August 22, 2010
Of course something should be done to correct the actions of the brokers/dealers but have you seen the amount of funds these people provide the political parties to insure they operate unrestricted? For them it is money well spent.
By now everyone should know these requests are merely for show and have no real impact on the actions of the SEC.
One example from an article by Ian Mathias:
"The United States experienced another interesting first on Wednesday. For the first time in the history of our union, the Securities and Exchange Commission brought charges against a State. The powers that be in New Jersey had been deceiving and misleading investors in regards to the fiscal well-being of the Garden State, and the SEC busted 'em. Bravo.
That's where the good news ends.
But first, the Cliff's Notes to this mess, according to the SEC's allegations:
In 2001, New Jersey increased pension benefits for state employees without having the funds to cover new benefit expenses. For the next six years, at least, the state continued to underfund the pension system - but hid that information from municipal bond investors. On 79 separate occasions the state sold a total of $26 billion in bonds while "withholding and misrepresenting pertinent information about its financial situation," said SEC director of enforcement Robert Khuzami.
In other words, they lied so that the bonds they were selling would appear more attractive. It's classic balance sheet fraud, committed by senior state officials working for both democrat and republican governors. And the state's bond underwriters - JP Morgan, Citi, Morgan Stanley, Bank of America, Barclays, Merrill and (of course) Goldman Sachs - all probably lied too. At the very least, they all failed to conduct due diligence before vouching for the quality of the state bonds.
What's the penalty for this outright fraud? Nothing.
The State of New Jersey will pay the SEC precisely zero dollars. Not one state employee will pay a fine either, or go to jail...not even lose his job. In fact, the State didn't even have to admit wrongdoing. "New Jersey agreed to settle the case without admitting or denying the SEC's findings," calmly explains the SEC press release. Come again? Essentially, the only provision of the settlement is Jersey's promise that it won't do this in the future. That's it.
And Goldman Sachs, JP Morgan and all those other mega-banks? C'mon... They weren't even mentioned in the SEC's statement.
It's worth repeating: We're talking $26 billion in bonds sold under purposely false pretenses. This isn't some small-time phony IPO. Pretend a company like McDonald's, which has a market cap of roughly $77 billion (that's about the same value of New Jersey's pension fund system) sold $26 billion in bonds under similar guise. Heads would freaking roll. They'd be lucky to not go bankrupt.
Yet, here we are. New Jersey officials were so unfazed by the SEC settlement - the status quo was so unchanged - that they proceeded with a $2.2 billion bond sale on August 19, 2010. That's less than 24 hours after the SEC announced the results of their investigation. SEC investigators did a fine job forging into uncharted territory and exposing State fraud, but they offered literally the most toothless settlement possible."
Yes folks, they get what get what they pay for.