Two more examples just hit the fan:
1. Huge insider trading ring broken up:
It started in 2001 with two old friends meeting at the Oyster Bar in the basement of Grand Central Terminal in Manhattan, discussing a $25,000 debt.
It ended yesterday with federal authorities saying that they had exposed one of the most far-reaching insider trading schemes on Wall Street in decades, involving four investment banks and a web of hedge funds, day traders, lawyers and even a few supervisors, who upon discovering evidence of insider trading, blackmailed the traders to keep quiet about it.
Thirteen people were accused yesterday of taking part in the trading ring, including a former Morgan Stanley compliance official, a senior UBS research executive, three employees from Bear Stearns and a Bank of America employee.
Linda C. Thomsen, chief of enforcement at the Securities and Exchange Commission, described the scheme as one of the most “pervasive Wall Street insider trading rings since the days of Ivan Boesky and Dennis Levine.”
Nine of the defendants have been arrested, and four have pleaded guilty to charges ranging from securities fraud, conspiracy to commit securities fraud and bribery. The investigation, conducted by the S.E.C., the Federal Bureau of Investigation, and the office of the United States attorney in Manhattan, has been under way for more than a year and is continuing.
The schemes described by federal authorities were unusual for their breadth and the seniority of the executives involved.
The tactics, however, were all too familiar: Wall Street executives tipping hedge fund traders about potential upgrades or downgrades of stocks, information sure to move a stock’s price; leaking information about pending mergers and acquisitions, and taking kickbacks to get access to hot deals. In the middle, authorities say, was a hedge fund manager looking for an edge.
2. Largest subprime mortgage lender under fed investigation:
Federal prosecutors and securities regulators are investigating stock sales and accounting errors at the New Century Financial Corporation, the biggest mortgage company that specializes in lending to people with weak, or subprime, credit, the company disclosed in a corporate filing yesterday.
The company also warned that a delay in filing its financials may put vital financing into jeopardy.
The troubles at New Century are the latest sign of the deterioration in subprime lending — until recently the fastest-growing segment of the mortgage business. The market has been struggling to contain the fallout from rising default rates and weakening home prices. Late last year, some smaller lenders started going out of business and last month several bigger companies, including New Century, started reporting problems.
Another large lender, the Fremont General Corporation, said yesterday that it planned to sell its subprime mortgage business after reaching an agreement with the Federal Deposit Insurance Corporation to restrict its activities in that area. As part of the agreement, Fremont will be able to continue taking deposits.
The investigations into New Century, which is based in Irvine, Calif., and wrote $33.9 billion in mortgages last year, started after the company said on Feb. 7 that it would restate earnings for three quarters, which sparked a huge sell-off in its shares. Yesterday, it said its problems had prevented it from filing its annual report, which was to be released Thursday. The board is conducting an investigation of the accounting problems.
Neither one rises to the level of Enron or Global Crossing fraud, but, come on, business ethics in America in the 21st century? An absolute oxymoron.
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