Robert Khuzami

It is refreshing to see that the SEC has taken a much needed break from its daily escapades into midgetporn.xxx and is focusing on what is truly important, such as barring outspoken rating agency Egan-Jones from rating the US and other governments. From the SEC: "EJR and Egan made a settlement offer that the Commission determined to accept. Under the settlement, EJR and Egan agreed to be barred for at least 18 months from rating asset-backed and government securities issuers as an NRSRO. EJR and Egan also agreed to correct the deficiencies found by SEC examiners in 2012, and submit a report – signed by Egan under penalty of perjury — detailing steps the firm has taken." Hopefully the world is no longer insolvent in July of 2014 when this ban runs out.

• Obama Picking Lew for Treasury Fuels Fight on Budget (BBG)
• Deutsche Bank Bank Made Huge Bet, and Profit, on Libor (WSJ)
• Spain Beats Maximum Target in First 2013 Debt Sale (BBG) - In other news, the social security fund is now running on negative?
• "Icahn is also believed to have taken a long position in Herbalife" (NYPost) - HLF +5% premarket
• Lew-for-Geithner Switch Closes Era of Tight Fed-Treasury Ties (BBG)
• Turkey Beating Norway as Biggest Regional Oil Driller (BBG)
• Greek State Firms are Facing Closure (WSJ)
• Draghi Spared as Confidence Swing Quells Rate-Cut Talk (BBG)
• China’s Yuan Loans Trail Estimates (BBG)
• SEC enforcement chief steps down (WSJ)
• CFPB releases new mortgage rules in bid to reduce risky lending (WaPo)
• Japan Bond Investors Expect Extra Sales From February (BBG)

Forget the perfectly anticipated Greek (selective) default. This is the real deal. The FT just released a blockbuster that Europe's most important and significant bank, Deutsche Bank, hid $12 billion in losses during the financial crisis, helping the bank avoid a government bail-out, according to three former bank employees who filed complaints to US regulators. US regulators, whose chief of enforcement currently was none other than the General Counsel of Deutsche Bank at the time!

Moments ago the SEC, with about a two year delay, decided to finally act tought, and in a parting present to the most ineffective and clueless chairman of the coopted and corrupt organization ever seen, that would be Mary Schapiro of course, lashed out at Chinese affiliates of Big Four accounting firms as well as BMO, for refusing to produce audit work papers and other documents related to China-based companies under investigation by the SEC for potential accounting fraud against U.S. investors. Of course, readers of Zero Hedge will recall what we dubbed the formation of a cottage industry exposing Chinese fraudcaps back in November of 2010 when we warned that virtually every reverse merger out of China will soon prove to be a fraud, but because of the listing fees that US exchanges would get as a result of local listing, nobody cared, and only that now extinct class of gullible and naive investors would lose their entire investments. It is now two years and one month later, and the SEC has finally acted on it.

Game Over for the once high flying hedge fund manager: "“Today’s charges read like the final exam in a graduate school course in how to operate a hedge fund unlawfully,” said Robert Khuzami, Director of the SEC’s Division of Enforcement."

And I thought securitization ment they where going to keep the loan docs in a safe place in some bank vault some where...

Remember robosigning and the whole fraudclosure scandal? In a few days you can forget it. Because in America, the cost of contractual rights was just announced, and it is $25 billion: this is the amount of money that banks will pay to settle the fact that for years mortgages were issued and re-issued without proper title and liens on the underlying paper, courtesy of Linda Green et al. Why is this happening? Because staunch hold outs for equitable justice (at least until this point), the AGs of NY and California folded like cheap lawn chairs (we can't wait to find what corner office of Bank of America they end up in), but not before the one and only intervened. From the WSJ: "The Obama administration made a full-court press over the past four days to secure the support of key state attorneys general, including those from Florida, California and New York." Nothing like a little presidential persuasion to help one with overcoming one's conscience. Because in America the push to abrogate the very foundation of contractual agreements comes from the very top. But wait, there's more - just to wash its hands of the guilt associated with this settlement which shows once and for all that the Democratic administration panders as much if not more to the banking syndicate as any republican administration, as it announces one settlement with one hand, with the other the US will sue banks over the mortgage reps and warranties issue covered extensively here, in the most glaringly obtuse way to distract that it is gifting trillions worth of contingent liabilities right back to the banks, not to mention discarding the whole concept of justice. From the WSJ: "Federal securities regulators plan to warn several major banks that they intend to sue them over mortgage-related actions linked to the financial crisis, according to people familiar with the matter. The move would mark a stepped-up regulatory effort to hold Wall Street accountable for its sale of bonds linked to subprime mortgages in 2007 and 2008. At issue is whether the banks misrepresented the poor quality of loan pools they bundled and sold to investors, the people said." Wait, let us guess -that particular lawsuit will end up in a... settlement? Ding ding ding. We have a winner. All today's news succeed in doing is finally wrapping up any and all legal loose ends, so that banks can finally wrap all outstanding litigation overhangs at pennies on the dollar. And if at the end of the day, they find themselves cash strapped, why the US will simply loan them more cash of course.

Listen to the Landlord in Chief lay out his REO to LBO plan live and in stereo. Since everyone will end up paying for it, directly or indirectly, sooner or later it probably is relevant.

Latest from Ed Pinto, who piles on the blame the GSEs argument with some new data and analysis in #1e439a;">The American, AEI's online magazine. This will not help the cognitive illusion being so skillfully maintained by our friends Ritholtz and Nocera, who still cannot bring themselves to admit that Wall Street runs the GSEs just like a private SIV. Lawyers and first loss exposure is the only difference.

Only in a banana republic would Congress be "forced" to hold hearings on whether to ban itself from illegal (for everyone else) insider trading. Which explains why below readers can watch precisely that, live from the house Committee on Financial Services.The legislation in question relates to bill H.R. 1148, the "Stop Trading on Congressional Knowledge Act." We wonder how long until Congress manages to scuttle this latest effort to keep the playing field between the muppets and everyone else. After all, someone has to leak critical rating agency information (such as the FT's break of a key S&P leak yesterday, or Nancy Pelosi knowing weeks in advance that Moody's would not downgrade the US) to the media and/or trading entities.

And so Citi becomes the third firm after Goldman and JPM to put all their gross CDO criminal (wait, allegedly, they neither admitted nor denied) activity behind them with a $285 million wristslap.

• Citigroup will pay USD 285mln to settle SEC charges for misleading investors about selling CDOs related to housing market, according to SEC
• Citigroup's main US broker-dealer unit misled investors about USD 1bln CDO tied to US housing market, in which Citigroup bet against investors.

It is unclear if the money used will be courtesy of FDIC-backed TLGP notes still on Citi's books. Either way, justice is now "served."

About a year ago, we wrote an article titled "How HFT Quote Stuffing Caused The Market Crash Of May 6, And Threatens To Destroy The Entire Market At Any Moment" in which we advanced the proposal, first suggested by Nanex, that while High Frequency Trading was the primary reason for the May 6 flash crash, it was a specific aspect of HFT that permitted the Dow to drop 1,000 points in the span of minutes, namely "quote stuffing", or the process of blasting millions of bids and offers without and interest in executing a transaction, merely as a fishing expedition to isolate any "whale" orders and to front run them, making a few guaranteed cents in the process even as this materially distorts true market depth, liquidity and overall stability. And while we were not surprised that the toothless, incompetent and corrupt US securities regulator did take a passing interest in the issue, the topic of "quote stuffing" has finally attracted the interest of US prosecutors. From Bloomberg: "U.S. prosecutors have joined
regulators’ investigation into whether some high-speed traders
are manipulating markets by posting and immediately canceling
waves of rapid-fire orders, two officials said...Justice Department investigators are “working closely” with the Securities and Exchange Commission to review practices “that are potentially manipulative, like quote-stuffing,” Marc Berger, chief of the Securities and Commodities Task Force at the U.S. Attorney’s Office for the Southern District of New York, said today at an event in New York." But, the traditional red herring justification for this criminal behavior goes, they provide so much liquidity which would forever be gone if it weren't for the high freaks.

The Securities and Exchange Commission today announced insider trading charges against a Westport, Conn.-based business consultant who has served on the boards of directors at Goldman Sachs and Procter & Gamble for illegally tipping Galleon Management founder and hedge fund manager Raj Rajaratnam with inside information about the quarterly earnings at both firms as well as an impending $5 billion investment by Berkshire Hathaway in Goldman.The SEC’s Division of Enforcement alleges that Rajat K. Gupta, a friend and business associate of Rajaratnam, provided him with confidential information learned during board calls and in other aspects of his duties on the Goldman and P&G boards. Rajaratnam used the inside information to trade on behalf of some of Galleon’s hedge funds, or shared the information with others at his firm who then traded on it ahead of public announcements by the firms. The insider trading by Rajaratnam and others generated more than $18 million in illicit profits and loss avoidance. Gupta was at the time a direct or indirect investor in at least some of these Galleon hedge funds, and had other potentially lucrative business interests with Rajaratnam.

So much for quant trading being an innocent program that can never do any harm. After a year ago AXA Rosenberg disclosed that it had kept its clients in the dark about a massive error in the computer code of its "quantitative investment model", today the SEC fined the  one time asset manager of over $70 billion with a record for its kind fine of $242 million. As a reminder the immediate effect of the error when first reported was the major underperformance of the fund compared to its peers: "A number of the funds managed wholly or partly by AXA Rosenberg performed poorly last year." Yet what supposedly did not alert the firm that anything was wrong was that the system was performing in line with other comparable models: ""It wasn't obvious if there were any problems or
any impact from this error on our fund because it followed a similar
trend to other quant managers," Vanguard spokeswoman Rebecca Katz told
Reuters on Saturday." In other words, it is safe to assume that other AXA peers have or had been operating with comparable system flaws, yet due to the SEC's preoccupation with porn, had never been caught, and as a result investors in such funds may have well been fleeced of millions due to comparable uncaught computer glitches. So much for robotic efficiency, especially when coupled with a human's eagerness to engage in willful securities fraud...

How is the government STILL bailing out the giant banks? Let me count the ways ...