Sunday 26 June 2011

Sunday, June 26, 2011 Posted by Jake 14 comments Labels: , , , ,
Posted by Jake on Sunday, June 26, 2011 with 14 comments | Labels: , , , ,

One of the stellar successes of the internet has been the Massively Multiplayer Online Role-playing Games (MMORPG). Improved internet line speeds, enhanced graphics, thick clients, multiprocessors, and games like “World of Warcraft” have contributed to multiverses of fantasy and mayhem that suck millions of people and billions of productive hours out of the real world. The great attraction of these virtual worlds is that you can take on a new incarnation. You can be what you’re not, dare what you don’t, and smoke in public places. In these worlds you are Super Sized in every way – weapons, skills, appendages - and create the sort of mayhem you only see in the movies. Perhaps the greatest attraction of these virtual worlds is that you take no responsibility for what you do. You can be reckless, you can be stupid, you can be really really bad (the sort of thing even your own mum wouldn’t forgive), and there is no comeback. Burn a village or two; kick a goblin when he is down; type really rude words that you saw someone else type. You are immortal – get “killed”, and you are back in action within seconds. And when you’ve had enough for the day, you just brush your teeth (unless you’re really pumped up with adrenalised recklessness), rub on your creams, and snuggle up in bed to dream about tomorrow’s mayhem.

A world where you can get away with what you like, destroy, lie, cheat, steal, and have to take no responsibility. Who would have thought it could be possible!

“Bank of America Corp., the No. 3 U.S. bank, was fined a record $10 million by the Securities and Exchange Commission because it lied to the regulator during a probe into trading by the bank and a former employee…….[Bank of America] neither admitted nor denied wrongdoing, and neither the bank nor the SEC named the employee whose records were at issue.

Morgan Stanley agreed to pay $102 million to end an investigation in Massachusetts into unfair lending practices….Under the terms of the settlement, Morgan Stanley admitted to no wrongdoing.”

Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDOGoldman agreed to settle the SEC's charges without admitting or denying the allegations.”

Britain has always relied on the US to impose penalties on companies. FSA fines over the last 10 years have been such a piddling amount that placed on a graph next to bonuses paid to bankers you can hardly see them. (Use the zoom on your browser – at least in 2009 and 2010 they are just about visible). As a cost and deterrent to banks these amounts are less than irrelevant.

The USA is much more into headline grabbing fines, running into hundreds of millions and even billions of dollars. Forbes Magazine’s report in 2004 lists billions of dollars in penalties on Wall Street firms over successive years, with most of the culprits allowed to leave the court without any admission of wrongdoing. The same firms subsequently led the world into the dodgy deals and misselling that landed us in the financial crises of today.

Taking money from a Wall Street firm is like taking a cup of water from a river. The river has plenty of water, and flows on regardless. The big names dip into their pockets several times a year to pay fines for their misbehaviour, regarding it as just another overhead like their electricity bill. They see regulatory fines as no more reason to stop thieving than the electricity bill is a reason to switch off the lights.

Nobody would know this better than an accountant, as was stated by a senior KPMG executive in evidence to the US Senate:

Commenting on a deal done by the SEC with Barclays involving a US$298 million fine with no admission of wrongdoing, US District Judge Emmet Sullivan said:

Punishment is only effective if it deprives the offender of something to the point of discomfort. Depriving Wall Street and the City of London financial firms of money is no deterrent. The overly endowed Masters of the Universe have only one thing of the same quantity as everyone else. Time. The only thing that can be taken from them that they would miss is their time – spent in jail.

Humanity has tended to follow its worst tendencies, and use the justification that “everyone else is doing it” to make it acceptable. The way we explain away the monstrous things that were done by our ancestors is that they were par for the course in those days. By the codes and morals of the time, such things were “not wrong”, therefore we should not condemn those people. Until 1865, “Liberty or Death!” Americans singing about the “land of the free” thought it reasonable to kidnap, buy and sell fellow humans. Slavery was abolished in the USA in 1865, but it took another hundred years until 1965 for the “Jim Crow equal but separate” laws to be struck down. Laws by which racism such as segregation in public places could be made a legal requirement in the USA.

History will say that the codes and morals of our times meant it was quite acceptable to rip off ordinary people. After all, acceptable behaviour is acceptable because it is accepted, not because it is right. Allowing the big financial companies to get away without accepting guilt shows a doorway to many other industries. Engineers know they are smarter and more deserving of reward than bankers, and saw that bankers got away scot-free with their rip-offs. Betting that the profits they could make by some well targeted mischief would richly outweigh the penalties  – confident that they would never have to admit wrongdoing and serve jailtime – corporate executives from all industries ripped-off, paid-up, and ripped again.

We see it again and again. Software, pharmaceuticals, aerospace. Suppressed competition; overcharging; cartels; bribery. Retribution is limited to cash fines, paid by the company from profits ripped out of us.

In the words of the US Judge, complaining to a government prosecuting lawyer who was complicit in keeping named individuals out of a case: “You agree there must have been some human being who violated U.S. laws?”

Polonius’ advice to Laertes (Shakespeare’s Hamlet): 
For loan oft loses both itself and friend, 
And borrowing dulls the edge of husbandry.

Justice system’s advice to corporate swindlers:
Neither admit nor deny doing wrong;
For admission may require us to take unpleasant action,
And denial would leave a rather strong pong.


  1. Hey Whoa! Incredible information here. Gonna share the hell out of this!

  2. On the same day JP Morgan, the bank, pays a $20m fine, without admitting wrongdoing,

    it pays its boss, Jamie Dimon, $23m 'remuneration'

  3. Goldman Sachs fined $22m over flaws at weekly 'huddles' - without admitting nor denying wrongdoing!

  4. Drug firm Pfizer has paid the US government $60m (£38m) to settle charges alleging it paid millions of dollars in bribes to build its business in Europe and China. The US drugs giant does not admit any guilt.

  5. New York Stock Exchange pays US$5million financial penalty for failures that gave certain customers trading information before others. It marks the first ever SEC financial penalty against an exchange. And guess what - they neither 'admitted nor denied wrongdoing'.

    "Improper early access to market data, even measured in milliseconds, can in today's markets be a real and substantial advantage that disproportionately disadvantages retail and long-term investors," said Robert Khuzami, Director of the SEC's Division of Enforcement.

  6. Look at the relationship between the personnel at the Regulator (FSA, soon to become FCA), their employment records and career paths. Once you have that in your frame of reference, the rest becomes obvious.

  7. nice article. instapapered.

    about the links:

    the one from FT (by US District Judge Emmet Sullivan ) is behind a paywall, thats ok.

    But these two are broken.

    “Based upon our analysis of the applicable penalty sections, we conclude that the penalties would be no greater than $14,000 per $100,000 in KPMG fees”… “For example, our average [OPIS] deal would result in KPMG fees of $360,000 with a maximum penalty exposure of only $31,000.”

    “You agree there must have been some human being who violated U.S. laws?”

    Can you find cached pages for them?

    1. Thanks for spotting this.
      - I have moved the first link away from the FT (paywall) to the Guardian (free).
      - I have fixed the second link
      - Sadly I can't find another reference for the third link. The original source has been removed. And Google let me down in finding another! Anybody else able to find a link, please let me know.

    2. Third link has been fixed: “You agree there must have been some human being who violated U.S. laws?”

  8. "CR Intrinsic Investors has agreed to pay more than $600 million to settle SEC charges that it participated in an insider trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies."

    “The historic monetary sanctions against CR Intrinsic and its affiliates are sharp warning that the SEC will hold hedge fund advisory firms and their funds accountable when employees break the law to benefit the firm,” said George S. Canellos, Acting Director of the SEC’s Division of Enforcement.

    "The settling parties neither admit nor deny the charges."

  9. Nuremberg Trials covered judges and Industrialists, maybe a second one, of Global Stature, for economic and ecological warfare?

  10. The Guardian reports:
    "Deutsche Bank to pay $1.9bn to settle US law suit over mortgages.
    Federal Housing Finance Agency case over mortgage-backed securities sold to Fannie Mae and Freddie Mac"

    Once again, the settlement document states:
    "This Agreement does not constitute an admission by any of the Deutsche Bank Defendants of any liability or wrongdoing whatsoever, including, but not limited to, any liability or wrongdoing with respect to any of the allegations that were or could have been raised in the Actions."

  11. Reuters reports:

    "Goldman Sachs Group Inc will pay $67 million and Bain Capital Partners LLC will pay $54 million to settle their portions of a lawsuit accusing several of the world's largest private equity firms of conspiring not to outbid each other on companies they sought to buy......The preliminary settlement with former shareholders of publicly traded companies that were acquired in buyouts was disclosed in papers filed on Wednesday with the U.S. District Court in Boston, and requires court approval.

    Goldman and Bain did not admit wrongdoing in agreeing to settle."

  12. US Office of the Comptroller of the Currency fines three banks US$950million for rigging the FOREX market. The banks, Bank of America, JP Morgan, and Citigroup, agree to hand over the money, but "neither admit or deny" the actions they are paying for.


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