Will Congress hold 'Goldman' Gary (SEC) accountable?
Abraham George Market Musings
I just finished watching the Netflix four-part series on Bernie Madoff. The Monster of Wall Street. It was a depressing movie when you realize one man through his pure contacts, position, craftiness, crookedness, and luck fooled so many innocent people of their hard-earned wealth and livelihood.
What irks me more was that two of the most powerful institutions SEC and JP Morgan looked the other way. JP Morgan benefitted big time with at times 6 to 7 bio dollars in their account and never questioned or investigated the source of funds. Finally, they settled with the US government by paying $2.6 bio but never disclosed how much they benefitted from Madoff over decades of managing his account knowing suspicions of fraud. No one from JP Morgan went to jail.
SEC continued to show their impotence and unwillingness to address fraud when facts were clearly shown to them from outside sources. Harry Markopolos a math geek and an options expert from an obscure hedge fund in Massachusetts went to the SEC repeatedly times over many years as a whistle-blower to explain Madoff was a fraud and that the claims that he is making money through options cannot be correct when his volume being stated was even more than the volume of the options exchange. SEC investigated Madoff five times but still gave him a clean chit. They were focused on the small guys and could never fathom that a firm as big as Madoff could be a Ponzi scheme. Finally what undid Madoff was not the SEC or any other regulatory body but the invisible hands of the market forces. A $ 65 billion Ponzi scheme was unraveled in the aftermath of the GFC. If not, Madoff would have still carried on.
Again, no one from SEC went to jail but a few people committed suicide including Madoff’s son and there were deaths under suspicious circumstances. It all ended like a Shakespearean drama.
What lessons have we learned? Maybe feeder funds must have tightened their compliance and have become more stringent in their allocations. Has anything changed at the SEC? I don’t think so. They still continue to operate with no real accountability or concern for the retail investors.
The former SEC Chairman Jay Clayton, the former financial Commissioner Bill Hinman, and the present Chairman Gary Gensler has caused untold destruction of wealth and innovation with their twisted interpretations of the rules and high-handedness.
The stench of Gary Gensler’s incompetence is unbearable. Is he hell-bent on protecting the incumbent banks and his special interest projects that he will go to any extent? He is in this position for no reason. He is a smart guy. He was the youngest partner ever at Goldman Sachs and was teaching crypto at MIT.
Whatever it is, wherever he has been in charge there have been problems and he has gotten scot-free for a better position. When he was at the CFTC, Jon Corzine his former boss at Goldman Sachs was running MF Global. Corzine collapsed the firm into bankruptcy by taking some outrageous bond risks. He commingled customer money and lost more than a billion dollars. Finally, Corzine got away by paying $ 5 mio in settlement with the regulators. He never went to jail. It all depends on who you know. Gensler was in the thick of all that.
In his current position as SEC Chairman he seems to be a day late and a dollar short on everything that he touches. He is not proactive but reactive. He missed Terra Luna, Celsius network, Three Arrows Capital, Voyager, and now FTX. He was supposed to check the above companies had sufficient reserves and that their business is in order to protect the retail investors but nothing of that happened. Now he has charged Gemini and Genesis for an unregistered offer & sale of crypto asset securities. Gemini and Genesis could be already bankrupt with the collapse of FTX and the interlinkages they were having with Sam Bankman-Fried’s company. Why were Gemini and Genesis stopped from doing what they were doing all this time? So now whatever money could go to investors from Gemini and Genesis will go to fill the coffers of the SEC. Isn’t that what happened with BlockFi? SEC fined BlockFi $100 mio. They didn’t have the money to pay. FTX stepped in to buy BlockFi. BlockFi paid SEC $70 mio out of the $ 100 mio. Where did FTX get the money? We all know that was customer money that SBF had commingled. Now isn’t SEC a party to have received ill-gotten money? Will be interesting to see how that clawback will finally work out.
Gensler’s highlight of 2022 was to keep up with the Kardashians. He fined Kim Kardashian for not disclosing the money she received for a crypto promo for one million dollars and odd and spared no time in announcing it over CNBC when guys like SBF were conducting frauds right under his nose. Not only that Gensler was having planning sessions with SBF and met with him multiple times. It is no surprise FTX had a broker-dealer license when others were still waiting.
Gensler is a public servant and his calendar is open to the public. How is it that he has scrubbed his meetings with George Soros, Hillary Clinton, and Nancy Pelosi, and his calendar is no more available for viewing? Take the case of Ripple where SEC resisted tooth and nail to give Bill Hinmann’s internal discussions on the Ethereum free pass emails to Ripple when judge Torres had ordered the same. Finally, on the sixth order, SEC gave it to Ripple with a condition to not make it public. Ripple has already seen the emails and they have now requested the court to make them public but SEC is fighting against that.
Based on all the above do you think the SEC is working in the interest of the investors? I don’t think even one bit they have the interest of the investors, particularly the retail investors.
Congress is really mad about the way Gensler has handled things so far and they very much want him to come for a hearing. The Finance Committee Chair Bill Huizenga, Warren Davidson, and Tom Emmer all Republican Congressmen are hopping mad and have expressed their displeasure of Gensler in public forums.
Gary surely is going to be in a hot seat if he turns up at the house for a hearing or will he resign before that?
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office, and a hedge fund.