Monday, April 25, 2011

A Blow Against Wall Street?


Before it got chewed up and digested and spat back out as part of another Wall Street bankster operation, I was a client of Smith Barney, soley because my financial advisor went to work there when some other bankster firm went through some changes in a past decade. So when I read something about Smith Barney an old rock writer friend had posted on Facebook today I looked into it. Here's was his post:
David Gans: “Instead of the financial world being the lubricant for business, they are out there manufacturing products with no utility whatsoever except for generating fees.... Somebody’s got to do something about Wall Street. It is destroying the country."

He was responding to some refreshingly good news-- the last paragraph in a NY Times story by Gretchen Morgenson-- from Wall Street, a court judgment that ruled against the banksters.
Two individual investors just scored a remarkable win against Citigroup.

A few weeks ago, the pair was awarded a total of $54.1 million in a securities arbitration case against the Smith Barney unit of the company — the largest amount ever awarded to individuals in such a case, according to the Financial Industry Regulatory Authority.

This legal dust-up involved supposedly conservative municipal bond investments that Smith Barney had peddled to its wealthiest clients. The investments, which were big money-makers for Smith Barney, turned out to be anything but safe for the firm’s clients: various portfolios lost between half and three-quarters of their value during the financial crisis.

Arbitrators rarely, if ever, discuss such cases, and the materials turned over by both sides are kept under wraps. But the outsize award, which included $17 million in punitive damages, is not the only thing that is noteworthy. The arbitrators appeared to reject-- resoundingly-- three defenses that Wall Street often employs when clients sue:

No. 1: We didn’t blow up your portfolio. The financial crisis did.

No. 2: If you’re wealthy and sophisticated, you should have understood the risks.

And, No. 3, the most common defense of all: The prospectus warned that you could lose your shirt, so don’t come crying to us if you do.

...The men, neighbors in Aspen, Colo., suffered $27 million in out-of-pocket losses on their investments. The big clunker was a municipal bond arbitrage strategy that their Smith Barney broker had characterized as safe, according to the men’s complaint. The deal was supposedly designed to eke out more income than a simple portfolio of bonds would generate.

Not only did the men recover all their losses in the award, they also received damages... $15 million in punitive damages and $6.3 million in market-adjusted damages. The arbitrators also awarded $3 million for the men’s legal fees.

Citigroup is outraged and looking into an appeal of some kind but there is little sympathy anwhere these days for these trumped up financial products employing "the wonders of leverage, borrowing 8 to 10 times the value of the municipal bonds in an underlying portfolio to generate higher income." It was sold as a conservative strategy for wealthy investors-- minim to get started was half a million dollars-- but "Smith Barney and its brokers were the prime beneficiaries of the strategy, which generated fees not only on the money that had been borrowed to juice the returns but also through the life of the investment... Smith Barney’s sales representatives kept 40 percent of the total fees paid by their investors, far exceeding what they would have earned selling ordinary municipal bonds."
...Mr. Hosier’s victory is particularly noteworthy, given the nominal amounts typically extracted by regulators in cases against major banks. The punitive damages awarded to Mr. Hosier, for example, are more than triple the $4.45 million penalty levied against Wachovia Securities by the Securities and Exchange Commission this month in a suit that the S.E.C. settled with the bank. The S.E.C. accused the bank of selling about $10 million of mortgage-related securities to investors at above-market prices and at excessive markups. Wachovia, now part of Wells Fargo, neither admitted nor denied wrongdoing in the settlement.

The arbitrators in Mr. Hosier’s case seemed keen to hold Wall Street accountable. And his win against Citigroup does not appear to be an anomaly. Since April 2010, his lawyer, Mr. Aidikoff, has argued 16 other arbitrations involving the same type of investment. Mr. Aidikoff and the lawyers who assist him have won every one.

In an interview, Mr. Hosier said the experience had opened his eyes to the disturbing ways of Wall Street.

“Instead of the financial world being the lubricant for business, they are out there manufacturing products with no utility whatsoever except for generating fees,” he said. “Somebody’s got to do something about Wall Street. It is destroying the country.”

Since 1998 the financial sector has spent more money lobbying the federal government for their interests than any other sector-- $4,407,087,610, just eclipsing the Medical Industrial Complex by a scant $34 million. But what's a few million one way or the other when we're talking about trillions. And that was just lobbying. Then there's the legalistic bribery we call "campaign contributions." The financial sector was numero uno when it came to bribing government officials too-- $1,500,463,204 to members of Congress since 1990, $809,184,019 in bribes to Republicans and $679,825,929 in bribes to Democrats.

Obama got the most, followed by 3 other Members of Congress who ran for president, McCain, Hillary Clinton and Kerry. The leader of the Senate Republicans, Miss McConnell, has scooped up $5,491,653 and the leader of the Sneate Democrats has taken nearly as much, $5,323,261. Lieberman comes close to getting what those two got... combined. Banksters love him. Lately Wall Street is zeroing in a freshmen whose careers they can help finance, freshmen they perceive as up-and-comers who will advance the Wall Street agenda-- the way Paul Ryan, Mark Kirk and Eric Cantor have on the Republican side of the aisle and the way Rahm Emanuel and Harold Ford have on the Democratic side of the aisle. Among freshmen the financial sector has been ponying up very well and very quickly for a newly elected corporate shill from Wisconsin, Sean Duffy. He's been in Congress for just a few months-- complaining noisily he can barely make ends meet on his $174,000 a year salary (which includes benefits that are only dreams for ordinary Americans these days)-- and the financial sector has already given him $189,675. Why Duffy? Watch him at work, spouting Wall Street talking points, in front on a town hall meeting filled with pissed off constituents:

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