March 6, 2017
RE: Sale of the Chicago Stock Exchange
I write this letter in response to rebut comments made by John K. Kerin his January 5, 2017, letter to Brent J. Fields, Secretary, U.S. Securities and Exchange Commission. In his letter, Mr.Kerin makes the statement that third parties suggesting the timing of the notice was meant to somehow circumvent a thorough SEC review of the notice of proposed are without merit. I have re-read the statement and re-read the statement many times. I do not understand what Mr. Kerin's reference was really implying. Nowhere in my comments do I reference timing of this notice being to circumvent a review by the SEC. His statement is confusing. My words and meaning were the timing of the notice was a concern that Congress would not be able to act or make requests, as they had previously done, because of the Holiday season had started and the timing of this publication was suspicious and appeared to be scripted. It is my belief a common practice exists on Wall Street for information to be released during the holiday season so as to not attract attention when government officials, and other concerning entities have already left for the holiday.
One only needs to review the checkered past of non-compliance by the Chicago Stock Exchange in reference to regulation and oversight in drawing certain conclusions here. With the CHX being such a small exchange, it has seen it's share of regulatory activity. One of the rebuttals stated has been that safeguards are in place for any malicious activities to occur under thorough SEC review and oversight. The first layer of protection to rules and regulations is not with the SEC but with the Chicago Stock Exchange's own market surveillance division. As we look back we can see that there have been periods of selective enforcement. The two that I am most familiar with are the times when the SEC brought regulatory action against the Exchange in 2003 and 2013 for not enforcing trading rules. Both of these cases were brought based on original information I provided to the Commission. The CHX was simply not enforcing the rules. What gives us any confidence that if this has been a history with the CHX there will be anything less than their previous behavior to be expected? We will now have some foreigners that will be ultimately in charge of oversight of enforcement of trading rules and regulations on this exchange. I take no comfort in knowing that. With the Chinese Exchange being in what appears to be a constant state of flux, how can we take comfort that some of those same actor will desire to behave differently if allowed on a U. S. Exchange?
An example that I need to point out is that of the Bank of New York Mellon. I cannot, in any set of circumstances, understand how the world's largest depository institution could go from 1999 through 2008, willfully and maliciously violating trading rules and not be caught by the CHX's own surveillance team. The BNY-M supposedly turned themselves in when they realize that they were guilty of trading fraud. I think the true reason for their "self reporting" was to try and clear their name knowing they were about to be named the recipient of the TARP bailout fund resulting in billions of Federal dollars about to be deposited and trillion of dollars in toxic assets to be managed. The real irony here is that during this time frame, Valerie Jarrett (2000-2007) was on the Board of Directors and served as Chairman of the CHX. She left the Chairmanship to work on the Presidential campaign of then U.S. Senator Barack H. Obama.
On the September 30, 2003 the SEC charged the CHX with failure to enforce several of its important rules affecting its members. According to the SEC, when the exchange did detect violations they failed to take adequate disciplinary actions against its members who committed the violations. The exchange failed to detect and prevent these violations even though there were reasonable available surveillance tools and programs to support an adequate surveillance system. The CHX did detect violations but failed to take adequate disciplinary actions. My interpretation is that the exchange simply chose not to enforce the rules. This 2003 sanctions imposed by the SEC over the CHX was due to original information I had provided to the SEC. It was part of a much bigger investigation that did involve Bernard Madoff Investment Securities. The SEC investigation resulted in many specialists, trading firms and exchanges having monetary fines and sanctions imposed. One resulted in a certainly high known executive being terminated.
A stock exchange is a self regulating organization (SRO) and is given powers that enables them to impose sanctions over their trading body. These SROs are quasi-governmental agencies. As a quasi-governmental agency, they are afforded the veil of sovereign immunity. We know that it is almost impossible to successfully sue an exchange even if their actions are willful and deliberate.
One of the most recent situation involving the CHX was brought to light on August 15, 2013. On August 13, 2013 and again on August 14, 2013, I sent an email each day to the Commission. It was for the first time after countless numbers of conversations and email exchanges that I acknowledged Valarie Jarrett's apparent lack of supervision with the BNY-M "self reporting". On August 15, 2003, the SEC announced it found that the CHX violated provisions of securities laws in connection with its use of the validated cross trading reporting function. The validated cross system was intended to facilitate a recording of certain trades. Trades were executed at an inferior prices in order to advantage the chosen at the CHX . Again, this action was taken against the Chicago Stock Exchange based on information I provided to the Commission. On January 14, 2011, in an action against the Bank of New York Mellon Securities LLC., the SEC stated there was a failure to supervise an order desk from November 1999 through March 2008. The order desk of Bank of New York Mellon was their affiliate, Melon investor Securities LLC, In it's original release of this action, the SEC cited the venue where this was occurring as being executed on "a regional exchange". No mention of that Exchange being the CHX. On July 22, 2008 the Bank of New York Mellon "self" reported these violations to the commission staff. I find it hard to believe that it would take from July 2008 until January 2011 for the Commission to come forward and impose monetary sanctions against the BNY-M, but then again, BNY-M was trusted as being the custodial bank in the largest bailout of Wall Street in U.S. history. For their amicable self reporting, Bank of New York Mellon was fined only $1 million for this ten-year fraudulent scheme that all occurred under the watchful eye of the Chicago Stock Exchange engulfing Valarie Jarrett's entire tenure.
In my December 2016 email published by the SEC Secretary Brent Fields, I pointed out the time frame missteps the commission had made in their postings and request of solicitation for comments. There was a letter sent to the CFIUS by a group of 40+ Congressman in February 2016 expressing angst and concern over a foreign ownership of a United States stock exchange. In that letter Congressman Robert Pittenger of North Carolina headed a strong case for concern of a United States Stock Exchange having foreign ownership. What is really troubling though, is that the Committee on Foreign Investment in the United States apparently disregarded the concerns of the United States Congress when it blessed the transaction of the sale of the CHX to this group. When I look over this tapestry and matrix of entities buying the exchange, it is easy to become confused about exactly who wants to own this exchange. In my mind anytime there is a 49.5%-50.5% breakdown on any matter, that wreaks of an attempt to just barely qualify for whatever one is trying to circumvent in the first place. There has been several attempts to clarify this by those potential buyers of the exchange but still I find it quite confusing. In my December email addressed to Secretary Fields, I stated I have had sovereign immunity invoked against me two times by exchanges. In a re-review of my files I find that I have sovereign immunity invoked against me not twice but three times. The Boston Stock Exchange was the exchange that invoked sovereign immunity against me after I had found a method of shutting down the in the intermarket trading system (ITS) freezing trades and blocking potential buyers and sellers from being able to execute trades while others could do so at their discretion. The SEC did bring action against the BSE based solely on my allegations and information. James Crofwel, former retired president of the BSE, was fined in the matter with what I believe to have been an inconsequential monetary fine and remedial sanctions imposed upon the exchange.
One of my real concerns here is that CFIUS simply ignored Congress. Congress had voiced their opinion and concern in this matter over a year ago and they simply ignored those elected officials with apparently no explanation as to logic or reasoning used in determining the recommended approval of the purchase of the CHX. I was very pleased to see that the staff of Congressmen Buddy Carter of Georgia and Congressman Robert Pittenger from North Carolina was able to use the information I provided concerning regulatory information based on improper time disclosures by the SEC in posting on their website and onto the Federal Register to delay the action of the sale of the CHX.
What I find being highly coincidental is that had this transaction been allowed to close, it would have closed within the last few days of Barack Obama's Presidency. In my research I have found that the Obama administration had specifically told our Armed Forces to keep their opinions to themselves and to be quiet about certain dealings with the Chinese government, and quoting retired Navy captain Jerry Hendrix, "They want to get out of office with a minimum of fuss and a maximum of cooperation with China". This certainly could explain the timing of the events occurring recently in this Chicago Stock Exchange acquisition. There would have been only hours remaining in the Obama administration had this deal closed accordingly as it was first outlined.
Part of the initial concern of the acquisition of the CHX by the Chinese can be placed squarely on CHX CEO John Kerin's own words. In an article dated February 17, 2016 appearing in Bloomberg View, Kerin set off the need to be alarmed by that stating "he cannot publicly identify who owns Chongqing Casin and that the Chinese government may be a minority shareholder". I cannot see how under any circumstance where a foreign communist government is operating or could be operating behind the scenes and being given protection only afforded to United States agencies specifically here as a SRO. I find it inconceivable that ANY foreign investor being given the power of United States Sovereign Immunity. Again Mr. Kerin was the one that caused this situation to be brought under a microscope, regardless of later explanations. I find it quite queer that only in the final days of this transaction are the purported true owners revealed.
I filed a whistleblower claim with the United States Securities and Exchange Commission over irregular activities at the Chicago Stock Exchange. I was told by the Chief of the Whistleblower Division that the SEC had spent more time working on my case than any other case the whistleblower division had worked on. That in itself should hold and provide substantial statue for my words.
Shortly before the midterm election in 2014 I released an article expressing my concerns over Valerie Jarrett's rule of the Chicago Stock Exchange and the matter involving the BNY-Mellon. The article stayed in the public domain for only a short period of time before I removed it. The CHX was fined a mere $300,000 for failure to properly surveil certain entities they were charged to do so as a stock exchange. Information obtained from what I believe to be reliable sources tell me that this $300,000 fine was negotiated down from an original amount of $500,000. The exchange was in such a dire financial situation that the fine was lowered by $200,000. Now we are talking about owners that may be and were once purported to be the Chinese government, allowed oversight of a US exchange. The CHX was part of an investigation that also looked at and examined Bernie Madoff. Madoff had just turned himself in to authorities in late 2008 and in March 2009, less than 90 days after the surrender, the SEC brought charges against six firms trading on the Chicago Stock Exchange for the same reasons that the CHX had been cited for in 2003. These firms were fined for trading violations from 1999 to 2005. But yet it was 2009 before any sanctions were brought. It is my firm belief that it was only after Madoff, a target of the original investigation, surrendered, that the SEC had a knee-jerk reaction and brought action against these CHX trading entities. A former SEC commissioner, Luis Agular, stated that self regulating organizations actually have a conflict of interest between enforcing the rules at the expense of making more money. Straight from a then SEC Commissioner's mouth there is a conflict. Does one really wonder when in a conflicted situation of enforcing rules and making money which route the Chicago Stock Exchange did/would take? My tremendous overwhelming concern is that a person that was the top adviser, the closest adviser to the President of the United States, the most powerful man in the world, would allow such heinous and nefarious acts to occur while being at the helm of such a self regulator. With Ms. Jarrett's judgment, based on what was exhibited while at the Chicago Stock Exchange, what advice did she actually give to the President of the United States having the same mindset as shown in her board member, chairman rule of the Chicago Stock Exchange?
If the Chicago Stock Exchange sale had not been to certain foreigners, this situation would have never gone public. Valerie Jarrett's affiliation and facilitation with Wall Street corruption has now left her tainted and casts a shadow on the Obama Legacy.