I’m in a venomous mood so let’s play storytime. Keep in mind I can’t prove any of this in a legal sense. The only way to do so would be testimony from witnesses and victims, which won’t happen for reasons I’ll get to.
Story 1: Friend of mine, broker, starts work at a new firm. One of the established brokers comes in to his office, welcomes him to the firm with the usual backslapping “GREAT TO HAVE YOU ABOARD! WE GOT A GREAT THING GOING HERE!” disingenuous bullshit.
Oh, and established broker happens to mention he is personally underwriting a tax-exempt product and if the new guy really wanted to be a team player, he’d take down AT LEAST a million bucks of it. New guy takes the million, distributes it to clients and two weeks later the thing is trading with a value of exactly $0. The tax exempt status had been pulled.
Established guy, who collected a check for somewhere around $500K when the deal sold, barges into new guy’s office when he hears questions are being asked and tells him “DON”T BE A PUSSY. YOU PLAYING WITH THE BIG BOYS NOW”.
Story 2: Institutional sales guy has a sideline underwriting his own deals in same way as the asshole in the above example. Two days before a secondary offering in a (very) junior mining company, he borrows all of the available shares of the company from every major brokerage. Why? So no one can short it when the new shares come out no matter how egregiously priced they are. Smaller check this time, maybe $300K.
Story 3: This is complete hearsay but because I know the broker involved a bit – someone who annually massages government documents to keep handicapped parking priveleges he doesn’t need – I believe it. Rumor was that one of his clients was one of the top five new issue buyers at the firm (a large one). Problem was that the woman who’s name was on the account had Alzheimer’s disease and had been hospitalized for a decade.
Story 4: The great rare earth metals scam. This was a helicopter drop of free money for a certain type of unscrupulous broker. China is the source for the vast majority of rare earth metals and when the government slashed exports after a diplomatic spat, the private deal underwriting machine kicked into high gear. “WHAT A GREAT STORY! THE DEFENSE DEPARTMENT NEEDS THIS SHIT! I know this guy with a property way up north with a huge Yttrium and he only needs $10 million to develop it. We can get in on the ground floor.”
Never mind that rare earth metals aren’t rare. The reason they come from China is they are massively un-environmentally friendly to process and China is one of the few countries where they don’t care if the groundwater eventually turns fluorescent purple. Which is why, in developed countries, it takes seven years from groundbreaking to production. Oddly enough, the “ground floor” investors in new rare earth metals stocks weren’t informed that cash flow was seven years out, long after China would ease export restrictions. Most of these companies no longer trade but there were lots and lots of $300k checks issues to the brokers who underwrote these deals.
These are the worst examples that came immediately to mind but with a few phone calls I could give you 30 more horrific tales. The reason outsiders don’t hear about them is two-fold. One, companies make a lot of money ignoring these types of things. Some, like the rare earth scam, are mostly legal anyway. The second, and more important reason, is that no other insider is likely to complain because almost all of them, at one point or another, have done something shady themselves. They do not need a regulator going through all their trades over the past decade.
The Daily Mail today published an expose Saturday entitled “The regime of fear inside Barclays” and to be fair the whole thing sounds pretty bad. Shredding a report is a new level of sweeping compliance problems under the rug. But in light of personal experience my suspicion is that Barclays’ (who I never worked for btw) biggest deficiency is an inability to avoid detection. Horrible shit happens everywhere, every day and it takes a complete and utter moron to get caught.
So my first reaction to the Daily Mail’s tut tutting about the state of the industry is “You have no fucking idea”. Barclays isn’t a company “out of control” its just a run of the mill brokerage company. I have no idea how we got to this point but its going to take a whole lot more than a few breathless newspaper reports to fix it.