The Aguirre document is stunning, in that it echoes and reinforces every comparison I've made to the abuse of the market and investors by stock "pools" and their operators in the 1920's, and the current abuse being propagated by the new stock pools and their operators - hedge funds.
The irony is that the SEC was set up specifically due to the abusive actions of these anonymous, unregulated pools. And now, it is apparent, that agency has become a lackey and an enabler, for those it was intended to police.
Does this surprise anyone?
Readers of this site have known for some time that hedge funds enjoy a special impunity from scrutiny. I've blogged on the "lucky" purchase of many millions of dollars of put options by Rocker Partners in NFI just days before the massive takedown triggered by the WSJ article, which serendipitously served as the basis of the Milberg suit 36 hours after the article's publication - events that have no satisfactory innocent explanation - and yet there is no SEC action. The NFI-Info.net site has a whole section devoted to obvious stock manipulation in that company's shares, and no action. Hundreds of complaints about that issue have been sent to the SEC, and no action.
Finally, we have an SEC staffer explaining why that is.
Given the explosive nature of his copiously footnoted and supported allegations, I can make some predictions as to what will happen next.
We will see a massive media campaign designed to discredit him. That is a given. It is precisely how the administration, and the S&L industry, responded when Ed Grey, the regulator who was trying to avert one of the largest financial scandals in our history, tried to sound the alarm about the rampant illegality occurring in the S&L field. He was called a kook, a malcontent, was accused of cheating on his expense account, lambasted as incompetent, stupid, vindictive, jealous, and dishonest.
All turned out to be false. All were trumpeted as though established fact by the NY and Washington media.
And all because big money was in danger of losing it's hall pass on looting the nation's thrift industry.
With the Aguirre document, we have an articulate, erudite, and well-informed explanation of how the prime brokers, which have whole divisions that are really hedge funds themselves, assist their hedge fund customers in stock manipulation, racketeering, insider trading, fraud....and the SEC does nothing, specifically because the personnel there at the management and higher levels are co-opted by the bad guys.
That can't be left to simmer. There has to be an immediate twisting of Aguirre's charges, while simultaneously smearing him.
We've seen some early examples, not surprisingly from Jeff Mathews, and from several papers - NY financial press, of course - who are labeling him as a pariah, his charges sour grapes, exaggerations, impossibly silly distortions. We've heard commentary that obfuscate the SROs sending a multitude of complaints to the SEC, which go ignored. Nobody wants to tackle his very specific allegations involving his work-related exposure to institutionalized fraud from the brokers and the hedge funds. Nor do they want to consider his easily verifiable allegations about his termination. Even guys like Harvey Pitt, who HAVE to know how deep this goes, pretend ignorance and surprise.
All expected.
The system tends to use the same tactics when threatened, every time.
So what else do I foresee? Well, if Aguirre's letter is truth, it means the end of the SEC - his document describes an agency so badly broken, so corroded with the cancer of larceny, as to be irreparable.
The powers that have worked so hard to co-opt the top folks there won't allow that dismantling of the Commission to happen easily - the danger being that an honest, effective agency could take its place, which would end several decades of rampant theft and such. That won't fly, so I fully expect a full court press to reassure the public that the SEC is good and honest and true, and that this is all silliness.
I would also expect smokescreen hearings by those whose interests align with Wall Street's - the best way to limit the fallout is to be in charge of the "investigation". To sanctimoniously insist that you are "monitoring" the situation, all the while working furiously for interest in it to die down. Think the Keating Five were bad? Expect far worse from those whose job it is to watch the watchers. Again, you don't kill hearings into naked short selling for no reason, and it's not like hundreds of letters haven't hit advising you of this problem - all ignored.
Which is why I don't think we will see what we need - a special prosecutor, with no ties to Wall Street, immediately named and a full, public, open investigation commenced. No, instead, expect secretive investigations by those who want to appear to be taking action, and yet in reality are part of the corruption problem - and they will fight any move towards a fair, open investigation, as their own complicity might well be exposed.
We might see a token few VP level guys at the brokers take bullets, maybe also some low-man-on-the-totem-pole, expendable research grunions sacrificed - all of which will be used to trumpet that the problem is now solved, a dark period has been dealt with, and that we need to move forward, not look back, focus on solutions, not apportioning blame. Key will be that few or none of those defrauded by the miscreants will see any of their money back - that is guaranteed. The money will stay with the miscreants, and the theater will be pomp and ceremony to ensure that the cheap seats believe something is being done.
I would expect if it really gets away from them, to see Congress step in, and pronounce that the banks are too "important" to be held accountable for their illegal behavior, and for taxpayers to somehow be stuck with footing the bill for hundreds of billions of liability emerging from the unwinding of the larcenous, interconnected schemes. Wall Street actually securitized the bill for the S&Ls, so they not only made fortunes acting as enablers for the crooks in that case (via selling junk bonds to S&Ls with an endless appetite for that paper) but further made money off the taxpayer liability/bailout. Wall Street NEVER loses any real money in these scandals.
Never.
Want a model for the sort of pardoning of the looting of America I'm discussing? How about exactly how the SEC behaved, when it abruptly pardoned any requirement for miscreants to ever deliver the unknown huge number of shares for which they were paid, and yet never delivered - why would you pardon the systematic defrauding of investors, robbing them of their property and voting rights, unless you were on the side of the bad guys? Answer: You wouldn't. And now the Aguirre document illuminates how that can happen. Again, no surprises, but rather confirmation that big money can buy whatever it wants - a matter of price, not possibility..
The ensuing "work-around" won't be fair, or right, and it will be obvious as a land grab, but unless we understand what is being done, we can't do anything to stop it.
So here it is, in plain language: The people that run the financial system - Wall Street - own most of the Beltway, as well as much of the media. They are not going to allow naive ideas like the rule of law, or accountability, or fairness, interfere with the looting of America. They will do everything in their considerable power to maintain the current abomination that is our market system, and its compromised regulatory arm, and will lie, cheat and steal to maintain their stranglehold.
And we are the only thing standing in the way of their being successful at it.
There is a light at the end of this tunnel, though. In 1934, our forefathers understood what they were dealing with, and passed a sweeping series of rules designed to rein in the bad guys. For a while, that worked, but as with all things corruptible, over time, big money found a way to corrupt it. Now we stand at another crossroads, where we have the opportunity to change things in a way that can make it safer for individuals to invest in the markets.
The only ones that will be opposed will be the compromised agency, the compromised elected officials, and Wall Street, including their bought and paid for media.
I was discussing the newly filed NFI suit with an attorney friend of mine, who was awed by the timing of the suit, and the exposure of the Aguirre document. That suit, brought by a group of NFI shareholders, specifically targets the prime brokers and the specialist for precisely the actions described in the Aguirre document. The industry's only defense can be that it didn't happen, or can't happen - and yet, here, from a completely different source, is confirmation that not only does it happen, but that it is standard procedure.
I would expect all sorts of stalling and hijinks out of Wall Street in that suit, as it is literally a textbook opportunity to see if what we have been hypothesizing, actually occurs.
I expect, that when discovery is finally granted, we will see a deliberate, systematic policy at the prime brokers and the specialist to destroy individual investors, so that powerful hedge fund customers can profit after making a disastrous mistake in shorting that company. I expect that the NYSE will be shown to have been complicit, as I know of a multitude of complaints sent to that SRO alerting it to the damaging trading, and further know that the NYSE told everyone that there was nothing to be suspicious about. I believe they will be sued as well, once their role in covering-up the larcenous trading of the specialist and the brokers, on behalf of the hedge funds who targeted the company becomes known - creating a huge liability of RICO proportions, for colluding with a disparate cartel of brokers and hedge funds and market makers. I believe that as a public company, they are going to get their heads handed to them by class action attorneys eager to recover triple damages.
And I expect that Wall Street and the media will insist that none of the above is happening, even as the jury is deliberating. Call that a hunch.
Now, we can make a difference, by ensuring that the popular press gets involved, and starts asking hard questions about how Wall Street can be so profitable even as the market is flat, IPOs are lackluster, and investment banking is down. How do they do it in a lousy market - where do the record profits come from? Aguirre's answer is from aiding and abetting hedge funds who steal from everyone else in the market - individual investors, companies, mutual funds.
Selling product without delivering it is a good gig - no cost of goods sold, other than a budget to buy regulators, elected officials and the press. Probably only 1% of the dollars generated would make an Abramoff drool with delight. If you can convince the regulators who should be arresting you to look the other way, and run lots of ads, and sponsor articles insisting that putting your money into the market is a wise move...why, it is the perfect crime. And the money is so outsized, that even when the regulators charge you a token amount in order to keep a pretense of enforcement action alive, it amounts to pennies.
Read the Aguirre document if you haven't already. And then consider that there is a Senate hearing on hedge fund corruption focused on the link to bent researchers. And then ask yourself whether it might not be a good idea to bring the document to their attention, and demand action. A special prosecutor would be a good start. Someone like Aguirre would be a good choice. Someone with no ties to Wall Street is a must. And someone that can't be bought or threatened would be a necessity.
What do you do when the cops are bent, the mayor is a crook, and your retirement dollars are being stolen out the back door of the bank by its owners?
That is really the question.