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May 24 2012

JP Morgan: Oops, They Did It Again

(2 pm. – promoted by ek hornbeck)

Yes they did it again, JP Morgan profited from the Facebook loss by betting against it. Casino Royale:

The concerns center on Morgan Stanley, Goldman Sachs and other banks involved in the I.P.O. that shared a negative outlook about Facebook with a select group of clients, rather than broadly with all investors.

In the days leading up to Facebook’s debut, analysts at several banks ratcheted down their growth estimates for the social network. The move came after the company told them that quarterly and annual revenue would be on the softer side, said people briefed on the matter who spoke on the condition of anonymity because they were not authorized to discuss the issue publicly.

As is typical in the I.P.O. process, research analysts at Morgan Stanley, Goldman Sachs and other firms contacted certain clients to discuss their revised expectations, while other big investors called on the banks to get their new take. But ordinary mom-and-pop investors did not have the same access to the valuable information.

Meanwhile, Massachusetts has issued a subpoena over the discussions that analysts had with certain investors over those “revised expectations”:

The analyst’s revisions came after Facebook revised its prospectus on May 9, which the firm forwarded to all of its retail and institutional clients, according to the statement. [..]

As of Monday afternoon, some customers of Fidelity Investments, Morgan Stanley and Charles Schwab were still waiting to see if their trades for Facebook shares were completed on Friday.

Then Reuters reported late Monday that the consumer Internet analyst at lead underwriter Morgan Stanley cut his revenue forecasts for Facebook in the days before the offering, information that may not have reached many investors before the stock was listed.

Cenk Uygur cuts to the chase:

As Cenk noted and Matt Stoller at naked capital reported, over 99% of these investigations are resolved without an admission of guilt:

In a hearing last week titled “Examining the Settlement Practices of U.S. Financial Regulators”, various regulators tried to justify their practice of settling with financial firms and not requiring them to admit wrongdoing. In that hearing, Federal Reserve General Counsel Scott Alvarez, stated that only seven of the roughly one thousand enforcement actions taken in the last decade were resolved without consent.

   The vast majority of the Federa Reserve’s formal enforcement actions are resolved upon consent, which is fully consistent with the goal of resolving supervisory concerns with bank management quickly and firmly. In crafting enforcement actions that are entered by consent, the Federal Reserve typically sets out summary recitations of the relevant facts in “Whereas” clause provisions; however, like our fellow banking regulators, it has not been our practice to require formal admissions to the misconduct addressed in our enforcement orders given the remedial nature of our enforcement program. Requiring admission of fact and legal conclusions as a condition of entering into a consent action is likely to have a deleterious effect on our supervisory efforts by causing more institutions and individuals to challenge the requested relief in contested administrative proceedings, which typically takes years to reach final resolution, and which could delay implemenattion of necessary corrective action.

In other words, the Federal Reserve will only punish banks who break the rules if those banks consent to punishment.  This attitude is pervasive among all regulators.

Can you imagine of our criminal court system ran like that? Oh wait, if you have money . .

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