The Case For A Special Prosecutor
The case for a special prosecutor in the matter of Gary Aguirre is clear. His stunning testimony, which outlined a methodical obstruction of justice by SEC staff, from mid-level management on up, calls for a thorough examination of the evidence. At issue are really two separate subjects: the evidence against Pequot and Mack, and the evidence of SEC wrongdoing.
When a branch of the government is up to no good, and its oversight is questionable, and it starts lashing out against whistle-blowers – it’s time for a special prosecutor. Someone who is completely independent, and who can get to the bottom of things without the established network of relationships coming into play.
If Aguirre’s testimony is accurate, the SEC is engaging in a cover-up of Watergate proportions. That cannot stand. We cannot have a regulator co-opted by those it is supposed to police. The public is at risk, as is the integrity of our financial system.
We need to get to the bottom of it. And in order to do it, what we don’t need is an old boy network of cronies and suck-ups – professional leeches – whitewashing the matter and running interference. I’m already convinced we are seeing some politicians making statements and appearances that are nothing more than, “Open for business” notices to Wall Street. We cannot allow this to be stymied by those that wish to maintain a flawed and deeply disturbing status quo.
We need the antiseptic of sunshine, in order to vindicate the SEC, or condemn them.
My confidential discussions with current and ex-SEC attorneys confirm Mr. Aguirre’s testimony. That causes even more concern for me, as what they are not saying is that he’s full of it, or deluded. They are saying that what he describes happens all the time.
So now we have a problem.
Hatch and Specter are to be commended in the strongest possible manner - their fortitude, in tackling this, will be looked back upon by history as landmark. Now it is time to move to the next logical step.
My hunch is that if we get the right prosecutor, we will have a replay of the infamous Pecora hearings. For anyone that doesn’t know what those hearings exposed, Google the name. Ferdinand Pecora.
The revelations from his cross-examination of Wall Street’s royalty in 1933 resulted in the creation of the SEC.
Then, as now, those in positions of enormous power in the financial community abused their positions, and robbed the public blind. His perseverance in the Senate hearings of that era exposed just how badly we were violated. Of course, none of the money made its way back to those from whom it was stolen, but at least reforms were adopted – albeit weakened by Wall Street’s massive lobbying.
Not much appears to have changed.
As to the charges against Pequot, a friend pointed out something all the media seems to have missed: the allegations against Pequot are not based solely on their “ordinary trade,” wherein they bought Heller Financial stock in anticipation of a possible merger or acquisition.
That is defensible, on the surface.
What everyone seems to have missed is that not only did Pequot go long a position in Heller, but they also shorted GE Capital at about the same time. That changes the “going-long-possible-takeover-candidate” argument, and makes it very specific – as well as making the defense wildly implausible. Pequot went long a specific acquisition target and shorted the acquirer. Talk about lucky. That’s almost as fortuitous as Rocker Partners’ purchasing their first massive tranche of put options in NFI mere days before that stock dropped 60% or so due to a WSJ article, Milberg suit and SEC probe.
Maybe the DOJ should be alerted to that serendipitous aligning of the stars. Seems to happen with startling frequency for some hedge funds. And Specter made it abundantly clear that these sorts of frauds (assuming they are frauds) were criminally actionable under SO. That’s what I got from his statements at the hearing, anyway.
On another note, a discussion with a friend in the press about the testimony raised an interesting point. The apologists for the industry did their level best to confuse what was being investigated – stock manipulation, using a variety of illegal and unethical/fraudulent devices: collusion with co-opted researchers and journalists, insider trading, related party trading, failing to deliver. To listen to Professor Lamont, for example, one would have believed that legitimate short selling was under attack. It was not.
Why the Street and advocates of legitimate short selling confuse that legal trading strategy with an illegal manipulation is unknown. I certainly wouldn’t want it confused if I was a legitimate short seller.
And yet, much of the testimony defended legitimate short selling from an attack that wasn’t in evidence.
What was being investigated and exposed was illegal stock manipulation, using all of the above fraudulent techniques.
Not legal short selling.
My hunch is that the only ones served by the co-mingling of the two, and the subsequent defense of the legitimate variant, are the criminals engaging in the illegal variety. Thus, they strive to muddy the water, so that they can defend the legal as a red herring against being forced to discuss the illegal.
That really didn’t work well yesterday, although it found a willing audience at CNBC today.
My message is simple. Get a special prosecutor with integrity to look into two things: The SEC’s alleged obstruction of justice, and the insider trading allegation.
This cannot be allowed to simmer. Every minute that it does denigrates the efforts of the legitimate players.
There will always be bad apples in any system. What is supposed to set us apart from banana republics is our willingness to ferret them out, expose them, and punish them.
Our willingness to tolerate criminality is our new test of the system. The line in the sand is clearly drawn. Now the question is, what are we going to do about it?
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In a related note, speaking to Wall Street royalty and larceny, here’s an article in the NY Post that speaks to Morgan Stanley’s being judged to have been guilty of a “massive fraud.”
There’s those words again. Wall Street. Fraud. Kind of interesting how the two are increasingly related.
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If you haven’t done so, read the Intro Chapter to my book “Symphony of Greed – Financial Terrorism and Super-Crime on Wall Street”; it’s a pretty good primer to bring most up to speed on the broader market integrity issues.