AIG And Stock Manipulation
Maurice “Hank” Greenberg
By keeping the price of AIG at an artificially high level, every pension fund that invested in equities was defrauded- in an amount exceeding $1 billion.
By Edward Manfredonia
November 5th, 2007
[AIG And Stock Manipulation]
You have a pension. Your pension fund is invested in a mixture of stocks and bonds.
A significant part of the pension is invested in indexed funds, such as the Dow Jones Industrials and the S&P 500. Let us assume that one of those stocks has been manipulated; that is, the price of a stock has been kept at an artificially high price.
You would be angry- you have been defrauded. Even more so if you had invested in a mutual fund, the price of which is based on the closing price of a stock. If the closing price had been manipulated, you have been defrauded. You might say: This is only a few dimes- but multiply those dimes every day for fifteen years. And the dimes become a billion dollars. Could this happen? Yes- and we shall examine one such incident—the manipulation of the price of American International Group (AIG).
By keeping the price of AIG at an artificially high level, every pension fund that invested in equities was defrauded- in an amount exceeding $1 billion. Also pension funds, which invested in the bonds of AIG, were defrauded. In the end the American public paid for this fraud while Maurice “Hank” Greenberg, Chairman of AIG, earned billions during the period.
AIG was listed on the New York Stock Exchange in 1984. Later, Greenberg became a member of the Board of the New York Stock Exchange upon the recommendation of Richard Grasso, Chairman of the New York Stock Exchange. As a Member of the Board of the New York Stock Exchange, Greenberg helped to determine the salary of Richard Grasso-recall the $160 million payday?
Greenberg was upset at the price of AIG. Greenberg would telephone Grasso and vociferously complain that the specialist in AIG, Spear Leeds and Kellogg which is a subsidiary of Goldman Sachs, did not support the price of AIG. Greenberg threatened to have AIG listed on another exchange if Goldman Sachs did not support the price of AIG. Grasso was upset; if AIG were to list on another exchange, the NYSE would lose millions of dollars per year in transaction fees.
As reported in the media on October 3, 2003 by Emily Church: On October 23, 2002 Greenberg wrote a letter to Grasso. In this letter Greenberg stated that the specialist in AIG needed to commit more of its money to purchase AIG shares. Greenberg thus left written proof of a conspiracy to manipulate the price of AIG.
Richard Grasso was upset and decided that Goldman Sachs must support the price of AIG- after all Greenberg was on the Board of the NYSE and the Board of the NYSE determined Grasso’s $160 million compensation package. Grasso met with the specialist and the senior management of the NYSE specialist unit. Grasso would also meet with senior management of Goldman Sachs, including Henry Paulson, then Chairman of Goldman Sachs and a member of the Board of the New York Stock Exchange.
Grasso would demand that Goldman Sachs support the price of AIG. It must here be noted that the New York Stock Exchange had regulatory oversight of Goldman’s activities on the floor of the New York Stock Exchange. Henry Paulson, then Chairman of Goldman Sachs and currently Secretary of the Treasury, bowed to the pressure of Grasso and Greenberg. Goldman established a fund, separate from that of its specialist unit, to support the price of AIG. According to newspaper reports published in 2003, Goldman Sachs had lost $14 million over the preceding few years by supporting the price of AIG.
What was wrong? Nothing. Except that it was illegal. On December 16, 2004 the American Stock Exchange disciplined Alfred Merendino, Ronald Menello and GHM, an American Stock Exchange specialist firm, for manipulating the prices of three stocks: Thermo Ecotek, Thermo BioAnalysis, and Thermo Fibertek, in which GHM served as the specialist.
This American Stock Exchange Disciplinary Decision stated that GHM and Merendino violated Section 10(b) of the Securities Exchange Act (SEA) in that they purchased and sold shares of Thermo Ecotek (TCK) for GHM’s account during the period between June 2, 1998 and June 25, 1998 and that these transactions were not reasonably calculated to contribute to the maintenance of price continuity and manipulated the price of the security.
This Disciplinary Decision also stated that GHM and Menello (the M in GHM) violated Section 10(b) of the SEA in that they purchased and sold shares of Thermo BioAnalysis (TBA) for GHM’s account during the period June 10, 1998 and June 17, 1998 in transactions, whose purpose was to manipulate the price of TBA.
Menello and GHM were also found guilty of violating Section 10(b) of the SEA by manipulating the price of Thermo Fibertek (TFT) during the periods July 22, 1998 and July 31, 1998 and January 21, 1999 and February 2, 1999.
This is sufficient proof to establish beyond a reasonable doubt that Goldman Sachs violated Section 10(b) of the Securities Exchange Act when Goldman supported the price of AIG.
But there is one major difference: These violations by GHM, Menello and Merendino occurred within a specific time period lasting at most a few weeks. Al Merendino was fined $75,000 and Ron Menello was fined $200,000. GHM was fined $475,000. Merendino is currently a specialist at the American Stock Exchange.
The Black Star News was unable to contact Ronald Menello. GHM is no longer in business. When The Black Star contacted Al Merendino at the American Stock Exchange, Merendino said: “No quote. No nothing. No nothing at all.” The illegal trading in AIG by Goldman Sachs’ subsidiary, Spear Leeds and Kellogg Specialists, occurred over a period of 15 years-not over a few weeks.
But there is another more damning precedent. Baron Capital is an investment firm. Baron Capital and its affiliates owned 10% of the stock of Southern Union Company, whose stock symbol is SUG. Baron Capital cleared its trades through Spear Leeds and Kellogg. Baron Capital comprised nearly half of Spear Leeds and Kellogg’s Direct Access business to the NYSE during this period. Baron Capital and Spear Leeds and Kellogg conspired to manipulate the price of SUG.
On June 9, 2003 the New York Stock Exchange disciplined Spear Leeds and Kellogg (Disciplinary Decision 03-108) because employees of Spear Leeds and Kellogg aided and abetted the violation of SEA Sec. 14c (1)(a) by permitting a direct access customer to manipulate the price of a listed security (SUG). The NYSE fined Spear Leeds and Kellogg $450,000.
On April 29, 2003 the Securities and Exchange Commission (File No. 3-11096) disciplined Baron Capital for violating Sections 15(C)(1)(A) and of the Securities and Exchange Act for the manipulation of the stock of SUG. Baron Capital was fined $2,000,000. When The Black Star contacted Tucker Hewes, the public relations firm that represents Baron Capital, concerning the manipulation of the price of SUG the response was: “We decline to comment.”
We now have proof that over a 15 year period Spear Leeds and Kellogg and Goldman Sachs violated the Securities Exchange Act by manipulating the price of AIG.
Furthermore, it appears that there was good reason for the price of AIG to trade at a lower price. In 2005 AIG wrote off $3.9 billion of profit from 2000 through 2004 and wrote down $2.26 billion of shareholder equity in AIG’s restatement.
But here is something that was never mentioned in connection with the illegal support of AIG by Goldman Sachs. On October 25, 2001, AIG joined Goldman Sachs and the Chubb Corporation in a new insurance venture, Allied World Insurance Holdings, which based in Bermuda. Was there a conflict of interest in Goldman Sachs performing its function as a specialist in AIG and joining in a business venture with AIG, while simultaneously acting as specialist in AIG?
When asked this question and other questions concerning the illegal price support of AIG, a spokesperson for Goldman Sachs replied: “I am sorry but Goldman is declining this request for an interview.” Section 32 of the Securities Exchange Act of 1934, provides that any person who willfully violates any provision of the Securities and Exchange Act of 1934 is punishable by a fine of not more than $10,000 and imprisonment of not more than two years for each violation of the Securities Exchange Act of 1934.
Why have there been no indictments of Goldman Sachs personnel?
Goldman's Toxic CMOs
Goldman chief Lloyd Blankfein. Was his $69 million earned above board?
America needs a prosecutor, who will not be swayed by Goldman’s influence and power, to investigate this pattern of abusive trading by Goldman Sachs.
By Edward Manfredonia
January 4th, 2008
[Wall Street Scandals]
I am a former options market maker at the American Stock Exchange.
I possess an MBA in Finance. So, I shall analyze Goldman Sachs’ enormous profits, $11.4 billion for fiscal year 2007- as a trader would examine these profits. I would like to explain in simple terms what Goldman Sachs has done with its marketing, packaging, slicing and dicing of Collateralized Mortgage Obligations (CMO’s), which are nothing more than home mortgages that are backed (collateralized) by your home in case of default.
Goldman has taken numerous mortgages and has packaged these mortgages for investors. It then subdivides these mortgages into various tranches (slices). The first tranche is for payments on principal. Other tranches shall be for the first year of interest payments; for the second year of interest payments; etc. By doing this Goldman performed the alchemist’s dream: The sum of the parts is greater, worth more, than the whole. That is why these mortgages were sliced, diced and chopped.
But Goldman ensured that it would lose no money on these CMO’s. And I shall provide an example of how this could be accomplished. But first one must remember this: When you insure an item (such as a house, a car or a painting), you cannot insure that item for more than it is worth.
You own a house. You purchased the house for $1,000,000. But the house is worth only $700,000. Let us say that you pay Standard and Poors or Moodys to fairly appraise your house and the fair value at which Standard and Poors and Moodys appraises your house is $2,000,000. You then insure the house for $2,000,000. Some natural calamity unfolds and you collect the $2,000,000 for your house. But you knew that the natural calamity would unfold. And you have earned a million dollars- just like Goldman Sachs earned billions.
This is a simplified but accurate, account of how Goldman earned record profits, while every other Wall Street firm was losing billions- a total industry loss of $100 billion for 2007. How could Goldman Sachs have earned record profits of $11.4 billion for fiscal year 2007 including $3.2 billion in the fourth quarter, in the midst of the CMO collapse, when Goldman Sachs was one of the prime sellers of CMO’s?
Goldman Sachs did not have many CMO’s in its inventory. Goldman sold these CMO’s to its willing customers. Goldman knew that these CMO’s were potentially valueless. So Goldman bought derivatives (credit-default swaps) that would be profitable when the CMO’s imploded- as Goldman knew the CMO’s would.
You might inquire: But these CMO’s were sliced, diced and marketed with a AAA rating, so how is it possible that there was this collapse? The rating agencies, such as Standard and Poors, are paid to rate these CMO’s- and this is an inherent conflict of interest. The collapse is simple to understand. Everything about these CMO’s was based on lies. These CMO’s were treated as if they were AAA-rated securities and were given the same credit rating as the debt of Exxon. In other words, Goldman passed off as AAA-rated CMO’s, junk bond CMO’s, which Goldman knew would collapse in value.
These were sub prime mortgages, which were granted to individuals with poor credit ratings or no credit ratings at all, and Alt-A mortgages, which were given to individuals without a complete credit history. But there is more. Mortgage defaults for individuals with a good credit history follow a bell curve (normal distribution). Thus, the provider of credit can estimate with confidence the percentage of mortgages that shall be delinquent and foreclosed- and the provider of credit holds a mortgage on the property and the mortgage is thus collateralized. The property, which has been mortgaged, insures that the creditor can collect most of his debt. Every pension fund, bank, investment fund, etc. bases its financial decisions concerning mortgages (CMO’s) on a normal distribution and on a fairly appraised property, which serves as a guarantee. And let us not forget that these standard mortgages require a 20% down-payment.
So, the originating firms, which sold these CMO’s, then fraudulently passed these loans off as AAA-rated CMO’s. Goldman was the only firm, which sold these junk-bond CMO’s to its customers and simultaneously purchased enormous amounts of credit-default swaps that guaranteed a profit when the value of these CMO’s collapsed.
Now let us examine Goldman Sachs’s alleged hedging. As a former equity options market maker, I find it easiest to discuss Goldman’s hedge tactics in terms of stocks- but the principle remains the same. A credit-default swap is an instrument that provides insurance should a particular financial instrument decline in value- a put, which provides the right to sell a stock or an asset at a particular price.
But first we must understand that a hedge does not increase profits. The purpose of a hedge is to reduce losses- and therefore profits are reduced by a hedge. This hedge has a cost and this cost reduces your profits. Thus if you purchase a stock (CMO) at $100, you might seek to limit your losses by purchasing one put with a strike price of $100 for approximately $10. (A put gives you the right to sell a stock or a CMO at a specific price- in this instance $100.)
But Goldman earned billions on its alleged hedges. These were not true hedges. Rather Goldman was directly betting that the CMO’s, which Goldman was selling to its customers.
Rip-Off: Wall Street Price Fixing
Meyer Lansky’s style still lives on Wall Street
On September 26, 2006 the American Stock Exchange announced that it had settled disciplinary actions against almost every specialist unit. These specialist firms had consented to censures and fines totaling $2,575,000. $1.5 billion stolen and fines of less than $3 million!
By Edward Manfredonia
May 17th, 2007
SCANDAL ON WALL STREET
Meyer Lansky was a gangster- a founder of Murder Incorporated.
But Meyer Lansky knew that if he continued to behave as a common criminal, he would go to Jail. So, Meyer Lansky decided to steal money honestly. Meyer Lansky never stole from people the way Wall Street steals. Before Meyer Lansky, a financial genius, developed the concept of Las Vegas casinos.
But where the Italian Mafia would blatantly steal and rig the games, Meyer Lansky was much smarter. Lansky knew that he could permit people to gamble if the odds slightly favored him- and he could earn a fortune legally. Thus instead of using loaded dice and marked cards, Lansky used mathematics to make money.
You still lost, but you always felt as if you had a chance to win. Lansky’s spiritual descendants are visible all over the world, from the casinos of Las Vegas and Atlantic City to the magnificent splendor of the gambling palaces of Macao. You are still losing, but you willingly gamble.
Meyer Lansky was brilliant- a financial genius. Lansky is never remembered as a killer- always as a professional gambler, a mathematician. That is why you also never read about Meyer Lansky’s son being a criminal. Lansky never wanted his children to be criminals.
Lansky wanted his children to be educated and have a profession. That is the difference between a Meyer Lansky and a John Gotti, a Carlo Gambino or a Vincent Gigante. Lansky always wanted his children to be better than he was. Wall Street is like the Italian Mafia. No brains, just muscle and like the Italian Mafia of old, Wall Street buys off the politicians, who sell you out for a pittance.
Currently I am writing several articles for The Black Star News. As a former Wall Street Trader, I and my friends were outraged by pandemic violations of federal securities laws, both civil and criminal- in addition to violations of the most basic laws of God.
The federal government, both the Department of Justice and the Securities and Exchange Commission, have permitted these crimes. And these violations of federal law impact every financial decision, which you make. From your pension and social security to the mortgage rate on your home.
It is especially important for several reasons. The first reason is that there is a cry to relax the accounting standards of Sarbanes-Oxley, a federal law designed to prevent accounting fraud. This means that you can be cheated by stock fraud artists, deceitful accountants, lawyers, etc.
The second reason is that there is always some crooked politician, who desires to privatize social security- so that the denizens of Wall Street can steal your money.
Just remember that Wall Street has one goal-- to separate you from your money, so Wall Street can skim off the top.
We shall examine that most basic concept of savings- especially for your retirement or for your pension. It is just basic mathematics, so there shall be no problem.
Let us assume that you are nearing retirement age, say 50 years of age. You have $100,000. But you need $200,000 to purchase that retirement home. So, you cannot retire until you have $200,000 cash. Currently, 10 year Treasury notes yield 4.5%. We must assume that the interest rate of 4.5% is constant and that you can reinvest this money at 4.5% without incurring any charges. So, you place your money to be reinvested in Treasury notes. When does your money double? It is a simple calculation.
Whenever you wish to know how many years it takes for your money to double at a constant rate of interest, divide the interest rate into 72. Currently the interest rate on 10 year Treasury notes is approximately 4.5%. Divide 4.5 into 72. This results in a quotient of 16. Thus, in approximately 16 years your money shall double. So, you can retire in 16 years with sufficient money to purchase that retirement home.
Now, let us assume that you wish to invest in Treasury notes, yielding 4.5%, but your stockbroker charges you a 1% transaction fee. And your reinvestments are also charged a 1% transaction fee. Your net profit is a yield of 3.5%. The broker is skimming 1% off the top. The actual transaction fee or profit for Exchange Traded Funds should be .01% (1/100th%) for large transactions and perhaps .1% (1/10th%) for small transactions- and this low fee is due to computerization. In this article The Black Star News shall explain how you are being cheated because of price fixing and illegal trading.
How many years does it take for your money to double so that you can retire? Divide 3.5 into 72 and the quotient, the number of years that it takes your money to double is 20.5. Twenty and one-half years!
You are working four and one-half more years than is necessary so some Wall Street thief can steal your money.
Wall Street is a numbers game. And the numbers are rigged against the individual investor. Read our articles, starting with this one. and you shall understand how the government permits Wall Street to steal your money.
Recall that the April 26, 1999 BusinessWeek cover story, Scandal On Wall Street, exposed violations of federal securities laws at the American Stock Exchange- including price fixing in equity options. That article estimated that price fixing in equity options at the American Stock Exchange cost the American public $150 million per annum.
This present article will demonstrate how price fixing in the Exchange Traded Funds at the American Stock Exchange cost the American public a minimum of $250 million per annum for a period of six years- and this theft of $1.5 billion was accomplished with the knowledge and cooperation of both the Securities and Exchange Commission and the Department of Justice. This price fixing was possible because during the relevant years the American Stock Exchange possessed a monopoly on the Exchange Traded Funds.
Price fixing is when sellers or producers of a product agree to sell a product at a specific price. This price assures the sellers or producers of an inflated profit. Price fixing has been illegal in the United States since the Sherman Act of 1890. It is important to note that price fixing has been declared by the Supreme Court to be per se illegal.
In 1902 President Theodore Roosevelt utilized the Sherman Act to dissolve the Northern Securities Company. This company controlled numerous railroads, especially in the Northeast, and maintained freight charges at a high level in order to maximize profits. By dissolving the Northern Securities Company, President Theodore Roosevelt lowered the cost to deliver freight throughout the Northeast.
It is essential to understand that prices can be fixed only where a group has a monopoly of a certain product. In the time period covered by our discussion, the American Stock Exchange held a monopoly in the Exchange Traded Funds. So, if an investor wished to trade these broad based Exchange Traded Funds (ETF’s), an investor was required to trade these Exchange Traded Funds at the American Stock Exchange. Thus, it was a simple matter for members of the American Stock Exchange to maintain artificially high prices in the Exchange Traded Funds.
At the American Stock Exchange price fixing results from collusion between sellers of a product, usually a derivative product. This price fixing results from monopoly control of derivative products at the American Stock Exchange (AMEX). In this example we shall be concerned with price fixing in Exchange Traded Funds. Exchange Traded Funds are simply a composite of stocks, which stocks are identical to the stocks in a major index.
Thus, the Diamonds, an Exchange Traded Fund, is composed of the 30 stocks that comprise the Dow Jones Industrial Index. The SPY, another Exchange Traded Fund, is composed of the 500 stocks that comprise the S&P 500 and the QQQ is composed of the 100 stocks that comprise the NASD 100. The stocks in the NASD 100 are the 100 stocks, listed on the NASD, which have the highest capitalization- such as Microsoft, Intel, Dell.
Thus if an investor owned 100 shares of the SPY, the investor in fact owned 100 shares of an index that mimicked the S&P 500. This was similar to owning a mutual fund that represented the S&P 500 with the major difference that the SPY, an Exchange Traded Fund, could be purchased during the day at the price at which the index was currently trading- and not like a mutual fund where the investor could purchase the fund only at the closing prices of the S&P 500.
Why would an investor purchase an Exchange Traded Fund? An investor would purchase an Exchange Traded Fund rather than an individual stock to diversify his stock holdings and because this individual may feel that the stock market shall advance broadly.
Thus, if an individual investor believed that there would be an increase in demand for technology stocks and the investor believed that the entire technology sector were undervalued, this investor would wish to invest in the entire NASD 100.
There is a product, which permits you to invest in the NASD 100, and this product is named the QQQ. For several years, you could only purchase the QQQ, a substitute for the NASD 100, which represents the most capitalized firms that are listed on the NASD, at the American Stock Exchange. Susquehanna Investment Group served as the specialist in the QQQ.
A specialist on the American Stock Exchange is a firm or individual, who quotes and posts both a bid (buy) and an offer (sell), two prices at which the individual or firm will buy or sell securities to the public. On a stock exchange, such as the New York Stock Exchange and the American Stock Exchange, the specialist is responsible for processing all public orders that come to him. The duty of the specialist is to facilitate the execution of the orders of the public customer. The specialist hopes to earn a profit by buying on the bid and selling at the offer and earning the difference in the spread, which is the difference in price between the bid and the offer. The specialist also hopes to make a profit by buying a financial equivalent of a security such as the QQQ, which is either the 100 stocks themselves or an equivalent security.
The QQQ was first listed on the American Stock Exchange and Susquehanna Investment Group was made the specialist. In 1999 Susquehanna was the specialist and there were only five market makers in the QQQ. A market maker is a member of an exchange, in this case the American Stock Exchange, who is willing to buy and sell securities at a specific posted price. The markets were wide- frequently 50 cents and $1 wide. The normal market should be between 5 cents and 10 cents wide. Thus, in one of the busiest products on the floor of the American Stock Exchange, there were only the specialist and five market makers. This led to collusion in fixing prices.
Other market makers, who attempted to trade the QQQ, were prevented from trading. The specialist would simply refuse to allocate trades to the new market maker. The market maker would be shut out. So, with a seat leasing for $15,000 per month these outcast market makers quickly left.
As an example in 1998 one specialist firm at the American Stock Exchange sent a market maker to trade the QQQ. But this market maker was rebuffed and the specialist refused to allocate any trades to this market maker.
But at the end of 1998 one intrepid AMEX member, a specialist, decided to become a market maker in the QQQ because he saw a possibility for enormous profits. This AMEX member met with much resistance. But after this newcomer market maker explained that he was content to trade 10 contracts when the specialist would do 200 contracts or more and other market makes were doing 50 contracts, he was permitted to trade. (Note: The specialist usually traded 50% of the contracts that were traded- as many contracts as the total number of contracts, which were allotted to the market makers.)
This former specialist’s profit for the year 1999 was $6 million. His bonus was $1 million. And this was accomplished by trading 10 contracts at a time. The specialist was trading hundreds of contracts and the other market makers were doing 50 contracts when this small market maker was trading 10 lots.
You might inquire, how could one market maker trading 10 contracts at a time earn $6 million? It is simple. The spread between the bid and the offer (the prices at which the public can buy and sell) was extremely wide thus ensuring a profit.
We thus can extrapolate from this American Stock Exchange market maker’s profits and use this to confirm the estimates that I had been provided for profit in the QQQ.
Thus in the year 1999 if this market maker had earned $6 million by trading less than 5% of the total volume of trading in the QQQ, we can safely extrapolate that the total profit in the QQQ was in excess of $120 million. This profit would then be divided equally between the specialist and the five market makers.
This scenario would provide a minimum profit for Susquehanna of $60 million- and the market makers earned an equal amount. Over a five year period that was a profit of $600 million in one Exchange Traded Fund. And there were other popular ETF’s like the SPY.
But this profit is not a true indication of risk, reward, and profitability. So, we shall examine the net equity requirement as determined by the American Stock Exchange for its specialist firms. But first consider the following from American Stock Exchange Disciplinary Decision 04-253, In The Matter Of Fogel Group:
“Exchange Rules 171 and 950(h) require a firm to maintain a minimum of $1 million in net equity, for a maximum of twenty-five (25) options held by the specialist. Exchange rules further require that the specialist firm maintain an additional $25,000 per option, for each option which it serves as specialist over the initial twenty-five (25) options.”
The net capital requirement (amount of money that a firm is required to maintain in an account) for Susquehanna could safely be assumed to be $1 million- and definitely no more.
Thus, earning $60 million per annum Susquehanna had a Rate of Return of 6,000%. The second most active product on the American Stock Exchange was the SPY, an Exchange Traded Fund, which tracked the S&P 500. The following example shall demonstrate what occurred when an American Stock Exchange Market Maker attempted both to improve the markets and to prevent firms, in this instance Goldman Sachs from crossing trades when Goldman was neither bidding nor offering. Crossing a trade is when a broker, in this instance Goldman Sachs, has a public order. Goldman Sachs then executes the order, with in this specific instance, the customer buying and Goldman Sachs selling-- specifically Goldman Sachs is the only seller. Thus, Goldman Sachs is paid for executing the order and then Goldman Sachs earns a substantial profit by trading against its customer order. (This is similar to a real estate company selling you a house, which it owns, and then charging you a commission for your purchase of the house.)
A description of the following incident, in which an American Stock Exchange market maker protested price fixing, can be found in Part II of my personal Web site, WallStreetScandals.com in a letter, dated 26 October 2000 and addressed to Judge Lawrence McKenna.
In one trade, which took place on 21 September 2000 at approximately 9:55 a.m., a broker executing a trade for Goldman Sachs purchased for a public customer of Goldman Sachs 50,000 SPY at 145.00- even though one market maker in the trading crowd stated that he was offering the SPY at 144 60/64. The broker, who executed the trade for a public customer of Goldman Sachs stated that he must sell 25,000, or one half the amount, at 145. The AMEX market maker, protested to Richard Greenberg, the executing broker for the Goldman Sachs order, and to the specialist, Nick Giordano. The executing broker threatened to print the trade on an electronic platform if he could not sell 50,000 SPY at 145- thus, ensuring that the customer did not receive the best price available.
Standing in the crowd was Aaron Rolley, an American Stock Exchange employee of Derivative Trading Analysis, which department is responsible for monitoring trades in the SPY to ensure that orders are fairly executed.. This AMEX employee, Aaron Rolley, whose job was to monitor trading in the SPY, had been a specialist in equity options for many years. Yet, this AMEX employee said nothing when the market maker protested and said that the SPY was offered at a lower price. Rolley permitted the trade to take place at 145.00 Rolley stated that it was his job only to ensure that the specialist in the SPY did not prevent market makers from participating in trades.
When the American Stock Exchange Market Maker complained, Anthony Boglioli, Vice Chairman of the American Stock Exchange, was enraged and told the Market Maker that he was driving Goldman’s business away from the AMEX. Why would Boglioli not be concerned that market makers and the public were being cheated? The American Stock Exchange collected a fee for all trades that occurred on the American Stock Exchange. If Goldman Sachs were to execute its trades on another stock exchange or electronic trading platform, the American Stock Exchange would have less revenue and its profits would decrease dramatically.
Afterwards this market maker then met with Richard Robinson, Vice President and Director of Derivative Trading Analysis. This Market Maker complained of price fixing. Robinson took no action.
I wrote three letters, dated 26 October 2000, 26 November 2000, and 21 January 2001, which letters provided proof of price fixing, including date and time of trade, quantities, firm name, etc., to Judge Lawrence McKenna who was presiding in a lawsuit that alleged option price fixing of equity (stock) options. (Options are a derivative product as are Exchange Traded Funds.) Copies of these letters were sent to the Securities and Exchange Commission. The SEC never undertook any action.
On 9 April 2001 I met with Hayes Gorey and George Baranko, two attorneys from the Department of Justice Anti-Trust Division. In a five hour meeting, which was held in the offices of Bill T. Singer, whose offices were situated at 40 Exchange Place, I detailed price fixing in various Exchange Traded Funds. At the request of Bill Singer, my identity was to remain unknown when I met with Hayes Gorey and George Baranko.
An investigation was commenced but after my identity was discovered, the Department of Justice dropped its investigation. This despite the fact that I had been proclaimed a whistle-blower in the 26 April 1999 BusinessWeek cover story, Scandal On Wall Street. According to Singer, Arthur Levitt had ordered that my information not be used- and the Department of Justice agreed. Why? Because I possessed knowledge of massive criminal activity on Wall Street.
On 21 December 2001 I wrote to the Director of the Division of Market Regulation at the Securities and Exchange Commission concerning price fixing in the Exchange Traded Funds. On 24 January 2002 I received a response from Herbert Brooks, Chief of Operations, Office of the Director of Market Regulation. Brooks’ reply stated that my information pertained to criminal activity at the American Stock Exchange and the Securities and Exchange Commission only investigates civil matters. This is not true because price fixing is proscribed in the Securities and Exchange Act of 1934. Price fixing is both a civil and a criminal matter.
Thus, did the dark legacy of Arthur Levitt continue to permit violations of federal securities laws at the American Stock Exchange.
The violations of federal securities laws, which are described in this article are more serious than those violations of federal securities laws, which violations resulted in prison sentences for New York Stock Exchange specialists in 2006 and 2007- and the violations of federal securities laws at the American Stock Exchange were more egregious and the profits enormously more profitable.
Finally the Securities and Exchange Commission was forced to take action because I had written to Senator Richard Shelby, Chairman of the Senate Banking Committee. Senator Shelby then forwarded my missive to William Donaldson, Chairman of the Securities and Exchange Committee.
As a consequence of Senator Shelby’s intervention, the SEC began to investigate the American Stock Exchange (Amex). Richard Robinson, Director of Derivative Trading Analysis at the Amex, cooperated with the SEC. But someone at the SEC, most likely a Commissioner, leaked word to the American Stock Exchange about Richard Robinson’s cooperation.
The SEC then permitted the American Stock Exchange to investigate its own members. The SEC permitted this even after the SEC knew that the Amex had been covering up civil and criminal violations of federal securities laws because: As the Securities and Exchange Commission stated in a press release dated March 22, 2007, which press release, 2007-51, announced an SEC settlement with the American Stock Exchange: “In its order against the Amex, the Commission found that, from at least 1999, the Amex was no notice that its surveillance, investigatory, and enforcement programs were inadequate.
The Amex had previously consented to the issuance of a September 11, 2000 order that, in part, directed the Amex to enhance and improve its regulatory programs of surveillance, investigation and enforcement of the options order handling rules.”
On September 26, 2006 the American Stock Exchange announced that it had settled disciplinary actions against almost every specialist unit. These specialist firms had consented to censures and fines totaling $2,575,000. $1.5 billion stolen and fines of less than $3 million!
I shall provide some examples of the AMEX disciplinary decisions. It is most important to note that these disciplinary decisions do not include the prime years when hundreds of millions of dollars were earned merely by showing up for work.
On 21 June 2006 the American Stock Exchange Disciplinary Panel issued a Disciplinary Decision in the Matter of SLK-Hull Derivatives and Goldman Sachs Execution and Clearing, L.P., formerly known as Spear Leeds and Kellogg. This disciplinary decision encompassed 32 separate cases. Goldman Sachs, the specialist in the SPY, was fined $250,000 for violations of the Securities Exchange Act, as described above. According to a new policy at the American Stock Exchange, the specialists were not named but merely designated as Specialist A, Specialist B, Specialist C, and Specialist D. We do not know the names of the specialists, who cheated the public and violated federal securities laws. There is no official record of their names. And you can rest assured that the most serious violations were covered up.
On 6 July 2006 the Disciplinary Panel of the American Stock Exchange issued a Disciplinary Action in the Matter of Susquehanna Investment Group, the specialist in the QQQ. For numerous violations of the Securities and Exchange Act, Susquehanna Investment Group was fined a mere $275,000.
On March 22, 2007 the Securities and Exchange Commission released an Administrative Proceeding, File No. 3-12595, In the Matter of Richard Robinson, former Director of Derivative Trading Analysis at the American Stock Exchange. Robinson signed this Cease and Desist Order which stated: “The Commission found that Robinson was a cause of the Amex’s violations by failing to oversee properly the Amex’s surveillance program for derivatives and options, by failing to maintain properly Amex investigative files, and by signing and submitting an affirmation to the Commission that contained inaccurate representations, relating to the Amex’s regulatory program. Without admitting or denying the Commission’s findings, Robinson consented to the issuance of an order…”
On March 22, 2007 the Securities and Exchange Commission released an Administrative Proceeding, File No. 3-12594: “the Amex consents to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings and Imposing Remedial Sanctions, a Censure and a Cease-and-Desist Order…” “From at least 1999 through June 2004, the Amex had critical deficiencies in it surveillance, investigative and enforcement programs for assuring compliance with its rules as well as the federal securities laws.” (Remember my letters to Judge McKenna in 2000 which letters concerned violations of federal securities laws.)
During the heyday of price fixing at the American Stock Exchange, AMEX seats leased for $17,000 per month and sold for $700,000. Currently seats lease for $350 per month, but sell for $325,000. Why? Competition in the Exchange Traded Funds has prevented this pandemic thievery from continuing at the American Stock Exchange. The Exchange Traded Funds are listed on other stock exchanges. With competition specialists and market makers cannot steal as much from the public. Seat prices are high because the American Stock Exchange plans to go public and, therefore, the seat owners can steal money from the public by converting their seats into publicly traded shares.
It must be remembered that as I have previously stated price fixing is per se illegal- a violation of the Sherman Act of 1890.
Every year hundreds of millions of dollars were earned illegally via price fixing at the American Stock Exchange and the Securities and Exchange Commission and the Department of Justice have permitted this rape of the American public.
This is absurd.
