Keep Reading the Financial News

Judging from the news coverage of late, it appears that we’re about to see another big round of financial fraud cases. The New York Times Deal Book today is running one of those breathless articles filled with anonymous sources that tells you more, a lot more news about financial fraud, is on the way. The article was short on specifics, but makes it sound as if the U.S. Department of Justice (DOJ) is now considering criminal prosecutions of bankers in addition to civil penalties for banks:

While cases stemming from the financial crisis were aimed at institutions, prosecutors are planning to eventually indict individual bank employees over currency manipulation, using their instant messages as incriminating evidence.

Of course “eventually” is a difficult time to measure. The article cites a “dozen lawyers who spoke on condition of anonymity,” and it’s unclear if the lawyers who were talking were from Wall Street or the DOJ. Sooner or later, articles like this are going to force more statements to appear in the press, especially if this paragraph has any truth to it:

Yet the breadth of the suspected wrongdoing in the currency inquiry — Deutsche Bank, Citigroup, JPMorgan Chase, Barclays and UBS are among the dozen or so banks under investigation — might distinguish it from the piecemeal nature of the crisis-era investigations.

Keep reading the news for more financial fraud storiesThe Times reports the Defense Bar and Wall Street are more than a little concerned about all this. Why the Defense Bar would be concerned is a beyond me. It sounds like full employment for them. The banks and bankers may have slightly more to fear, however, from information found at the end of the article. It reports that the Department of Justice is coordinating with the Commodity Futures Trading Commission (CFTC).  Now here is the thing you don’t see much in the papers.  The Dodd-Frank Act created two new whistleblower offices. One is at the SEC and everyone has been talking about it.  The other is at the CFTC.  It works the same way. People can provide information to that agency and if there is a collection they will obtain a reward. They can do so anonymously if they act through a lawyer.  The Times reports that the bankers organized themselves in secret groups calling themselves things like “the cartel” and “the bandits club.”  Details like that may just be coming from the inside.  If in fact these banks banded together to do what the article implies they did, there are simply too many people involved and too many ways for them to report it to keep it secret forever.  If the DOJ is working with the CFTC could it be that there are whistleblowers providing the real information already? We won’t know for a while, but eventually we are going to find out what happened.

The thing missing from The New York Times article is the scale of the manipulation.  Yes, they note that Britain is near a settlement with six banks and, yes, they point to the possibility of a wide spread U.S. investigation.

However, the amount of money the banks may have made, if in fact they manipulated benchmark rates and the currency market, is staggering. It’s also why these cases are a long way from over. Too much money and too many people were involved to keep it quiet forever. Keep reading.