Tuesday, July 26, 2005

Your Honor, I'm Innocent, I Swear...It Was All A Big Mistake...

So, a funny article ran today. Not really ha ha funny. More "can it get any worse" funny. It was in today's CNN/Money, and the title says it all:

Ex-SEC aide involved in fund scandal?
Report: Derby profited from hedge fund accused of fleecing investors of millions of dollars.

Now, for starters, it wasn't an aide. We are talking about the Managing Executive for Operations for the SEC. Not some low-level flunky. The second name you see at the SEC.gov site when you look at the directory. Peter Derby, Managing Executive for Operations.

According to the CNN piece, Derby was an investor in a crooked New York hedge fund, that cheated investors out of many millions. And he serendipitously pulled his money out, along with almost 20% profit, before the bomb went off and it was exposed as a scam.

Now, one might ask if it is healthy that one of the top SEC guys had a relationship that was so cozy with a criminal hedge fund manager - cozy enough that he was one of the very few that made money from the fraud. One might wonder what favors might have been granted to this hedge fund manager, or friends of friends, and how many other hedge funds enjoy similarly intimate access to our watchdog regulators. One might speculate that this is the sort of thing that the SEC is ostensibly supposed to be against, and here we have a top dog making bank from one of the more egregious hedge fund frauds I've seen - this one was literally just a Ponzi scheme - forget about hiding losses and cooking the books, we are talking much more straightforward than anything that evolved. We are talking I'll take your $5 and pay my old investor $3 for investing $2, and pocket the remaining $2. A time honored pyramid scheme, from what I can gather.

So yet another bombshell for the SEC. Donaldson resigns, Cutler resigns, anti-investor market regulation Director Nazareth (wife of a Fed Governor) gets nominated for a Commission Chair, and the Operations Chief leaves under a cloud, while being sued for participating in a Ponzi scheme.

Can this really get any worse? What's next? Do we have to get a video of the SEC getting large bags of small denomination bills dropped off by a guy named Vinnie, who laughingly refers to it as the "hedge fund and naked short selling amnesia fund"? I mean, could you even make this stuff up? You have the DTCC and the SEC saying there is no naked short selling problem, and then going dark when experts like Finnerty and Shapiro say bullshit, you have a no comment when the FOIA request turns up a list of hundreds of millions of shares naked shorted per day (sort of conflicts with the "problem, what problem?" tack that the SEC and DTCC have taken to date), and now you have one of the upper echelon guys accused of participating in a Ponzi scheme.

Is it any wonder that hedge funds enjoy such a "look the other way days" treatment from the SEC? They should....apparently they are co-conspirators with some of the top dogs there! And it isn't some wild eyed conspiracy kook saying so. It's CNN.

Here's my favorite part of the article: "Derby, who is leaving the SEC this week, and the SEC, which has filed suit against Haligiannis and Sterling Watters, did not return calls from the Post. "

Yeah. I'll just bet. And Larry Thomson of the DTCC never returned any emails from dozens of investors who were asking for clarification of his flights of fancy in the @DTCC interview.

Seems like there is a lot of no commenting going on with the SEC and the DTCC these days. Sort of a standard operating procedure.

It really is getting stranger and stranger by the day.


Blogger n-tres-ted said...


Thanks for this new post. At a time when almost nothing shocks anymore, I do find this involvement of a high SEC official in scandal of this proportion to be shocking.

On the related subject of your previous posting of the FOI disclosure letter, did you see my posted inquiry about interpretation of the letter. Again, I read the letter as ambiguous on the point of whether the daily number shown is cumulative for all previous days, or new FTDs for that day only. I still see it as likely meaning cumulative aggregate FTDs. Any way to tell for sure? Thanks.

2:58 PM  
Blogger bob obrien said...

I interpret it to be cumulative as well. Can't think of any way to know for sure.

4:37 PM  

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