Mary Schapiro

Ken Lewis may think everyone has forgotten about him... But we haven't. Tomorrow's hearing before the House Oversight Committee will see the SEC's Robert Khuzami field questions about BofA's "criminal" acquisition of Merrill, which according to Dennis Kucinich represented an "egregious violation of securities laws." Consider it an appetizer ahead of the full blown jury trial before one Judge Jed Rakoff, coming soon to a publicly accessible courtroom near you.

It is a well documented fact that a few big American banks have long fostered and enjoyed close relationships with U.S. regulators and agencies such as the Federal Reserve Board and the U.S. Treasury. History is also replete with Goldman Sachs executives attaining government postings such as the Secretary of the Treasury; including Robert Rubin and Hank Paulson of recent decades. These relationships of trust are developed and nurtured over time to the point where advice is sought and information exchanged regarding situations on a strictly confidential basis. It is difficult for Long Wave Analytics to believe, for example, that the Federal Reserve didn’t send up a trial balloon last February musing about the prospect of initiating a quantitative easing program involving new Treasury bond issues. How else could Goldman amass $27 billion (U.S.) in trading profits in the first nine months of the year. A 50 basis point move in yield on a 10-year maturity, for example, translates into a price change of $4.20 per $1,000 bond. On a long position of $1 billion (U.S.) of a 10-year Treasury bond, this means a capital gain of $42 million (U.S.).

Who’s in charge? We believe it to be the big American and European banks because, after all, they are the owners of the U.S. Federal Reserve.

"We will continue to use all tools at our disposal to aggressively pursue illegal market manipulation by high frequency traders and others." Mary Schapiro

But we thought manipulation by HFT only existed in the deranged brains of certain fringe websites. How is that possible?

As we speculated on Friday, whoever bought those 7,500 calls on inside information ahead of the NYB assumption of massive taxpayer subsidies in the form of the AmTrust's $2 billion "failed bank" consideration via the FDIC, is now much richer. And we demand a full investigation into who and why i) leaked this information and ii) profited from it. With the stock up 9%, any inactivity by Mary Schapiro is equivalent to her spitting in the face of anyone still caring about a free and fair market.

The degree of insider trading in this market is getting ridiculous. And the strangest thing is those who are executing on blatantly obvious material, non-public insider information, are no longer concerned the least bit about getting caught as they realize that the "mighty" SEC will do nothing against them, courtesy of the example the SEC has set by finding absolutely nobody "responsible" (except, of course, the regulator's own future employers who thus get immunity from prosecution) for the greatest market heist in history in which over $5 trillion has been transferred from the middle class to the Wall Street oligarchy (future providers of paychecks for SEC staffers).

Today's grotesque example of the SEC's futility to act as even a modest deterrent to insider trading activity: New York Community Bancorp (which, just so happens, is a $602 million recipient of TLGP debt), whose stock surged in the final minutes of trading for reasons (then) unknown. As reader QevolveQ pointed out at 5:30 pm, the activity in both the stock and the calls of the company was many standard deviations away from average and raised major red flags. Those questions were quickly put to rest when it became known at 6:33 pm that NYB would in fact receive FDIC subsidies to acquire newly failed AmTrust Bank in a transaction that would be "immediately accretive to earnings."

We will post this without much commentary as the probability we would otherwise be sued for grossly indecent language in a public venue as well as libel and slander is very, very high.

In the aftermath of Galleon, the SEC is aggressively ramping up its enforcement techniques, and while we all know that the regulators, in "joint venture" with the Justice Department, are likely eavesdropping on every single telephonic conversation originating or terminating in a financial firm, it is likely that Mary Schapiro has finally realized that some time in the 90's a thing called instant messenger became quite popular and that the bulk of traders and analysts converse not so much via phone but by Bloomberg MSG and IM blasts, as well as via all sorts of other discrete electronic communication tools. And this may be precisely what Robert Khuzami is targeting now as the Galleon net continues to expand ever wider to even what were formerly considered untouchable stalwarts of the hedge fund community.

Sen. Kaufman admirably takes on the windmills again, this time sending a much more sternly worded letter to Mary Schapiro to finally step away from the game of taxpayer funded Solitaire, and instead of waiting for twitters and bloggers to hand her agency cases of insider trading on a silver platter, to finally do something proactive, before her thoroughly discredited agency comprising of what are apparently some of the most inept government workers in existence, is responsible for not only the biggest ponzi blow up (done and done) but for the greatest market collapse courtesy of a few unsupervised Atari consoles.

"A former Pequot Capital Management Inc. employee told his psychologist he was fired after he stopped supplying the hedge fund with insider information, according to a letter that two U.S. Senators sent to the Securities and Exchange Commission."

High Frequency Trading coming to a Joe Francis-produced, soft-porn torrent near you.

"As many of you know, we are already moving forward on our market structure initiative. In recent weeks, we have proposed rules that would address the inequities of flash orders and dark pools of liquidity. Both of these undermine the integrity of the market by providing valuable pricing information to select market participants — information that is not widely available to the public. This in turn creates a risk of private markets and two-tiered access to information." - Mary Schapiro, SEC

"The investing community (especially retail) has benefitted from the evolving market structure" - Goldman Sachs

Bank of America is really unable to catch a break. The latest kick in the groin comes courtesy of the Chairman of the House Oversight Committee Edolphus Towns, who has announced he will launch a subpoena into whether Countrywide gave "favored terms to lawmakers and other VIPs." Concurrently, a panel is evaluating predatory lending practices at a variety of different banks. Some of the firms that will be told to provide information include Wells Fargo, JP Morgan, Citigroup, US Bank and GMAC.

"Banning flash orders and imposing limits on dark pools should not be the end of the story, nor should they be seen as sacrificial lambs offered up by a substantial majority of Wall Street players as the price to ward off deeper review. Chief among the systemic issues that must be carefully reviewed is high frequency trading, which now makes up over 70% of the daily market volume. The SEC needs to closely review these strategies -- whether employed in dark pools or the public markets -- to ensure that high frequency traders are not able to take advantage of the long-term investors who are the backbone of our capital markets. It is the SEC’s mission to protect long-term investors, who care about the valuations of the underlying companies, not those who quest for trading profits achieved in milliseconds." - Senator Ted Kaufman

"As the Commission considers the treatment of ATSs, at this week’s open meeting and beyond, I respectfully ask that you consider the proposals outlined below to ensure that ATSs, while continuing to provide beneficial competition to registered exchanges that directly and indirectly benefits retail investors, do not undermine the fairness, transparency and integrity in our markets that the Commission has worked for so many decades to foster." - Sen. Chuck Schumer

Senator To Release Letter To SEC Chair Schapiro Proposing Reforms To Protect Market Integrity, Transparency Amid Rise Of Unregulated Trading Platforms

Schumer To Say: Alternative Trading Systems Like Dark Pools Should Have To Compete On Level Playing Field With Traditional Stock Exchanges

Non-Exchanges Like Dark Pools Should Have To Adhere To More Regulation, Bear Fair Share of Costs of Market Surveillance