Everything is securities fraud You know the basic idea. A company does something bad, or something bad happens to it. Its stock price goes down, because of the bad thing. Shareholders sue: Doing the bad thing and not immediately telling shareholders about it, the shareholders say, is securities fraud. Even if the company does immediately tell shareholders about the bad thing, which is not particularly common, the shareholders might sue, claiming that the company failed to disclose the conditions and vulnerabilities that allowed the bad thing to happen. And so contributing to global warming is securities fraud, and sexual harassment by executives is securities fraud, and customer data breaches are securities fraud, and mistreating killer whales is securities fraud, and whatever else you've got. Securities fraud is a universal regulatory regime; anything bad that is done by or happens to a public company is also securities fraud, and it is often easier to punish the bad thing as securities fraud than it is to regulate it directly. This is mostly a theory of U.S. law. It is also not an exactly accurate statement of U.S. law, and sometimes courts actually reject everything-is-securities-fraud theories, but it is a good practical tool for predicting whether a scandal at a U.S. public company will lead to a securities-fraud lawsuit. It always predicts that the answer will be "yes," and the answer is always "yes." But of course lots of public companies are not U.S. public companies, because they are in other countries. Is everything that they do securities fraud? Well, other countries occasionally seem tempted by the U.S. approach, but generally the U.S. is well ahead of everywhere else in making everything securities fraud. But it's so far ahead that things that foreign companies do abroad might still be U.S. securities fraud. Here is a story about "whether or not the U.S. securities laws apply to transactions in unsponsored American Depository Receipts (ADRs)." An ADR is a mechanism to trade foreign stocks in the U.S.: You buy a bunch of shares of a foreign company's stock, plop them into a box, and issue shares—receipts—on the box that are denominated in dollars and traded in the U.S. Some foreign companies have what are called "Level 3 sponsored ADRs": The foreign company itself sets up the box, the ADRs trade on a U.S. stock exchange, and the company can sell the ADRs to raise money for itself in the U.S. The foreign company files a registration statement with the U.S. Securities and Exchange Commission, and then files annual reports in the U.S. with its financial statements and other information. It's basically as though the foreign company itself issued stock in the U.S. But other foreign companies have what are called "Level 1 unsponsored ADRs," in which they do nothing. A bank or broker buys shares of the foreign company in the company's home country. The broker puts those shares in a box and, on its own initiative, issues receipts on the box to U.S. investors. The company isn't involved and doesn't get any money. The ADRs trade over-the-counter, not on a U.S. stock exchange. The company doesn't file annual reports in the U.S. If a foreign company issues stock only abroad, never raises money in the U.S. or asks to have its stock listed here, and never files financial statements or other information in the U.S., but nonetheless (1) has an unsponsored unlisted ADR in the U.S. and (2) has some misstatements in its (totally non-U.S.) disclosure, is that securities fraud in the U.S.? Sure, of course, everything is! Toshiba Corp. is a Japanese company whose stock is listed in Japan. It has unsponsored Level 1 ADRs in the U.S., through no fault of its own. It did a fraud. (Not a weird "everything is securities fraud" sort of fraud, mind you, but a big accounting scandal.) U.S. investors lost money on their ADRs and sued, and Toshiba objected that it had nothing to do with those ADRs, or with U.S. securities markets in general. Last year a U.S. federal appeals court let the lawsuit go forward: "Noting that the Plaintiffs' ADRs were purchased in the United States, and that the depository institutions sold the ADRs in the United States, the court held that the Exchange Act could apply to the Toshiba ADRs." Toshiba asked the Supreme Court to reverse, the U.S. Securities and Exchange Commission sided with the investors and argued that U.S. securities law should apply here, and this week the Supreme Court denied Toshiba's petition. There is some nuance here: The SEC notes that, even if U.S. law applies, Toshiba might have some defenses of the what-we-never-even-did-anything-in-the-U.S. variety. And this is not necessarily a big practical problem for many foreign companies: They don't all have even unsponsored ADRs, and the ones that do might not have enough trading in those unlisted ADRs to make U.S. securities liability a big financial concern. But the principle of the thing is that U.S. securities law is a global universal regulatory regime: If a foreign company never issues shares in the U.S. and files its financial statements and other reports only abroad, it can still be sued in the U.S. for securities fraud. And in the U.S., everything is securities fraud. Chicken Libor Libor, the London interbank offered rate, is an interest-rate benchmark set by, essentially, calling up a bunch of banks and asking them how much interest they'd have to pay to borrow money in different tenors and currencies. This rickety and unscientific method underpins an interest rate that has been called "the world's most important number," because trillions of dollars of floating-rate loans and interest-rate derivatives are indexed to Libor. If Libor is high, then lots of real money will flow from one group of people to another; if it is low, real money will flow the other way. And Libor is just a made-up number, or an aggregate of made-up numbers. There are incentives, for banks, to make up a number that is good for them, high if they get paid a lot of Libor or low if they pay a lot of Libor. And so in fact the banks did do that, quite a bit, for years. This misbehavior came to light in two stages.[1] In the first stage, academics and journalists and plaintiffs' lawyers conducted statistical analyses that strongly suggested that Libor was being manipulated, because it did not match up with other indicators of the banks' cost of funding. This stuff was compelling in its way, but kind of dry and technical, and couldn't reject innocent explanations with absolute certainty. It gave authorities good reason to investigate further, though, to ask probing questions of banks and review their internal communications and see if there was any fire to go with the smoke, any direct human evidence of wrongdoing to explain the statistical anomalies. In the second stage, those further investigations turned up just piles and piles of permanently preserved searchable electronic chats and emails in which traders said things like "let's do crimes, specifically manipulating Libor," or "boy I hope I won't go to prison when people read this chat in which I confess to manipulating Libor," except with lots of swear words and typos. Once the prosecutors get those emails and chats the game is kind of up; the banks ended up paying billions of dollars in fines, and some of those traders did, as they foreshadowed, go to prison. "Chicken Libor,"[2] the Georgia Dock index of poultry prices, is a chicken-price benchmark set by, essentially, calling up a bunch of chicken farmers and asking them how much they're selling their chickens for. This rickety and unscientific method underpins … well, no one has ever called it "the world's most important number," and it's not clear that it's even the most important index of chicken prices.[3] But at least some chicken purchasing contracts were indexed to the Georgia Dock, and so, as in Libor, there were incentives for chicken sellers to make up high numbers in order to make more money for themselves. Some chicken buyers have accused them of doing just that, and have sued. And there is some suggestive evidence; for instance, "the Georgia Dock index pegged prices for whole chickens about 32% higher on average than similar benchmarks throughout 2016." But it is all a little dry and uncertain, and I cannot sit here and say with any confidence that Georgia Dock prices really were manipulated. But now there's this: The U.S. Justice Department has launched a criminal investigation into allegations that top poultry processors colluded to keep prices artificially high. The probe came to light after federal attorneys sought to intervene in a long-running lawsuit in which customers accused chicken processors, including Tyson Foods Inc., Pilgrim's Pride Corp., Sanderson Farms Inc. and Perdue Farms Inc., of illegally cooperating. The processors have denied the accusations. The government asked a federal judge in Illinois to halt evidence-collection in the suit for six months to protect a grand jury investigation into the matter, lawyers from the department wrote in a motion filed Friday in Chicago. A ruling is expected Thursday. There are some standard antitrust allegations along with the Georgia-Dock-manipulation ones, but obviously my interest here is mainly about the index manipulation. Because now the Justice Department is investigating that, which means that, if there are emails or electronic chats about chicken Libor manipulation—and of course there might not be, there might be no wrongdoing at all, the producers deny it—but if there are, they are going to come out. And what a bonanza that would be for sociologists of crime! Do you think electronic chats about chicken Libor manipulation would have more or fewer misspellings than the ones about financial Libor manipulation? More or fewer obscenities? Would they be more or less self-aware about the possibility of being caught and prosecuted? Libor conspirators occasionally promised each other champagne for successfully manipulating Libor; what do you think would be the standard gift for manipulating chicken prices? Here's one more amazing fact about chicken Libor. After the scandal broke in 2016, the Georgia Department of Agriculture responded by adjusting how it surveyed chicken producers. Instead of just asking them to submit a price, it also asked them "to submit documents verifying the accuracy of information," though the agency wouldn't "independently verify the prices" and instead said "we trust the companies we deal with." I wrote at the time that the new approach was to "call up some chicken producers and ask them (1) how much do chickens cost and (2) are you lying?" There was a certain amount of sarcasm in that description. If the chicken producers were going to lie to you about the prices, they could also lie to you about whether they were lying to you! You're not checking. You're relying on their honesty in certifying that they're being honest, but you're only asking them to certify that because you're worried that they're not being honest, so … well, you get it. Anyway it totally worked? "Georgia agriculture officials suspended the index late that year after some poultry companies declined to provide documents attesting to the accuracy of the data they submitted." One way possible reading is that companies were willing to lie about chicken prices, but they weren't willing to lie about whether they were lying about chicken prices.[4] I suppose you could try that with real Libor too. Speaking of electronic chats Sure: On occasion, certain Traders acknowledged spoofing to affect prices of Precious Metals futures contracts in electronic "chat" conversations. For example, in a November 16, 2010 chat one of the Traders, Trader A, stated: "guys the algos are really geared up in here. [I]f you spoof this it really moves .... " In another chat, on or about February 11, 2011, Trader A discussed spoofing again, offering to help Trader B, a trader at an entity affiliated with MLCI: Trader A: that was me pushing it
Trader A: dont do it yourself I will help you
Trader A: dont spoof it
Trader A: what did you get 70 lots there?
Trader B: ok
Trader B: yep Consistent with this chat, Trader A did, in fact, engage in spoofing in the market for silver futures contracts. That's from a U.S. Commodity Futures Trading Commission enforcement action against Merrill Lynch Commodities Inc., a unit of Bank of America Corp., for spoofing. Merrill agreed to pay about $25 million to settle the case. Not much else you can do with chats like that. The order barely bothers to describe the spoofing behavior, and gives no examples; the chats are plenty. Spoofing is actually sort of an interesting crime; there are good theoretical debates about what counts as spoofing, and prosecutors sometimes have a hard time proving criminal intent in spoofing trials. But one thing that definitely counts as spoofing is (1) entering orders that you don't intend to trade on while (2) going around telling your colleagues, in permanently recorded searchable electronic communications, that you are spoofing, using the word "spoof." They search those keywords you know! Come on. Insider trading Most insider trading—or at least, most insider trading that is caught—is pretty opportunistic. Maybe you work at a company that is doing a merger, you tip your golf buddy about the merger, he trades, he gives you a share of the profits, and that's the end of it because your company doesn't do that many mergers. Or maybe you work at an investment bank or a law firm, and you do see a lot of mergers, and you have a pipeline of trades and kickbacks with your buddy. Maybe you even make a point of checking out other people's deals at your bank, to give your buddy as many tips as possible. Sometimes this can go for years and involve dozens of deals, but it is still a little ad hoc; you just happen to be in a place to see deals, and you monetize the deals you see. Other insider trading is more comprehensive and systemic. Some guys hacked into the newswires that handle corporate press releases and traded in advance of thousands of earnings and merger announcements. That's the good stuff. It is fun to imagine that there is a systemic network of insider trading based on human, rather than computer, intelligence. The idea is not that you hack into a computer network and steal all the merger announcements, but that you hack into the human networks that do all the mergers—the bankers and lawyers and advisers and journalists—and get them to keep you in the loop. The skills involved here are not computer skills but social ones; you have to make all the fancy advisers think that you are one of them, cultivate the relationships, bribe them in socially acceptable ways, etc., so that they give you the information that you want. In the popular imagination, it seems to be very widely accepted that this is a thing, that there is a shadowy network of powerful hedge funds who regularly call on their connections to get market-moving news ahead of everyone else. You don't see a ton of evidence for it, but that doesn't prove anything; maybe the shadowy networks are just too smart and too powerful to get caught. And of course there is some evidence! The big insider trading crackdown in the Southern District of New York a few years ago involved a powerful hedge-fund manager getting phone calls from a Goldman Sachs Group Inc. director right after board meetings; it involved "expert networks" allegedly hired by hedge funds more or less to pass along inside information; it involved several different people independently insider trading at giant famous hedge fund SAC Capital Advisors LP. Perhaps these are bad-apple aberrations, but if you want to see them as the tip of the iceberg of a vast insider trading conspiracy you could probably do that. Anyway this is cool: U.S. prosecutors are investigating an international network of traders suspected of infiltrating banks and companies to glean confidential information on megadeals, according to people familiar with the matter. The probe by prosecutors at the U.S. Attorney's Office for the Southern District of New York is focusing on a group of stock pickers in Europe and the Middle East who have made tens of millions of dollars trading ahead of media reports about takeover talks or merger announcements by companies, according to the people, who asked not to be identified because the matter isn't public. The investigation is part of a years-long multinational effort, with U.S., U.K. and French prosecutors operating on parallel tracks. … The suspects appear to belong to a loose ring of more than a dozen traders spread out across London, Paris, Geneva, Dubai and other cities. Investigators suspect them of cultivating advisers, executives, lawyers and government officials with cash and gifts, the people said. These potential sources of confidential information are also being examined, they said. If you are a member of the global insider-trading Illuminati, please tell me about it over unencrypted email. People are worried about duration Well, they are: But just look at the math. The Macaulay duration on a Bloomberg Barclays sovereign-debt index is near a record high of 8.32 years, meaning just a one-percentage-point increase in yields would equate to more than a $2.4 trillion loss. Things happen How Apollo Salvaged a Grocery Buyout Gone Horribly Wrong. Buy Low-Tops, Sell High-Tops: A Sneaker Exchange Is Worth $1 Billion. The Polygamist Accused of Scamming the U.S. Out of $500 Million. Is There a Big Short in Bitcoin? Bashing bankers and confiscating bonuses turns out to be against the law. "Hundreds of thousands of people were killed or seriously injured by allegedly defective products after judges in just a handful of cases allowed litigants to file under seal, beyond public view, evidence that could have alerted consumers and regulators to potential danger." The Long-Term Effects of Shareholder Activism. Esperanto, money's interval of certainty, and how this applies to Facebook's Libra. Steve Moore's New Crypto Startup Is Dumb Even By Crypto Startup Standards. Is Billions Using Bloomberg Terminals to Foreshadow Plot Twists? "There is a quite frankly disappointing lack of lax bros at LaxCon." If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! [1] Arguably there was an earlier stage in which the banks' manipulation of Libor was an open secret: Bank regulators got emails about it, accepted it as a matter of course, and didn't focus on it, because they didn't think it was a big deal or it wasn't really their jurisdiction or they just had bigger things to worry about. (This stage happened during the financial crisis, and the regulators really did have bigger things to worry about.) But this stuff was sort of conveniently forgotten after the fact, and in any case it doesn't seem to have gotten the attention of the public, or of prosecutors, until later. [2] This is not a particularly official term. It is mostly used in Money Stuff, though it is not original to me. [3] Chicken producers "said it wasn't widely used as a basis for sales to customers." [4] This is a bit of an irrational result, but it also fits with well-known behavioral results; making people say that they're being honest can make them more honest. Here's a 2012 paper finding that signing a form before filling it out, rather than after, makes people fill the form out more honestly. | 
⊙Ⓢ▽〖@HuLu~〗 2019 Justicia del ártico PelÃcula Completa En LÃnea released 2019. story: Swifty, el zorro ártico, trabaja en la sala de corre...
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