“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]

Mr. Whitman, 54, of Atherton, Calif., has had a long career investing in technology stocks. He set up Whitman Capital in 1994, according an article from Red Herring magazine, and in his first year was up more than 100 percent. Before setting up his own fund, he worked as an analyst for several Wall Street firms noted for their technology industry research, including Alex. Brown & Sons, Hambrecht & Quist and Montgomery Securities, all now owned by big banks.

This is the latest in a string of sixty guilty pleas or convictions, half of which have been connected with Galleon.

By granting exemptions to laws and regulations that act as a deterrent to securities fraud, the S.E.C. has let financial giants like JPMorganChase, Goldman Sachs and Bank of America continue to have advantages reserved for the most dependable companies, making it easier for them to raise money from investors, for example, and to avoid liability from lawsuits if their financial forecasts turn out to be wrong.

According to the research by the New York Times, they discovered that the SEC, over the last ten years, has given exemptions to large banks in 350 cases. The NYT article is quite damning in that it shows a pattern of exemptions that seems to be void of common sense. JP Morgan Chase settled six fraud cases in the last 13 years yet received 22 waivers, arguing, among other things, that they had a strong record of compliance with securities laws. 6 fraud cases in 13 years is probably a very low percentage, but to the average American the argument looks ludicrous.

.“SIPC’s board will review the referral and analyze the S.E.C.’s underlying documentation as quickly as possible,” SIPC’s chief executive, Stephen P. Harbeck, said in a statement.

It will be interesting to see how this plays out. Swindled investors are typically not protected by SIPC and this opens the door for a lot of other cases (Madoff, anyon?).

Fund Could Cover Ponzi Losses [The New York Times]

This is important in so much that it shows that Wilpon and Katz may have been concerned about their investments with Madoff, which could have implications since they’ve long argued that they had no warning and weren’t sophisticated enough to figure out Madoff was a fraud.

I think you can’t read too much into this, though I suspect many people will. If they knew Madoff was a fraud, they would’ve bought the insurance. If they suspected he was, and the insurance was affordable, then they would’ve bought it. If they didn’t know, they were acting on the advice of a close adviser. Either way, it’s a business decision, not one made based on gut.

The more interesting story is the impact this will have on their ownership of the New York Mets.

While Friehling wasn’t charged with knowing about Madoff’s admitted scheme, the accountant failed to do tests and run internal controls to see, among other things, if Madoff was purchasing securities on behalf of his clients, according to the complaint. Yet, in financial statements he prepared, and in SEC filings, Friehling said he carried out tests to check the veracity of Madoff’s finances, the complaint said.

Madoff accountant charged with securities fraud [Newsday]

“In 2000 Mr. Manion warned me that relations between the New York and Boston regional offices was about as warm and friendly as the Yankees-Red Sox rivalry and that New York does not like to receive tips from Boston,” Markopolos testified.

Markopolos said it took him five minutes to conclude that Madoff was a fraud after looking at his reported investment performance, and four hours of actual number-crunching analysis to confirm his suspicions.

It’s absolutely amazing that the SEC knew all this and it just managed to get bogged down in red tape and bureaucratic infighting.

Regulator Schapiro to Run SEC for Obama [Wall Street Journal]

The biggest loser may be Walter Noel’s Fairfield Greenwich Group, whose $7.3 billion Fairfield Sentry Ltd. invested with Madoff’s eponymous firm, three people familiar with the matter said. Another client was Kingate Management Ltd., whose $2.8 billion Kingate Global Fund Ltd. invested with Madoff, they said. [Source: Bloomberg]

Madoff had even confessed to his employees right before he was arrested. Yikes.

What is a Credit Default Swap? It’s a mechanism that lets lenders to a company purchase insurance in the event the company defaults. It’s insurance on a credit default. The problem we’re facing is that with no central regulation, it’s unclear what contracts are where, who has signed them, and what happens if one party goes under. The contracts are intended to offset one another and if one part goes under, the effect could snowball and get out of hand.

It’s one of the reasons why the Treasury helped out in the Bear Stearns situation, they didn’t know how a failure of that magnitude would affect the credit default swaps market. Yikes.