Simultaneously breaking news stories regarding a more-than-decade-long, massive price-rigging scam and widespread accounting fraud in the foreign currency (FX) trading markets and the insurance industry, respectively, are being reported this evening...
Foreign Currency ("FX") Trading Price-Rigging/Frontrunning Scam
Bloomberg...
Traders Said to Rig Currency Rates to Profit Off Clients
By Liam Vaughan, Gavin Finch & Ambereen Choudhury
Bloomberg
Jun 11, 2013 7:00 PM ET
Traders at some of the world’s biggest banks manipulated benchmark foreign-exchange rates used to set the value of trillions of dollars of investments, according to five dealers with knowledge of the practice.
Employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years...
...
...The behavior occurred daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives, the two traders said. The Financial Conduct Authority, Britain’s markets supervisor, is considering opening a probe into potential manipulation of the rates, according to a person briefed on the matter.
“The FX market is like the Wild West,” said James McGeehan, who spent 12 years at banks before co-founding Framingham, Massachusetts-based FX Transparency LLC, which advises companies on foreign-exchange trading, in 2009. “It’s buyer beware.”...The $4.7-trillion-a-day currency market, the biggest in the financial system, is one of the least regulated. The inherent conflict banks face between executing client orders and profiting from their own trades is exacerbated because most currency trading takes place away from exchanges...
The lengthy article notes that it might be
"...difficult to prosecute traders for market manipulation, as spot foreign exchange, the trading of one currency with another at the current price for delivery within two days, isn’t classified as a financial instrument by regulators..."
Here's more from Zero Hedge on the FX price-rigging/frontrunning story...
WM/Reuters Busted In Latest Market Rigging And Collusion Scandal: Foreign Exchange
Zero Hedge
06/11/2013 19:41 -0400
First it was the conspiracy theory that Li(e)bor traders were manipulating the entire rates market which a year ago became conspiracy fact. Then it was commodities with an emphasis on the energy market (but not gold - gold is never, ever manipulated) with even such luminaries as JPMorgan's Blythe Masters, subsequently implicated. And moments ago, via Bloomberg, to absolutely nobody's surprise, we learn that that final market which so far had not been exposed as the "wild west" of manipulators, the FX market, is part of the conspiracy "fact" too. According to Bloomberg, "employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years."
The specifics should be well-known to those who have followed all other "fixing" scandals to date, because for the most part they are identical, just cover a different asset class…
"Shadow Insurance" Industry Accounting Fraud
From Wednesday's New York Times...
Insurers Inflating Books, New York Regulator Says
By MARY WILLIAMS WALSH
Dealbook
New York Times
June 11, 2013, 8:50 pm
New York State regulators are calling for a nationwide moratorium on transactions that life insurers are using to alter their books by billions of dollars, saying that the deals put policyholders at risk and could lead to another taxpayer bailout.
Insurers’ use of the secretive transactions has become widespread, nearly doubling over the last five years. The deals now affect life insurance policies worth trillions of dollars, according to an analysis done for The New York Times by SNL Financial, a research and data firm.
These complex private deals allow the companies to describe themselves as richer and stronger than they otherwise could in their communications with regulators, stockholders, the ratings agencies and customers, who often rely on ratings to buy insurance.
Benjamin M. Lawsky, New York’s superintendent of financial services, said that life insurers based in New York had alone burnished their books by $48 billion, using what he called “shadow insurance,” according to an investigation conducted by his department. He issued a report about the investigation late Tuesday...
(Bold type is diarist's emphasis.)
Among many other facts relating to this story, NY Superintendant of Financial Services Benjamin Lawsky noted: "The transactions are so opaque that...it took his team of investigators nearly a year to follow the paper trail, even though they had the power to subpoena documents...."
Ben Lawsky, IMHO, makes the other financial services regulators in this country look like a bunch of Wall Street pikers. No wonder so many folks in D.C. are miffed at him. This guy rocks!
Meanwhile, In Other D.C. and Wall Street Water Carrier Economics, Government and Related Regulatory News On Tuesday...
Obama Nominates America’s Biggest Walmart Cheerleader as His Chief Economic Adviser, Alternet, by Lynne Stuart Parramore
Obama Axes Bank-Harrassing Gary Gensler at CFTC, Plans to Install Lightweight Ex-Goldmanite, Naked Capitalism, by Yves Smith
Just another typical day for the Masters of OUR the Universe.
"Nothing to see here, move along..."