Traders Say The Darnedest Things

Below is a recent article published by securities lawyer Jake Zamansky on Forbes.com (2/11/13)

During the stock research scandal of 2000, the world was amazed that Merrill Lynch superstar stock analyst Henry Blodget would actually put in writing that he considered the stocks that he was touting to retail investors as “pieces of s_ _t” and “pieces of junk.” The revelation of those e-mails resulted in a lifetime ban from the securities industry for Henry Blodget and hundreds of millions in damages paid by his employer, Merrill Lynch. In addition, the starkness of those e-mails and the spotlight that they shined on ugly truths about stock touting and deep-seated conflicts of interest on Wall Street shocked investors and destroyed investor confidence for a decade.

You would think that the most recent culprits of Wall Street fraud would have learned a lesson about putting such things in e-mails. Think again.

Smoking gun e-mails and instant messages cited by the feds in the $5-billion case against the ratings agency Standard & Poor’s show that the traders are still pecking away at their keyboards, providing a window into their disturbing mindset. As reported by the New York Times’s Dealbook, one S&P employee wrote “rating agencies continue to create an even bigger monster – the C.D.O. market. Let’s hope we are all wealthy and retired by the time this house of cards falters.” Another wrote in an instant message, “we rate every deal. It could be structured by cows and we would rate it.” So once again, the electronic record reveals that it’s all about profits for the big banks and ratings agencies-and the big bonuses that come with those profits. It seems they couldn’t care less about investors or even the world economy as a whole.

In the Libor rate-rigging scandal, RBS was fined a whopping $612 million by US and British regulators for its role in manipulating the benchmark. In one colorful e-mail, a trader asked for a lower Libor submission, then told the submitter he was “like a whore’s drawers” in acknowledging he often passed on requests for interest rates that went up and down. Another RBS trader told a rate submitter “I would [love] u forever” for setting rates at a certain level. The trader later added “if u did that I would come over there and make love to you.” A nice reminder of the true meaning of love as Valentine’s Day approaches. Another RBS trader candidly mused how the process was becoming a “cartel” in certain currencies and added that “it’s just amazing how Libor fixing can make you that much money.”

Remember the Bear Stearns Hedge Fund managers privately writing that “the subprime market looks pretty damn ugly,” that if projections were accurate, they “should close the funds now,” and “the entire subprime market is toast” while continuing to pitch the funds to investors and falsely claim they were even putting their own skin in the game.

We also saw former Silicon Valley investment banking guru Frank Quattrone, convicted of obstruction of justice because he wrote an e-mail that the firm should “clean up those files” and destroy documents after a subpoena for records arrived. (His conviction was later reversed.)

Despite all of the highly publicized damning e-mails, traders, like kids, continue to say the darnedest things in e-mail.

Disclosure: Zamansky LLC (www.zamansky.com) are securities attorneys representing investors in federal and state litigation and FINRA arbitration against financial institutions, including Merrill Lynch (now Bank of America), RBS, Bear Stearns (now JPMorgan), Credit Suisse, Deutsche Bank and Morgan Stanley.

Read full article by securities lawyer Jake Zamansky on Forbes.com