domingo, 24 de abril de 2016

Cheating at the Securities and Exchange Commission

This interview titled "Keeping Watch on Wall Street" was broadcast by Radio Netherlands Worldwide in March 2011 but I downloaded and then tape recorded it on June 27 of that same year.  Nearly five years went by before I finally decided to transcribe, typewrite and upload it onto this blog as the first entry here to be included only in the English version.  (The blog has only three bilingual entries, whose subjects are the Silk Road, the decoding of the Maya written language and genetic engineering as it appears in Aldous Huxley's novel Brave New World, uploaded on Jan. 4 and 5 and May 28, 2013, respectively.)

The following year the budget for RNW was savagely hacked, and so now it can be listened to in only 18 countries, all of them in the "underdeveloped world" or Third World, "countries where freedom of expression is severely restricted", as they say at their website.  They got serious and can no longer afford to go around amusing anybody.  I have other old programs of theirs that I tape recorded in the cheerful old days, with subjects like insects as food and spy stories told by former spies, and I reckon it would be worth the while to place them here as well, some day.   

The interview reminded me of Columbia U. economist Ferdinand Lundberg's The Rich and the Super-Rich, a bestseller of the late 60's, a thick, impressive, shocking, scholarly exposé that denounced the plutocracy that has replaced democracy in the U.S.  This book completely changed my outlook on political and economic matters.  It's probably responsible for the fact that now far more than half of all citizens of voting age there refuse to vote.  It's not just the Communist Party.  Our political science teacher in high school, a Mr. Kennedy, in a bilingual school in South America, had been lying to us, not too many years after the first Kennedy murder.   (I graduated in 1969, the year of the first manned Moon landing and the legendary Woodstock Festival.)  His classes were amusing, almost like a circus show, which is exactly what elections happen to be in the U.S. and elsewhere in most "democratic" countries. 

Lundberg explains how the financial markets are deviously milked by a few crooks who program periodic crises for their own benefit and how the Securities and Exchange Commission is part of the racket, which is the theme of the interview.  Occasionally the law of the land pretends to punish the Chosen Ones who break it marketwise and otherwise, but it's always just "a slap on the wrist". 

Nothing except a space alien invasion can bring down those who own and control everything, which is why they stand in fear of those aliens.  All they can do is ridicule the "little green men" and have people laughing all the way back from the movie theatre, yet they have nothing to fear.  The Visitors will never get involved in things other than subtle personal guidance.  They expect us to handle matters as best we can as regards everything else.  

[female voice:]  "The State We're In" --how we treat each other around the world: real voices, real stories, from Radio Netherlands Worldwide

[Jonathan Groubert:]  This is "The State We're In".  I'm Jonathan Groubert [pronounced "groo - BEAR", so it must be a French family name].  Today we're talking to people who took out of all of [?] the System [surely meaning "the Establishment", "the status quo"], people like Gary Aguirre.  He'd been a lawyer and a filmmaker, but it wasn't enough.

[Gary J. Aguirre:]  I thought I would … uh … go to work at a … agency that was supposed to keep an eye on … uh … Wall Street … uh … and its tendency to run amuck.

[J.G.:]  The year was 2001, the Enron scandal was rocking America and Gary decided at age 64 that he wanted to do something in public service, so he landed a job at the Securities and Exchange Commission.  Working at the SEC was more than a job: it was a calling.   

[G.A.:]  One of … my own personal heroes is … uh … Ferdinand Pequot, who led the investigations of the causes of the 1929 Crash and the Depression, and he described the SEC as "the policeman on the corner", who was to keep an eye on Wall Street.  If that policeman left, then Wall Street would run amuck again. 

[J.G.:]  On just his second day on the job Gary was handed a major assignment: to look into the suspicious business dealings of one particular Wall Street highflier-- Art Samberg [full name: Arthur J. Samberg].     

[G.A.:]  Samberg was a very successful hedge fund manager who had … uuh … an extraordinary … record of success.  When I say "record of success" I mean high returns of invested capital consistently, year in, year out, for a very long period of time --decades-- and, essentially, I was asked to look at … uh … a very specific case in which Pequot, the hedge fund for which he was CEO [chief executive officer], was suspected of engaging in insider trading.  ["Insider trading" is an illegal procedure that implies taking unfair advantage of "privileged information", known to very few people in a company, about an important decision to be taken presently that will affect the value of its shares, in order to trade a large amount of the shares and make a huge profit.]  

[J.G.:]  … and … and what exactly was the nature of the trade?

[G.A.:]  In one case … uh … he had purchased … uh … large blocks of Heller Financial, which is a midsize company, and had done so in the 30 days prior to Heller being acquired by General Electric.

[J.G.:]  Well, what's so special about that?  [Finding a buyer will increase the value of the stock of a company.]

[G.A.:]  Well, he had purchased more stock in … uh … Heller Financial than anyone else in the country, and as I recall, 44 million dollars' worth of Heller Financial, which was more than anyone else in the country had purchased.  On some days he tried … uh … or he … he authorized his trader to buy twice as much stock as even was traded on that day, and so there was a complete void of any rationale why he bought the stock.  It was as if he woke up one morning and heard a voice that said, "Buy Heller Financial [stocks]." 

[J.G.:]  Now, given that Art Samberg, out of nowhere, had bought up huge amounts of Heller Financial stock just before they got more valuable, Gary figured someone must have tipped Samberg off.  Gary went through thousands of telephone and online records and found a connection Samberg had with another Wall Street heavyweight --John Mack-- and here is where it gets interesting.  Mack was in line to become the CEO of the very bank managing the takeover of Heller Financial.

[G.A.:]  On the Friday prior to the trading Mr. Mack called Mr. Samberg and they had a conversation, so we began to suspect that Mr. Mack may have been the source of that tip.

[J.G.:]  So, you were connecting the dots between John Mack and Art Samberg.  What did this kind of information mean to your bosses at the SEC?

[G.A.:]  They were nearly yiddy [he means to say "giddy"] … uh … about … uh … what I was finding.

[J.G.:]  Giddy.

[G.A.:]  This was a h- ….  Giddy.  I mean … uh … my immediate supervisor was extremely excited, and he had instructed me to work on this case and this case alone --nothing else-- and also they suggested that I take this case to the U.S. Attorney in the Southern District of New York and present it to them so that they could potentially open a criminal investigation.  Lets's say, the sails were filled with wind.  It was moving quickly.  Now that underwent an abrupt change.  Morgan Stanley, at that time, was looking for a new CEO and they began to focus on John Mack.      

[J.G.:]  Now, Mor- … Morgan Stanley is a very big Wall Street broker.

[G.A.:]  Yes, they're one of the biggest … banks in the world. 

[J.G.:]  … and they wanted to hire John Mack as their CEO, one of the people who you suspected to be involved in insider trading.

[G.A.:]  Correct.  I was focused on Mr. Mack as a possible tipper in the … uh … Heller Financial matter …

[J.G.:]  Well, how did that …?

[G.A.:]  … the Heller investigation.  You can imagine this as two … tracks.  On the one hand, I have a track that I am pursuing and … uh … it's gathering momentum.  On the other track is Morgan Stanley, and they're beginning to focus on John Mack, not as a … [here he chuckles] … su- … suspect in an insider trading case  but as a new CEO, and those two tracks … intersected … because … Morgan Stanley realized that they could not hire John Mack as their new CEO … if he brought along with him … an insider trading investigation.  Uuh … Morgan Stanley initiated two contacts with the SEC.  One was from the bottom, the other was from the top, and both contacts were directed at ascertaining whether … there was going to … whether the SEC was serious about the investigation.    

[J.G.:]  … and … and what was the consequence of their contact with the SEC … for your investigation?

[G.A.:]  Well, I was told by my immediate supervisor that I was not gonna be able to take Mack's deposition because he had powerful political contacts, and ess- … essentially the message came from the top down …. that … uuh … the investigation was not … n- … I mean, it was dead.

[J.G.:]  Gary's supervisors told him to go on vacation and that they'd talk about the case when he got back, so he spent a couple of weeks on a beach in California …

[G.A.:]  … and the day before I … I'm … supposed to fly back I get a phone call --"Call the office"-- so I call the office, and … uuh … speak to my two supervisors and they have … uh … a printed page that they read to me, which basically says: "Gary, we're sorry to do this … uuuh … but you're fired."

[J.G.:]  Fired.

[G.A.:]  Correct.  [He laughs softly:]  Heh, heh, heh!  As it worked out … uh … I had just … had a … let's say, an extremelypositive evaluation of my past year's performance, and I was just given a two-step pay raise.  By the time that my supervisors realized that I was not gonna back off of Mack and that I would continue to take it up the chain of command, which was my duty to do, it was too late for them to block my … uuuh … two-step major pay increase.  They had just approved it, and the way it worked out is that … uuh … I got my two-step pay raise, and eight days … it was eight days later I was fired.   

[J.G.:]  What was the message to you?

[G.A.:]  Well, the message was that … uuh … Wall Street elite were not within the scope of … uuh … SEC enforcement.  If you were elite member of Wall Street, from a Wall Street bank, you were untouchable.


[J.G.:]  You're listening to "The State We're In" from Radio Netherlands Worldwide.  I'm Jonathan Groubert.  I'm talking with Gary Aguirre about his time at the Securities and Exchange Commission, or SEC, the government agency that is supposed to be Wall Street's watchdog.  Gary had been fired from the SEC, but for the next two years he continued the investigation into Art Samberg on his own.  Samberg had been involved in another suspicious multimillion-dollar trade.  This one involved Microsoft and inside information from an employee named David [E.] Zilkha.  Gary knew that if he could connect Zilkha to Art Samberg he'd have Samberg cold.  He was coming up dry until finally, out of nowhere, Gary got a message that changed everything.  

[G.A.:]  I got a voice-mail message at my office, and the message said something like this: "Mr. Gary, I thought you would like to know that …" … uuh … "… Art Samberg is paying David Zilkha, who was the suspected tipper in the Microsoft case, two point one million dollars, and I can tell you where the records are."  I get another anonymous message like that.  I ask my … secretary, "If this guy calls, patch me in immediately."  The next time he called, we talked.  What he told me was that he had the … the hard drive from the computer of David Zilkha, the suspected tipper, the person who I had suspected of tipping Samberg.  This kind of evidence that we're talking about right now is rarely available in an insider trading case.     

[J.G.:]  The information on the hard drive was a proverbial smoking gun, an e-mail exchange where Zilkha got the inside information Samberg was looking for.  The tip made Samberg 18 million dollars … but I was curious if Gary ever found out who was the mysterious voice of the hard drive was.

[G.A.:]  Well, yes.  After … he became comfortable … with me … uh … he told me who he was.  He … he was married to … uuh … Zilkha's … uuh … former wife, so he was concerned that the SEC would not act on the information … if he provided it to the …

[J.G.:]  What happened to Art Samberg?

[G.A.:]  In the end Mr. Samberg entered into an agreement to pay the SEC 28 million dollars, a settlement agreement with the SEC.  

[J.G.:]  Are things any better on Wall Street now?

[G.A.:]  Absolutely not.  They're worse.  They took this country and almost the rest of the world … over … uuh … the same financial cliff that we went over in 1929, and the government doesn't do anything about it.  Instead of going to jail, the CEO's of these banks walked away with tens of millions and sometimes hundreds of millions of dollars … and those … (…) [here, a word that sounds like "gays"], the money they walked away with, and all of these losses, are gonna be on the shoulders of taxpayers, and … it does one thing: it promises that we're gonna have another financial crisis.  You put people in jail who broke the law, you put a couple of guys in jail, and we're not gonna have another financial crisis.   

[J.G.:]  In 2010 the Securities and Exchange Commission agreed to pay Gary Aguirre 755,000 dollars in reparations.  Gary now runs his own private practice [aguirrelawapc.com] in San Diego, California, where he represents whistleblowers.

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