Archive - Aug 29, 2009 - Story

And this is just the beginning. Chairman Ben has yet to be fully unleashed.

"JP Morgan Chase allegedly had deposits from Bernard L. Madoff totaling $5.5 billion at
one point in 2008. The Chase account was supposedly where most of the funds in his
Ponzi scheme were deposited. Any large deposit can be a considerable source of profit
to a bank. Assuming that the deposits returned the bank’s net interest margin and grew
at a random geometric rate, this paper estimates that JP Morgan Chase generated $483
million in after-tax profits from this very large account over the course of sixteen years.
With JP Morgan Chase the target of pending lawsuits relating to the Madoff fraud, this
paper’s methodology and results may be of interest to litigants, prosecutors, journalists,
and academics."

One of the key headlines these days has been the unmasking of what has been dubbed the biggest identity theft and credit card fraud case in history, allegedly spearheaded by one Albert Gonzalez, who in 2003 was involved in a comparable scheme however upon being caught, promptly became an informant for the Secret Service and turned over 30 of his hacking buddies. Six years later it is he this time who is in the hot seat, together with most of his associates, including one 25 year old Stephen Watt, who supposedly was the creator of the credit card sniffer software used to hack into over 130 million of various credit cards for merchants such as TJX, Dave And Busters and 7-Eleven, which numbers were subsequently sold for hefty sums to Eastern European purchasers. What is peculiar in all this is that apparently for the entire duration of this operation, Stephen was working in "Application infrastructure development and in house security toolkit development" at Morgan Stanley (earning $99,000 a year as a 21-23 year old programmer in 2004-2007), and subsequently took a brief position with Imagine Software, where he developed "real-time computer trading programs for financial firms." Did Stephen learn the tools of the trading game at MS, while at the same time hacking millions of credit cards, only to take what he learned from both ventures into a new operation, one that counts among its clients the Who's Who of Wall Street? Or, alternatively, did he use his packet sniffing skills at Morgan Stanley? The questions grow...

Long before Sergey Aleynikov, in the summer of 2007, a major lawsuit between two quant titans shook the shadowy world of stat arbitrage and HFT. Alexander Belopolsky and Pavel Volfbeyn, at the time residing on the 7th floor of 666 Fifth Avenue (but not for long) and reporting to Millennium's Israel Englander, were about to get the back door treatment by their employer, who had just settled multi-year litigation with their former boss - East Setauket's original quant fund - Renaissance Technologies. But they would not go quietly into the night...