Eliot Spitzer in 2004
Eliot Spitzer rose to prominence when he was elected to two four-year terms as the Attorney General of New York in 1999. He soon began his famous clean up of the financial services industry, earning the moniker ‘Sheriff of Wall Street’ along the way.
The Zero Theft Movement is dedicated to eradicating the rigged layer of the economy. We achieve this with your help by researching, debating, and voting on which specific areas of the U.S. financial system are rigged, how much is being ripped off from the public, and by whom.
In this article, we want to spark investigations into the finance services industry—particularly the potential concerns Eliot Spitzer raised during his time as Attorney General.
Key Questions to Consider
- Global Analyst Research Settlement:
- Were there claims that major investment banking firms had undue influence over research analysts?
- Did that create conflicts of interest for research analysts?
- Were clients likely misled by the reports provided by research analysts?
- 2003 Mutual Fund Scandal:
- Were mutual fund companies practicing late-day trading with the help of Canary Capital Partners?
- If they were, did these companies get an unfair advantage over mom and pop investors?
- Spitzer’s case against Richard Grasso:
- Should the NYSE have set Grasso’s annual salary at $1.4 million with an annual bonus of $1 million?
- Was the appeals court’s ruling fair?
- Were the companies, institutions, and individuals Spitzer investigated ripping off the American public?
Big corporations can essentially pay to influence legislation and regulation in order to unethically profit off us, the public.
Don’t believe us? See what your fellow citizens think…
Global Settlement
Eliot Spitzer made his first major mark in 2003, when he played a major part in the Global Analyst Research Settlement. The United States Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), and New York Stock Exchange (NYSE) reached an enforcement agreement with ten of the United States’s largest investment firms to address issues of “undue influence of investment banking interests on securities research at brokerage firms,” according to an SEC press release.
Allegations
The SEC’s report outlines the allegations against the investment firms. The following is directly quoted from the press release linked above.
“The enforcement actions allege that, from approximately mid-1999 through mid-2001 or later, all of the firms engaged in acts and practices that created or maintained inappropriate influence by investment banking over research analysts, thereby imposing conflicts of interest on research analysts that the firms failed to manage in an adequate or appropriate manner. In addition, the regulators found supervisory deficiencies at every firm. The enforcement actions, the allegations of which were neither admitted nor denied by the firms, also included additional charges:
- CSFB, Merrill Lynch, and SSB issued fraudulent research reports in violation of Section 15(c) of the Securities Exchange Act of 1934 as well as various state statutes;
- Bear Stearns CSFB, Goldman, Lehman, Merrill Lynch, Piper Jaffray, SSB, and UBS Warburg issued research reports that were not based on principles of fair dealing and good faith and did not provide a sound basis for evaluating facts, contained exaggerated or unwarranted claims about the covered companies, and/or contained opinions for which there were no reasonable bases in violation of NYSE Rules 401, 472 and 476 (a)(6), and NASD Rules 2110 and 2210 as well as state ethics statues;
- UBS Warburg and Piper Jaffray received payments for research without disclosing such payments in violation of Section 17(b) of the Securities Act of 1933 as well as NYSE Rules 476(a)(6), 401, and 472 and NASD Rules 2210 and 2110. Those two firms, as well as Bear Stearns, J.P. Morgan and Morgan Stanley, made undisclosed payments for research in violation of NYSE Rules 476(a)(6), 401 and 472 and NASD Rules 2210 and 2110 and state statutes; and
- CSFB and SSB engaged in inappropriate spinning of ‘hot’ Initial Public Offering (IPO) allocations in violation of SRO rules requiring adherence to high business standards and just and equitable principles of trade, and the firms’ books and records relating to certain transactions violated the broker-dealer record-keeping provisions of Section 17(a) of the Securities Exchange Act of 1934 and SRO rules (NYSE Rule 440 and NASD Rule 3110).”
Penalties, disgorgements, and other payments
The data below regarding penalties, disgorgements, and other payments again comes directly from the SEC press release.| Firm | Penalty ($ Millions) | Disgorgement ($ Millions) | Independent Research ($ Millions) | Investors Education ($ Millions) | Total ($ Millions) |
|---|---|---|---|---|---|
| Bear Stearns | 25 | 25 | 25 | 5 | 80 |
| CSFB | 75 | 75 | 50 | 0 | 200 |
| Goldman | 25 | 25 | 50 | 10 | 110 |
| J.P. Morgan | 25 | 25 | 25 | 5 | 80 |
| Lehman | 25 | 25 | 25 | 5 | 80 |
| Merrill Lynch | 100 | 0 | 75 | 25 | 200 |
| Morgan Stanley | 25 | 25 | 75 | 0 | 125 |
| Piper Jaffray | 12.5 | 12.5 | 7.5 | 0 | 32.5 |
| SSB | 150 | 150 | 75 | 25 | 400 |
| UBS | 25 | 25 | 25 | 5 | 80 |
| Total ($ Millions) | 487.5 | 387.5 | 432.5 | 80 | 1,387.5 |
KEY QUESTIONS
- Was there inappropriate influence by investment banking over research analysts?
- Did that create conflicts of interest for research analysts?
- Were clients likely misled by the reports provided by research analysts?
Thirty brokerage firms paid about $900 million to settle the civil suit contending they “schemed with one another for years to fix prices on the NASDAQ stock market,” the New York Times reported. They allegedly did so by not using odd-eighth NASDAQ quotes. See what the ZT community has uncovered about the matter.
Alleged Late-Day Trading and Market Timing
The Sheriff of Wall Street did not stop his mission to clean up the financial sector with the Global Settlement. Later that same year (2003), Eliot Spitzer already had his eyes set on his next Wall Street target: the mutual fund business.
HELPFUL DEFINITIONS
Late-day trading refers to the practice of placing orders to buy or redeem mutual fund shares after the calculation of the net asset value. Meaning, late-day traders have the unfair advantages of trading while others can’t, at a fixed price.
Market timing refers to a trading strategy where market participants try to beat the stock market by forecasting its movements and trading accordingly. As opposed to the buy-and-hold strategy, market timing requires constant attention to the stock market, as well as regular buying and selling.
Major news network CNN reported on the metaphorical gun fight:
“The crisis erupted in September, when New York attorney general Eliot Spitzer alleged that four mutual fund companies had struck illicit relationships with Canary Capital Partners, a New Jersey hedge fund. Spitzer charged that Bank of America’s fund business allowed Canary to trade several funds after the markets had already closed at that day’s prices. Known as “late trading,” this illegal practice allowed Canary to trade on after-hours news (such as earnings announcements) at before-closing prices. Spitzer also charged that Banc One, Janus, and Strong…allowed Canary to quickly jump in and out of their mutual funds to make a fast profit, a practice known as “market timing.” While market timing is not illegal per se, fund companies can violate securities law if they state in their fund prospectuses that they discourage market timing but then make exceptions for “select” investors or their own employees.”
Canary Capital Partners LLC
“Canary Capital Partners LLC, a multimillion-dollar hedge fund, and its managers agreed to pay $30 million in restitution of illegal profits generated from unlawful trading and pay a $10 million penalty, Attorney General Eliot Spitzer said Wednesday.”
Reported by the Herald Tribune
Bank of America
“In the mutual fund scandal’s largest penalties so far, merger partners Bank of America Corp. and FleetBoston Financial Corp. agreed Monday to pay $515 million and reduce fees by $160 million over allegations they allowed abusive fund trading. Both firms’ mutual funds were accused of allowing some customers to make rapid-fire trades, known as market timing, that allowed them to profit at the expense of other fund shareholders, despite policies against it.”
Reported by the Chicago Tribune
Banc One
“Banc One Investment Advisors Corporation Agrees to Pay $50 Million To Settle SEC Fraud Charges For Market-Timing Abuses…Mark Beeson, Former President and CEO of One Group Mutual Funds And Senior Managing Director of Banc One Investment Advisors Corporation, Agrees to a Two-Year Mutual Fund Industry Bar and a Three-Year Officer-and-Director Bar, and to Pay a $100,000 Civil Penalty.”
From the SEC Press Release
Janus Capital Group Inc.
“Troubled mutual fund manager Janus Capital Group Inc. yesterday agreed to give up $226.2 million to settle state and federal charges that the Denver company helped favored clients profit at the expense of average investors.”
Reported by The Washington Post
Strong Capital Management Inc.
“The Securities and Exchange Commission announced today a settled enforcement action against Strong Capital Management, Inc. (SCM), its founder and majority owner, Richard S. Strong, two affiliated entities and two other SCM executives, for allowing and, in the case of Strong, engaging in undisclosed frequent trading in Strong mutual funds in violation of their fiduciary duties to the Strong funds and their investors. The settled order requires the payment of more that $140 million in monetary remedies, and imposes regulated industry bars and other relief.”
From the SEC Press Release
KEY QUESTIONS
- Were mutual fund companies practicing late-day trading with the help of Canary Capital Partners?
- If they were, did these companies get an unfair advantage over mom and pop investors?
Do you think high-frequency trading firms are front running through dark pools? Get on the case now!
The Sheriff of Wall Street vs. Richard Grasso
In 2004, Eliot Spitzer’s last major battle against the finance industry was against Richard Grasso, then-chairman of the NYSE.
Lawyer Rachel Penski wrote an article for the Vanderbilt Law Review, outlining the context behind Spitzer’s ‘crusade.’
“In August 2003, for the first time in its 200-year history, the New York Stock Exchange (NYSE) announced the compensation package for its Chairman and Chief Executive Officer. The NYSE’s Board of Directors revealed in a press release that it had distributed $139.5 million in deferred compensation to its CEO Richard Grasso. This payment was in addition to a base salary of $1.4 million with an annual bonus of $1 million.”
Grasso’s salary caused public outcry. In essence, the argument was: the head of a non-profit organization (in this case, the NYSE) should not receive compensation commensurate to chief executives of public corporations. The Sheriff soon responded.
“Spitzer said the lawsuit, filed in state court in New York, would seek at least $100 million back from Grasso and $18 million back from Langone, though the amounts being sought have not been finalized. Langone was the chair of the Big Board’s compensation committee when Grasso’s pay was approved.”
Reported by CNN
And the four-year standoff ended with a clear winner…
“Former New York Stock Exchange chief Richard Grasso won a knockout victory on Tuesday in his four-year fight to keep every last penny of his $187.5 million pay package, as an appeals court threw out the state’s remaining claims against him.”
“But the appeals court ruled that, because the attorney general was only seeking the return of money and because the money would now benefit a for-profit corporation [NYSE Euronext], a ruling against Grasso no longer served the public interest.”
Reported by Reuters
KEY QUESTIONS
- Should the NYSE have set Grasso’s annual salary at $1.4 million with an annual bonus of $1 million?
- Was the appeals court’s ruling fair?
What do YOU Think About the Eliot Spitzer Cases?
After seeing the evidence presented in this article, where do you stand on Eliot Spitzer’s battle against the finance sector?
Did the American public get ripped off by crony investment banks? Were certain traders or companies given unfair advantages in the market?
Now’s the time for you to voice your opinion and help your fellow citizens pinpoint what areas of our economy are or have been rigged against us.
Your vote helps citizens figure out how much is getting ripped off and by whom. That gives us the power, based on strong evidence, to start holding those gaming the system accountable for profiting unethically. All of us must decide democratically, by a vote.
If you are still undecided, your fellow citizens have investigated the issue and presented their own cases for why they believe or don’t believe the corporate tax rate should be viewed as rigged economy theft.
Eradicate the Rigged Layer with the Zero Theft Movement
The rigged layer of the U.S. economy rips all of us off, including YOU. Crony capitalists and officials who have succumbed to regulatory capture have created the 50 years of wage stagnation and violations of antitrust laws.
The Zero Theft Movement seeks to end the corporatocracy and rid moneyed interests from politics. Our mission is, and will continue to be, on waking up 330 million American citizens to the truth. We can all profit from an ethical, powerful, and safe economy if we stand up against the crony capitalists.
Will you refuse this call to action, or take action to eliminate the rigged layer of the economy?
View how much is being stolen, according to the public
Investigate your areas of interest
All areas of our economy could be experiencing rigging by crony capitalists and corrupt officials. We need to systematically investigate each instance in order to find out if best evidence suggests it is truly rigged.
Investigations into government contracts
➤ State and Local Government Contracting: Tax Money Wasteland?
➤ Government Contracts: Is $586.2 Billion Being Spent Well?
➤ The Big Dig: A Hole in the Heart and Wallets of Bostonians
Alternatively, find an area that interests you most.
Serve your fellow citizens as a citizen investigator
The success of our movement rests in your hands, the leaders willing to dedicate time to conduct investigations into potentially rigged areas of the economy. With your valuable work, the movement has no solid ground to stand on, no foundations, no proof, to actually hold those corrupting our system accountable for their actions.
Commitment to nonpartisanship
The rigged layer causes all of us to suffer, regardless of our political allegiances. If we are to eliminate rigged economy theft, we have to set aside our differences and band together against crony capitalists and corrupt officials.
Free Educational Content
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We regularly publish informative articles on ZeroTheft.net that teach you all about the rigged layer of the economy in short, digestible pieces. You can better protect yourself and others from the schemes of crony capitalists by reading our articles.
Standard Disclaimer
The ZeroTheft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. ZeroTheft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.