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SEC To Investigate Trades Based On S&P Downgrade Inside Information
While the president makes yet more speeches about how the time to leave the past behind us is now (while newly scapegoating Europe for the economic catastrophe), the sniping war against S&P continues, only this time with a twist. According to the FT, the SEC has asked the rating agency to disclose who at the company knew about the downgrade, "as part of a preliminary look into potential insider trading." The funny thing is that while the answer will be everyone, even in that case the SEC will end up doing nothing as it always 'does' (pun intended), and the whole process is nothing but a sham to humiliate the rating agency. "The inquiry was made by the SEC’s examination staff, which has oversight of credit rating firms, one person familiar with the matter said. The exam staff can make referrals to the SEC’s enforcement division if it believes any laws have been violated, but the inquiry might not result in a referral....Proving someone leaked information about the downgrade, or traded ahead of it, could be challenging. Many traders anticipated the downgrade and bets could occur across numerous securities or currencies without inside information. In a traditional insider trading case, there is often a more predictable correlation between a company’s stock price and a particular development." Of course the next question is what is the null hypothesis: that leakees would buy or sell bonds based on the info? Because the natural response would be to dump treasuries even as the real outcome was a plunge in equities and a scramble to safe one-ply paper. So is PIMCO about to be charged with insder trading for having sold 10 Years even though in reality the spread tightened by a record 60 bps in the following week?
So instead of going on yet another wild horse chase, in which the simple defense is that all those who traded on the leaked downgrade report, actually lost money, how about doing some real work and finding out if some of the numerous politicians who were certainly privy to the data, and for whom insider trading regulations are ineffective, did not by some odd chance spill the secret to their significant others.
Which brings us to the inverse case, already discussed previously on Zero Hedge, when we learned about two months ago that after Moody's had leaked the fact that it would not downgrade the US, one of those who found out was Nancy Pelosi. This inspired us to ask whether it was not so much Ms. Pelosi, but local financier and multi-millionaire Paul Pelosi who may have traded on said information.
For the benefit of those who may have missed it, we recreate the full piece below, and in doing so we ask the SEC to perhaps investigate and pursue cases which are a little easier to prove and prosecute, instead of going on yet another worthless and time-consuming wild goose chase that will inevitably result in absolutely nothing.
From Zero Hedge, June 2, 2011
Moody's reputation for leaking inside information is well-known: after all it was one of its own employees, Deep "Throat" Shah, who leaked to infamous hedge fund Galleon information of upcoming LBOs. But at least that wasn't information originating from Moody's: the world's most incompetent rating agency was merely a conduit. Yet we were little surprised to learn that the firm that facilitated the housing bubble, and where such talking head apparatchiks as Mark Zandi reside, informed none other than House Minority leader Nancy Pelosi that it likely wouldn't downgrade the US debt as long as several weeks ago. Per Dow Jones: "Moody's earlier Thursday took the unusual step of warning that it might place the U.S. government's debt rating under review for a possible downgrade. The agency said the review would come if Congress doesn't make progress on raising the country's debt ceiling. Pelosi said she was alerted to the Moody's report just after House Democrats met with President Barack Obama at the White House. She said a few weeks ago she was in New York and the head of Moody's told her that it "would probably not downgrade, so this is interesting news today," she said. "But the fact is we cannot default" on the debt." We are relieved to learn that the head of Moody's, a firm which only last summer received a Wells Notice from the SEC, in an investigation which was promptly scuttled by powerful and rich people, takes its responsibility of protecting material, non-public information with such passion. Yet it is the topic of another leak of non-public information, and not Moody's criminal incompetence, that bothers us. Because as we noted last week, it is now proven scientifically that members of both Congress and Senate (especially democrats), tend to trade a littel too much on inside information. And even if not Ms. Pelosi, who precisely will guarantee us that Ms Pelosi's husband, multi-millionaire Paul Pelosi who just happens to be the owner of Financial Leasing Services, Inc., a San Francisco, California-based real estate and venture capital investment and consulting firm, did not procure the Moody's inside information courtesy of wagging tongues at Moody's and in his wife's mouth, and then proceed to trade accordingly. Alas, with the regulator in charge being the same one who let the whole Moody's investigation get deadended in record time, we are not hopeful of getting any information or justice. Ever.
From Dow Jones:
Pelosi said she was alerted to the Moody's report just after House Democrats met with President Barack Obama at the White House. She said a few weeks ago she was in New York and the head of Moody's told her that it "would probably not downgrade, so this is interesting news today," she said. "But the fact is we cannot default" on the debt.
When pressed a few minutes later about what Moody's told her, Pelosi said the ratings agency told her they "might not" downgrade the country's debt.
The country is set to default on its debt by Aug. 2 if Congress doesn't agree to raise the government's borrowing limit. Pelosi said all Democrats agree a default would have devastating consequences for the economy.
A downgrade of the government's debt could increase the country's borrowing costs.
And a little more on the mysterious Mr. Pelosi:
For more than 20 years, Paul Pelosi has been able to stay in the shadows, even as the millions he has made as a successful San Francisco financier and businessman have helped fuel the political career of his wife, Nancy.
"I've made a conscious effort to not be involved or give the appearance of being involved in her political career," he told The Chronicle in 2004. "People should realize that she's the one.
But the couple's net worth, most of it linked to Paul Pelosi's investments, has made the legislator the ninth-richest person in the 435-member House.
The family money, along with the many business and social connections Paul Pelosi has brought to their 43-year marriage, gave Nancy Pelosi the financial independence she needed to spend long hours doing unpaid Democratic Party business in the 1970s and 1980s. Since she was elected to Congress in 1987, it has also added a degree of comfort to her life in Washington, where she has a $1 million-plus residence and a lifestyle that doesn't depend on the $212,100 annual salary she will receive as speaker.
"Having a Town Car pick you up is way better than Yellow Cab," said Joe Cotchett, a Burlingame attorney and Democratic fundraiser who is a longtime friend of the Pelosis.
"Frankly, it's a copout to say, 'My husband makes the money,' " said Peter Schweizer, a fellow at Stanford's Hoover Institution whose recent book "Do as I Say (Not as I Do): Profiles in Liberal Hypocrisy" contains a chapter on the Pelosis.
In fact, Nancy Pelosi's most recent financial disclosure statement shows just how careful Paul Pelosi has been in his investment decisions. Because the federal statements require a politician to give only a range of value for investments, they show the Pelosis' net worth was $14.7 million to $55 million in 2005, ranking them ninth in the House and 17th in the entire Congress.
The bulk of the Pelosis' money comes from investments in stocks and real estate. Operating through Financial Leasing Services, his San Francisco investment firm, Paul Pelosi owns stock in companies including Microsoft, AT&T, Cisco Systems, Disney, Johnson & Johnson and a variety of tech stocks.
Real estate investments include a four-story office building at 45 Belden St. in the Financial District, office buildings on Battery and Sansome streets near the Embarcadero, a building housing a Walgreens drugstore near Ocean Beach and other commercial property in San Anselmo.
Other investments include a St. Helena vineyard worth between $5 million and $25 million, a $1 million-plus townhome in Norden (Nevada County), and minority interests in the Auberge du Soleil resort hotel in Rutherford, the CordeValle Golf Club in San Martin, and the Piatti Italian restaurant chain.
Yes, something tells us Mr. Pelosi would make quite a few financial decisions were he, like his wife, to know weeks in advance of the general public, what Moody's intentions vis-a-vis America's sovereign rating were...
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Will they be investigating the trades pre-9/11 also? hmmmmm...
Only if Jews weren't involved, I won't hold my breath.
I am not Jewish
http://www.youtube.com/watch?v=U_-8cqD4BWU&feature=channel_video_title
Joe Lie-ber-man surely has made a bundle. And don't forget Eric Cantor, who they say is/was short U.S. Markets.
It's always nice to vote your wallet. Eh.
More circus, is the "bread and circuses" vein. Another tail to wag the dog. more distraction. Who really gives a shit, one way or the other?
Will they be looking into Government officials as well? Oh, right, insider trading is legal for them.
Bad News for the Consumer Internet "Revolution":
July U.S. Video Game Sales Fall 26%;
U.S. retails sales of video games hardware, software and accessories fell 26% in July from a year ago, in what was the worst month for the industry since October 2006, according to market research firm NPD. Overall sales were $707 million, down from $961.3 million in the same month last year.
Hardware sales were down 29%; software sales were down 17%, or 30% if you include PC games as well as console games. Accessories were down 8%.
http://www.forbes.com/sites/ericsavitz/2011/08/11/july-u-s-video-game-sa...
So because sales are plunging, as if on cue, just to demonstrate how disconnected Wall Street valuations are from reality (for purposes of profit and fun pumping, before dumping on the unsuspecting public):
Angry Birds’ Maker Seeks $1.2B Valuation
Rovio Entertainment Oy, the Finnish creator of the “Angry Birds” mobile-phone game, is in talks to receive funding that would value the company at about $1.2 billion, two people with knowledge of the discussions said.
http://www.bloomberg.com/news/2011-08-11/-angry-birds-maker-seeks-1-2b-v...
There was a similar story out on Bloomberg radio about a nosedive of cable viewer subscriptions of premium category.
Cable companies blame it on Netflix, but Netflix had a DROP of relevant consumption in the same reporting period.
Bloomberg incredulously asked . . . is it possible that perhaps, is it even conceivable, that people may not have the money to pay for these things?
Exactly. I saw the article yesterday. No surprise there: conventional cable subscribers are canceling in numbers, also cutting down service. But worst hit of all are satellite cable providers. Also, even standard telecom companies like Verizon are seeing subscriptions drop. THe article mentioned a possible cause: too many people moving back home, reducing the need for extra subscriptions.
Totally anecdotal but over 60% of the Steam Store featured items for the last 2 weeks have been pre-order titles. Some as far out as 2 months. I have not seen that happen in the 2+ years I have been using Steam.
The correct response to this inquiry by S&P is to list all of the US Gov't officials who were informed of the downgrade, which will be every single White House and SEC staffer of every official who tried to talk them out of it. Then release that list publicly to major media outlets as people possibly guilty of insider trading and recommend that they retain lawyers, at their own expense.
When the SEC repeats its request for a list of S&P names aware of it, respond that all employees may have known and anyone who did posted the information to the internet.
Totally spot on, because then you will find exactly who was behind the insider trading, which is exactly why these investigations disappear quietly into the sunset.
calling HUAC! HUAC, do you copy?
senator macarthy! paging senator mccarthy! please pick up any white courtesy phone please, line 2, senator. senator joe mccarthy to any white courtesy phone, please...
on Thu, 08/11/2011 - 19:45
#1552531
"calling HUAC! HUAC, do you copy?"
yo, slewie, dawg, you wandering around in that way back machine again, dude??? huac and 'tail gunner joe' are prehistoric artifacts in the computer simulation that we live in now.
we don't need no stinkin' huac here...that's what facebook is for....................
I'm sure the S&P encrypted the downgrade the usual way for the SEC . The SEC just need to learn how to listen more closely to the midget in the background of the money shot scenes .
IBM salutes Apple by declaring the PC era over:
Of all the companies to turn on the PC, you'd think ol' Big Blue would be last. But no, it looks like one of the engineers who helped design IBM's very first personal computer three decades ago is celebrating the anniversary (this Friday, August 12th) by announcing something of a paradigm shift: his main computer's now a tablet.
http://techland.time.com/2011/08/11/ibm-salutes-apple-by-declaring-the-pc-era-over/#ixzz1UlchHXP4
Why they do this bullshit all the time? People never get their lost money back.
More "Good news" for Cramerica's Consumer Internet "Revolution": Twitter Braces for U.K. Censorship Following the Riots
http://www.theatlanticwire.com/global/2011/08/twitter-braces-censorship-...
yeah. they arrested four "social media instigators" as well. Hmmm. I wonder where they got that idea from.
How about all of the Whitehouse, half of Congress.
The SEC is in a battle to be rated most corrupt and incompetent regulatory body in the world. The CFTC is giving them stiff competition on that score.
According to Dow Jones:
For the first time in its history, the #DJIA has closed with a net change of 400 points or more for four consecutive days.
DJIA has had 6 consecutive days of 400+ point high/low swings (549.05 pts today) - last time this happened was 6-day period ended 10/29/08.
The DJIA has changed directions each day for the past seven sessions.
The hit job being done to S&P is hilarious. I wouldn't be surprised if the whole company didn't exist very soon. Just goes to show you what happens when you challenge the power structure.
Just saw a pic of a realitve of mine who works at S & P, Marine 1 landing at S & P hellipad in NYC!
I think the investigations have more to do with the meetings with top banks just prior to the release Tyler;
"Banking industry executives interviewed by FOX Business say Standard & Poor’s held a series of meetings with executives of some big banks late last week, in which executives and rating agency officials discussed what the impact of a downgrade of the U.S. treasury bond might mean for the banks' own credit ratings.
One senior banking executive said meetings occurred Thursday and Friday; S&P assured officials that a downgrade of U.S. government debt would not necessarily lead to a downgrade in bank bonds even though banks have relied on unprecedented assistance from the government following the 2008 financial crisis, and a downgrade could squeeze the financial markets, the executive said.
The executive also said the heads-up by S&P served two functions: to assure banks that their ratings were not to tied to the government's, and also to prepare them for a pending downgrade and the impact that might have on the markets.
That preparation could have led to massive trading-desk speculation that began Friday morning before S&P had finally decided to slash its Triple-A rating on U.S. debt, something it had been debating for weeks. The speculation shook the markets, traders said. Despite positive economic news with the unemployment rate falling to 9.1% and the Labor Department announcing that the country added 115,000 jobs, the stock market fell from its initial highs in daily choppy trading.
By the end of the day the Dow Jones Industrial Average rose just 60.93 points, after losing 512.76 the day before based on market talk that the jobs picture would be worse than expected.
Traders at major Wall Street firms and major investors told the FOX Business Network that S&P's announcement Friday night, hours after the close, that it had downgraded the U.S. debt didn’t come as a surprise.
“We were well aware that something was likely to happen,” said a CEO of a major money management firm. “Our trading desk felt confident that S&P was about to pull the trigger.”
A Standard & Poor’s spokesman would not deny that the ratings firm held meeting with banks on Thursday and Friday, and declined to comment further."
Good post. Bankers win...again.
Since accounts of downgrade-Friday's timeline detail ongoing dialogue between S&P and the White House and Treasury, why is it that the SEC presumes that the only potential source of a leak would be the rating agency? Let's have a look at little timmie's phone records while we are at it.
Jesus Fucking Christ! When is the SEC going to do anything else? I mean there have been shit tons of things going on that could be investigated! Same with the CFTC and gold and silver manipulation!
Exactly! That's the idea... too much to handle appropiately.
Obama's message of "Hope and Change" is now coming to fruition as I now hope he changes his message from finger pointing and ascerting Republican incompetence and not willing to comprimise. Funny it's only comprimise when they bow to the Dear Leader's will. I can't say that he's wrong about the incompetence but I voted in hopes that he would change the incompetence of government. Somehow he and his administration have managed to take incompetence to a new level that I didn't think existed. I never thought anyone could make me think Bush was anything more than Mr. MaGoo but he manages to somehow make the Bush admin somehow less incompetent. I can't believe I wrote that. Obama has changed nothing, other than escalating the notion that Washington is nothing more than a swamp best left to mesquitos. Of course Congress doesn't help but the idea that the Republicans are the root of Congressional stupidity is ludicrous. Total control for two years and essentially 2/3rds control now and yet they somehow stand in the way of his brilliance. What does it say for him that Republicans continue to outsmart and thwart his briliant policies that would lead to the return of America to it's former glory. If there were a viable candidate he wouldn't have to hope for change. He's lucky that there appears to be no alternative. He certainly won't go down as the Jackie Robinson of president's that's for damned sure, though the media has tried from day one to make him out to be some great leader.
Aw, come on. DC has the best home price performance in the country. Gotta be doing something right.
You have it all wrong - it's all the tea party's fault. Dammit, look at the big fucking mess those hand full of duly elected people have gotten us in to in one short year. Hell we have people in DC for 10,15,20 years working on making things better and these douches come in and eff it all up in a year. And they are only a teenie weenie minority.
Not even a full year. They must be mental giants to outwit him and his minions.
Yep. But nobody loves the tea party. Liberals obviously don't, but modern day 'liberal light' republicans are scared of them too and all too happy to toss them under the bus unfortunately.
Collusion in order to keep the so called "two party system" in which they are all just one giant wad of man goo circling the wagons with media's aid to keep the status quo which just happens to be all for their benefit, America and it's people be damned.
more like the "nil hypothesis." only in America could you be charged with losing money on a trade. In a way however....it could be considered "bad for the economy." ARREST BILL GROSS. DEMAND HE DO BETTER!
Situation normal, all fucked up. This is not an investigation. It's a witch hunt, political punishment, public demonization that will likely take the form of slander and libelous pronouncements, promulgated with the sole intent of destroying the political malefactor for calling "Bullshit". And not upon the financials, but upon the Very Naked Wizards Behind the Curtain. The Empire Must Prevail.
Simple confusion of power and leadership, dear Doctor. Credibility problem writ large.
Yep... the powers that be are trying to smear S&P indirectly.
If we all weren't so damn greedy, and would have coughed up $14 or $15 trillion more of our dollars in taxes, this whole downgrade and everything could have been avoided. Too many people keeping and spending their hard earned money as they see fit - there's the problem.
What a joke. Once Daley knew, the Street knew. Ask Holder to prosecute like he did the Black Panthers for election obstruction.
SEC? Waaaaaa. Rotflmao
Bill Daley? Aw he's as honest as the day is long for fucks sake. Us people in Chicago know what a fine upstanding group them Daley's are!
The Jews tried to kick US butt. Are there Jews working in S&P?
Nah, mostly Paki's and a few Indians.
how many maids did S&P rape.. I mean rate?
Armstrong released a scathing report earlier today regarding this same topic. ZH, adds nice spin w/Pelosi angle. Folks should read Armstrong's latest.
Should I be concerned that a tracking cookie named .egh-standardandpoors.hitbox.com has been detected?
i'm betting that the SEC doesn't do jack shit; they are merely the intermission show. Tyler's spot on in calling it a sham.
people have been clamoring for the Teahadist's heads for the S&P downgrade, when we all know that AA+ is still far above what the rating on the debt should be.
even the common worker bee is finally waking up to the fact that they're being fleeced and dare i say that some of them are even starting to see through the partisan smokescreen bullshit that's shoved down their throats daily.
Translation: We will continue to grasp at straws until the camel requires back surgery!
the monetary revolution is brewing at www.silverrevolucion.com
Yeah, they will find out a guy named Madoff has been operating a huge Ponzi-like operation.
Aside:
Please explain the pun to a non-native english speaker - is it a play on doves as in doves and hawks?
@Anyone:
if u r talking about “doing nothing as it always does (pun intended),” I think TD’s simply highlighting the oxymoron inherent in the phrase "doing nothing”, the "doing” implying that there will be some result, but “nothing” indicating it’s all really non-action, or at best just going through the motions so non-ZHers will think something is actually going on related to the laws they are charged with enforcing. (Doing and does are different forms of the same verb, “do”). And given the SEC’s track record over the last many years (porn viewing on company time, Madoff given a multi-year pass, completely missing the rampant fraud committed by everyone involved with the rating and selling of securities bundling subprime loans, and general refusal to bite the hands that will feed the staffers when they decide to leave (also known as regulatory capture), “doing nothing” pretty much sums things up. Actually, they have accomplished something that still surprises me, having grown up believing the SEC was dedicated to serving the public with integrity: undermining the confidence of people in their regulatory institutions.
Maybe the SEC should look at all of the allegations surrounding the S&P downgrade from: trying to influence the government on the Dodd/Frank regs on rating agencies, to the downgrade being a business decision to influence the Europeans who threaten to create their own rating agencies, to the downgrade being politically motivated and finally to leaking the downgrade early to private parties who successfully bet heavily by front running the decision. Investigate it all.
Next, force Congress to stop trading on insider information. It is absurd that they can legally trade on what they know will be new law or regs that effect the market.
SEC should be carefull. SOROS, Buffet, Paulson are in the rabbit hole looking up on this trade.....
So everytime a bank pulls a credit rating history on. Simply investigate them for using insider information. Oh wait wrong insider.