On Wall Street Crime Pays - A 350% IRR To Be Exact

Tyler Durden's picture

Previously we showed that when it comes to Wall Street's returns, the 8% market return benchmark that every first year analyst finds in Ibbotson's is for naive amateurs. With corporate lobbying returning anywhere between 5,900% and 77,500%, the real money is to be made in the buying and selling of politicians. Yet in our day and age, when information propagates rapidly and when political muppets can be exposed for the Wall Street purchased frauds they are, lobbying is getting increasingly more complicated. Which leaves one other high returning "investment", which unlike lobbying is completely riskless when one is a Wall Street firm: crime. But not just any crime, the type of crime where a firm settles "without admitting or denying guilt" and in the process is slapped with a fine that barely covers the government's legal fees. Case in point: U.S. v. Morgan Stanley, U.S. District Court, Southern District of New York Case #11-6875, where MS was punished with the epic disgorgement penalty of $4.8 million. Of course, the fact that Morgan Stanley, who did not admit wrongdoing, generated profits of $21.6 million, is merely a triviality. But a useful one: it allows to calculate that on Wall Street crime does pay, and the IRR is in give or take 350%.

This is what happened:

Morgan Stanley (MS) won approval of a $4.8 million accord with the U.S. over claims it helped manipulate electricity prices, in what the Justice Department called its first effort to get disgorgement from a financial firm that used derivatives to aid anticompetitive behavior.


In accepting the agreement, U.S. District Judge William Pauley in Manhattan turned aside complaints from a not-for- profit organization that Morgan Stanley didn’t admit wrongdoing. Pauley, citing the Justice Department, said the case marks the first time the government filed an antitrust suit against a financial firm involving derivative agreements.


Disgorgement of $4.8 million is a relatively mild sanction,” Pauley wrote. “But despite this court’s misgivings, the government’s decision to settle for less than full damages is entitled to judicial deference, particularly in view of the novelty of the government’s theory.”

The ever efficient US government did such a bang up job it could not even get Morgan Stanley to admit guilt. But at least it paid up... a full 25% of what it made in profit as a result of the crime:

Critics of the settlement sought an admission of wrongdoing by Morgan Stanley and said the New York- based firm should have been required to pay the full $21.6 million it earned to settle claims it aided efforts by Brooklyn, New York-based KeySpan Corp. to manipulate electricity prices.

Of course, by now a red light should be going off at the memory of a firm caught manipulating electricity prices and using any and all Wall Street inspired derivatives at its disposal to engage in anti-competitive behavior. The memory of course is of a firm called Enron, which promptly liquidated after being crucified in a court of public law. Naturally, when it comes to Wall Street corporations, which by now are fully in control not only of the legislative but the judicial branches, the best one can hope for is that the profit said firm makes at the final ruling is not enough to cover the deal team's bonus... assuming 1,000,000% inflation.

As for the punchline:

This settlement should send a message to the financial services community that the antitrust division will vigorously pursue anyone who engages in anticompetitive conduct in the derivatives industry,” Gina Talamona, a Justice Department spokeswoman, said in an e-mail statement.

It is unclear if the proper response to this idiotic statement is crying or laughter.

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Tippoo Sultan's picture

"I need a man who has powerful friends. I need a million dollars in cash. I need all of those politicians that you carry around in your pocket, like so many nickels and dimes."

-- Virgil Sollozzo, CFA


LouisDega's picture

OUT - FUCKING - STANDING , Pvt. Tippoo... A thumbs up

-- Gunnery Sergeant Hartman, Gunnery Sgt.


AldousHuxley's picture

What's IRR of someone who has 15 children and supported by welfare.

Somebody NEEDS to pay for all of my children




Time to do it like the Chinese....YOU PAY for each kid otherwise you go to labor camp and work.

SomebodySpecial's picture

Financial Fraud Conviction Scorecard:

Bush: 1300+, Clinton: 1000+, Obama: 0.0 (+/-)

Pitchfork says: "Yesterday I hinted that there would be more this week on cronyism and corruption within the DOJ as it related to Wall Street non-prosecution, and it has now arrived."

From the daily bail...Here's the (pdf) report from GAI:

Justice Inaction - Department Of Justice’s Unprecedented Failure To Prosecute Big Finance

midtowng's picture

If the government hadn't stopped enforcing anti-trust laws back in the 1980's we wouldn't be in this mess.

bugs_'s picture

gina talamona

Racer's picture

For ZH to look at, ... is there  a penis 'thrusting' algo?

on the chart ooks like a couple of balls one rounded and bigger lower than the other smaller rounded one,  then ... yeah you get it...

I don't participate in this fake market but am very concerned for my unborn children .....

that they are being raped before they are even born

LeisureSmith's picture

I think you left out laundering money for the international drug cartel(s). http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-c...

Wachovia admitted it didn’t do enough to spot illicit funds in handling $378.4 billion for Mexican-currency-exchange houses from 2004 to 2007. That’s the largest violation of the Bank Secrecy Act, an anti-money-laundering law, in U.S. history -- a sum equal to one-third of Mexico’s current gross domestic product.

LeisureSmith's picture

Yea, it's old news but i think it is worth bringing up from time to time. I'ts not like they have stopped doing it, and from what i have heard there is more to the drug trade than coke and stale weed from Mexico. "Afghanistan" has it's own near monopoly on a popular substance with almost limitless supply. ROI to die for, literally.

Dr. Engali's picture

Shit they can probably find 4.8 million in the petty cash box.

Hype Alert's picture

So, IF you get caught and IF you are taken to court and IF they have enough on you to, you can settle for 25% of the proceeds.  Why wouldn't banks do this?

Amish Hacker's picture

This sort of ruling does send a message to the financial services industry: Use a gun, go to your room.

Rasna's picture


This settlement should send a message to the financial services community that the antitrust division will vigorously pursue anyone who engages in anticompetitive conduct in the derivatives industry,” 


hahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahaha!!!... Gina, STOP IT!... You're killing me (ROFLMAO!)... Wait... Go Get Jaime and Timmah...


Gina, say it again,


This settlement should send a message to the financial services community that the antitrust division will vigorously pursue anyone who engages in anticompetitive conduct in the derivatives industry,” 


hahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahaha!!!... Guys... hahaha... Guys, she was serious!... hahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahaha!!!...


Gina, You gotta tell this one to Holder!...

buzzsaw99's picture

"they" hire friends and family of politicians and hire them for lobbyists too but still congreffcritters sell out for peanuts. the billionaire's club laughs at them daily. shine my shoes honorable peon. lulz

FieldingMellish's picture

"It is unclear if the proper response to this idiotic statement is crying or laughter."


Crying. As Bob Dylan said: Bury the rag deep in your face, for now is the time for your tears.

fuu's picture

How is Andy doing these days?

tenpanhandle's picture

I guess this means that the Demo and Repub parties are the market places for futures contracts on corrupt politicians.  Currently I'm long R and shorting D.  Too bad America has to take delivery.

SolidSnake961's picture

proper response Tyler is crying OF laughter

eurusdog's picture

Perhaps the IRR can actually be measured on this one transaction, but the real IRR is infinitely large when you don't ever have to worry about rule of law.

Westcoastliberal's picture

Chump change fines like this are already built in.  They probably popped at least a dozen bottles of Cristal at the news.

slewie the pi-rat's picture

this guy is a fighter, but he doesn't always strike me the same way

speaking of arch-criminals, see whatcha think:>

Opinion: Neocons vs. the ‘Arab Spring’: Back on the Warpath – by Ramzy Baroud The neoconservatives are back with a vengeance. While popular uprisings in Tunisia, Egypt, Yemen and other Arab countries had briefly rendered them irrelevant in the region, Western intervention in Libya signalled a new opportunity. Now Syria promises to usher a full return of neoconservatives into the Middle East fray. <: this is so insane it reminds me of a kind of religious fruitcake flambe', comrade BiCheZ...
NeedleDickTheBugFucker's picture

MS (and every other firm for that matter) looks at the disgorgement penalty as a tax-deductible operating expense which it budgets for in advance.  Make $21.6 MM, pay $4.8 MM in fines so you net "only" $16.8 MM pre-tax.

Theos's picture

I dare you to ask anyone on the street what the "NYC Unforced Capacity" market is. You will never find someone who knows what it is, yet they all are long the market. No shit they're going to get bent over backwards. They're 10 steps removed from the table, and the people buying on their behalf (utilities) dont give two shits about them, or are doing the manipulation themselves (Keyspan).

Gmoneyjr's picture

We need an old fashion gun fight. Remove congress. Let's start right here.

toomanyfakeconservatives's picture

Don't expect big firefights when the imminent MASS ARESSTS, the dissolution of the FED, and the virtual dissolution of the U.S. federal government takes place. Those guilty of pissing on the Constitution are mostly suit and tie types that will curl up in a ball and cry for their mamas and their lawyers when the handcuffs are slapped on them... http://tinyurl.com/cd5cyjo/

q99x2's picture

Shit. Cured me from spending my money on whores. I'm headed to Washington.

alien-IQ's picture

all you'd be doing is trading pretty whores that you fuck for ugly ones that fuck you.

you may want to reconsider.

Haager's picture

The problem is that you get fucked by several other guys before you get a chance to do that on your own.

alien-IQ's picture

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

Henry Ford

“What is the crime of robbing a bank compared with the crime of founding one.”

Bertolt Brecht

Ponzi_Scheme's picture

Lol... No wonder they all surf for porn at the SEC, FBI etc... Nothing else to do... Your parents must be proud.

Clint Liquor's picture

No kidding! The same with 'journalists', how can they look in the mirror and not puke.

toomanyfakeconservatives's picture

Journalists... or "J-whore-nalists"?

Clint Liquor's picture

How Crony Capitalists calculate profit:

The amount we stole, minus the piddly ass fine we paid when we got caught, equals our profit.

The easist way to rob a bank is to own it.

JR's picture

I’ve never seen anything quite this bad in terms of penalty. There’s such a thing as a slap on the wrist, but this is as if the penalizers actually were sharing in the crime.

And the crowning blow is that Morgan Stanley was able to admit no wrongdoing.

There are two parts to this crime. Criminal A takes the money by the manipulation and Criminal B comes along and takes a small percentage of it back in order to satisfy the corruption of the law.

Criminal B’s crime actually is a bigger crime than A’s.  Morgan Stanley cheated the people who were involved but the government regulators cheated the system by corrupting it.

Not only is this not a deterrent to further criminal activity but it is an encouragement to further criminal activity. Others will be encouraged that here is a way to make money.

This is the last chapter in the affairs of the current government. It’s very simple. When these stories that are so simple to see get into the mainstream, the steel of the government is melted;  the government no longer has the force of moral respect. It’s not a government any longer; it is a part of the crime.

The fact is that people are not this stupid when they are given the basics of the story. There’s no one on the planet who would agree that this is a punishment - when the benefits of the crime outweigh the liabilities.

The people will not support this kind of operation. Ms. Gina Talamona should not have said anything; such evident government complicity in the wrongdoing will bring the system down. When a country partners in crime, its people no longer respect the law or their government. It’s the same now when Congress has hearings – people don’t care anymore. The Congress has lost its credibility.

And right after a government loses its credibility, it’s overturned.

Dburn's picture

Uh, you forgot the Govt Bonuses of $33,000 per person per year. This settlement should cover the 100 people that worked on the case and leave enough for a ripping good time at their annual awards dinner in Hawaii. That's so we don't get all self-righteous about tax payer funded parties n shit.

Neo1's picture

The Great Tomato Bubble-how cental banks work

mharry's picture

Zero financial crimes Prosecutions by this administration, tells you everything.