The Dog Who Ate Ken Lewis’s Homework

A wholehearted three cheers for Jed S. Rakoff, the Southern District of New York judge who refuses to rubber stamp the SEC’s  $33 million wrist slap on Bank of America for failing to disclose billions of dollars in bonuses paid by Merrill Lynch just prior to the merger of the two companies.  Judge Rakoff rightfully wants some accountability: In addition to wanting to know who was ultimately responsible for failing to make the disclosure, he also wants an explanation as to how the SEC determined that $33 million was a suitable fine.

Bank of America’s defense in this matter is shameful. The bank claims that the firm’s white shoe lawyers made the decision not to disclose the bonuses and the SEC says it can’t dispute this claim unless Bank of America executives agree to waive their attorney-client privilege, which they aren’t prepared to do.  Adhering to the SEC’s longstanding policy of treating executives at major financial firms with kid gloves, the agency opted to give Bank of America’s executives a pass.  So much for the SEC’s pledge that the agency’s era of “See No Evil, Hear No Evil” is over.

Bank of America’s defense has as much credibility as the proverbial elementary student who argued that he couldn’t finish his assignment because his dog ate his homework.  Rest assured, Bank of America’s attorneys did not make the decision not to disclose the Merrill bonuses.  They most probably rendered an opinion that failing to disclose the bonuses was legally defensible, but their memos were no doubt laden with all sorts of caveats.  That’s likely why Bank of America doesn’t want to waive its attorney-client privilege; the bank’s executives no doubt knew they were skating pretty close to the line, but from a legal perspective, they believed they could get away with it.

One of the primary reasons CEOs get paid the big bucks is supposedly for their judgment.  A responsible and effective leader gathers information from multiple sources and then makes a determination as to the best course of action.  Credible CEOs accept the responsibility that the buck stops with them and don’t allow any constituency, including their company’s attorneys, to make critical decisions.  I strongly suspect that James Burke, the CEO of Johnson and Johnson during the Tylenol tampering scare, was warned about the legal and marketing dangers of voluntarily recalling the product but he opted to do what he thought was the right thing to do.  That’s called leadership.

Mr. Burke said his decision was made in keeping with Johnson & Johnson’s credo that the company’s focus is to do right by its customers.  Bank of America CEO Ken Lewis clearly isn’t driven by any lofty-minded credos; rather, he is a corporate coward who survives by blaming others for his leadership failures.  The competitive strength of any financial services company is the trust it instills, and as long as Ken Lewis remains at the helm, it is beyond me why anyone would trust the management of Bank of America.

Stanford Financial and Major Financial Institutions

Unfortunately, my position that Ponzi Schemes, such as those of Peter Dawson, Nicholas Cosmo, Andrew Bowdoin, and Bernard Madoff, have the implicit support of major financial institutions is holding true. According to reports this week, Stanford Financial investors are suing five major banks that handled customer deposits for Allen Stanford’s Antigua based, Stanford International Bank.

The suit alleges the Bank of Houston, HSBC Bank, Societe Generale, Toronto Dominion Bank, and Trustmark National Bank provided an “essential conduit” to Mr. Stanford’s alleged fraud. The suit specifically singles out HSBC and Toronto Dominion as handling a substantial amount of Stanford deposits.

Earlier this year, I filed lawsuits against Fiserv for its support in the Bernie Madoff fraud and against Bank of America for its support of the Agape World fraud. So it doesn’t surprise me that major banks are now being sued related to Allen Stanford’s alleged fraud.

As I’ve argued before, with every Ponzi scheme, large or small, a major financial institution is typically lurking in the background. Zamansky & Associates is investigating further how the alleged financial institutions may have contributed to Stanford’s fraud.

Goldman Sachs’ “Trading Huddle” about Nothing

Although I’m not typically one for conspiracy theories, I must count myself among the growing legion who believe that Goldman Sachs has garnered such an inordinate amount of influence and power that the government and regulators now serve at the firm’s will, rather than the other, rightful way around.  It’s become increasingly difficult to give credence to CEO Lloyd Blankfein’s arguments that Goldman wouldn’t have failed if Washington had decided not to embrace his entreaties to bail out AIG.  If the insurance giant hadn’t been rescued, the cascading effect would inevitably have led to the firm’s demise.  There is good reason that Goldman is known as “Government Sachs.”

So I’m not holding my breath the regulators are going to aggressively investigate the Wall Street Journal’s page one allegations that Goldman’s research analysts routinely hold a weekly “trading huddle” to give “tips” to the firm’s traders and 50 most-favored clients, including SAC Capital Advisors and Citadel Investment Group.  Some of these tips are reportedly at odds with the published recommendations of Goldman’s widely disseminated research reports.

As the attorney responsible for the litigation that ultimately led to the $1.4 billion global Wall Street settlement for conflicted research in 2001, the Journal’s story is obviously of great interest to me.  While it appears as though these huddles may have at least a tinge of insider information, Goldman assures us that’s far from the case.  A spokesman told the Journal that the so-called tips are merely “market color” that is only of interest to clients with “short-term investment horizons.”  Indeed, Goldman is so considerate of its less than favored clients that it doesn’t want to “overload” them with “information that isn’t relevant to them.”

Oh, and here’s one more thing: the traders who attend these weekly meetings can’t trade on the information until it is disseminated to all of Goldman’s clients.

Hmmm….

So if Goldman is to be believed, the firm’s market-moving research people hold a weekly meeting that is attended by Wall Street’s leading institutional investors and Goldman’s own traders so that they can be fed information that is of no material benefit.  Just a bunch of guys and gals with time on their hands gabbing about the market - as Seinfeld might say, it’s a huddle about nothing.  A chance for Goldman’s research folks to bond with clients and the firm’s traders.

Before you take Goldman at its word, ask yourself why firms like SAC Capital and Citadel would be major clients of theirs in the first place.  One might expect that formidable hedge funds wouldn’t want to trade through Goldman for fear of giving the firm insight into their market-moving positions.  Perhaps Goldman’s trading execution is so vastly superior that it is worth taking the risk.  Then again, maybe these firms don’t evaluate Goldman strictly on its trading execution, but rather on the “market color” it can provide.

At the end of the day, it doesn’t matter what you and I believe.  Both FINRA and the SEC are reportedly looking at the Wall Street Journal’s allegations, but something tells me they’ll just deem them a big to do about, well, nothing.

Amended Agape Complaint Against Bank of America

• As per the Judge’s previous decision, Zamansky & Associates has filed an amended complaint with new allegations clearly spelling out Bank of America’s role in the Agape fraud
• As updates arise, we will continue to inform Agape victims and members of the class via the website
• If you have information regarding Bank of America’s activities at Agape, please contact our office at (212) 742-1414 or Amber@zamansky.com.

To review the Complaint, please click here

Submit Contact Information to Zamansky & Associates

How Bank of America and MF Global Figure Prominently into the Agape Ponzi Scheme

My office is actively investigating the Bernard Madoff and Nicholas Cosmo Ponzi schemes. Although our investigations are not yet complete, we’ve already established substantial evidence that Madoff and Cosmo didn’t act alone – some major publicly-traded companies figure prominently in their schemes. I’ll post my Madoff findings shortly, but here is what we’ve uncovered so far about Cosmo’s Ponzi scheme.

As outlined in the class action lawsuit we filed today, we allege that Bank of America (NYSE:BAC), the nation’s largest bank, and MF Global (NYSE:MF), a major commodities futures trading firm, substantially assisted Cosmo’s fraud and played a major role in the loss of investor funds. The evidence is substantial that Bank of America and MF Global knew, or should have known, that Cosmo was committing fraud.

Cosmo is a convicted felon who after completing a nearly two year stint in federal prison founded Agape World, Inc., a Long Island company specializing in making short-term “bridge” construction loans carrying high interest rates. Through a network of about a dozen brokers, Cosmo gathered some $400 million from investors who wanted to realize the hefty rates of returns. Unknown to the investors, Cosmo re-sold the same interests hundreds, if not thousands, of times. Most of Cosmo’s investors were blue-collar workers with limited investment understanding or experience.  One of the plaintiffs we represent is seriously ill with stomach cancer and his wife just gave birth to a child.

As I’ve noted earlier, Agape’s marketing materials listed Bank of America as the company’s “banking agent,” but the “Bank of Opportunity” provided more than routine banking services on behalf of Agape.  We’ve learned that a Bank of America employee maintained an office at Agape’s headquarters which was some thirty miles from the West Hempstead branch where she was based.  The employee regularly cut checks at Cosmo’s behest and performed other functions normally associated with those of a personal assistant. The Bank of America employee had a bird’s eye view of Cosmo’s financial transactions and knew first hand that the substantial inflow of funds was coming from investors and that most of the outflows were used to subsidize Cosmo’s lavish lifestyle or pay off his brokers.

Cosmo also speculated heavily in commodities futures trading that resulted in more than $80 million in losses. Despite being a convicted felon and having been permanently banned by FINRA from the securities industry, Cosmo managed to open accounts at MF Global, where he did most of his trading, and other commodities firms.

MF Global isn’t known for its risk management and compliance. The firm last year suffered more than $140 million in losses because a trader made some ill-timed wheat-price bets that “substantially exceeded his authorized trading limits.” The company this week admitted at a UK trial to defrauding a former client after previously issuing repeated denials. It’s been reported that at least one MF Global rival refused to do business with Cosmo because he didn’t pass muster with the compliance department.

It will be interesting to see how Bank of America and MF Global publicly respond to our lawsuit.  On its website Bank of America proudly declares that “It is the policy of Bank of America to take all reasonable and appropriate steps to prevent persons engaged in money laundering, fraud or other financial crimes…” Given that Bank of America also figures prominently into another Ponzi scheme run by convicted felon Andy Bowdoin, I look forward to learning more about Bank of America’s supposed preventive measures.

As for MF Global, the company was quoted this week in connection with another fraud as saying that “MF Global’s corporate values require that all employees maintain the highest standards of ethics and integrity.  We have zero tolerance for anything but.” Apparently, opening an account for a felon convicted of securities fraud who was permanently banned from the securities industry doesn’t violate MF Global’s esteemed values.

Sadly, the SEC again has been found to be sleeping. The Agape wrongdoing was exposed by the U.S. Postal Inspection Service.  Underscoring the SEC’s chronic somnambulism, Agape’s website remains live where an application form is still prominently displayed.

Pleasant dreams, SEC.

A New Legal Industry: Madoff