ex-CEO Ronald Ferguson and ex-CFO Elizabeth Monrad — and one worked at AIG.

Five former insurance company executives were convicted today in Hartford, Conn., for deceiving American International Group investors back in 2000,
Four led General Reinsurance Corp. — including ex-CEO Ronald Ferguson and ex-CFO Elizabeth Monrad — and one worked at AIG. A federal jury found all five guilty of fraud for a bogus stock transaction that helped AIG add $500 million in phony loss reserves, a key indicator of an insurer's health."This case is about truth, a choice to lie and deception to cover it up,'' Assistant U.S. Attorney Raymond Patricco told jurors in closing arguments. "These five defendants made the choice to lie to AIG's investors and to deprive them of the opportunity to make informed decisions about their stock.'' (Here's the Justice Department's press release.) All could be sentenced to a maximum of 20 years, though sentencing guidelines typically call for lesser terms. They'll learn their fates May 15. The convictions add to the swelling list of big corporate crimes the past few years. The greatest hits include:Days Inn — $100 million bank fraud; PinnFund — $187 million mortgage Ponzi scheme; Brocade Communications — millions in stock back-dating; Enterasys Networks — $97 million accounting fraud; Suprema Specialties — $400 million bank and stock fraud; Tyco — $580 million in theft and stock fraud; WorldCom — $11 billion accounting fraud; Adelphia Communications — $100 million theft and $2.3 billion debt deception; Rite Aid — $1.6 billion accounting fraud; and perhaps the best known case, Enron, which also snared executives from Merrill Lynch.
The Bush administration launched the Corporate Fraud Task Force in 2002 in the wake of Enron and WorldCom. Back in November, the Wall Street Journal's Law Blog flagged an American Lawyer analysis of the task force's accomplishments, which asked: "Is there no more corporate crime — or has the Justice Department simply stopped looking for it?"

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Posted in: Corporate Fraud Task Force

Britons involved in tax fraud British government's tax agency said on Monday it too had paid for information on secret Liechtenstein b

A massive tax evasion scandal in Germany has spilled over to other parts of Europe as Berlin vowed to share information on alleged tax evasion centering on Liechtenstein with countries whose nationals may be implicated.Widening the scope of what is already a massive scandal involving hundreds of wealthy German tax cheats sheltering millions in discreet bank accounts in Liechtenstein, the German government said on Monday, Feb. 25, it would provide information to foreign countries whose nationals are involved in the tax evasion affair. "We are going to respond to requests in this regard," German finance ministry spokesman, Thorsten Albig told reporters, adding that Germany would not charge foreign governments for the information. Scandinavians, Britons involved in tax affair? Germany's intelligence service is reported to have paid 4.2 million euros ($6.22 million) to an informant, a former employee of Liechtenstein banking group LGT, for an incriminating list containing the names of hundreds of people who evaded taxes by parking their money in secret bank accounts in the tiny Alpine principality of Liechtenstein. Albig said Berlin bought the information because investigators believed that "it could lead to the return of hundreds of thousands of dollars." Bildunterschrift: Großansicht des Bildes mit der Bildunterschrift: It's not just Liechtenstein's scenic beauty that attracts the rich and famous
The list is believed to contain the names of more than 700 wealthy Germans as well as well-heeled tax cheats from other nations. The disclosure has prompted a massive investigation in Germany and frayed ties between Berlin and Liechtenstein capital, Vaduz. Germany's Handelsblatt business daily reported that Finland, Sweden and Norway had signaled interest in getting their hands on the list of bank clients.
Joining the German crackdown on tax evaders, the British government's tax agency said on Monday it too had paid for information on secret Liechtenstein bank accounts held by British citizens. Media reports said Britain paid a whistleblower 100,000 pounds (132,931 euros, $196,000) for details of Liechtenstein accounts held by 100 wealthy Britons. Unpaid taxes in the affair could amount to as much as 100 million pounds, reports said. The Financial Times reported that Britain had refused two years ago to pay the whistleblower but changed its mind after Germany shelled out money to get similar information. The tax scandal also made waves across the Atlantic as a senior US lawmaker said last week he would launch an investigation into American citizens also believed to have hid assets at LGT. High-profile victim The investigation into the tax evasion scandal, considered one of the biggest in German history, began earlier this month with raids on the home and offices of Klaus Zumwinkel, the high-profile boss of Deutsche Post, Europe's largest postal service, who is suspected of having dodged taxes to the tune of 1 million euros. Zumwinkel has since resigned his post. Bildunterschrift: Großansicht des Bildes mit der Bildunterschrift: Zumwinkel's fall from grace was rapid
Ever since, German authorities have been conducting raids across the country on private individuals for allegedly hiding money in accounts Liechtenstein's biggest private bank, the LGT Group, which specializes in setting up foundations and is owned by Liechtenstein's royal family. The affair has angered ordinary Germans and sparked a heated debate about the ethics and accountability of the country's highly-paid business elite. Anger over "stolen information" Equally, the German government's payment for the incriminating information, which was allegedly stolen from the Liechtenstein bank by the former LGT employee, has come under intense scrutiny.
On Monday, the LGT Bank voiced anger at how the "stolen information" was being shared around European capitals. "Apparently, the stolen data material has also been illegally disclosed, directly or indirectly, to other authorities," the bank said in a statement. "LGT regards such methods as being extremely offensive."
The affair has also raised questions about banking secrecy laws enjoyed by some European nations. Liechtenstein is one of only three countries on the OECD's tax-haven black-list, alongside Andorra and Monaco. Germany has vowed to broaden efforts to crack down on tax evasion to countries such as Switzerland, Luxembourg and Austria as well.
Switzerland and Luxembourg have distanced themselves from the charges. Both of the countries prohibit revealing bank information to the outside world except in criminal matters.

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Posted in: Liechtenstein

hyper-complex credit bubble

hyper-complex credit bubble affecting a dizzying array of little-known but somehow completely intertwined components. No wonder the coverage has been as inconsistent and spotty as, well, the auction-rate market.The auction-rate market? What's that?
Really, how many financial journalists knew what the auction-rate market was-or that it even existed-until a few weeks ago? Or a SIV, for that matter? Or a conduit? Or a credit-default swap? Or even bond insurance? This is normally dense, difficult, unglamourous stuff. So we're left with a, well, strange situation. Thanks to the blogosphere, never before has so much media pantingly followed finance. But never before has the media produced so little real information on such a big event. Ask yourself: has any one outlet, online or otherwise, emerged as the go-to source for original insight into our current situation?To be sure, The Wall Street Journal, The New York Times and the Financial Times have dutifully covered many of the individual shoes that have dropped as we fall deeper into an economic quagmire. And in the blogosphere, Portfolio.com's Felix Salmon, for one, has done a decent job providing running commentary on developments and directing his readers to other outlets when they turn up something interesting. But no one seems to be putting it together into a coherent package or explaining how these complex markets and products fit together and why anyone should care about them. Instead, we get general rehashings like Mort Zuckerman's elementary explainer in the Feb. 27 issue of The New Republic. Its headline: "Panic!"
A Subprime-Induced Crisis, that spread from the mortgage companies to the largest hedge funds, to the biggest banks…and finally to the plummeting stock markets.
A Powerless, Reckless Fed: The Bernanke "Plunge Protection Team" recklessly cut rates as quickly as possible to fight off a possible recession.
A Worldwide Credit Orgy: The ECB pumped an astonishing one-half trillion dollars into the global financial system in late December to help alleviate the credit crunch in a single week.
An Epidemic of Writedowns: Wall Street's biggest financial firms wrote-down tens of BILLIONS to keep their books in the black.
Biggest Banks Crying "Uncle!" Sovereign Wealth Funds (SWFs) from Singapore and China road to the rescue to bailout "too-big-to-fall" banks like UBS and Citigroup. And just yesterday, Qatar officials announced they would pump as much as $15 billion of their Sovereign Wealth Funds to buy distressed European and U.S. bank stocks over the next 12 months.
Global Stocks Head One Way — Down: Not to mention, the Dow dropped over 11% since just November 1st. And, we just had the worst January for stocks since 1990.

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Posted in: hyper-complex credit bubble

Major corruption scandal in the European Union

Last year, three Italian nationals, including a civil servant working for the European Commission were charged with forgery, corruption fraud and forming a criminal organization.
In what could become a major corruption scandal in the European Union, a confidential report by the European Parliament's internal auditors says that some of the 784 members of parliament (MEPs) were employing family members while others had registered payments to firms which did not exist.
The demand for an investigation was made by Charles Davies, a member of the UK Liberal Democrat party and the parliament's budget control committee. Davies, who was among a handful of MEPs allowed to see the report, perused its contents under supervision and was forbidden from taking notes or making photocopies.Corruption cases at EU institutions are a sensitive issueThe EU's anti-fraud unit, OLAF, which routinely checks internal audits made by the EU's various institutions, will now scrutinize the secret internal study to determine whether there was an abuse of public EU funds.Complied by the EU parliament's internal auditor, the report analyses 167 payments made in 2004 and 2005 to MEPS' assistants.
Each member of the European Parliament is granted 16,000 euros ($23,500) a month to pay assistants. While some assistants work in Brussels, other staffers work in their MEP's own country. Parliamentarians pay their staff 140 million euros a year, about 10 percent of the assembly's overall expenditure.News agency AFP quoted an unnamed EU deputy who said, "The auditor found proof that in some cases the listed service provider didn't even exist." Citing another unnamed parliamentary insider, the news agency said the abuses amounted to almost 100 million euros.Davies told EUobserver that his first reaction was "a degree of hysteria given the scale of the abuse that is taking place and given the fact that it has been kept secret."How transparent is the European Parliament?Davies, who contacted OLAF about the report, called the decision to keep the report secret "absurd" and a "travesty of justice."
"A parliament committed to openness and transparency has no right to try and keep secret details about how public money is used and misused. And… we are talking about very large sums of money," Davies said.
Though the EU Parliament has not commented on the details of the report, spokeswoman Marjory van den Broeke said the audit confirmed that the remuneration system was "too complicated" and had become "very difficult to manage, both for the deputies and for the parliament's administration."

The European Parliament's secretary-general is now to propose a simpler system for hiring and administering staff, doing away with the current system which involves at least three different methods for MEPs to put together their team of assistants.
Corruption cases at EU institutions are a sensitive issue after a scandal in the late 1990s brought down the entire European Commission.
The commission and an assistant to an MEP were charged with forgery.
Edith Cresson, a former French Prime Minister who served as research and education commissioner in Brussels from 1995 to 1999, was accused of hiring a dentist from her home town as an advisor, despite being warned it was against EU rules.
The scandal eventually led to the collective resignation of the commission and its President at the time, Jacques Santer, in March 1999.

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Posted in: Scandal in the European Union

Unwinding of CDOs

``The market is full of rumors of unwinding of CDOs, and the price action suggests that people believe the rumors,'' said Peter Duenas-Brckovitch, head of European credit trading at Lehman Brothers Holdings Inc. in London. ``It sort of has that Armageddon feel, and the market is feeding on itself.'' Everyone knows that homeowners insurance is designed to insure against fires and floods but few are familiar with credit default swaps, arcane financial instruments invented by Wall Street about ten years ago. Credit default swaps (CDS) were designed as “insurance” to reimburse banks and bondholders when companies failed to pay their debts. Credit default swaps have become so popular among banks that the Comptroller of the Currency (OCC), which regulates banks, reports that they are the fastest growing derivatives product in the market, growing 19% from the second quarter to the third quarter last year to $14 trillion in value. The problem is, they are unregulated. Experts contend that, because credit default swaps have proliferated so rapidly, a hiccup in this market could set off a chain reaction of losses in financial institutions that will virtually dry up the banks' ability to lend. The cost of protecting corporate bonds from default soared to a record as investors purchased credit-default swaps to hedge against mounting losses in the $2 trillion market for collateralized debt obligations. This is more than just a tempest in a teapot. Already AIG , the largest insurer in the United States , has had to deal with pricing and risk issues with its independent auditors on some of the credit default swaps it holds. Societe Generale, the French bank that recently reported losses from a rogue trader, also has problems with CDSs. "The purchase of assets originating from asset-management funds invested in credit-type underlyings could continue in the first quarter and, given the situation in the credit markets, lead to further write-downs," the bank warned. Credit Suisse was forced to raise the coupon on a $2 billion note it was offering after reporting writedowns of $1 billion in the first quarter of 2008 dealing with credit-default swaps. All of this must be leading to arguments between the boards of directors and their independent auditors at almost every major bank about the true value and risk of their credit-default swaps. The trouble is, they must have their 2008 reports signed off by their auditors and in the hands of the Comptroller of the Currency by February 28th , for the OCC's year-end report. The problem is, practically no one can get a handle on the true value of their credit-default swaps because they are thinly traded, have huge counter-party risk, are unregulated and are difficult to analyze.

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Posted in: unwinding of CDOs

Fairfax has cashed in some of its CDS gains

Fairfax Financial Holdings Ltd., which has just cashed in on a huge bet against the U.S. bond market, has laid down a wager that the credit crunch will hit Europe with a similar force. The insurance firm yesterday revealed a 2007 profit of $1.1-billion (U.S.), more than quadruple the previous year's results, thanks to its investment in credit default swaps (CDS), which rise in value when market conditions deteriorate. Fourth-quarter profit more than tripled to $564-million. But Fairfax chairman and chief executive officer Prem Watsa is also setting his sights across the Atlantic. Fairfax has invested about $60-million in European CDS in the belief that the lending problems that have struck UBS AG, Credit Suisse Group and other financial institutions may grow more serious."[The losses] are slowly starting to hit the marketplace," Mr. Watsa said.
Fairfax's 2007 results were driven by $705-million in investment gains in the fourth quarter from CDS, including those tied to distressed monoline insurers. CDS are similar to an insurance policy against a default on bonds or loans. A buyer such as Fairfax pays a small premium and stands to gain if the borrower defaults, or if the perceived risk of a default grows higher.Before last summer, credit default swaps were inexpensive. In the case of monoline insurance companies, which have run into trouble for backing collateralized debt obligations with too many risky loans in them, an investor could buy swaps for between 1 and 2 per cent - in other words, paying $1-million to $2-million for $100-million worth of credit protection. Today, that same insurance can cost $25-million or more, as the market worries that companies like Ambac Financial Group Inc. and MBIA Inc. will not be able to handle their massive debts.Mr. Watsa said credit risk in the monolines is now "much closer to being fairly priced," so Fairfax sold virtually all of those swaps in January and early February. As of Feb. 15, it still owned credit default swaps worth nearly $1.3-billion.But he said many other assets - including stocks - are still too expensive, particularly if the U.S. has a deep recession.
Fairfax's results were also boosted by a strong year in insurance underwriting. The company paid just 94 cents in claims and expenses for every dollar in premiums it received. Analyst Jeff Fenwick of Cormark Securities Inc. said Fairfax's operating fundamentals in the insurance business are strong, even without the CDS gains.
The fact that Fairfax has cashed in some of its CDS gains - leaving it at year-end with almost $1-billion of cash - means the company is in a strong financial position for 2008, he said.
The shift into European CDS also looks like a good bet, Mr. Fenwick said, because "we've seen the contagion from what's gone on in the U.S. markets spreading around the world."Fairfax stock has moved up sharply recently, rising from about $200 six months ago to more than $300.

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Posted in: European CDS

war on tax evasion

Tax evasion has become something of a national pastime in major Western countries, thanks to symbiotic cooperation between legislators and lobbyists. Governments are realizing that there are trillions of dollars percolating around Lichtenstein, Luxembourg, the Cayman Islands, the Bahamas, the Virgin Islands, Jersey, Mauritius, Switzerland, Cyprus, etc.However, the “war on tax evasion” is as stupid as the “war on drugs.” Tax havens have a supply and demand function just like any other product. Intelligent people with capital will always create new havens to the extent that they need them.Getting to the main point: Lichtenstein has found itself dead in the middle of the scope of the German BND intelligence agency, which blatantly violated its extraterritorial mandate to hound the assets of wealthy Germans, by literally infiltrating a Lichtenstein bank and bribing an employee to leak data. Apparently a bunch of Americans’ and other non-Germans’ information was also leaked.

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Posted in: war on tax evasion