Hernan Arbizu has been arrested in Argentina on charges that he stole $5 million from the accounts of customers at UBS AG and JPMorgan Chase

Hernan Arbizu was arrested Monday in Buenos Aires on charges filed in U.S. District Court in May.Arbizu was a vice president in the private banking division at JPMorgan when he embezzled the money between March 2007 and April 2008, prosecutors said. He caused $5.37 million to be transferred out of private banking accounts at the UBS (nyse: UBS - news - people ) and JPMorgan financial services companies during that time, they said.Arbizu was responsible for maintaining and developing private banking relationships in Latin America at the time, court papers said.It wasn't immediately clear who would represent Arbizu on charges of embezzlement, bank fraud and aggravated identity theft.U.S. authorities were seeking to extradite Arbizu to New York.If convicted, Arbizu, 41, could face up to 30 years in prison and more than $5 million in fines.A spokesman for JPMorgan, which fired Arbizu in May, said the company "appreciates the cooperation and the prompt joint action of the Argentine and American authorities."

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Posted in: JPMorgan

Lou Pai, the former chief executive of Enron Energy Services, charged with improperly selling hundreds of thousands of Enron shares in 2001.

Lou Pai, the former chief executive of Enron Energy Services, with improperly selling hundreds of thousands of Enron shares in 2001.The stock market regulator said Mr Pai sold the shares after being informed that the Enron subsidiary had sustained substantial losses, but before the losses had been reported publicly.
Mr Pai, who has neither admitted nor denied the SEC's charges, has reached a settlement with the SEC under which he has agreed to pay a $US1.5 million ($1.6 million) fine. The former Enron high-flyer has also agreed to pay $US30 million in disgorgement of his gains and other related fees relating to the allegedly improper stock trades.
“The commission has never relented in pursuing fraud committed by Enron's executives, and I am pleased that today's settlement will add another $US25.5 million to the Enron Fair Fund for the benefit of injured investors,” said Linda Chatman Thomsen, the SEC's enforcement chief. The charges and settlement with Mr Pai come seven years after the collapse of Enron, which once was one of America's biggest energy trading companies. Enron's 2001 collapse amid an accounting scandal and wide-ranging government and congressional probes into its accounting practices was one of the biggest scandals in US corporate history. Other former top Enron executives have faced prosecution and been jailed for their roles in trying to cover up the accounting fraud. Enron's former chief executive, Jeffrey Skilling, is serving a 24-year sentence in a federal prison. His co-defendant, former Enron chairman Kenneth Lay, was found guilty of fraud and banking violations, but died in 2006 of apparent heart failure before he was sentenced. Mr Pai is barred from working as an executive or director of a public company for five years.

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Posted in: Enron Fair Fund

FBI is investigating possible fraud at IndyMac

The FBI is investigating possible fraud at IndyMac, the California lender which was seized by regulators last Friday after America's biggest high street bank failure for two decades. Law enforcement sources told the Associated Press that the inquiry revolved around home loans made by IndyMac to risky borrowers and was focused on the bank itself, rather than on individuals who ran it.The FBI declined to comment on IndyMac specifically, although a spokesman said the scope of the bureau's examination of the sub-prime mortgage industry had broadened from 19 inquiries to 21 since April. A spokesman said: "We receive information from a variety of sources on a daily basis, and we have an obligation to review each allegation on its merits."
Banking regulators took over IndyMac after a run on deposits, as customers withdrew $1.3bn in 10 days. At its peak, IndyMac had assets of $32bn. Under a federal insurance scheme, the first $100,000 of savings for each depositor is guaranteed. But anxious customers continued queueing outside branches to withdraw savings this week. Pasadena-based IndyMac is the fifth US bank to close this year, and is the biggest failure since the Chicago bank Continental Illinois collapsed in 1984. An estimated 10,000 customers could lose unprotected deposits of some $1bn.
A New York senator, Charles Schumer, who wrote a public letter in June raising concerns about lax lending at IndyMac, has been blamed by the Office of Thrift Supervision for inciting panic among customers. Schumer argues that the OTS is responsible for allowing the bank to become vulnerable in the first place.
IndyMac's demise has prompted jitters about other regional banks. Seattle-based Washington Mutual and Ohio's National City Corporation were obliged to issue statements denying liquidity crises this week after their shares plunged.

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Posted in: IndyMac

Jagmeet Channa pleaded guilty to one count of conspiracy to defraud and another of money laundering after he admitted using colleagues' passwords

Jagmeet Channa, 25, showed no remorse as Judge Geoffrey Rivlin, sitting at the Southwark Crown Court, bemoaned his limited sentencing powers in dealing with the "audacious and outrageous" crime.
Channa had previously pleaded guilty to one count of conspiracy to defraud and another of money laundering after he admitted using colleagues' passwords to steal money from a trading account which he then wired to associates in Manchester and Morocco. Today, Judge Rivlin told him: “This was no silly prank. This was a carefully planned and very serious attempt to transfer a fortune in money away and it almost succeeded." Channa worked at the Canary Wharf headquarters of Britain's largest bank for less than a year. In April, the court heard, he sent €60 million from an HSBC trading account to a Societe Generale branch in Casablanca; minutes later, he wired another €30 million to a Barclays branch in Manchester.
However, Channa forgot that the account he had raided had to show a zero balance at the end of each day. The massive debit was discovered over the weekend by HSBC employees in Malaysia, who alerted colleagues in London. Both Barclays and Societe Generale were quickly contacted and the money was returned. HSBC estimated it lost about £54,000 in interest while the money was in other accounts. Initially, the employees whose passwords had been used by Channa were arrested and blamed for the crime. But further inquiries exonerated them and led to Channa, who was sacked by the bank. The court heard that Channa had taken the money at the direction of one or more co-conspirators, in exchange for the promise of a handsome cut. His defence lawyer, Peter Corrigan, said: “Because he had the sort of job he did, offers were made to him and he succumbed to temptation."
However, Channa's refusal to cooperate with police meant that no other party involved in the crime has yet been identified.
Judge Rivlin said: "Others were inolved, perhaps several others, and in the absence of any explanation from you I must assume this was a planned and sophisticated criminal enterprise.
"You say you had no idea who these people were or what was going to happen to the money. I regret I cannot accept this statement."
The judge told Channa that while his guilty pleas would attract some credit, “the evidence against you is quite overwhelming”. His confession, age, remorse and the fact he had not made a penny from his dishonesty were among the few other things in his favour. Judge Rivlin compared the maximum 10-year sentence available to the 14 years that could be passed for handling and burglary. But he said he must nevertheless "do all that I can to deter those employed by financial institutions from committing such offences". He added: “Where anyone acting in flagrant breach of trust and attempts to steal many millions of pounds, the sentence will inevitably be a very long one."
Detective Sergeant Martin Peters said: “This crime is believed to be one of the largest frauds of its kind and it is thanks to the prompt response of the police and the banks that the money was recovered. “The City of London Police takes a robust stance against members of staff that abuse their position and steal from their employer.”
The attempted fraud occurred at a sensitive time for the banking sector. It took place just months after Societe Generale, the French bank, alleged that trader Jerome Kerviel lost €4.9 billion (£3.8 billion), while Credit Suisse later revealed that some of its traders had caused pricing errors leading to a $2.85 billion (£1.4 billion) writedown.

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Posted in: HSBC

number of corporate bankruptcies in Japan rose 11.6 percent in the first half of 2008 with the number of cases related to higher material prices

Bankruptcies for the first six months totalled 6,022, while combined liabilities climbed 17.4 percent to 3.019 trillion yen (28 billion dollars) compared with the same period last year, Teikoku Data Bank said.number of corporate bankruptcies in Japan rose 11.6 percent in the first half of 2008 with the number of cases related to higher material prices hitting a record high, researchers said on Tuesday.June saw 1,065 bankruptcies leaving liabilities of at least 10 million yen each, up 7.1 percent from 994 cases in May, the research firm said in its monthly report.However, combined liabilities in June was down 1.9 percent from the previous month to 471.92 billion yen, but was still 40.3 percent up on the same period last year, it said.
Bankruptcies in construction stayed at a high level due to declining orders for public works and rising material prices, the report said.The number of business failures related to the recent surge in raw materials costs reached a record high of 54 cases in June, when oil prices hit a record high of 140 dollars, up 40 percent since early 2008, it added.Corporate failures are expected to continue to increase and the pace accelerate, which will severely impact small and mid-sized firms, the research firm said.Japan has since 2002 been in its longest post-war economic expansion, but that "is about to end," Teikoku Data Bank said."In addition to the construction industry, small retailers are expected to face a period of tough conditions... as recent consumer surveys show household spending expected to decline," it added."Demand from overseas is falling, meaning more manufacturers are expected to go out of business."Top Japanese executives are at their most pessimistic in almost five years as soaring costs, a slowing global economy and a stronger yen pile pressure on profits that are expected to drop this year, the central bank said last week

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Posted in: Japan

If you're sitting there doing a crossword and you put the paper on the key, boof-boof-boof-boof, it can go right off ... You can just keep trading

Making money makes reputations at investment banks, but the numberless ways in which high-profile traders can lose eye-popping sums is making the case for much sharper focus on the unglamorous role of the risk control units.
Despite a regular crop of scandals and errors, from unauthorised positions to "fat-fingered" trades, there is insufficient investment in systems to monitor traders and prevent unacceptable losses, said Giles Nelson, co-founder of trading technology provider Progress Apama.
"If you look at surveillance of trading behaviour, it's somewhat seen as a Cinderella," said Nelson.
"The real focus is on the exciting stuff, on making money, making deals ... That's where the investment in technology is."
Yet the same traders can also lose a bank billions of dollars by circumventing the rules.
Trading limits can be broken or errors hidden as unloved risk managers, often equipped with inadequate technology, struggle to impose controls on risk-loving traders.
Unauthorised and undetected trading by a junior trader at Societe Generale earlier this year cost the French bank as much as 4.9 billion euros ($7.69 billion).
A common mistake is to misprice products or deals, either deliberately, or due to a lack of liquidity or market data, or by the inadvertent typing of an extra zero.
Just last week Canada's Toronto-Dominion Bank took a $90 million hit when a trader mispriced financial derivatives, while in June, Wall Street bank Morgan Stanley suspended a London-based credit trader who had overvalued positions by $120 million.
In May, Lehman Brothers suspended two London equities traders after identifying a similar problem.
THE ALPHA TRADER
The problem, said Nelson, is partly because banks are wary of imposing too many controls on traders and so stifling innovation or prompting them to walk to more lax competitors.
It is also very difficult to challenge the processes of a division that is a major revenue earner, said Brian Sentance, chief executive of Xenomorph, supplier of data management technologies.
Existing safeguards struggle to keep up with the evolution of financial products and transactions and the proliferation of trading venues, and are often run on a series of independent spreadsheets or databases, which inevitably makes a bank vulnerable to errors or malfeasance.
Sentance said some of his clients were already updating their risk systems. But banks still need to give risk managers greater power and invest more heavily in data and risk management technologies and procedures, Nelson said.
"(Banks realise that) if we don't, then not only are we going to suffer reputationally and the regulators will come down harder on us, but we will lose significant amounts of money eventually," Nelson said.
But some circumstances might always prove difficult to guard against.
"If you're sitting there doing a crossword and you put the paper on the key, boof-boof-boof-boof, it can go right off ... You can just keep trading and trading and trading," said one London-based trader

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Posted in: Progress Apama

Another Bank failure as Mortgage lender IndyMac Bancorp Inc said on Tuesday depositors had been withdrawing cash at an "elevated" pace

Mortgage lender IndyMac Bancorp Inc said on Tuesday depositors had been withdrawing cash at an "elevated" pace since a key U.S. senator questioned its ability to survive the housing crisis.
IndyMac shares sank 38 percent to 44 cents. A collapse of the largest independent, publicly traded U.S. mortgage lender could prove a headache for U.S. regulators since more than $17 billion of its deposits carry federal insurance.
Paul Miller, a Friedman, Billings, Ramsey & Co analyst, said shareholders may be wiped out, citing IndyMac's decision to stop most mortgage lending and inability to raise capital. Miller cut his price target for the stock to zero from $1.00.
"It's hard to gauge how this situation will resolve itself," said Christopher Wolfe, managing director at Fitch Ratings. "We see a high likelihood of some kind of regulatory intervention occurring, which could result in asset dispositions, or the thrift going into receivership."
When asked if the White House was involved in interagency discussions or considering any action, a spokesman responded: "This is an issue for the Fed."
Prospect Mortgage, a Northbrook, Illinois-based affiliate of private equity fund Sterling Partners, said late on Tuesday it agreed to buy more than 60 IndyMac retail mortgage branches, which employ 750 people, for an undisclosed price.
In a regulatory filing, IndyMac said it still faces "elevated levels of deposit withdrawals." It pointed to comments in late June from Sen. Charles Schumer, who chairs Congress's Joint Economic Committee, raising questions about a possible collapse. Schumer reiterated his concerns on Tuesday.
IndyMac said it was working with regulators on a new business plan after losing $896 million in the nine months to March 31. "We are aware of the situation and are working closely with the institution," said a spokesman for the Office of Thrift Supervision, IndyMac's main federal regulator.
Big mortgage rivals New Century Financial Corp and American Home Mortgage Investment Corp filed for bankruptcy protection last year. Countrywide Financial Corp, the top U.S. mortgage lender, avoided possible collapse when it was acquired last week by Bank of America Corp.
"In short, IndyMac was a junior version of Countrywide," Schumer said in a statement on Tuesday.
"IndyMac fueled its growth through unsound lending practices," the New York Democrat continued. "Regulators should consider ways to implement stricter oversight over the lending system so that there isn't another IndyMac."
IndyMac reported $17.3 billion of its deposits were insured by the Federal Deposit Insurance Corp. The FDIC has $52.8 billion in its insurance fund to cover bank failures.
FDIC Chairman Sheila Bair told the Senate Banking Committee last month that the housing downturn could cause "institutions of greater size than we have seen in the recent past to fail."
SEEKING SECURITY
IndyMac set plans on Monday to eliminate 3,800 jobs, or 53 percent of its work force, and stop offering most home loans.
It also projected a larger loss in the second quarter than the $184.2 million loss it posted for January to March.
Regulators concluded the company is not "well-capitalized," and IndyMac has about $1.7 billion of operating liquidity, a regulatory filing showed. A bank is considered well capitalized when it has an equity capital ratio over 6 percent.
IndyMac had a ratio of 5.76 percent on March 31. It needs to keep its capital ratio between 4 percent and 6 percent, according to Douglas Landy, a banking partner with law firm Allen & Overy, "in order to remain adequately capitalized and avoid being subject to greater regulatory sanction."
U.S. banking law gives regulators increasing power over institutions as their capital levels dwindle over time.
IndyMac once specialized in "Alt-A" loans that often don't require borrowers to document income or assets.
IndyMac's $77 billion of mortgage loans in 2007 gave it a 3.2 percent market share, ranking ninth nationally, according to newsletter Inside Mortgage Finance. But as rates rose and home prices fell, many borrowers found themselves unable to refinance, and defaults surged.
IndyMac shares have skidded 99 percent in the past year, cutting its market value to $44 million from $3.3 billion.
HANGING IN
Fitch on Tuesday cut its issuer default ratings for IndyMac Bancorp to "CC," a low junk grade, from "B-minus," and for IndyMac Bank to "CCC" from "B."
The rating agency also assigned IndyMac's roughly $720 million of uninsured deposits an "average" recovery rating, suggesting uninsured depositors might get 31 percent to 50 percent of their money back.
Patricia Lannom, a retiree, said she decided to keep her $100,000 IndyMac certificate of deposit after employees at a branch in Torrance, California, said the funds were FDIC-insured.
"I think somebody will buy them if they go under," she said. "What else can I do but hang in there?"
FBR's Miller said the stock price might succumb to falling home prices, rising credit losses, rating agency downgrades, and IndyMac's decision to curb lending. "We do not believe that there is any value left for common shareholders," he wrote.
IndyMac faces several shareholder lawsuits that accuse it of misleading investors about its financial condition.
The company said it plans to keep offering reverse mortgages to older borrowers through its Financial Freedom unit, and operate 33 branches in Southern California. (Additional reporting by Dena Aubin and Martha Graybow in New York, and Rachelle Younglai in Washington, D.C.; Editing by Braden Reddall abd Andre Grenon)

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Posted in: IndyMac Bancorp Inc

Fitch indicated it may move to cut its credit rating on Merrill’s long-term debt

Merrill Lynch (MER) has garnered the nod as an outlier among investment banks in terms of credit worthiness. But it’s a dubious distinction, at best. Ratings agency Fitch indicated it may move to cut its credit rating on Merrill’s long-term debt - a prospect it basically erased for the other three major investment banks. Citing the scope of the long-term credit that comes due next year, Fitch placed Merrill’s long-term issuer default ratings on rating watch with a negative bias, a move that often presages an upcoming cut in the credit rating itself. Fitch expressed pessimism about the prospects for Merrill’s fixed-income, currency and commodity operations, which it said could off-set strength in areas like Merrill’s retail brokerage operations. The rating agency also said that it anticipated further write-downs from Merrill’s exposure to its residential mortgage and monoline insurance exposure, which diminish expectations for a sustainable return to core profitability. Merrill shares traded down nearly 3%, though - to be fair - even the investment banks that weren’t put on rating watch suffered declines in Wednesday’s trading.

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Posted in: Merrill Lynch

Bank failures are extremely rare, savers might want to bear in mind that the Government will only underwrite the first £35,000 of your savings in any

Halifax said house prices had fallen by more than 6 per cent during the last year, having fallen 2 per cent in the last month. The average property now costs around £180,000. Mortgage rates have already hit their highest level for eight years, according to the Bank of England. The average rate on a two-year fixed rate mortgage has risen from 6.26 per cent to 6.63 per cent.
The pain is set to continue as lenders tighten their lending criteria. For example, Alliance & Leicester still allows homeowners to opt for a term of 40 years on their mortgages but affordability will be calculated as if you were paying it back over 25 years. Ray Boulger of mortgage brokers John Charcol, said: "Today's Monetary Policy Committee (M per cent ) decision to keep the bank rate unchanged at 5 per cent was widely expected. With increasingly bad economic news almost daily from most sectors of the UK economy a rate cut is badly needed to help restore some confidence but the expectation of further increases the inflation is a major constraint on the MPC.
"However, the dire economic news probably means that the MPC is no longer seriously considering increasing bank rate and so the main question is how long will we have to wait for the next cut. The MPC will be watching the price of oil and other commodities very closely." Jonathan Cornell, of mortgage brokers Hamptons Mortgages, said the Bank of England had been under tremendous pressure from two sides. "On one side inflation at 3.3 per cent is significantly above the bank's 2 per cent target and the Governor had to write an explanation letter to the Chancellor on June 16," he said."On the other side, a chronic lack of mortgage funding has led to house prices falling month on month. The majority of the inflationary pressure is linked to the rising price of oil, the price of other energy and food." Richard Cotton, senior partner at estate agents Cluttons, said: "The bank's decision to maintain rates suggests that it is continuing its laissez-faire attitude of the last two months, and failing to take positive action to deal with the current downturn in the property market and the wider economy. "The property industry needs to hear a positive message from the bank, that it understands the difficulties in the industry and is doing something about it. "Maintaining rates at 5 per cent will not give consumers any confidence in the bank's ability to manage this crisis, which will result in a worsening of current conditions in the property market and wider economy." But savers should be able to benefit with rates at a seven-year high as high street banks which are struggling to raise funds on the money markets try to attract large inflows of cash. As a rule, the highest paying accounts are run online as banks without high street branches have fewer overheads. Those customers who can afford to lock up their money for the minimum of a year will also receive preferential rates. Savers should be aware however that while bank failures are extremely rare, savers might want to bear in mind that the Government will only underwrite the first £35,000 of your savings in any one bank. This limit often applies to all the different brands operated by one bank.

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Posted in: Halifax

Baninter US$2.5 billion fraud, which led to the world’s biggest bank collapse per capita

after five years the Supreme Court put an end to the proceedings that led to bank fraud convictions in the Baninter case, when it upheld the verdict against the main defendants. Dominican society kept close tabs during this long process to prosecute the Baninter US$2.5 billion fraud, which led to the world’s biggest bank collapse per capita, and put the country’s judicial system to the test.Central Bank legal consultant for banking fraud, Fidel Pichardo Baba, said the case’s result sets an historical precedent which fortifies the Judicial Branch and is also an example that justice must be equal for all. "This decision just now shows that it’s possible to condemn whoever commits a crime regardless of standing and that the very next day the sun rises at the same hour and the Earth doesn’t shake," Pichardo said of former Baninter president Ramon Baez Figueroa, and the executives Luis Alvarez Renta, Marcos Baez Cocco, and Vivian Lubrano del Castillo.

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Posted in: Baninter case

IndyMac is the largest regulated thrift to fail and the second-largest financial institution to close in U.S. history

New chief executive of IndyMac Bancorp, brought in by the government to manage the failed bank, said new lending standards should prevent the kind of problems that have brought down credit markets.John Bovenzi, the chief operating officer of the Federal Deposit Insurance Corp., reassured consumers that bank failures have been rare in the past, and that if more banks do fail, the government has enough in reserve
"I think the important point to make is that, historically, only a very small percentage of the banks on our problem banks list ever failed," he said on CNN late Sunday. "While there are 90 banks on the list, there would be no expectation that 90 of those banks would fail."Bovenzi took the helm of what will be IndyMac Federal Bank when the government stepped in late Friday afternoon to save the struggling institution.The Office of Thrift Supervision transferred control of IndyMac to the FDIC because it did not think the lender could meet its depositors' demands.
IndyMac is the largest regulated thrift to fail and the second-largest financial institution to close in U.S. history, regulators said after taking control of the bank.As of March 31, IndyMac had $19.06 billion in total deposits.Bovenzi reminded consumers that all accounts worth $100,000 and less are automatically insured by the FDIC, which has $53 billion in insurance funds. And he noted that there are ways to structure accounts so that more than $100,000 is covered."If there are other bank failures in the coming weeks, I think the same message, if your accounts are under $100,000, you have absolutely nothing to worry about," he said. "You can still find ways to protect more if you like."Beyond $53 billion, he said the FDIC would have go to other banks to raise more money, adding that in that case, consumers could expect some of that to be passed on in fees."Well, obviously it's a difficult time and there were certainly institutions that made loans that shouldn't have been made," he said. "There are standards being put out, hopefully, at institutions with better underwriting going forward so that this problem doesn't repeat itself."

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Posted in: IndyMac

U.S. regulators seized California savings and loan company IndyMac Bank and its $32 billion in assets.

Investors are scanning the banking industry for signs of more trouble after the biggest U.S. bank failure in more than two decades. Last week, U.S. regulators seized California savings and loan company IndyMac Bank and its $32 billion in assets. Troubles are mounting so quickly at some of the country's 7,500 banks that as many as 150 could fail over the next year or so, analysts said. Healthier banks are expected to shut branches or merge.

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Posted in: IndyMac Bank