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Profile: US Securities and Exchange Commission (SEC)
US Securities and Exchange Commission (SEC) was a participant or observer in the following events:
After 9/11, both the SEC and the Secret Service announce probes into an unusually high volume trade of five-year US Treasury note purchases around this time. These transactions include a single $5 billion trade. The Wall Street Journal explains: “Five-year Treasury notes are among the best investments in the event of a world crisis, especially one that hits the US. The notes are prized for their safety and their backing by the US government, and usually rally when investors flee riskier investments, such as stocks.” The value of these notes has risen sharply since the events of September 11. The article also points out that with these notes, “tracks would be hard to spot.”
[Wall Street Journal, 10/2/2001]
The Securities and Exchange Commission (SEC) later announces that they are investigating the trading of shares of 38 companies in the days just before 9/11. The San Francisco Chronicle reports that the New York Stock Exchange sees “unusually heavy trading in airline and related stocks several days before the attacks.” All 38 companies logically stand to be heavily affected by the attacks. They include parent companies of major airlines American, Continental, Delta, Northwest, Southwest, United, and US Airways as well as cruise lines Carnival and Royal Caribbean, aircraft maker Boeing and defense contractor Lockheed Martin. The SEC is also looking into suspicious short selling of numerous insurance company stocks, but, to date, no details of this investigation have been released. [Associated Press, 10/2/2001; San Francisco Chronicle, 10/3/2001]
It will later be speculated that, around this time, people with foreknowledge of the 9/11 attacks short sell reinsurance company stocks that are insuring either or both the airplanes and the buildings involved in the attacks. Munich Re, the largest European reinsurance company, loses 22 percent of its value in the two month before 9/11, with about half of that taking place in the week before the attacks. German authorities will later alert the Securities and Exchange Commission of “suspect movements” with Munich Re. [Agence France-Presse, 9/17/2001] Suspicious inquiries into the short selling of millions of company shares are made in France days before the attacks. [Reuters, 9/20/2001; San Francisco Chronicle, 9/22/2001] Munich Re stock will plummet after the attacks, as they claim the attacks will cost them $2 billion. [Dow Jones Business News, 9/20/2001] There is also suspicious trading activity involving reinsurers Swiss Reinsurance and AXA. These trades are especially curious because the insurance sector “is one of the brightest spots in a very difficult market” at this time. [Los Angeles Times, 9/19/2001] A source within AXA will later say, “There are indications that the shorting has been going on for some time. People inside the company could not understand why” there had been so much shorting of the stock in recent weeks. “This could give some explanation why the stocks were going down so much when there seemed to be no apparent reason.” AXA shares drop almost 10 percent in the week before 9/11, and will plummet afterwards. The attacks will cost the company up to $400 million because of its coverage of both airplanes and buildings. [Los Angeles Times, 9/18/2001]
The Justice Department and the Securities and Exchange Commission (SEC) launch an investigation into allegations that Monsanto representatives paid bribes to Indonesian officials in an effort to advance its business interests there. The Justice Department and SEC were reportedly informed of the suspected bribery by Monsanto itself, which says it launched its own investigation after noticing irregularities in the accounting of its Jakarta-based subsidiary. [Wall Street Journal, 5/27/2004] The investigation lasts about three years. On January 6, 2005, the Justice Department and the SEC announce that Monsanto has agreed to pay a $1 million penalty to the Justice Department, which has charged the company with violating the US Foreign Corrupt Practices Act. The company is also ordered to pay $500,000 to the US Securities and Exchange Commission (SEC). As part of the settlement, Monsanto will allow an “independent compliance expert” to audit and monitor the company and to ensure there are no further breaches of the US Foreign Corrupt Practices Act. The company says it accepts full responsibility and has taken action against those involved. “We accept full responsibility for the improper activities that occurred in connection with our Indonesian affiliates,” says Lori Fisher, one of the company’s spokespersons. “Such behavior is not condoned nor accepted at Monsanto, and the people involved are no longer employed by Monsanto.” [Associated Press, 1/6/2001; Reuters, 1/7/2001; BBC, 1/7/2005; Sunday Herald, 1/9/2005]
A New York Times article theorizes that diesel fuel tanks were responsible for the collapse of Building 7 of the WTC. It collapsed at 5:20 p.m. on 9/11, even though it was farther away from the Twin Towers than many other buildings that remained standing (see (5:20 p.m.) September 11, 2001). It was the first time a steel-reinforced high-rise in the US had ever collapsed in a fire. One of the fuel tanks had been installed in 1999 (see June 8, 1999) as part of a new “Command Center” for Mayor Rudolph Giuliani. [New York Times, 3/2/2002; Dow Jones Business News, 9/10/2002] However, in interviews, several Fire Department officers who were on the scene say they were not aware of any combustible liquid pool fires in WTC 7. [Fire Engineering, 9/2002] And, according to the National Institute of Standards and Technology (NIST), between 11:30 a.m. and 2:30 p.m. on 9/11, “No diesel smells [were] reported from the exterior, stairwells, or lobby areas” of WTC 7. [National Institute of Standards and Technology, 6/2004, pp. L-22 ] Curiously, given all the Wall Street scandals later in the year, Building 7 housed the SEC files related to numerous Wall Street investigations, as well as other federal investigative files. All the files for approximately 3,000 to 4,000 SEC cases were destroyed. Some were backed up in other places, but many were not, especially those classified as confidential. [New York Law Journal, 9/17/2001] Lost files include documents that could show the relationship between Citigroup and the WorldCom bankruptcy. [Street, 8/9/2002] The Equal Employment Opportunity Commission estimates over 10,000 cases will be affected. [New York Law Journal, 9/14/2001] The Secret Service had its largest field office, with more than 200 employees, in WTC 7 and also lost investigative files. Says one agent: “All the evidence that we stored at 7 World Trade, in all our cases, went down with the building.” [Tech TV, 7/23/2002] The IRS and Department of Defense were also tenants, along with the CIA, which, it has been revealed, had a secret office in Building 7. [CNN, 11/4/2001; New York Times, 11/4/2001; Federal Emergency Management Agency, 5/1/2002, pp. 5-2; New York Magazine, 3/20/2006] A few days later, the head of the WTC collapse investigation says he “would possibly consider examining” the collapse of Building 7, but by this time all the rubble has already been removed and destroyed. [US Congress, 3/6/2002]
Slate reports that two years after the 9/11 attacks, neither the Chicago Board Options Exchange nor the Securities and Exchange Commission will make any comment about their investigations into insider trading before 9/11. “Neither has announced any conclusion. The SEC has not filed any complaint alleging illegal activity, nor has the Justice Department announced any investigation or prosecution.… So, unless the SEC decides to file a complaint—unlikely at this late stage—we may never know what they learned about terror trading.”
The 9/11 Commission dismisses allegations of insider trading in the days preceding 9/11, in a footnote contained in its final report. According to the report, the put options for the parent companies of United Airlines were placed by a “US-based institutional investor with no conceivable ties to al-Qaeda as part of a trading strategy that also included buying 115,000 shares of American on September 10.” With respect to the highly suspicious trading in the parent company of American Airlines, the Commission states that many of the trades were “traced to a specific US-based options trading newsletter, faxed to its subscribers on Sunday, September 9, which recommended these trades.” According to the Commission: “The SEC and the FBI, aided by other agencies and the securities industry, devoted enormous resources to investigating this issue, including securing the cooperation of many foreign governments. These investigators have found that the apparently suspicious consistently proved innocuous.” [9/11 Commission, 7/24/2004, pp. 499]
Insurance corporation AIG says the US Securities and Exchange Commission and the Justice Department are probing the way it valued derivatives known as credit default swaps. AIG recently announced that it was having problems valuing the derivatives (see February 11, 2008). The company says it is cooperating with regulators, but shares in it fall 6.8 percent to $33.93. [Bloomberg, 9/16/2008]
Washington Post economics columnist Steven Pearlstein criticizes Mary Schapiro, President-Elect Barack Obama’s pick to chair the Securities and Exchange Commission (SEC), a financial market regulator. Pearlstein says that the selection of Schapiro, who has a long background in regulating the industry, is “as safe and predictable as it is disappointing.” He adds that Schapiro has some good qualities and would be a sound pick at another time. However, “The problem is that there is nothing in her record to suggest that she is likely to clean house at the agency and launch a brutal and sustained assault on Wall Street culture.”
Unethical Practices - Pearlstein adds: “Remember the good old days when corporations would routinely manipulate earnings so that they came out just as the analysts expected? Or when analysts used to issue buy recommendations for stocks they knew were lousy just because it helped their firms win investment-banking business? Or when brokerage firms would routinely put clueless customers in mutual funds that offered high commissions, not the best results? Or when investment banks would put aside shares in the hottest IPOs for the personal accounts of corporate chief executives who steered underwriting business their way? These practices weren’t secrets—to anyone even vaguely familiar with the industry, they were hidden in plain view. And yet for years, no regulator, including Schapiro, was willing to risk being demonized by the industry, criticized by Congress and overturned by the courts to do what was necessary to stop these practices.”
'Show Trials' - He then sets out his vision for what the new chairman should do, what he thinks Schapiro will not do: “We need an SEC chairman who is willing to move beyond narrow enforcement actions and no-fault consent decrees to stage a series of regulatory show trials that will expose in graphic detail how people think and behave at all levels of Wall Street firms. We need a chairman who will use the commission’s broad powers to fine and debar from the industry big-name directors, top executives, ratings agency officials and other gatekeepers whose nonfeasance resulted in significant losses for investors, customers and taxpayers. We need a chairman who will make effective use of the bully pulpit to expose other well-known industry practices that put the interests of Wall Street ahead of those of its customers.” [Washington Post, 1/7/2009]
Halliburton Co agrees to pay a $559 million fine to end an investigation of its former KBR subsidiary if the US government approves the settlement. KBR, formerly Kellogg Brown & Root, has long been accused of violating anti-bribery laws by paying kickbacks to Nigerian officials in return for “sweetheart deals” involving Nigeria’s oil and natural gas fields. The fine, if paid, will be the largest penalty in history against a US company for violations of the Foreign Corrupt Practices Act (FCPA); the settlement would allow Halliburton to avoid having a government monitor put in place, but would require the company to hire an independent consultant to assess its compliance with anti-bribery laws. Halliburton would pay $382 million to the Department of Justice and $177 million to the Securities and Exchange Commission in “disgorgement.” KBR, which has become independent of Halliburton since the incidents in question, refuses to comment on the settlement. The government’s probe of Halliburton/KBR goes back over 20 years, to the construction and expansion of a gas liquefaction facility at Bonny Island, Nigeria. Halliburton has admitted that its agents probably bribed Nigerian officials, and former KBR CEO Albert Stanley has already pled guilty to charges stemming from the Bonny Island bribery scheme. Former Vice President Dick Cheney was Stanley’s immediate supervisor when Cheney was CEO of Halliburton. [Reuters, 1/26/2009]
Stephen Schwarzman. [Source: Time magazine]Stephen Schwarzman, one of Wall Street’s leading hedge fund managers, equates the Obama administration’s plan to levy taxes on the private equity industry as akin to Adolf Hitler’s invasion of Poland, London’s Daily Telegraph reports. Schwarzman says America faces a “crisis of leadership” that is hindering the nation’s economic recovery. His concerns are echoed by Daniel Loeb, the founder of the Third Point fund, who accuses the Obama administration of attempting to implement economic “redistribution rather than growth.” Loeb decries an April 2010 lawsuit brought by the Securities and Exchange Commission (SEC) against Wall Street investment firm Goldman Sachs as “politically laced,” and blames the lawsuit for making investors lose confidence in the economic recovery. Loeb says that “so long as our leaders tell us that we must trust [them] to regulate and redistribute our way back to prosperity, we will not break out of this economic quagmire.” [Daily Telegraph, 8/31/2010]
Casino billionaire Sheldon Adelson, one of the world’s 15 richest people, is on course to contribute at least $71 million to efforts to unseat President Obama in the November presidential elections and elect Republicans to national and state office (see February 21, 2012). Adelson’s contributions are cloaked in secrecy, as much of his contributions go to “nonprofit” political organizations that under the law do not have to disclose their donors. Adelson and his wife Miriam have already contributed $10 million to a “super PAC” backing Republican presidential candidate Mitt Romney (see June 13, 2012), and have either given or pledged to give up to $35 million to other organizations, including Crossroads GPS, a “nonprofit” organization led by former George W. Bush advisor and longtime Adelson friend Karl Rove, the Koch-financed Americans for Prosperity (AFP—see Late 2004, May 29, 2009, and November 2009), and another organization linked to House Majority Leader Eric Cantor (R-VA). Adelson is a strong supporter of Israel’s far-right government and a staunch opponent of US labor unions. Adelson has told friends that he may give up to $100 million in efforts to unseat Obama and elect Republicans in state races; indications are that he may give much, much more. Some of Adelson’s donations may go to another Koch-funded organization, the Center to Protect Patients’ Rights, which in 2010 was used to funnel tens of millions of dollars to other conservative organizations (see October 12, 2010). The Young Guns Network is a nonprofit group set up by Cantor, and has received $5 million from Adelson (see June 10, 2012). So has the “super PAC” the Congressional Leadership Fund, a group linked to House Speaker John Boehner (R-OH). Adelson’s Las Vegas casino The Sands is under investigation by the Securities and Exchange Commission (SEC) and the Justice Department for possible violations of the Foreign Corrupt Practices Act, which exists to prevent bribery of foreign business officials. The Sands denies any wrongdoing. Adelson previously backed Romney’s opponent Newt Gingrich (R-GA), but as Gingrich’s hopes for the presidential nomination faded, Adelson indicated that he would shift his support to Romney. Adelson has told GOP colleagues he intends to make most of his contributions to nonprofits like Crossroads GPS, which are not required to make the names of their donors, or the amounts of their donations, public. Although the law bars candidates like Romney from soliciting donations exceeding $5,000, Republican fundraisers say that candidates and their representatives have flocked to Adelson in recent months, as have representatives from organizations such as the US Chamber of Commerce, which intends to spend $50 million in efforts to elect Republicans to Congress. The nonprofit Republican Jewish Coalition has received millions from Adelson in the past, and says it intends to spend some $5 million this year on behalf of candidates such as Josh Mandel (R-OH), running to unseat Senator Sherrod Brown (D-OH). Adelson also donated $250,000 to help turn back efforts to recall Governor Scott Walker (R-WI) and $250,000 to a political committee backing Governor Rick Scott (R-FL), who is battling the Justice Department to be allowed to purge hundreds of thousands of minority voters from the voting rolls. [Huffington Post, 6/16/2012] In March 2012, 80 billionaires such as Adelson gave two-thirds of the monies raised by super PACs, creating an outsized influence on the presidential and “downticket” election campaigns (see March 26, 2012).
Entity Tags: Congressional Leadership Fund, US Chamber of Commerce, US Department of Justice, US Securities and Exchange Commission, Willard Mitt Romney, Young Guns Network, Center to Protect Patients’ Rights, American Crossroads GPS, Americans for Prosperity, Sherrod Brown, The Sands, Barack Obama, Josh Mandel, John Boehner, Eric Cantor, Sheldon Adelson, Scott Kevin Walker, Miriam Adelson, Rick Scott, Republican Jewish Coalition, Newt Gingrich, Karl C. Rove
Timeline Tags: Civil Liberties
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