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Settled Without Admitting or Denying Wrongdoing

James Groth
August 3, 2011, 12:00pm

"Settled without admitting or denying wrongdoing."

Does this sound familiar? It might as well be the mantra of both the SEC and the CFTC. In fact it might as well be printed on both the commission’s seals under the picture of a trader receiving a spanking. After so many cases being settled out of court by rich traders, hedge fund managers, and bankers through simply paying a paltry monetary sum, it’s no wonder manipulation, deception, and fraud continue to roil our markets.

Take Christopher Pia for instance. He was the head trader for Moore Capital, a $15 billion hedge fund, before leaving to start his own hedge fund, Pia Capital Management in 2008. He drives an orange Lamborghini and goes hunting on a private 145-acre island that his former partner owns off of Long Island. The Wall Street Journal labeled him “one of the most powerful traders on Wall Street.” This guy has worked for over 20 years in the hedge fund industry trading commodities and other securities amassing millions of dollars for himself through market manipulation and price-based fraud. Guess how much the CFTC recently fined him: $1 million.

In relative terms, he got off scot-free without admitting or denying wrongdoing. He settled, and now once again is trading.

This isn’t an isolated incident. White-collar crimes like these happen all the time and most are not even indicted. Those that are settle out of court without admitting guilt leaving the precedent for further fraud in the future. Goldman Sachs, one the pre-eminent perpetrators of market-based fraud, knows this process all too well. In the SEC’s “landmark” fraud case against the firm last July, Goldman also settled without admitting or denying wrongdoing. Sure they paid more than a half-a-billion dollars for the ability to get off clean, but that’s the equivalent of about a week’s worth of trading revenue. The SEC and the CFTC may claim to be the enforcers of the trading community, but instead of actually enforcing laws, the two simply ask fraudsters for a little money to acknowledge their existence.

Why would any firm or individual conform to market rules if the downside to making $1 million is paying some bonehead regulator ten bucks when he questions your integrity?

The truth is that the SEC and the CFTC are running a business whose success depends on the fees generated from trading and the fines paid by those doing the trading. Locking people up and pursuing convictions doesn’t pay the bills. Collecting checks from the rich and powerful who have better things to do than fight, however, is a boon.

Pia is just the tip of the iceberg, here are just a few recent examples

Like in any business, a successful company must innovate. To continue growing its revenue stream, the SEC and the CFTC are writing new rules that of course won’t end manipulation and fraud, but will surely increase the number of slaps on the wrists the two commissions issue. With them will come more announcements of SEC and CFTC paydays and of course a slew of smiling traders and hedge fund managers continuing their manipulative and fraudulent practices.


James Groth is Research Associate


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