R. Allen Stanford Sentenced to 110 Years

Stanford, perpetrator of one of the largest Ponzi schemes ever at $7 billion, was sentenced yesterday to 110 years in prison. Stanford has been in jail for three years for bilking 20,000 investors in over 100 countries.

“This is one of the most egregious frauds ever presented to a trial jury in federal court,” Judge David Hittner said in handing down the lengthy sentence Thursday.

The most stunning part is that Stanford remains convinced that he wasn’t a thief…

“I’m not a thief,” Stanford, who did not testify at the trial, told the judge.

“I am and will always be at peace with the way I conducted myself.”

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Rajat K. Gupta Insider Trading Trial Set to Start

The fallout from the insider trading of Raj Rajaratnam continues as the trial of Rajat Gupta is set to begin today in Federal District Court in Manhattan. The trial will be able Gupta’s release of boardroom information to Rajaratnam, who then used that information for his clients to the tune of $63 million in gains. Rajaratnam is currently serving an eleven year prison term. Gupta sat on the boards of Goldman Sachs and Procter and Gamble.

Prosecutors contend that on five occasions, Mr. Gupta gave Mr. Rajaratnam advance word of market-moving news about the two companies. In each case, Mr. Rajaratnam illegally traded on the tips, the government says.

Goldman, in particular, promises to play a central role, with testimony possibly shedding light on the bank’s inner workings. As part of their defense strategy, Mr. Gupta’s lawyers are expected to vilify Goldman, depicting it as a cesspool of tipsters indiscriminately feeding inside information to Mr. Rajaratnam. Three other Goldman executives are under criminal investigation related to insider trading at Galleon, a fact the defense is likely to use to try to plant reasonable doubt about Mr. Gupta’s guilt in the jurors’ minds.

It’ll be a fun little Wall Street soap opera.

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Playing like a Pro: What Online Poker Can Teach You About Investing

When you spend your life immersed in the stock market—tracking the ebb and flow of constantly fluctuating financial stats, eyeing the rise and decline of a thousand and one companies—you hear a lot of comparisons, metaphors, and figures of speech. The Bull market and the Bear market are just the beginning—Wall Street, it seems, lends itself to representational language. Perhaps it’s a way of diluting the tension people feel when their money and livelihood is on the line.

A comparison I hear a lot is that investing in the stock market is a lot like playing poker. It’s a pretty apt comparison. There are many similarities between investing and poker. They involve the revolving relationship between skill and luck, risk management, knowing when to fold and trusting yourself not to play all your cards at once, or reveal too much of your hand to another player.

Evaluating your cards (stock options). The first thing you can do in any poker game, be it onlinepokerlowdown.com or a ‘friendly’ game among your pals, is to see what you’re working with. Look at your cards: what’s the raw material you have on hand. Do you have anything worth betting on, or investing? Obviously, you don’t want to pay to see a flop when you’re sporting a 2 and a 9 unsuited. Similarly, you don’t want to invest in a stock that doesn’t have reasonable assets.

How much to bet (invest). If you’ve got a hand worth playing, or a stock worth pursuing, your next question is how much to put in. If you under-bet, you risk a heavier hand swooping up all the low-hanging fruit—that is, making the pot too valuable and too risky too early in the game. If you over-bet you’ll scare off other players (investors) and reduce the value of the pot. You want to make a bet (investment) that carries value while encouraging other investments that will add value.

Knowing when to fold (sell). One of the most common mistakes a poker player makes is falling in love with his cards and not knowing when to fold them. At some point you just have to know that in a game with many players at the table a pair will probably not take the pot. Similarly, with a stock you have to know when it has a run its course and begin a slump. Selling
before a downward turn is one of the trickiest moves in stock market investing. Imagine the people who sold right before the crash of 2007. There weren’t many of them, but the ones who did had money leftover to play the next hand.

Ultimately, skill and luck alternate in importance. A skilled investor, just like a skilled poker player, can still fall victim to a sudden economic downturn or a decline in a certain industry. Conversely, an amateur can waltz in and blindly make a fortune. It’s this dance between knowledge and guts, skill and luck, that makes poker and investing so similar.

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Sexual Misconduct at the SEC?

The Securities and Exchange Commission will be looking into allegations of sexual misconduct by employees, both current and former, working at the office of the inspector general. The independent inquiry would investigate allegations that the misconduct affected investigations of the SEC and was prompted by an individual accusing former and current employees of the Office of Inspector General of misconduct. The allegations were referred to the Council of Inspectors General on Integrity and Efficiency and the SEC hired an independent investigator.

The inspector general at the time of the alleged misconduct was David Kotz, the agency’s internal watchdog from December 2007 to January 2012. “As far as I know, the allegations do not involve me,” Mr. Kotz wrote in an email Monday night. He said he believes “there are no plans for either the integrity committee or the independent investigator to be investigating my conduct.”

Mr. Kotz now works for private-investigative-services firm Gryphon Strategies in Washington.

While unrelated, this comes just weeks after several members of the Secret Service were removed for sexual misconduct.

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Five Things Your Stock Broker Isn’t Telling You

Seeking the help of a broker or investment adviser is an option many investors will choose. But in their quest to find the formula for how to become a millionaire through the help of a broker working for a firm, many people make the mistake of assuming that such individuals and corporations are driven solely by the commission of a smart move in their favor. While you can count on brokers to work to keep you happy with successful recommendations in order to keep you on board, they may not always be doing what’s best for you. Here are five things your stock broker might not be telling you:

Publicly traded investment firms look out for shareholders first.

You expect the companies you’ve invested money into to look out for your best interests, correct? The same goes for the shareholders of the corporate investment consultancy you work with. Always keep this in mind when working with a broker at such a firm.

Brokers are under no legal obligation to monitor investments after sale.

Investment advisers are obligated by law to monitor the quality of a sold investment so long as the owner is still a client of their firm. Brokers, on the other hand, only have to make sure the investment is good at the moment of sale. While laws have been enacted to incentive brokers into avoiding giving haphazard advice, nothing keeps them from doing so.

He or she earns commission from companies you buy stock from.

It sounds too dastardly to be true, but it is. Corporations make a habit of offering perks to brokers who can sell their stocks. Depending on what the company does or makes, your broker could be sent a brand new executive office chair or offered an all-inclusive cruise.

Brokers can be forced to sell certain stocks.

Either through aforementioned pressure from shareholders or from the fact that many brokers often get doled out a disorganized array of investment products, you may not always be given good recommendations simply because the higher-ups have forced your broker to push junk.

Not ever broker is an expert on every investment product.

The idea that one individual can master the art of stocks, bonds, commodities, and mutual funds and not be working out of Goldman Sachs HQ is a bit far fetched in today’s complex global market. Take any claims of such broad authority with a grain of salt.

While brokers and investment advisers have their uses, don’t get swept up in the misconceived notion that they are there solely to ferry you to investment success. Grill them in order to get the right answers, and learn how to smell a stinky suggestion. If it’s a recurring problem, then perhaps its time to get a new broker, or learn to invest without one.

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Using Index Funds To Create A Manageable Investing Strategy

When it comes to investing, there are two general and common mistakes that the average person often makes. The first mistake is that they buy and sell their stocks at inopportune times, a problem that leads many to sell low and buy high. The second is that many people don’t even have market investments in the first place. When asked to explain why, they will often reply that they don’t understand enough, that they are too indecisive to build a portfolio, or that they simply find the complex world of mutual funds, short-selling, dividend reinvestment, and internet banks too intimidating for their comfort. This second mistake scares people out of the stock market and prompts them to put their money in far less profitable bonds and saving accounts.

My solution to both of these common mistakes is a simple one: index funds. Of all the investment opportunities out there, index funds are some of the safest, cheapest, easiest, and most profitable. There’s not much not to like. Unlike mutual funds they have minimal fees and low penalties. Unlike individual stock purchases they offer instant diversification by immediately exposing a portfolio to a wide range of companies and industries.

While diversification and low fees may appeal to all types of investors, index funds are uniquely suited to the needs of the most inexperienced and amateur ones out there. For one thing they are easy to track; if you own an S&P 500 index fund, you simply need to open the paper or turn on the news in the morning to see how your investment performed the previous day. Index funds also lower capital gains charges that can pose headaches for the inexperienced investor come tax season. And, of course, they insure that you’ll never have to worry about the diversification of your portfolio. All of these add up to one crucial long-term benefit: unlike with other investments, there is little reason to actively buy or sell index funds. Once the investor has an index fund in his portfolio, he can sit back, take any volatility in stride, and let it grow for several decades.

Of course, an index fund by its very nature cannot beat the overall market and cannot insure one against massive economic volatility. But such volatility would likely affect every other investment vehicle, and studies have shown that it is very rare for even an expert investor to beat the market in the long-run. It is thus the rare investor who will not benefit long-term by buying an index fund. If you’re intimidated by the market or get anxious whenever your stocks decline, an index fund might be just the answer to your investing woes.

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Settlement in Case Against Former Bear Sterns Hedge Fund Managers

Approximately three years after former Bear Sterns hedge fund managers Matthew M. Tannin and Ralph R. Cioffi were found not guilty of securities fraud, a settlement has been reached between them and the Securities and Exchange Commission. While the full details of the settlement are not yet known, the deal will avoid a second, civil, trial and will to a large extent absolve many other executives from admitting blame in the financial crisis of a few years ago. Tannin and Cioffi, who were charged with lying to investors about the strength of their funds while packaging weak subprime mortgages, collateralized debt obligations, and credit-default swaps, had used residential mortgages to prop up and invest in AAA-rated securities.

The charges, which of course took center stage during the collapse of the housing and financial markets, were widely seen as bellwether tests as to the strength of future federal prosecutions against Wall Street executives who are involved in defrauding investors. We don’t yet know whether or not the settlement will mandate that the former Bear Sterns managers admit guilt, but many law analyst agree that a second acquittal, this time in a civil court, would have “undermined the S.E.C.’s ability to achieve settlements in other cases.” That said, it also ostensibly sends the message that the federal government is unable, or unwilling, to regulate and control financial fraud in corporate America.

At a time when many Americans are struggling with the costs of healthcare insurance, school tuition, gas prices, and the cost of living, some civil liberty activities bemoan the seeming immunity granted to financial mavericks. While your average working class citizen struggles to acquire Discover student loan interest rates, hedge fund managers play musical chairs with investor money and reap enormous bonuses, even while entire industries collapse. Investors lost $1.8 billion when Bear Sterns hedge funds collapsed.

Meanwhile, President Obama says he will be creating a multiagency task force whose sole purpose will be to take on cases that involve mortgage-related fraud. The S.E.C. has already launched into several investigations and issued subpoenas, helping to bolster the recent case against three former Credit Suisse traders, who are charged with inflating their financial portfolios in exchange for bonuses. But the prosecution of hedge fund managers is still a very controversial issue in the Wall Street world, where some analysts say it is difficult to draw the line between intentional fraud and poor business decisions.  

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Stanford Convicted of Fraud

R. Allen Stanford was once ranked 205th on Forbes magazine’s list of the richest Americans back in 2008, with a net worth of $2.2 billion. Stanford has also been jail since June 2009 when he was indicted on several counts of fraud, more specifically a Ponzi scheme, sized at about $7 billion. After a jury of 8 men and 4 women began deliberations on Feb 29th, they announced today that a verdict was reach and Stanford would be guilty of 13 of the 14 counts against him (he was only found not guilty of one count of wire fraud related to an attempt to bribe an Antiguan official with Super Bowl tickets).

The founder of Stanford Financial Group, based in Houston, denied accusations by prosecutors and the U.S. Securities and Exchange Commission that he cheated investors through CDs issued by Stanford International Bank Ltd.

Stanford Convicted of Defrauding Investors [Bloomberg]

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Justice Dept. Investigating Bank Manipulation of LIBOR

The LIBOR is the London Interbank Offered Rate, a key interest rate, and the Justice Department is looking into whether some of the largest banks in the world had a hand in manipulating that number. LIBOR is used as a benchmark for a variety of loans (and securities based on loans), so being able to manipulate it, or even simply predict it, can mean big bucks. As of yet there have been no charges of wrongdoing but several large banks have been questioned.

The figure is published daily and is the product of reports from various banks, who indicate how much it has cost them to borrow one of the ten listed currencies. Dollar LIBOR relies on the information of 18 banks. Manipulation could occur if banks reported erroneous figures or collude to manipulate the figures. When there are only 18 parties, in the case of Dollar LIBOR, a few bad actors can cause a significant change.

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John Kinnucan Arrested for Insider Trading

The dominoes just keep on falling and the latest is a technology analyst who has a penchant for challenging the feds. John Kinnucan was arrested last night by the FBI on suspicious of insider trading. This story first started in late 2010 when federal agents visited his home and asked for his cooperation in investigating several of his clients, including Citadel and SAC Capital Advisors. Kinnucan not only declined to help but sent this email to his clients:

“Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information,” the email said. “We obviously beg to differ, so have therefore declined the young gentleman’s gracious offer to wear a wire and therefore ensnare you in their devious web.”

Since then, he’s done plenty of interviews in which he lashed out at authorities, even calling out specific agents and using racial epithets. Now he’s being charged with insider trading and being part of a ring that includes some of the largest hedge funds in the world. We’ll see how this plays out.

Tech Analyst Arrested in Insider Trading Crackdown [Dealbook]

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