FT : Deutsche whistleblower spurns share of $16.5m award in SEC protest

Deutsche whistleblower spurns share of $16.5m award in SEC protest

A whistleblower who helped expose false accounting at Deutsche Bank has turned down a multimillion-dollar award from the Securities and Exchange Commission in protest against the agency’s failure to punish executives at the bank.
Eric Ben-Artzi, a former Deutsche risk officer, has told the SEC he is declining his share of a $16.5m payout — the third largest in the whistleblower programme’s history — awarded for information that led the agency to fine Deutsche Bank $55m last year. The SEC found Deutsche misstated its accounts at the height of the financial crisis by improperly valuing a giant derivatives position.

Mr Ben-Artzi said the fine should be paid by individual executives, not shareholders, and suggested the “revolving door” of senior personnel between the SEC and Germany’s largest bank had played a role in executives going unpunished.
“This goes beyond the typical revolving-door story,” Mr Ben-Artzi wrote in an opinion article for the Financial Times. “In this case, top SEC lawyers had held senior posts at the bank, moving in and out of top positions at the SEC even as the investigations into malfeasance at Deutsche Bank were ongoing,”
The SEC, citing confidentiality, and Deutsche Bank also declined to comment.
The award determination, which was made in July but has not been previously disclosed, allocated $8.25m each to Mr Ben-Artzi and Matt Simpson, a former Deutsche trader, who both applied for it, according to interviews and documents seen by the FT.
A third former employee, who contacted the SEC in 2010 and provided evidence of improper valuations in the derivatives book, also applied and was not deemed eligible for an award. Several later claims were also denied.
There has been a substantial number of Deutsche Bank executives who have moved in and out of the top echelons of the SEC in recent years.
Robert Khuzami, director of enforcement at the SEC between 2009 and 2013, was Deutsche’s former general counsel for the Americas. Between 2004 and 2013 Robert Rice was a senior lawyer at Deutsche Bank, where he led an internal investigation into the valuation claims; he then went to the SEC as chief counsel.

Both Mr Khuzami and Mr Rice were recused from the investigation. Dick Walker was enforcement director at the SEC between 1998 and 2001 and then joined Deutsche, later becoming general counsel; he left the bank this year. All three declined to comment.
This dispute offers a rare window on to the mechanics of the programme, which is shrouded in secrecy. It is believed to be the first time a whistleblower has refused an award since the programme went into effect in 2011. It allows for 10 to 30 per cent of any fine collected by the agency to be paid to those who bring original information that leads to an enforcement action. The award comes from a separate congressional budget allocation, rather than directly from the fine payment.
David Kovel, an attorney for the third whistleblower, who has requested anonymity, said he believed it was a “mistake” to leave his client off the award list.
“We think this is like Harry Markopolos, who reported the [Bernard] Madoff fraud to the SEC and was ignored,” said Mr Kovel, of the New York law firm Kirby McInerney. “Here, the SEC had the information about fraud from my client in 2010 and either they didn’t do anything with it or they are pretending they didn’t. From our perspective, what the SEC has done doesn’t make a lot of sense.”
Christopher Chang, a lawyer for Mr Simpson, said his client was “very grateful for the award and the tremendous effort by the SEC in investigating this matter. But beyond the dollars and cents, the real value of the award to Matt is what it represents and that is complete and unequivocal vindication.”
Mr Ben-Artzi said that although he would refuse to take any money himself, he was not able to reject parts of his award — accounting for the majority of the $8.25m — that were claimed by his ex-wife, lawyer or outside experts who worked on his submissions to the SEC.

(ZeroHedge) Options Traders Have Never Been More Bullish

Options Traders Have Never Been More Bullish

W

ith speculative positioning in VIX futures at record shorts (most bullish), and speculative longs in Dow and Nasdaq at or near record highs, we have one more "most hated rally" statistic to add to the pile of exuberance. The open interest in S&P 500 ETF (SPY) call options has never been higher as the last few days panic-buying leveraged long positions lifted exposure above summer 2011 highs...
The last time SPY call option open interest was this high, S&P 500 tumbled 20% in 2 months amid the US downgrade...The level of bullish bets that the SPDR S&P 500 exchange-traded fund will rise reached a record this month and hit the highest level since January relative to bearish options.

 

Of course - nothing matters so why not just keeping buying...

 

... during the discussion, several participants commented on a few developments, including potential overvaluation in the market for CRE, the elevated level of equity values relative to expected earnings, and the incentives for investors to reach for yield in an environment of continued low interest rates.
Bear in mind that speculative bullish positions all added this week with VIX shorts and Dow longs now at all-time-record highs.. and Nasdaq longs soaring...

 

Given all of that, we think it is worth remembering JPMorgan's quant guru Kolanovic's recent conclusion:
As this collapse in realized volatility is not a fundamental change in volatility regime, we expect realized volatility to increase (this increase in market volatility is shaping to be a consensus view, as indicated by steep contango of VIX futures). Option exposures that are pressuring volatility should roll-off, and investors should increase leverage and set protection closer to the current market level. This will set the stage for a more rapid increase in volatility. We have seen these switches between extreme low and high volatility that manifest themselves as high volatility of volatility (e.g., note that that the current “once in 10,000 year” market calmness came after a Brexit day move that was “a once in 50,000 year” move for EuroStoxx 50 index).
Put another way - this can't end well...
Whether central banks will respond with even more of the same to this upcoming "increase in volatility", remains to be seen.

WSJ : Citigroup’s Last Proprietary Trader Walks Out the Door

Citigroup’s Last Proprietary Trader Walks Out the Door
‘Volcker rule’ has forced banks to largely stop buying and selling for their own account

Citigroup Inc.’s last real proprietary trader is leaving the building.

Anna Raytcheva, a Citigroup trader who most recently ran a proprietary trading desk at the New York bank, is leaving to open her own hedge fund next year.

Ms. Raytcheva said in an interview this week that she expects to leave the bank later this month. The move follows Citigroup’s decision earlier this year to close the proprietary trading desk that Ms. Raytcheva ran.

The lender, run by Chief Executive Officer Michael Corbat, has a long history with proprietary trading and has held on to the strategy years longer than other big banks.

Proprietary traders at banks are high-paid employees that buy and sell for the firm’s own account, rather than to match investing clients with securities.

The firm’s trading roots go back to Salomon Brothers, whose 1980s trading exploits were featured in the book “Liar’s Poker.” That firm was ultimately folded into Citigroup, whose billions of dollars in trading losses during the financial crisis prompted repeated taxpayer-led bailouts.

Banks used to routinely engage in proprietary trading. Citigroup and other large banks including Goldman Sachs Group Inc. and Morgan Stanley had multiple desks dedicated to the lucrative but risky practice before the financial crisis.

But the “Volcker rule”, part of the post-financial-crisis regulatory overhaul, banned most types of proprietary trading and shifted banks’ trading activities to those on behalf of clients. To comply with the rule, Citigroup sold or spun off businesses, including an emerging-markets hedge fund and a private-equity unit. It also closed down Citi Principal Strategies, its dedicated proprietary trading desk, in January 2012.

Such retrenchment has been common at big banks over the last five years, with proprietary traders decamping to hedge funds and other less-regulated industries.

The Volcker rule makes exceptions for some assets, including municipal bonds and other government securities. The five-person unit that Ms. Raytcheva most recently ran, called the strategic-trading desk, traded the bank’s own money in U.S. Treasurys and other securities issued by government agencies, including mortgage firms Fannie Mae and Freddie Mac.

Citigroup still has some traders that can engage in Volcker-compliant proprietary trades. But Ms. Raytcheva’s desk was the last stand-alone effort of any significant size at the bank, people familiar with the matter said.

Citigroup closed the desk in May, saying that trading opportunities had dried up and that the capital could be better deployed in client-facing businesses. Also, Ms. Raytcheva said she found it limiting to run a proprietary trading desk that could deal only in a narrow set of financial instruments.

“The industry is going through a structural change,” she said. “I think there is an opportunity for smaller, more nimble players.” She also said she wanted to expand beyond focusing primarily on U.S. macro trends.

Ms. Raytcheva, 44 years old, said her hedge fund, which doesn’t yet have a name, would focus on global bets in markets including foreign exchange. Most of the other employees from Ms. Raytcheva’s former desk have stayed at the bank, trading on behalf of clients, a bank spokeswoman said.

The Volcker rule isn’t the only force that has reshaped Citigroup since the crisis. As the rule was phased in over the past few years along with tougher capital requirements, the bank has focused on becoming smaller and less risky overall. Its institutional bank has pared down the number of clients it serves and sold various units, including a high-frequency trading division.

In many ways, though, Citigroup has grown more tied to Wall Street: It has shed retail branches and shut consumer operations in many countries across the globe. Bank executives have also said they would like to continue expanding the fixed-income trading division, one of the most important units at Citigroup, even as rivals retrench.

Ms. Raytcheva, who grew up in communist Bulgaria, joined Citi as an interest-rate-options trader in 1994, four years before it merged with Salomon Brothers parent Travelers Group. She rose through the ranks of Citigroup’s fixed-income unit and during the 2008 financial crisis held a senior role that involved managing risk for the bank’s corporate treasury department.

That job included overseeing mortgage securities that suffered billions of dollars in losses along with the industry. “It was a very challenging period, and there was a lot of hard work and effort to navigate through that,” Ms. Raytcheva said. “I have learned from the crisis and it’s made me that much better.”

FT : Williams rejects Enterprise deal

Williams rejects Enterprise deal
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The US’s largest gas pipeline group, Enterprise Products Partners, recently attempted to buy its smaller rival,Williams Companies, but was rebuffed in its effort to create an $80bn energy transportation giant, people briefed on the negotiations said.


Depsite the rejection, Enterprise Products remains interested in a deal for Williams and may make another offer, the people added. Enterprise Products and Williams declined to comment. Shares in Williams were up 2.5 per cent just after midday in New York trading, giving it a market value of nearly $20bn, write James Fontanella-Khan in New York and Arash Massoudi in London.

The takeover bid came just weeks after a $33bn sale of Williams to another rival, Energy Transfer Partners(ETE), collapsed in June after a bitter court battle. Since then, Oklahoma-based Williams has suffered a series of boardroom upheavals, with six of 13 directors resigning following a failed attempt to oust the company’s chief executive, Alan Armstrong.

Among the directors that stepped down from the Williams board were two activist investors, Keith Meister of Corvex Management and Eric Mandelblatt of Soroban Capital Partners, who are thought to be in favour of the company considering other takeover offers.

Both companies declined to comment.

The structure of the offer made by Enterprise Products, the largest US midstream pipeline company by market value, could not be learned but the people added that it remains interested in a deal for Williams.

EXCLUSIVE-Monte dei Paschi CEO, former chairman under investigation - source - R

EXCLUSIVE-Monte dei Paschi CEO, former chairman under investigation - source - Reuters News
18-Aug-2016 15:35:00
By Silvia Ognibene
FLORENCE, Italy, Aug 18 (Reuters) - The chief executive of Monte dei Paschi di Siena BMPS.MI, Fabrizio Viola, and the Italian bank's former chairman, Alessandro Profumo, are under investigation for alleged false accounting and market manipulation, a source with knowledge of the matter said.
The investigation, which started in 2015 following complaints filed by small shareholders and consumer associations, comes as the Tuscan bank prepares to launch a 5 billion euro ($6 billion) stock sale after emerging as the weakest bank in Europe in industry stress tests in July.
A spokesman for Monte dei Paschi said the decision to investigate Viola and Profumo followed a proposal by two shareholders to seek damages from the two executives which was rejected by other shareholders at an April meeting.
"(Under Italian law) prosecutors are bound to open an investigation when they receive a complaint," the spokesman said in an emailed comment.
This comment reflects Profumo's position, a separate spokesman for Profumo said.
Being placed under investigation in Italy does not imply guilt and does not automatically lead to charges being laid.
The source said on Thursday prosecutors in Siena alleged the bank did not correctly book two derivatives trades known as Alexandria and Santorini between 2011 and 2014.
The inquiry was transferred to prosecutors in Milan in July. They now have 18 months to decide whether to shelve the investigation or seek trial for Viola and Profumo, the source said.
Siena prosecutors could have chosen to close the case, the source added.
Reuters' calls to the prosecutors' offices in Milan and Siena went unanswered.
The health of Italy's third-largest lender poses a threat to the wider banking system, the savings of thousands of small savers and also to the weakening political standing of Prime Minister Matteo Renzi, who faces a make-or-break constitutional referendum in the autumn.
Viola and Profumo were drafted in at Monte dei Paschi in 2012 to turn it around after it wrecked its balance sheet by overpaying on the purchase of rival Antonveneta in 2007 and engineering risky derivatives trades.
Profumo, a veteran Italian banker formerly at UniCredit CRDI.MI, stepped down as Monte dei Paschi chairman in August last year after overseeing two cash calls in 2014 and 2015 which raised a total of 8 billion euros.
Shares in Monte dei Paschi are trading at record lows, after losing around 86 percent of their value since the bank completed its last share sale in June 2015.
In January, Milan prosecutors sent to trial 13 former managers at Monte dei Paschi, Nomura 8604.T and Deutsche Bank DBKGn.DE in a separate investigation into the two derivatives as well as a hybrid financial instrument used to partly finance the 2007 acquisition. (Full Story)
All the managers involved and the banks have denied any wrongdoing.
Prosecutors have said the bank's former management entered Alexandria and other derivative trades to conceal losses after stretching its finances to buy Antonveneta for 9 billion euros.
In December, Italy's market watchdog Consob told Monte dei Paschi it had inaccurately booked the Alexandria derivative trade in its 2014 and first-half 2015 accounts.