohen is not a a big-time Democrat.  How do we know this?

Our "justice" department has been anything but even handed in choosing whom to prosecute for a long, long time.  Back in 1989, Leona Helmsley had her husband's employees  work on her house.  She didn't declare the value of their work as income. That's tax evasion.  She went to jail.

In 2008, Mr. Obama nominated Tom Daschle to be head of Health and Human Services.  The newspapers found he had received a great many non-business rides in an automobile owned by a business whose chauffeur was paid by the business.  He didn't declare the value of the rides as income.  That's tax evasion.

Despite having done precisely what Leona Helmsley had done, nobody even said Boo! to him.  Why not?  Because he'd been Democratic Senate majority leader.  Big-time Democrats aren't prosecuted for tax evasion, not even Rep. Rangel or Tim "Turbo Tax" Geithner.

If that isn't enough evidence of Mr. Cohen's political standing, the Justice Department's handling of the Corzine case gives proof that any jury in the land would accept.

The Corzine Caper

Jon S. Corzine was a US Senator from New Jersey and later won election as the state governor.  He's been known to flout rules both small and great.  When his leg was broken in a traffic accident while he was being chauffeured by a New Jersey state trooper, it was found that he hadn't been wearing a seat belt as required by law.

The Securities and Exchange Commission recently pointed out that New Jersey had lied to investors about its financial woes when selling bonds.  The worst of the abuses happened while Mr. Corzine was governor.  Instead of charging any of the people involved, the S.E.C. asked New Jersey to promise not to do it again.

After being defeated by Republican Chris Christie in 2010, Mr. Corzine was hired as the boss of trading firm MF Global in March, 2010.

Jon Corzine reverted to his skills as a top Goldman Sachs trader and bought bonds issued by the Italian and Spanish governments.  Traders were bailing out because they believed that not even the Germans could afford to pay off the bonds.

As a well-connected Democrat, Mr. Corzine would have known that the Obama administration didn't want financial problems in Europe to hurt the American economy and damage Mr. Obama's chances for re-election.  He knew that the US government would help out.  So did we, for that matter, but alas, we had no money to put where our mouths were.

He bought $6.3 billion worth of distressed bonds, borrowing about 80% of the money.  Even though those bonds seemed risky enough to set off alarm bells in all the regulatory agencies, he knew they'd pay off in full because the Obama administration stood behind them with our tax money.

The New York Times tells us how MF Global went bankrupt:

... for the first time it is now clear that ratings agencies knew the risks for months but, as they did with sub-prime mortgages, looked the other way until it was too late, underscoring how three years after the financial crisis, little has changed on Wall Street.  [emphasis added]

Despite all the earlier criticism and despite the new powers given them by Dodd-Frank, the regulators "looked the other way."  Need we ask why?  An agency which isn't part of the government caught on:

When Finra [Financial Industry Regulatory Authority] realized what MF Global was doing, it grew concerned.  The Wall Street self-regulator told MF Global to set aside enough money in case the trades went bad.  But Finra didn't have the authority to force the firm to do so - that power was in the hands of the Securities and Exchange Commission, whose rule Finra was citing.

Finra couldn't force MF Global put put up money to cover their trades. The S.E.C. had the authority, but they weren't doing anything.

Finra finally got the S.E.C.'s attention even though Jon Corzine is the biggest possible sort of Democrat except for President Obama himself.  After weeks of dithering, the S.E.C. grudgingly asked MF Global to put up an additional $200 million.

This was the beginning of the end.  Everybody who traded with MF Global panicked.  Those who'd lent money to buy all those bonds demanded more collateral.  Other firms refused to trade.  The stock price plunged.  MF Global went bankrupt on Oct 31, All Hallow's Eve.

Along the way, MF Global used $1.2 billion worth of customers' money to try to satisfy creditors and avoid bankruptcy, knowing their bets would pay off in the long run.  That's a criminal act.  Having helped write Sorbanes-Olxey while he was a Senator, Mr. Corzine presumably knew he shouldn't have used customers' money to save his firm.  As CEO, Jon Corzine is personally accountable for that action under the law he helped write.

The Final Act

The Sarbanes-Oxley law gives the government power to punish financial misdeeds of CEOs.  The MF Global employee who initiated the wire transfers which moved customer money out of the firm pled the 5th Amendment to avoid incriminating herself.  She said she'd testify against the higher-ups who ordered the transfers if someone would grant her immunity, but the Justice Department wasn't interested.

On April 24, 2013, the Wall Street Journal reported that the bankruptcy trustee who's trying to get the customer's money back has sued Mr. Corzine because of "acts and omissions" that were "grossly negligent" and led to the bankruptcy.

Meanwhile, a criminal case into why [customer] money was removed from MF Global hasn't shown much momentum...

More than a billion dollars worth of customer's money went missing, an employee offers to testify, yet the criminal case against MF Global isn't moving.

SAC Capital Advisers  returned profits of 30% annually since 1992. One SAC employee pleads guilty to insider trading, four others plead not guilty.  The firm cooperates.  There's no evidence connecting the boss with the insider trades, yet the S.E.C. is considering criminal charges against the firm.

Give how the S.E.C. merely criticized the State of New Jersey for defrauding investors and didn't charge Mr. Corzine with misusing customers' money, yet is proceeding against Mr. Cohen's SAC, any jury in the land would conclude that Mr. Cohen simply isn't a big-time Democrat.

Being a big enough Democrat gives you a license to steal.

Will Offensicht is a staff writer for and an internationally published author by a different name.  Read other articles by Will Offensicht or other articles on Partisanship.
Reader Comments

Governments at all levels have been using selective prosecution for decades. The New Black Panthers case is a prime example.
Police will single one automobile out of a pack of hundreds, all exceeding the speed limit, and issue a ticket to that one driver. That is selective prosecution. And it is well known that young blondes in a red sports car will be singled out much of the time. But, that isn't profiling.
If you can find an honest man or woman in any government, I will show you a person who will never get promoted. Peace, Robert Walker

June 14, 2013 12:23 PM

Chicago style politics at its best or worst, according to how you want to look at it. Take a good look at Detroit, their is the canary in the coal mine. Even Chicago style politics can't repeal the basic laws of economics. The big cities will fail even after the feds bail them out several times. Yes, that will happen, they'll be bailed out many times before the balloon pops. Then it will either be a very conservative government (doubtful but possible) or the monetary system will be like the old Soviet Union's, it will simply evaporate. After all, who would be left to bail out the US at that point in time?

June 14, 2013 2:28 PM

Alternative currencies are now accepted in many places. Utah and Arizona have both passed laws making gold and silver legal tender in those States. We are working on the same thing in Nevada.
Alabama has passed a law banning Agenda 21 in that State. There is a bill in front of the State Legislature in Nevada, based on the Alabama law to outlaw Agenda 21 in this State.
Things are actually looking up. But then, when you are in a deep hole that's the only way you can look. And we are in a deep hole, my friends, a very deep hole.
Peace and Love, a little peace and a lot of love,
Robert Walker

June 14, 2013 3:03 PM

MF Global used $1.2 billion worth of customers' money to try to satisfy creditors and avoid bankruptcy, knowing their bets would pay off in the long run. That's a criminal act. Having helped write Sorbanes-Olxey while he was a Senator, Mr. Corzine presumably knew he shouldn't have used customers' money to save his firm.

I'm confused. I did a little research, and cant find, within Sorbanes-Olxey, anything that criminalises or prohibits that which you mention. In fact I always understood that the risk of investment lay in the fact the more secure creditors would always take the largest slice of the pie if things go belly up - normal investers have little hope of recovering their investments.

June 28, 2013 7:21 AM

As I understand it, and doing ALL the research is beyond me, SOX states that the boss is criminally liable for financial operations under him. The specific prohibition against using customer's money is NOT in SOX itself, it is in the regulations involving investment houses. SOX's rule that the boss is liable applies to whatever financial rules cover the firm.

Therefore, Corzine is liable for misusing customers money, even if they got it all back, which they didn't. For MF global, moving customer money around to cover a shortfall was illegal, even if the move wass only temporary, which is wasn't.

The bets did fall good. Soros bought some and came out very well. They SEEMED risky which is why Corzine got them so cheap. He, being a big-time insider, knew that we taxpayers were standing behind them because O didn't want European turmoil to mar his re-election prospects.

We knew that, too, but had no way to profit thereby. HOWEVER, by the formulas the regulatory agencies are required by law to use, they were so risky that MF global had to put up more money. The SEC looked the other way as Corzine knew they would, but he got tripped by a smaller regulator.

June 28, 2013 2:36 PM

NYT on Corzine. What's really interesting is that they don't point out that SOX made Corzine responsible for what happened under him.

About 9 a.m. on Friday, Oct. 28, 2011, Jon Corzine, chief executive of MF Global and formerly a United States senator, governor of New Jersey and chief executive of Goldman Sachs, called Edith O’Brien, the assistant treasurer of MF Global in Chicago, according to a complaint filed last week by the Commodity Futures Trading Commission.

For Mr. Corzine to call a midlevel back-office employee like Ms. O’Brien was in itself extraordinary. But this was no ordinary day. That morning, his bold effort to transform MF Global, a plain-vanilla commodities firm, into a full-blown investment bank was teetering on collapse. And the firm surely would collapse if it didn’t quickly deal with overdrawn accounts at JPMorgan Chase, which was the firm’s principal bank and was threatening to stop doing business with MF Global.

Ms. O’Brien could solve the immediate overdraft problem — if she could find the money. Her job was to oversee the transfer of funds at MF Global, ordinarily a fairly routine back-office task. But that morning, the firm didn’t have the cash to cover the overdrafts. It had just $82 million in cash the previous night, as Mr. Corzine had been told, according to the complaint, and JPMorgan needed $134 million just for the overdrafts.

One source from whom Ms. O’Brien could certainly not take the money was MF Global’s customers. Protecting customer assets is a near-sacred obligation at any securities firm, as Ms. O’Brien well knew, and it is a “cornerstone” of customer protection laws, as the trading commission puts it. Within the industry, Ms. O’Brien was known as an expert on protecting customer funds and had spoken on the subject at conferences.

Finding the funds and transferring them to JPMorgan to cover the overdrafts was “the most important thing” that she could be doing that day, Mr. Corzine told her, according to the trading commission’s complaint, which was quoting a recorded conversation between Ms. O’Brien and a co-worker.

No one asserts that Mr. Corzine told Ms. O’Brien to take customer money. Mr. Corzine’s lawyer, Andrew J. Levander, said Mr. Corzine was told the night before that the firm had $82 million in cash and another $602 million in unencumbered securities, and “it never dawned on him” that Ms. O’Brien or anyone else might “violate the golden rule” about safeguarding customer assets.

But how would Ms. O’Brien have interpreted Mr. Corzine’s comment? When I discussed this with John Hasnas, director of the Georgetown Institute for the Study of Markets and Ethics, he drew an analogy to the murder of Thomas Becket, archbishop of Canterbury, after Henry II is said to have uttered, “Will no one rid me of this troublesome priest?”

“He didn’t actually tell anyone to murder the archbishop,” Professor Hasnas noted. “But people knew what would make him happy.” Indeed, history records that four of Henry’s courtiers promptly set off and dispatched the archbishop in the nave of Canterbury Cathedral.

It was no mystery what Mr. Corzine wanted. At 9:26 a.m. just minutes after the call, Ms. O’Brien told Mr. Corzine she was transferring $175 million to cover the overdrafts, according to the trading commission’s complaint. Ms. O’Brien moved $200 million from an account that held customer assets — known as a segregated account — into an MF Global account with the firm’s money. She then transferred $175 million from that account to cover the overdrafts. The next day, in another phone call that was recorded, she told a colleague, “The only place I had the 175 million, O.K., was in seg.” She added, “That’s what we do all the time because we don’t have enough capital.”

July 6, 2013 11:18 AM
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