Wednesday, April 18, 2012

On Goldman, "asymmetric service", Apple, and (the lack of) jail time

It's been a little while since I ranted about the rampant and blatant illegality that is allowed to persist on Wall Street ever since the bailout (because, remember, Wall Street is our Main Street), but I simply can't let the events of the last week go by without mention. I'll present to you three separate news items, all of which... ahem... may or may not be related.

First up, directly from our friends at the SEC (dated April 12th, emphasis mine):
The Securities and Exchange Commission today charged that Goldman, Sachs & Co. lacked adequate policies and procedures to address the risk that during weekly “huddles,” the firm’s analysts could share material, nonpublic information about upcoming research changes. Huddles were a practice where Goldman’s stock research analysts met to provide their best trading ideas to firm traders and later passed them on to a select group of top clients. 
Goldman agreed to settle the charges and will pay a $22 million penalty. Goldman also agreed to be censured, to be subject to a cease-and-desist order, and to review and revise its written policies and procedures to correct the deficiencies identified by the SEC. The Financial Industry Regulatory Authority (FINRA) also announced today a settlement with Goldman for supervisory and other failures related to the huddles. 
“Higher-risk trading and business strategies require higher-order controls,” said Robert S. Khuzami, Director of the Commission’s Division of Enforcement. “Despite being on notice from the SEC about the importance of such controls, Goldman failed to implement policies and procedures that adequately controlled the risk that research analysts could preview upcoming ratings changes with select traders and clients.” 
The SEC in an administrative proceeding found that from 2006 to 2011, Goldman held weekly huddles sometimes attended by sales personnel in which analysts discussed their top short-term trading ideas and traders discussed their views on the markets. In 2007, Goldman began a program known as the Asymmetric Service Initiative (ASI) in which analysts shared information and trading ideas from the huddles with select clients. 
According to the SEC’s order, the programs created a serious risk that Goldman’s analysts could share material, nonpublic information about upcoming changes to their published research with ASI clients and the firm’s traders. The SEC found these risks were increased by the fact that many of the clients and traders engaged in frequent, high-volume trading.
Okay, so for those of you keeping score at home, Goldman admitted to engaging in a blatant insider trading scheme (with a very catchy name, the Asymmetric Service Initiative) for several years before and after the bailout, and paid a paltry $22 million fine as a result. Similar behavior by you or me would land us in jail for several years, but that's beside the point.

Up next, from last night, per Reuters (again, emphasis mine):
U.S. stocks scored their biggest gains in a month on Tuesday after Coca-Cola led a round of strong earnings and as concerns about Europe's debt crisis eased as Spanish bond yields fell. 
Apple Inc shares ended a five-day losing streak with a rally of 5.1 percent, helping the Nasdaq Composite close above 3,000. The stock closed at $609.70 and booked its best day in almost three months after it dropped 8.8 percent in the previous five sessions.
Wow, that's a pretty strong rally after a pretty ugly sell-off. I wonder who was buying... NEXT! From this morning...
In a research note this morning Goldman Sachs is not only sticking with its its “conviction” buy rating on Apple, but it also boosted its 12-month price target on the stock to $750 from $700. 
“Despite recent volatility, we continue to believe Apple’s shares are very attractive at current levels,” said Bill Shope, an analyst at Goldman. “It remains our top pick, and we’d be buyers ahead of March-quarter results.”
Oh, really? You "would be" buyers? Ahead of "March-quarter results"? YOU ALREADY WERE the f*%$^&cking buyers, ahead of your own freaking upgrade, you scumbags (ahem, allegedly).

This is truly epic. The week after Goldman admits to the SEC that it's been kinda, sorta, possibly, illegally leaking info regarding its rating calls to its own traders and top clients for years, it goes ahead and (ahem, allegedly) does the exact same thing with Apple, the largest market-cap company in the world (and therefore also one of the most watched and most heavily traded). That's... bold.

Not surprisingly, Apple stock opened up higher this morning, then began to sell off after the initial pop. What do I think happened? Privileged clients got the leaked info, bought ahead of the news (along with Goldman's traders), then sold some or all of their shares back out today to the suckers on the street who waited for the news to become public. It's a cute trick, and it's also viciously illegal (it's basically a variation on the old "pump and dump", but nobody was ever bold enough to try to pull it off on a huge company on this kind of scale... until Goldman). But no worries, just pay a small token fine and all is well. Move along, folks.

"Asymmetric service", indeed. I'll tell you what, I'm going to start a bank robbery scheme, but I'm going to refer to it as my "Selective Wealth Redistribution Program"... think I'll be able to get away with that one by just agreeing to pay back a small portion of what I stole? Yeah... I didn't think so.


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