Tag Archives: Crime

Hedge Fund Manager’s Arrest Shows How Market Manipulation Works

September 2, 2022 tremendousblog 7 Comments

Hedge fund manager Neil Phillips has been arrested in Spain this week.

He is charged with masterminding a market manipulation scheme that reached from the UK to Asia. His strategy shows how hedge funds manipulate markets from currencies to stocks.

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From a new report in Bloomberg:

Phillips was charged with conspiring to manipulate the US dollar-South African rand exchange rate in late 2017. The indictment, which was returned in March but previously sealed, describes at least two co-conspirators, raising the possibility of charges against more people.

Phillips faces up to 20 years in prison if convicted. His scheme involved buying an option on the dollar-rand exchange rate, then manipulating the exchange rate to make his option pay off:

With the option set to expire, Phillips began making spot trades in an effort to push the exchange rate lower late on Christmas Day, while directing a Singapore-based employee of an unidentified bank to sell $725 million in exchange for more than 9 billion rand, according to prosecutors. That pushed the exchange rate below the barrier, triggering the $20 million option. Phillips collected more than $15.6 million from the deal and also allocated $4.34 million to an unidentified client.

Phillips’ moves show us how market manipulation works.

He took advantage of thin trading late Christmas Day. Markets are easier to manipulate when trading is light.

He also used trades in an underlying asset to benefit an options position. The same approach is likely common in stocks.

Phillips even went as far as involving a co-conspirator on the other side of the world in the hopes of hiding his illegal trades. But he was foolish enough to discuss the whole thing in chat messages on his Bloomberg terminal.

Bloomberg routinely gives chat records to the government in subpoenas. Phillips might not be facing prison had he used an encrypted app like Signal.

I find the Phillips case fascinating for how it trains us to spot hedge fund manipulation of markets.

If we suspect price manipulation, we should look for big trades at odd times. Major sell order right before the close on the last trading day of the year?

It might be worth a look.

Where do you see signs of market manipulation? Leave a comment at the bottom and let me know!

There will be no post on Monday for the holiday. Have a great Labor Day weekend everyone! 👋🥳

More on markets:

AMC Fails to Deliver Pass 700,000 in New Report

Why Hedge Funds May Pile into APE Shares

Is Melvin’s Gabe Plotkin Headed to Prison?

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Business

Morgan Stanley Investigation Spreads to Multiple Countries

August 29, 2022 tremendousblog 5 Comments

Morgan Stanley, already under federal investigation in the US, is now facing another probe. This time, it’s in Korea.

From a report that broke last night on Bloomberg:

Morgan Stanley’s stock short selling practices are being inspected by South Korea as part of a broader effort by the nation’s financial watchdog to clamp down on bets against equities, according to a person familiar with the matter.

Goldman was fined in 2018 for naked short selling in the Korean market. Regulators may be looking for similar infractions by Morgan.

This comes as Morgan forces another executive out under mysterious circumstances. Executive Director Charles Leisure was placed on leave last week.

From a report out over the weekend, also on Bloomberg:

Charles Leisure, an executive director who worked on the New York-based bank’s equity syndicate desk, was put on leave this week, people with direct knowledge of the matter said, asking not to be named because the information isn’t public. He was part of a team that handled block trades — deals that have been facing scrutiny from federal prosecutors in the Southern District of New York and the US Securities and Exchange Commission.

Leisure worked for Pawan Passi. Both handled block trades, or buying and selling of large amounts of stock.

Big investors rely on banks like Morgan to quietly offload huge chunks of stock. Morgan may have tipped hedge funds to the sales beforehand, giving them a chance to front-run the trades.

Banks have an incentive to play footsie with hedge funds because of what’s called prime brokerage. A hedge fund’s prime broker handles the fund’s trades, a very lucrative relationship.

If a bank gives them information about market-moving trades, the bank could be more likely to win that business.

So far, nothing has been proven against Leisure, Passi or Morgan itself. Perhaps all its trades were aboveboard.

But consider the overall picture.

Multiple executives in the same area placed on leave. Investigations spreading from one country to the next.

Even other Wall Street banks are raising concerns about Morgan’s activity, a rare move.

Something tells me that where there’s smoke, there’s fire.

What do you think is going on at Morgan Stanley? Leave a comment at the bottom and let me know!

More on markets:

Wall Street Banks Turn on Each Other as Federal Probe Looms

Is Melvin’s Gabe Plotkin Headed to Prison?

Hedge Fund Giant Tiger Loses Over $18 Billion — Long Fund Down 64%

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Business, Politics

Former Congressman Arrested for Insider Trading

July 25, 2022 tremendousblog 2 Comments

Former Congressman Stephen Buyer was arrested today for insider trading. From Politico:

Federal authorities filed criminal and civil insider trading charges against former Rep. Stephen Buyer in U.S. court in Manhattan on Monday, alleging that the Indiana Republican used information gleaned from a golf outing with a T-Mobile executive to purchase securities before the company’s planned acquisition of Sprint.
Buyer was arrested on Monday, said U.S. Attorney for the Southern District of New York Damian Williams at a press conference.

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Buyer also made suspect trades in at least one other company. His trades made him over $300,000.

He may have even used his mistress to hide the trades:

The SEC’s complaint claims that Buyer netted roughly $330,000 from the transactions, which he spread across multiple accounts belonging to associates and family members, as well as an unidentified friend with whom he had allegedly engaged in a romantic relationship.

I was put in mind of a great scene from The Wolf of Wall Street. Leonardo DiCaprio realizes his elegant Swiss banker is telling him to hide his money under someone else’s name:

Politicians trading on inside information is nothing new. Congressional representatives beat the market on average, despite many having no background in investing.

House Speaker Nancy Pelosi has been particularly successful. Her performance is 6th best out of 435 members of Congress.

I guess power has its perks.

The public will not trust markets like this. If the powerful use inside information to get ahead, the average person will conclude the game is rigged and walk away.

This means companies won’t get the capital they need. And savers won’t be able to build wealth.

These crooked politicians also undermine trust in government. If you’re profiting from your office, you’re not doing the people’s business.

High government officials and their families should keep their assets in a blind trust. That way, they have no way of using inside information for profit.

I hope these prosecutions start hitting a much higher level. There’s plenty of opportunity here for an ambitious prosecutor to make his career by taking one of these major pols down.

What do you think of politicians self-dealing? Leave a comment at the bottom and let me know!

More on markets:

Wall Street Banks Turn on Each Other as Federal Probe Looms

AMC Fails to Deliver Hit 9.7 Million

Shorts Having Their Worst Month Since January 2021

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Business, Politics

Retirees Face $1.3 Billion Loss in Wall Street Fraud

June 24, 2022 tremendousblog Leave a comment

It was supposed to be a safe investment.

In small offices across the country, brokers sold a security called L Bonds. The bonds were backed by life insurance policies and were supposed to provide a steady stream of income.

Many buyers were elderly. Now they’re facing catastrophic losses of up to $1.3 billion.

From a report that broke this morning in The Wall Street Journal:

What many of these retail investors didn’t know was that [bond issuer] GWG’s founders and a board director would each use the money to fund and launch their own startup ventures, then move them out of the investors’ reach, according to people familiar with the matter. The roughly 27,000 individuals who bought GWG’s unique debt securities, known as L Bonds, are now facing huge potential losses – for many, their retirement nest eggs.

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The original business buying life insurance policies quickly ran into trouble. So, bond issuer GWG Holdings cast about for another strategy.

It settled on backing speculative startups run by the company’s founders.

That would be reckless enough a thing to do with small savers’ money. But worse yet, the miscreants running GWG quickly moved those assets out of reach of the L Bond buyers.

Once the top executives had taken the assets, they drove GWG into bankruptcy.

The judge overseeing the court proceedings in Houston said he had never before seen a company give up control of everything it owns before seeking chapter 11 protection.

GWG appears to have operated like a Ponzi scheme. Of the $1.26 billion in L Bonds the company sold, nearly two-thirds went to paying off prior bonds.

Meanwhile, the top executives siphoned off tens of millions of dollars in dividends for themselves.

The SEC began investigating GWG as early as 2020. GWG didn’t disclose the investigation to its investors for a year.

In the mean time, it sold another $200 million in toxic L Bonds.

The law generally prohibits the SEC from disclosing investigations. I think it’s high time to change those laws.

Many elderly put their life’s savings into these bonds.

They should’ve known the company was under federal investigation. The government they pay taxes to should never have kept that a secret from them.

It doesn’t help for the SEC to blow the whistle once the money is already gone.

What do you think of this case and how the SEC handled it? Leave a comment at the bottom and let me know.

See you on Monday!

More on markets:

Hedge Fund Tiger Global Losing $136 Million a Day, Down 52%

Hedge Fund Giant D1 Loses $7 Billion in 2022

Shadowy Hedge Fund Cash Bankrolls Fight Against Regulation

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Business

Hedge Fund Ponzi Scheme Steals $39 Million from Investors

May 27, 2022 tremendousblog Leave a comment

Another day, another hedge fund scandal. The SEC announced charges this week against a Detroit hedge fund for bilking investors of tens of millions of dollars.

From Financial Advisor magazine:

The Securities and Exchange Commission today announced fraud charges against Detroit-based EIA All Weather Alpha Fund Partners I LLC (EIA) and its sole owner, RIA Andrew M. Middlebrooks, for an alleged multiyear Ponzi scheme that the agency said included the misappropriation and loss of nearly $39 million in investor funds.

The commission said in its complaint that from at least mid-2017 to April 2022, EIA and Middlebrooks deceived investors in their hedge fund, the EIA All Weather Alpha Fund I LP, by making false and misleading statements that “wildly” misstated the fund’s performance and total assets. The SEC also said in the complaint that the fund and Middlebrooks provided falsified investor account statements, misrepresented that the fund had an auditor and created and disseminated a fake audit opinion to investors.

In addition to being a rotten trader, Middlebrooks had a taste for the finer things in life. He paid for them with investor money:

Middlebrooks also misappropriated investor funds for personal use, allegedly transferring at least $470,000 to his wife’s business, making more than $750,000 in transfers to his personal bank account and using $64,000 in investor money to pay for jewelry, the agency said.

It seems likely that his victims will lose their entire investment:

“Middlebrook’s losing trading strategy coupled with his misappropriation has resulted in near total loss of investor funds,” the SEC said.

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The hedge fund describes itself rather differently on its website:

We are active investors, not closet indexers, and we have structured an investment process and environment that enables us to be disciplined, to be patient and to exercise good judgment.

It turns out investors would have been far better off with that boring index fund. Indeed, they form the core of my portfolio.

The fund’s LinkedIn profile comes closer to telling the truth:

This intellectual framework allows the Portfolio Manager to manage the Fund unencumbered by emotions or inherent bias.

Emotions definitely didn’t stop Middlebrooks and his cronies from bilking unsuspecting investors.

I was able to find what appears to be the actual slide deck that Middlebrooks used to pitch investors. The scariest part about it is that the pitch seems fairly plausible, proposing a long/short strategy that combines value and momentum.

EIα All Weather Alpha Partners Fund I, L.P. from Andrew Middlebrooks

In addition to their thieving, it appears that EIA partners were paid well. Glassdoor records total compensation of $254,000.

I guess that wasn’t quite enough to cover their expensive tastes.

We see one case of shady behavior after another in the hedge fund world. The SEC and DOJ need to step up and start seriously scrutinizing these funds.

I’m as pro-free enterprise as anyone you’re likely to meet. But fraud doesn’t qualify.

As Memorial Day approaches for those of us in the United States, one of the more patriotic things we can do is to safeguard that free-enterprise system by purging its bad actors.

What do you think will be the next hedge fund to fall? Leave a comment at the bottom and let me know!

There will be no blog on Monday for the holiday. Have a great Memorial Day weekend everyone! 🥳🇺🇸

More on markets:

$6B Hedge Fund Cut Off from Trading As Investigation Looms

Hedge Fund Giant Tiger Global Losing $28 Million an Hour

Citadel Adds Millions to AMC Options Bet

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Photo: EIA Alpha Partners CEO Andrew Middlebrooks

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Business

Feds Charge Stock Manipulators Who Stole $194 Million

April 22, 2022 tremendousblog Leave a comment

The federal government has charged a fraud ring that manipulated numerous US stocks. The group netted $194 million in ill-gotten gains over several years.

From Compliance Week:

The SEC’s charges, contained in three separate complaints filed in the U.S. District Court for the Southern District of New York, allege that the defendants secretly held large, controlling positions in so-called “penny stocks” issued by microcap companies.
From 2013 through at least 2018, defendants’ goal was to secretly gain control of thinly traded microcap companies, hire stock promoters to generate demand for their shares, and then profit by selling those shares illegally to unsuspecting investors,” stated one SEC complaint.

The criminals hid behind a variety of shell companies and offshore accounts. They employed various schemes such as “painting the tape,” or trading shares between each other at inflated prices to make the stock seem more valuable then it was, according to the DOJ press release.

This is a common strategy. Once the price has risen artificially, the shares are then dumped on an unsuspecting bag holder who thinks he’s bought a “hot stock.”

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The defendants are charged with securities fraud, wire fraud, money laundering, and other charges. They could face up to 20 years in prison, per count.

The key point to remember is that this type of manipulation happens in securities markets every day. And it’s not confined to small stocks.

As investors, we have to be on the lookout for it.

And just as there are conspiracy to pump stocks, there are conspiracies to crash them.

Short selling hedge funds Melvin Capital and Citron Research are being investigated by the FBI for possibly conspiring with research firms to publish false reports on stocks. Sabrepoint Capital paid a researcher to publish false, negative information about Farmland Partners on Seeking Alpha, a recent court case uncovered.

Here are a few guidelines to avoid being caught up in these schemes:

1) Don’t believe everything you read.
2) Don’t buy a stock just because it’s going up.
3) If someone you don’t know calls you to promote an investment, hang up.

I hope the DOJ prosecutes this fraud ring vigorously. I also hope they uncover the many more that are still in operation.

What do you think about this massive fraud? What other frauds do you think may be lurking in financial markets?

Leave a comment at the bottom and let me know!

Have a wonderful weekend everyone! 👋

More on markets:

AMC Fails to Deliver Pass 1.3 Million in Latest Report

NYSE Investigating Shopify Stock Plunge; Citadel Involved

AMC Now #4 Most Shorted Stock

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Technology

$1 Billion Still Missing from Bitfinex Hack

February 10, 2022 tremendousblog 1 Comment

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Last week, the U.S. government made its largest asset seizure ever: $3.6 billion worth of bitcoin.

The money came from the 2016 hack of the Bitfinex exchange. The culprits: Ilya Lichtenstein and Heather Morgan, a young couple from New York City.

Perhaps the most interesting detail in this story is that approximately 24,000 bitcoins are still missing from this hack. They would be worth over $1.1 billion at current prices.

So where are they? Perhaps percolating around the same places where Lichtenstein and Morgan laundered theirs.

The criminal complaint alleges that the couple laundered some of their stolen coins using non-fungible tokens (NFT’s). This could explain why people will pay hundreds of thousands or even millions of dollars for an image of an ape.

If two criminals work together, trading the NFT between various accounts they control at ever-increasing prices, all they need is one bagholder to come in and make the illusion real. They take his money, give him the little jpeg, and laugh all the way to the bank.

Another fascinating aspect of this story is how they were caught:

The authorities said they traced the flow of funds through the unhosted wallets and across exchanges, according to the complaint, finding transactions that landed in accounts on exchanges that the two alleged launderers had in their real names. In one instance, according to the complaint, two of these accounts shared a login from the same location in New York.

This is a common mistake: mixing anonymous and real identities. Ross Ulbricht, creator of the Silk Road, did this by logging into his private VPN and his personal Gmail account from the same cafe in San Francisco.

If authorities find a pattern that when an anonymous account is used, your account also tends to be used from the same IP address, you’re going down.

In all, I think this case is good for the crypto industry. The less it seems like a free-for-all, the more legitimate it becomes.

The more legitimate it becomes, the broader adoption will be.

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NYC Area

How New York Winters Helped Put Gotti in Prison

December 6, 2021 tremendousblog Leave a comment

No one could touch John Gotti. Prosecutors went after the Gambino crime family boss repeatedly, only to see him acquitted.

Rather than give up, they went after Gotti in his inner sanctum: the Ravenite Social Club.

As the Gambinos eventually learned, an FBI surveillance team, over Thanksgiving weekend 1989, had secreted bugs throughout the apartment two floors above the Ravenite Social Club at 247 Mulberry Street. The Gambinos had been using the apartment, which was owned by Nettie Cirelli, the widow of Gambino wiseguy Michael Cirelli (Nettie was away on vacation that Thanksgiving holiday), for years. In fact, Gambino underboss Aniello (Neil) Dellacroce also had used that apartment for secret meetings.
Gravano also is asked whether the Gambino bosses ever considered going outside to discuss topics like murder in order to avoid possible bugs.
“We had most of (those discussions) outdoors,” but it was “impossible to have them all outdoors.” This was because, as he said, sometimes the weather didn’t permit it and sometimes they were too tired.

I was struck by how something as simple as a cold night foiled this wily mafia boss.

It shows me how when we lose our discipline and lower our standards, we open ourselves up to catastrophe. This is a valuable lesson for those of us on the right side of the law, even if it comes from a notorious gangster.

This story comes from the excellent Cosa Nostra News blog. I’ve been speaking with the author lately, and he has some outstanding content on organized crime.

If you’re interested in the mafia, I strongly recommend checking out his site. Another great post: a fictional account of a mysterious mob hit.

It begins with a body floating in the Hackensack River.

Enjoy!

Paul Castellano’s Last Day

August 23, 2021 tremendousblog Leave a comment

Salvatore Gravano, a made member of the Gambino crime family, walked into a room with a heart shaped bed. The sheets were red velvet. Mirrors lined the ceiling.

This was no romantic getaway. Gravano had just murdered the most powerful mob boss in the country. Now he was on the run.

In an engrossing episode of the Our Thing podcast, Sammy the Bull describes the murder of Paul Castellano and its aftermath.

The love nest Sammy found himself in belonged to Joe Watts, a fellow soldier. Sammy and his crew hid there after the hit, bracing for the war they were sure was coming.

Gravano, exhausted, took the couch instead. His fatigue after the hit is a strange parallel to Irish mobster Whitey Bulger, who often slept after his many murders.

This is the biggest hit of all time.
Frankie DeCicco

The war never came. The Castellano hit had been conducted brazenly amid the crowds in Midtown Manhattan. Anyone who had a problem with Gotti and Gravano kept their mouths shut, afraid to meet to same fate.

John Gotti was made boss of the Gambino family in the basement of a school. A fellow mobster had a connection there.

I picture the children who came the next day, never knowing what happened.

‘They Gotta Go’: Gravano on the Castellano Hit

August 13, 2021 tremendousblog Leave a comment

Gambino family boss Paul Castellano had a problem: he couldn’t get hot water in his shower. The mansion he had built on Staten Island’s Todt Hill was so large that water cooled in the pipes before it could reach the bathroom.

The contractor he got to help him was a rising star in the Gambino family: Salvatore Gravano. Gravano had his men wrap heating coils around the pipes, and the problem was fixed.

Castellano couldn’t have known that the man who fixed his shower would one day murder him.

On this fascinating episode of the Our Thing podcast, Gravano breaks down how the notorious murder of Castellano, the most high profile crime boss in the country, happened. Castellano would be killed outside the exclusive Sparks Steakhouse on Manhattan’s 46th Street. The hit was planned meticulously for months and the shooters even obtained walkie talkies to communicate outside Sparks.

As the day of the murder approached, Gravano and Gambino consigliere Frankie DeCicco hid in the maid’s quarters of an associate’s home in Staten Island, practically under Castellano’s nose. And their scheming went beyond killing Castellano. Should John Gotti, who would become boss after the hit, not cooperate with them, they would kill him as well.

“This is a do or die hit.”
Salvatore “Sammy the Bull” Gravano

On December 16, 1985, a group of men in white jackets and distinctive fur hats began to approach Sparks. Castellano and his driver, Tommy Bilotti, pulled within a few feet of Gotti and Gravano on the narrow Manhattan streets. But they never noticed Gotti or Gravano, who directed the hit and was also there as a backup shooter.

Uniforms, radio communications, reserve forces: the hit had a military precision. Castellano and Bilotti were quickly shot to death, making John Gotti the boss of the Gambino family.

In this podcast, Gravano portrays Gotti as a reckless loudmouth, even as the late Gotti no longer has any chance to defend himself. It’s hard to know how accurate his account is, but it’s certainly entertaining!

Tremendous

Tag Archives: Crime

Hedge Fund Manager’s Arrest Shows How Market Manipulation Works

Morgan Stanley Investigation Spreads to Multiple Countries

Former Congressman Arrested for Insider Trading

Retirees Face $1.3 Billion Loss in Wall Street Fraud

Hedge Fund Ponzi Scheme Steals $39 Million from Investors

Feds Charge Stock Manipulators Who Stole $194 Million

$1 Billion Still Missing from Bitfinex Hack

How New York Winters Helped Put Gotti in Prison

Paul Castellano’s Last Day

‘They Gotta Go’: Gravano on the Castellano Hit

An angel investor's take on life and business