Category Archives: Wall Street Scams

Why Do Wall Street Companies Pay Fines Without Admitting Guilt?

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If Wall Street companies admitted guilt, they would lose a large number of investor lawsuits.

For example, Citigroup sold investors $1 billion of a CDO that contained toxic subprime mortgages. Investors lost $700 million. Citigroup made $160 million from fees and bets that the CDO would fail. Citigroup agreed to pay a $285 million fine without admitting guilt. If you deduct the $160 million, the net cost to Citigroup is $125 million, a fraction of the $700 million of investor losses.

If Citigroup admitted guilt they would still have to pay the fine and no doubt face a class action lawsuit from the investors who incurred the massive losses. Because they admitted guilt they would be in a very difficult position to defend their actions.

New laws should establish a fiduciary standard for all companies that sell investments to investors. The standard already exists for Registered Investment Advisors, but does not cover brokerage firms and stockbrokers.

Guess which type of company is ripping off investors on a regular basis? That’s right the broker/dealers.

Wall Street spends a lot money fighting a fiduciary standard for its brokerage activities.

Unfortunately, politicians have to fix this problem. That is not going to happen. They are paid large sums of money by Wall Street companies to maintain current regulations that protect companies at the expense of investors.

It is also unfortunate that investors do not have an organization that is strong enough to convince politicians to change the regulations.

Investors Have Short-Term Memories

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Wall Street companies cheat investors to maximize earnings, share prices, and executive bonuses.

When they are caught, companies pay fines to make the problem go away.

The latest example is Citigroup’s agreement to pay a $285 million fine to settle an SEC action that stated it sold investors $1 billion of a CDO then bet against the performance of the CDO. Investors lost $700 million and Citigroup made $160 million.

Citigroup is one of the biggest financial institutions in the world. If you can’t trust Citigroup, who can you trust?

Citigroup agreed to pay the fine without admitting guilt. If they didn’t do anything wrong why did they agree to pay the fine?

First of all, fines are a cost of doing business for Wall Street firms. They probably have a contingency fund to pay fines.

Second, they want the “problem” to go away as quickly as possible to minimize adverse publicity.

Third, Wall Street knows investors have very short-term memories. Very shortly, Citigroup’s alleged fraud will be yesterday’s news and it will be business as usual. I bet not one investor pulled their Citigroup accounts because the “problem” did not impact them.

What about the investors who lost the $700 million? Can they still afford to retire when they want to? Can they maintain their desired standard of living during retirement?

What about the executives who made millions from their decisions to package toxic assets and sell them to investors?

What about the fiduciary responsibility to always put investor interests first? I know the answer to this one. Brokerage firms are not held to fiduciary standards. Shame on FINRA and the SEC.

How Good is That AAA Quality Rating?

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S&P’s parent company, McGraw-Hill Cos, told investors it had received a notice a Wells Notice from the SEC stating the regulatory agency may institute a civil injunctive action against S&P that included civil monetary penalties and disgorgement of fees.

As reported by Carrie Bay at DSNews, a Wells Notice from the SEC signals the recipient is the subject of a formal investigation.

This case involves S&P’s AAA rating for a CDO known as Delphinius. S&P issued a AAA rating in the Summer of 2007. By the end of 2008 it had downgraded the CDO to junk status. Moody’s also provided a AAA rating and subsequently downgraded the CDO to junk.

A Senate subcommittee found evidence that analysts at both rating agencies were aware of the increasing risk of mortgages due to lax lending standards, poor quality loans, and unsustainable housing prices.

It is safe to assume that both agencies were pressured by Wall Street and they were paid big fees to issue the inflated ratings.

Meanwhile, investors have lost billions of dollars. The impact has been devastating.

The executives who made the decisions to package toxic assets and pay rating agencies to issue inflated ratings belong in jail. The executives at the rating agencies who succumbed to the pressure and took the money belong in adjoining cells.

Based on history, the companies will be paid fines and they will promise to clean-up their acts. Their executives will be free to develop the next scam that drives company earnings and stock prices.

Investors don’t stand a chance, until Wall Street executives are accountable for their decisions.

Fines are cost of doing business for these companies. At best they are an inadequate deterrent.

Why Does Wall Street Cheat Investors?

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Several investors have asked us this question during the past few days.

Wall Street does not cheat investors. The executives who run Wall Street firms make decisions that cheat investors out of their hard earned assets. These executives cheat for two reasons.

They make a lot of money when they rip-off investors. Many of them make more than $50 million per year.

Unlike the rest of us, Wall Street executives can commit crimes with no significant risk of ever being prosecuted. Instead, their companies agree to PAY FINES WITHOUT ADMITTING GUILT. Due to the frequency of their crimes, we know fines are NOT a deterrent. In fact, they are nothing more than a cost of doing business for the executive’s companies.

Wall Street will stop cheating investors when executives start going to jail.

Don’t hold your breath. Wall Street contributes hundreds of millions of dollars per year to corrupt politicians who make sure rules favor the Wall Street Robber Barons and not investors. You have to fix Washington before you can fix Wall Street.

Why do you think so many investors tolerate corrupt business practices at brand name firms?

Wall Street’s Robber Barons Make Billions

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Brett Arends wrote an excellent article in the Wall Street Journal titled “Capitalists of the World, Unite”. In the article he described several ways Wall Street has ripped off investors the past few years.

In one example, he described how Goldman Sachs employees have pocketed $80 billion in pay and benefits while the company’s shareholders have lost $25 billion the past five years.

If Goldman Sachs’ clients lost billions and its shareholders lost billions then who are the winners? The correct answer is the Goldman Sachs’ executives who made billions. They, and other Wall Street executives, are society’s latest version of Robber Barons (see definition below).

I think the media does its readers a disservice when it refers to greedy, unethical executives as Wall Street or by their companies’ names. Wall Street did not cheat investors – its a name. Goldman Sachs did not cheat investors – its also a name. The executives who run Goldman Sachs made the decisions that cheated investors and cost shareholders billions of dollars. They are true Robber Barons because they lined their own pockets at the expense of their clients and shareholders.

According to Wikipedia, Robber Baron is a term used for a powerful 19th century American businessman. By the 1890s the term was used to attack any businessman who used questionable practices to become wealthy. It combines the sense of criminal (“robber”) and illegitimate aristocracy (“baron”).

Guess what? They are back and their questionable practices impact you!

Wall Street Regulations are a Joke!

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Wall Street is a location not a body of decision-makers. Citigroup does not make decisions. Citigroup executives make decisions.

Citigroup “agreed” to settle a civil fraud case by paying a $285 million fine.

I thought committing fraud was a criminal act. Why aren’t the executives who made the decisions to commit fraud being arrested for a criminal act.

Not on Wall Street. Citigroup can pay a fine without admitting guilt. What a joke!

Meanwhile the executives who made the decision to rip-off investors make millions and get away scott free.

There are two consequences of this travesty. Fines are a cost of doing business for big Wall Street firms and executives who commit the crimes have no downside risk.

Once again it is the American investor who suffers the consequences of a rigged system.

Wall Street Executives Avoid Jail Again!

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Citigroup is paying a $285 million fine for cheating investors. Wall Street companies pay billions of dollars of fines without admitting quilt. This cozy relationship with regulators allow executives to commit acts of fraud with no risk of going to jail. Key executives make millions, investors lose millions, and no one goes to jail. This is heads I win, tails you lose played at level where billions of dollars are at stake.

Wall Street scams are legal

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A lot has been written about Wall Street greed and the damage it has done to the U.S. economy, the millions who have lost their homes, the millions who are unemployed, and the millions more who can no longer afford to retire.

What has not been written about is the Wall Street executives who made the decisions to package toxic assets into securities and sell them to investors. Committing this type of fraud on such a massive scale has enabled these executives to earn billions of dollars of compensation.

Not one of these executives has gone to jail. That’s because they are protected by corrupt politicians who benefit from Wall Street donations that keep them in office. Consequently, these executives had no significant downside risk when they made decisions that damaged millions of Americans.

It is very, very wrong. Millions of middle class investors should support a serious Occupy Wall Street that is focused on real issues versus discontent that is spawned by unemployment and bankruptcy. It will take a much louder voice to change a system that only benefits Wall Street executives and Washington politicians. They are organized and they are powerful. Investors are not.