Tag Archive: Bank Fraud


National Whistleblowers Center

3238 P Street, NW

Washington, D.C. 20007



Lindsey M. Williams (202) 342-1903



UBS Whistleblower Will Hold Brief Press Conference Tomorrow

Before Surrendering to Federal Authorities

Washington, D.C. January 7, 2010. UBS whistleblower Bradley Birkenfeld will surrender to U.S. authorities and report to Schuylkill County Federal Correctional Institution in Minersville, Pennsylvania, at 2pm, Friday, January 8, 2010.

Prior to entering the penitentiary, at approximately 1:15 pm, Mr. Birkenfeld and his counsel will make brief public remarks.

Mr. Birkenfeld will commence serving a 40-month sentence as a direct result of blowing the whistle on one of the largest tax fraud schemes in U.S. history, which has resulted in UBS bank paying a $780 million dollar penalty to the United States, and over 14,000 “taxpayers” voluntarily disclosing their illegal offshore accounts. Despite the fact that Mr. Birkenfeld’s disclosures have resulted in a multi-billion dollar net-gain to American taxpayers, and have forced UBS bank to shut down a massive illegal offshore banking practice, Mr. Birkenfeld was sentenced to an unprecedented 40-months in prison.

Default Swap Reforms Roiled as Aiful Tests Settlement (Update1)


Link to original: http://www.bloomberg.com/apps/news?pid=20601109&sid=aANN.DJq5h1E#




By Abigail Moses and Shannon D. Harrington

Nov. 27 (Bloomberg) — Wall Street’s system for determining payments on derivatives linked to the debt of defaulted companies is showing cracks less than a year after securities firms changed practices to avoid “Draconian” regulation.

Credit-default swaps tied to Thomson SA, the Paris-based owner of film processor Technicolor Inc., paid some holders 30 percent less than those with contracts expiring a day later. In Japan, owners of swaps on Aiful Corp. haven’t been compensated, though one of its banks said the consumer lender skipped loan repayments. Dealers can’t agree whether to reimburse investors in Mexican cement maker Cemex SAB’s debt swaps.

Disparities are arising in spite of practices adopted in April and July to standardize settlements and curb risk in a market that exacerbated the worst financial crisis since the 1930s by contributing to the downfall of American International Group Inc. Analysts at Bank of America-Merrill Lynch, Barclays Capital and UniCredit SpA say changes are needed as dealers examine how to interpret existing rules to maintain investor confidence.

“The first cracks are being shown in the protocols,” said Edmund Parker, head of derivatives at Chicago-based law firm Mayer Brown LLP in London.

The rules are being tested as the global default rate rises. The rate for companies ranked below investment-grade reached the highest since the Great Depression in October and will peak at 12.5 percent next month, Moody’s Investors Service said Nov. 5.

Lawmaker Ammunition

Flaws in the system may provide ammunition to President Barack Obama and lawmakers who want to rein in derivatives, including credit-default swaps, which rise in price as investor confidence decreases and pay off when a borrower fails to adhere to its debt agreements.

Regulators demanded more transparency after the meltdowns 14 months ago of Lehman Brothers Holdings Inc. and AIG, two of the largest traders, froze credit markets and worsened the first global recession since World War II.

The swaps had been the world’s fastest-growing market, with contracts protecting against defaults on as much as $62 trillion at the end of 2007, almost 10 times the amount of the U.S. government’s debt outstanding, according to the International Swaps & Derivatives Association, a trade group based in New York. The swaps totaled less than $632 billion in 2001 and the figure is $26 trillion now.

Hedge fund manager George Soros has called the market “unsafe,” and billionaire investor Warren Buffett once likened the derivatives to “financial weapons of mass destruction.”

Revenue Stream

Banks are making changes to avoid stricter rules imposed by regulators, said Atish Kakodkar, a CreditSights analyst in New York.

“The risk of over-regulation is real,” Kakodkar said in a Nov. 15 research report. “Self-regulation in the credit derivatives market seems to be driven largely by the need to pre-empt any Draconian regulation.”

Five U.S. commercial banks, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp., were on track to earn more than $35 billion this year trading unregulated derivatives contracts of all types as of August, according to data compiled by Bloomberg.

Credit-default swaps are derivatives, contracts with values derived from assets or events, including stocks, bonds, commodities, currencies, interest rates or the weather. Banks, hedge funds and insurance companies use the swaps to insure bonds and loans against default or to speculate on the creditworthiness of countries and companies.

Failure to Pay

If a borrower fails to adhere to its debt commitments, bondholders who own swaps get paid the debt’s face value in exchange for the bonds. Those that don’t own the underlying bonds get the face value in cash minus the debt’s current market value as determined by industry-run auctions where holders of the securities sell them to the highest bidders.

Dealers and investors standardized the contracts this year to make them easier to trade through clearinghouses, which act as buyers to sellers and sellers to buyers, preventing a single default tripping a domino-like financial system catastrophe.

As part of that effort, ISDA formed regional committees of 15 dealers and investors in March to make binding decisions on when contracts are triggered. The committees base decisions on publicly available information such as regulatory filings, press releases and news articles. Swaps usually are triggered by one of three events in most countries: bankruptcy, failure to pay or debt restructuring, including a reduction or postponement in principal or interest. Under the new rules, traders eliminated restructuring as a credit event in the U.S.

Successful Auctions

Traders successfully auctioned debt to settle contracts linked to 41 companies and Ecuador’s government this year, with about half of those happening since ISDA created the committees.

“The determinations committee provides one place where we can resolve a lot of these issues centrally,” said Athanassios Diplas, global head of counterparty portfolio management in New York for Frankfurt-based Deutsche Bank AG and co-chair of the ISDA panel that wrote the protocols. “Imagine if we were to face all of this in the world where we had to arbitrate potential disputes bilaterally. That would be complete chaos.”

The new protocols helped eased the market’s stigma, with the net amount of protection bought and sold rising to $2.6 trillion as of Nov. 13, the highest since at least February, Depository Trust & Clearing Corp. data show.

Credit-default swaps on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings has fallen to 558 basis points, from as much as 1,100 basis points in March, according to JPMorgan Chase & Co. prices.

Thomson provided the first test of the procedures for settling contracts triggered by a restructuring in Europe when it said in August it was deferring payments on $72.5 million of 6.05 percent private notes due this year.

Multiple Auctions

The system for restructurings uses multiple auctions that set different payouts based on swap expiration dates. Dealers couldn’t settle the Thomson contracts with simpler failure-to- pay procedures that produce one recovery value because they were unable to prove the electronics company defaulted.

Asked in a July conference call with investors whether Thomson still owed the money, Chief Executive Officer Frederic Rose responded, “Since I am not a qualified lawyer, I prefer not to answer that question.” Marine Boulot, a Thomson spokeswoman in Paris, declined to comment.

To determine the size of the payouts on contracts covering $2 billion in debt, bonds and loans were split by maturity date ranges into three so-called buckets and sold at auction.

Contracts that expired on June 20, 2012 — the first bucket’s latest date — sold for 96.25 percent of the face amount, meaning swap holders received 3.75 percent of the amount covered. Swaps expiring a day later paid 34.875 percent because the debt in that bucket went for 65.125 percent.

Too Few Securities

Holders of June 20 swaps covering 10 million euros in debt got 375,000 euros, while those with June 21 contracts received almost 3.5 million euros. Swaps that terminated after Oct. 24, 2014, paid the most, 36.75 percent.

The disparity was a result of too few securities in the first bucket to settle swaps, according to Matthew Leeming, a London-based strategist at Barclays. “An imbalance of supply and demand for the deliverables can affect the recovery rate,” he said in a note.

Because they were part of industry indexes, swaps referencing the company “dwarfed the amount of Thomson debt,” said Teo Lasarte, an analyst at Bank of America-Merrill Lynch in London.

The more swaps there are, the more investors with stakes in the contracts need bonds to settle them. About 81 million euros- worth of debt was auctioned from the first bucket, compared with 221 million euros and 148 million euros from the second and third, according to data released by auction administrators Markit Group Ltd. and Creditex Group Inc.

Sufficient Debt

Lasarte favors changing rules governing indexes so companies in them have enough debt available to produce settlement auctions that don’t cause distortions.

“To strengthen the robustness of this product, there are some issues to be solved,” said Tim Brunne, a UniCredit strategist in Munich.

Leeming of Barclays said in a report to clients that the Thomson settlement “raises questions regarding the future of restructuring as a credit event.”

Banks that bought contracts on loans to Kyoto-based Aiful aren’t being paid because ISDA’s determinations committee ruled that there isn’t sufficient evidence to trigger swaps as the company and its lenders hold confidential restructuring talks.

Suspended Payments

Aozora Bank Ltd., one of Aiful’s creditors, said in a statement to the ISDA committee that the company “suspended scheduled payments of loan principal to all of its lenders” on Sept. 30. The committee rejected the request on Oct. 19 because the protocols only allow it to consider “publicly available information.” If the “sole source” of that evidence bought or sold swaps, it isn’t deemed publicly available. Aozora has said it owns some Aiful swaps.

Katsuyuki Komiya, a spokesman for Aiful, declined to comment.

Contracts protecting a net $1.36 billion of Aiful’s debt were outstanding as of Nov. 6, more than any other Japanese company, according to New York-based DTCC. As much as $238 million more of Aiful’s debt is protected through credit swaps based on indexes in which the company is a member. Aiful is meanwhile seeking to secure a credit line from Sumitomo Trust & Banking Co., its main bank, two people familiar with the matter said.

Aiful Swaps

The value of Aiful credit-default swaps that mature in December plunged on speculation they may expire without being triggered. Contracts protecting 100 million yen ($1.2 million) of Aiful debt from default through Dec. 20 dropped to 10 million yen upfront, from 55 million yen on Oct. 15, according to a trader who asked not to be identified because the prices are private.

The Japanese Association of Turnaround Professionals, which is mediating Aiful’s so-called alternative dispute resolution process, is forming a group of bankers, lawyers and government officials to study whether talks between companies and creditors on rescheduling debt payments should trigger swap payouts, said Miyako Hara, an executive secretary for the trade group.

The ISDA determination committee was asked on Oct. 9 to rule that swaps linked to Monterrey, Mexico-based Cemex should be paid out after the company agreed with lenders to extend the maturity on about $15 billion of debt for five years.

After four weeks of deliberations, the committee was deadlocked, and the issue will now be decided by an arbitration panel set up by ISDA. The panel will rule in December.

Struggling With Debt

The biggest cement maker in the Americas has struggled to repay debt since shipments started dropping in the second- quarter of 2006, before it paid $14.2 billion in July 2007 for Australian rival Rinker Group Ltd. Cemex has $19.67 billion of debt, according to data compiled by Bloomberg, and is rated B by Standard & Poor’s, five steps below investment grade.

Cemex spokesman Jorge Perez declined to comment.

The cost of credit-default swaps on Cemex surged as high as 1,500 basis points in March, or $1.5 million a year to protect $10 million of debt for five years, according to CMA DataVision, as the price of its 900 million euros of 4.75 percent bonds due 2014 dropped to 38 cents on the euro.

Credit-default swaps are “not a perfect product,” said J. Paul Forrester, a Mayer Brown partner and co-head of its derivatives and structured products practice. “These are difficult questions, and unfortunately as we continue to use this product and explore it we’re going to find that it has these sorts of issues,” he said.

To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net;

Last Updated: November 27, 2009 07:26 EST

I hear from credible sources that much of it may have been the large transfers to Deutchebank, possible to meet the conditions of Hidden Treuhand secret contracts.  Do we ever need some knowledgable auditors for this arena.  Maybe the U.S. Government should hire Shelley Stark (author of Hidden Treuhand:  How Corporations and Individuals Hide Assets and Money)  Her book explains how this kind of shenanigans may be accomplished even by US companies using U.S. Taxpayer money.   – GFS


Where Did that Bank Bailout Go? Watchdogs Aren’t Sure

Link:  http://www.truthout.org/080909T?n

Sunday 09 August 2009

by: Chris Adams  |  Visit article original @ McClatchy Newspapers
Neil Barofsky. (Photo: Michael Connor / The Washington Times)

    Washington – Although hundreds of well-trained eyes are watching over the $700 billion that Congress last year decided to spend bailing out the nation’s financial sector, it’s still difficult to answer some of the most basic questions about where the money went.

    Despite a new oversight panel, a new special inspector general, the existing Government Accountability Office and eight other inspectors general, those charged with minding the store say they don’t have all the weapons they need. Ten months into the Troubled Asset Relief Program, some members of Congress say that some oversight of bailout dollars has been so lacking that it’s essentially worthless.

    “TARP has become a program in which taxpayers are not being told what most of the TARP recipients are doing with their money, have still not been told how much their substantial investments are worth, and will not be told the full details of how their money is being invested,” a special inspector general over the program reported last month. The “very credibility” of the program is at stake, it said.

    Access and openness have improved in recent months, watchdogs say, but the program still has a way to go before it’s truly transparent.

    For its part, the Treasury Department said it’s fully committed to transparency, and that it’s taken unprecedented steps to report the status of TARP to the public. It regularly posts information on which banks have received money, as well as details about each of those transactions. Further, Treasury said, it doesn’t agree with all of its watchdogs’ recommendations, which it said could hamper the program’s effectiveness.

    TARP was passed in the midst of last fall’s financial meltdown as a way to keep American banks from falling deeper into the abyss.

    The program was controversial from the start. Its supporters say it’s helped spark bank lending in the country, but critics say it’s unfairly rewarded the big banks and Wall Street firms that pushed the economy to the brink.

    The program also has undergone a major transformation. When the Bush administration first went to Congress for the money, TARP’s main purpose was to buy up hundreds of billions of dollars in bad mortgages and so-called mortgage-backed securities that were bought and sold on Wall Street.

    Today, TARP consists of 12 programs that sent those hundreds of billions of dollars to big banks, but it’s also bailed out auto companies, auto suppliers, individuals delinquent on their mortgages, small businesses and American International Group, the big insurance company.

    The watchdogs now must oversee the maze that TARP has become.

    Just because a lot of people are watching, however, doesn’t mean they get everything they want to see.

    One of the most prominent watchdogs is Elizabeth Warren, a Harvard Law School professor who chairs a TARP oversight panel created by Congress.

    Her panel has released 10 major reports that examine TARP’s plans and policies, finding that much of the work by the Treasury and the Federal Reserve has been opaque, with unclear or contradictory goals.

    One report took Treasury to task for vastly undervaluing more than $250 billion in transactions with the country’s major banks, and another suggested several ways to revamp federal regulation over the financial sector. Other reports have criticized the Treasury for its initial defensiveness in opening its books.

    Despite its mandate, however, the panel doesn’t have subpoena power. That means it can ask, but can’t compel, officials from Treasury, the Federal Reserve or the nation’s banks to testify.

    Henry Paulson, the Treasury secretary under former President George W. Bush, repeatedly stiff-armed the panel. Timothy Geithner, the current secretary, has been more open, but so far has testified just once before Warren’s group. Geithner is scheduled to appear again in September, and has agreed to do so quarterly, and two other senior Treasury officials also have appeared.

    The relative lack of testimony from top officials, however, is one reason why critics of Warren’s panel think it hasn’t delivered on its promise.

    In June, in an otherwise mundane congressional hearing, Republican Rep. Kevin Brady of Texas surprised Warren with an aggressive critique of the panel, saying it’s failed to help taxpayers understand what Treasury is doing with the billions at its disposal.

    “There’s been very little value that the panel has brought to this issue or even insight on how these bailout dollars have been used,” he said. “I frankly believe at this point, given the reports that we’ve seen again with little value, I think the panel needs to be abolished.”

    Warren defended the panel’s work, saying the lack of subpoena power means we “only have the capacity to invite” witnesses.

    “So you asked Secretary Paulson in the first month of existence?” Brady asked.

    “I believe we asked him repeatedly,” Warren said. “We asked him in our first month, in our second month, in our third month.”

    Warren said she took the criticism seriously, dropping by Brady’s congressional office as soon as the hearing adjourned. The two had never met before, she said, and “I was really surprised,” by his comments.

    “He said he felt frustrated,” she said. “He wanted us to be even blunter” in the panel’s reports.

    Brady amplified his comments in an interview last month, saying that some of the panel’s work seems like a “PR ploy” and that “the moment has passed” for Warren’s group to play the role Congress envisioned.

    His feelings have been partially echoed by two other members of the panel, Rep. Jeb Hensarling of Texas and former Sen. John E. Sununu of New Hampshire, both Republicans appointed by congressional GOP leaders (the other three members were appointed by Democrats).

    Both have accused the panel of mission creep — of straying from the central goal of determining exactly how, and how well, Treasury is doing its job.

    Hensarling said that “taxpayers have not received answers as to whether the TARP program works, how decisions are being made or what the banks are doing with the taxpayers’ money.” While he praises the “very smart people on the panel,” he said too many questions have been left unexplored.

    He acknowledges that the lack of subpoena power makes things tough. “But even if we had it, I’m not sure we would have used it,” said Hensarling, who’s pushing to abolish TARP.

    The other primary watchdog is Neil Barofsky, a special inspector general named in November by Bush specifically to track TARP funds. His office does have subpoena power, and a growing staff that’s expected ultimately to have 160 people pursuing audits and criminal investigations.

    It’s also made a series of recommendations to the Treasury, asking that it do more to reveal how TARP money is being spent. Treasury has adopted some of its recommendations, but rejected others — including one of the most important: Giving taxpayers precise details on how TARP funds have been used by banks.

    The recommendation involves one of the most visible aspects of TARP: investing $218 billion in 650 banks, helping them to strengthen their balance sheets and boost lending to American businesses and homeowners.

    Barofsky’s office has long advocated that the Treasury require banks to detail how the TARP money they’ve received has been used. The department has refused, saying that once an investment is made in a big bank, it’s not possible to track how it’s used.

    Barofsky’s office rejected that assertion, and did its own survey of 360 institutions, finding that most could say how they’d used the money.

    “Treasury’s reasons for refusing to adopt this recommendation have been squarely refuted by” the inspector general, his office reported to Congress.

    On the Web

    Congressional Oversight Panel

    About Neil Barofsky

Someone from Whistleblower 411 (Yahoo Group)  sent me information about prior problems involving money gone missing, allegedly because of Hidden Treuhand use.  S/he said they exposed FDIC Fraud linked to Hidden Treuhand for the years 2004 to the present date.  I have not verified that indeed European Hidden Treuhand was actually involved in the Kryder case described in the link below.  This site is rather complex and involved.  It will take some time to decipher it.   Do you like historical and financial mysteries complete with the expected intrigue and skullduggery?   Let me know what you think.  And if you have any knowlege or information about this, contact the Kryder family estate. 


I’ve received a large amount of information from the estate this evening.  It is an interesting story, if you follow the link  to their site and look at the various menu choices on the left.  Quite a long period of history and quite a story.  I will be posting more about this in the future.  -GFS


Here is the link for the Kryder estate site:


Where is Kryder’s Money?  http://www.frankkryder.com/