Category Archives: Regulations and regulators

New Zealand’s Cathy Odgers Bungles Her Resignation From Pacific Fiduciaries

There’s no end in sight to Odgers’ inept duplicity: she can’t even tell the truth about her resignation from Pacific Fiduciaries

KKR’s Botched Document Cover-Up Reveals Washington Public Pension Fund Cronyism

As we’ve been examining private equity abuses, readers have been incredulous that investors have put up with one-sided, deliberately vague, complex, and/or obfuscatory contracts, unreasonable demands for secrecy, and lack of access to critically important information, such as the financial statements of the portfolio companies that they own. This failure of investors to protect their own interest is particularly troubling given that so many are fiduciaries.

We have another example of this sort of conduct that comes out of an important story in the Wall Street Journal yesterday. Private equity kingpin KKR made what amounted to an admission of guilt by rebating fees that the SEC had found were improperly charged, meaning stolen from the limited partners. We’ve obtained the document that was the foundation of the story and are embedding it at the end of this post. It’s a remarkable example of how cronyistic the relationships are between hapless, captured investors and the general partners who led them by the nose.

We are about to do some document forensic work, so put on your gumshoes!

KKR Rebates Some Ill-Gotten Fees to Investors Due to Dodd Frank Reforms

KKR made what amounted to an admission of guilt to the blistering charges that the SEC laid at the doorstep of the private equity industry last May. Then, Andrew Bowden described in unusually specific detail the widespread, serious abuses it was finding in its initial private equity examinations, including what amounted to embezzlement.

Mark Maremont of the Wall Street Journal, based on a document obtained by FOIA from the Washington State Investment Board, learned that KKR had disgorged some ill-gotten fees.

New Zealand’s Cathy Odgers and Fraud Stock HCI Hamilton: the Denouement

GXG Markets seem to agree with me about the apparent connection between Cathy Odgers’ Pacific Fiduciaries and an exceedingly obvious boiler room fraud, HCI Hamilton.

Fed Testimony in AIG Bailout Trial: If It Walks Like Perjury and Quacks Like Perjury…

One of the most striking things about the testimony in the AIG bailout trial is the degree to which Fed officials play fast and loose with the truth. And I don’t mean the normal CEO version of having no memory of events that are inconvenient and very detailed recollections of things that boost their case. I mean statements that are flat out false.

Slimin’ Jamie Dimon Tells Howlers About Persecution of Banks, “Fortress Balance Sheet”

Jamie Dimon seems to think if he can tell his Big Lies long enough, he’ll be believed. In reality, the only ones who will buy his blather are his fellow members of the elite banker looting classes and their hired help.

Dimon’s latest opportunity to play Ministry of Truth came in an analysts’ call last week, when he tried presenting JP Morgan and banks generally as “under assault”. This was so patently ridiculous that it quickly elicited the scorn it deserved.

First Step in Republican Campaign Against Bank Reform: HR 37 Passed in House

Republicans moved forward their first chess piece in their effort to gut already weak financial reform by passing HR 37 in the House.

Republicans Launch Another Wall Street Gimmie: HR 185, the “Tie Regulators in Knots” Act

The Republicans are not wasting any time in their ongoing campaign to make sure nothing stands in the way of Wall Street’s rapacious quest for more profits.

Elizabeth Warren Takes a Scalp: Antonio Weiss Withdraws from Nomination for #3 Position at Treasury

As readers may recall, Elizabeth Warren blasted the Administration’s nomination of a Lazard executive and senior mergers & acquisitions banker Antonio Weiss to the number three Treasury psot, assistant secretary for domestic finance. Warren’s grounds for objecting to Weiss were straightforward: his experience was no fit for the requirements of his proposed Treasury role. On top of that, he had been involved in and therefore profited from acquisitions called inversions that Treasury opposes because they reduce the taxes paid by the acquirer, which uses the acquired company to move its headquarters to a lower-tax jurisdiction.

Today Weiss withdrew as a candidate for the Treasury position.

The Fed’s and Republicans’ War Against Dodd Frank and How That Preserves the Greenspan Put and Too Big to Fail

A new story by Gretchen Morgenson of the New York Times highlights how the Federal Reserve and the Republicans* are on a full bore campaign to render Dodd Frank a dead letter, with the latest chapter an effort to pass HR 37, a bill that would chip away at key parts of Dodd Frank. But the bigger implications of this campaign is how these efforts serve to limit the Fed’s freedom in implementing monetary policy. In other words, Fed general counsel Scott Alvarez is undermining the authority of his boss, Janet Yellen.

How the Republican Campaign to Gut Dodd Frank is a Huge Gimmie to Banks and Private Equity Funds

The Republicans have been quick and shameless in using their control of both houses to try to crank up the financial services pork machine into overtime operation. The Democrats at least try to meter out their give-aways over time.

Their plan, as outlined in an important post by Simon Johnson, is to take apart Dodd Frank by dismantling key parts of it under the rubric of “clarifications” or “improvements” and to focus on technical issues that they believe to be over the general public’s head and therefore unlikely to attract interest, much the less ire. However, as Elizabeth Warren demonstrated in the fight last month over the so-called swaps pushout rule, it is possible to reduce many of these issues to their essential element, which is that Wall Street is getting yet another subsidy or back-door bailout.

Today’s example is HR 37, with the Orwellian label “Promoting Job Creation and Reducing Small Business Burdens Act”.

Private Equity Miscreant Freeman Spogli Illustrates Investor and SEC Cowardice

Gretchen Morgenson of the New York Times released an important story over the holiday period on how a mid-sized private equity firm, Freeman Spogli, with $4 billion under management, was found to have made serious violations of its investment agreement. The SEC’s fund examination unit stated that Freeman Spogli, in two of its older funds, FS Equity Partners V (“FS V”)and FS Equity Partners VI (“FS VI”), looked to have repeatedly violated of fee-sharing agreements and to have operated as an unregistered broker-dealer. It asked for Freeman Spogli to make full restitution of the failure to reduce management fees and provide evidence that required reimbursements that looked to have been, um, ignored were actually made.

While Morgenson has done a fine job of presenting the facts of the case, we beg to differ with her as to some of the inferences she draws. She sees this case as a real step forward for investors. We see it as showing how loath both investors and the SEC to take serious action even in the face of clear-cut evidence of misconduct.

“Summer” Rerun: Quelle Surprise! Hank Paulson and Goldman CEO Talked to Each Other a Lot!

As I like to say, I started out on Wall Street when it was criminal only at the margin. The unseemly coziness between Goldman and keygovernment agencies in critical episodes during the crisis illustrates how much standards of conduct have deteriorated.

New York’s Benjamin Lawsky Forces Resignation of CEO of Mortgage Servicer Ocwen Over Wrongful Foreclosures, Shoddy Records and Systems

New York State Superintendent of Financial Services Benjamin Lawsky has forced the resignation of the chairman and CEO of a mortgage servicer, Ocwen over a range of borrower abuses in violation of a previous settlement agreement, including wrongful foreclosures, excessive fees, robosigning, sending out back-dated letters, and maintaining inaccurate records. Lawsky slapped the servicer with other penalties, including $150 million of payments to homeowners and homeowner-assistance program, being subject to extensive oversight by a monitor, changes to the board, and being required to give past and present borrowers access to loan files for free. The latter will prove to be fertile ground for private lawsuits. In addition, the ex-chairman William Erbey, was ordered to quit his chairman post at four related companies over conflicts of interest.

The Ocwen consent order shows Lawksy yet again making good use of his office while other financial services industry regulators are too captured or craven to enforce the law. Unlike other bank settlements, investors saw the Ocwen consent order as serious punishment. Ocwen’s stock price had already fallen by over 60% this year as a result of this probe and unfavorable findings by the national mortgage settlement monitor, Joseph Smith. Ocwen’s shares closed down another 27% on Monday. And that hurts Erbey. From the Wall Street Journal: