Steve Cohen calls insider trading rules vague | Reuters

Exclusive: Steve Cohen calls insider trading rules "vague"

By Matthew Goldstein

NEW YORK | Tue Dec 13, 2011 2:06pm EST

(Reuters) - Hedge fund billionaire Steven A. Cohen in sworn testimony earlier this year called the rules on insider trading "very vague" and said sometimes it's a "judgment call" as to whether a tidbit about a public company is inside information.

The founder of SAC Capital Advisors LLC, one of the hedge fund industry's best-known firms, offered up his views on insider trading during two days of deposition testimony in February and April this year as part of a long-running civil lawsuit filed by Canadian insurer Fairfax Financial.

It's rare for Cohen to speak publicly and even rarer for him to share his views on something as controversial as insider trading. Cohen's insights are revealing not just because of his status as an industry titan, but because his $14 billion firm continues to draw attention in an ongoing investigation by U.S. authorities into insider trading.

In the deposition, an extended excerpt of which was obtained by Reuters, the 55-year-old trader says he often leans on his fund's lawyer to determine whether something constitutes inside information and admits to being not well-versed in SAC Capital's own internal compliance manual.

"The answer is when you're trading securities, it's a judgment call," said Cohen, during the deposition that spans more than 600 pages. "Whatever the compliance manual says, it probably doesn't take into account every - every potential situation."

The deposition was taken in connection with a lawsuit filed in 2006 by Fairfax, alleging SAC Capital, Kynikos and other traders took part in a so-called short conspiracy.

The lawsuit alleges the hedge funds bet against Fairfax shares and then spread negative stories about the company in hopes of driving down the stock price. Recently, SAC Capital won a motion to be dismissed from the insurer's lawsuit but Fairfax's claims of improper trading against other hedge funds and traders continues.

Reuters petitioned the court to obtain the transcript. SAC Capital and its lawyers had sought to keep the excerpts of Cohen's deposition sealed, arguing that the contents were trade secrets and information that would be useful to competitors.

A Cohen spokesman was not immediately available for comment.

In the deposition, Cohen acknowledges that in the aftermath of Galleon Group founder Raj Rajaratnam's arrest on insider trading charges in October 2009, his public relations firm suggested he begin reaching out to some reporters to burnish his image and "dispel" rumors of improper trading.

In particular, Cohen talked about a December 2009 story in The New York Times on SAC Capital and a subsequent June 2010 profile of Cohen and his wife Alexandra in Vanity Fair.

"There are rumors and what we wanted to do was dispel any notion of that," he said.

When asked by a Fairfax lawyer what rumors he was referring to, Cohen responded: "The rumors you just stated, that people weren't sure how we conducted our business."

In the questioning, Cohen comes off as controlled and well-prepared to engage in a sometimes testy back-and-forth with Fairfax's lawyer, Michael Bowe, over the dividing line between what constitutes permissible and improper trading.

Cohen says the rules on what constitutes inside information are "very vague" and sometimes it can depend on whether the information will move a stock, hurt another trader or can be obtained through another source.

For instance, Cohen said if he got a tip that an analyst is going to downgrade a stock and his fund opts to buy the stock that is proper "because I'm on the other side of the trade."

Cohen said what is "material" in analyzing whether or not it is inside information often depends on the circumstances.

"You know, I mean, I can argue that someone else could think that a - being short in front of a sell recommendation is a non-event because it's not going to move the stock, and somebody else would think, you know, that's trading on material nonpublic information regardless if it moves the stock or not," said Cohen. "These are judgment calls."

The release of a redacted version of Cohen's deposition came about after Reuters went to court to seek access to it and other documents produced in the lawsuit filed by Fairfax in a New Jersey state court.

A copy of Cohen's full deposition was subpoenaed last year by the Securities and Exchange Commission, which was conducting its own investigation into Fairfax's allegation.

Last week Reuters reported that the SEC closed its investigation in the Fairfax case with regards to SAC Capital and James Chanos' Kynikos Associates. (link.reuters.com/xus55s)

(Reported by Matthew Goldstein; editing by Claudia Parsons and Martin Howell)

Exclusive: Steve Cohen calls insider trading rules vague | Reuters

Forget Europe… Germany’s Got Its Own Problems to Deal With | ZeroHedge

Source: IMF data

Forget Europe… Germany’s Got Its Own Problems to Deal With

Submitted by Phoenix Capital Research on 12/08/2011 11:57 -0500

Every day that Germany continues to flirt with the idea of propping up Europe, is another day that the country gets closer to its own fiscal crisis.

The mainstream media believes that Germany is somehow the bastion of fiscal strength. However, even a cursory look at the facts disproves this.

For starters, German banks post some of the highest leverage rations in Europe: higher that Italy, higher than Ireland, even higher than Greece. In fact, German banks are actually sporting leverage EQUAL to that of Lehman Brothers when it went bust.

To make matters worse, Germany has yet to recapitalize its banks. Indeed, by the German Institute for Economic Research’s OWN admission, German banks need 147 billion Euros’ worth of new capital.

Mind you, this is just NEW capital demands. In addition to this, German banks need to roll over 40% of their total outstanding debt within the next 12 months.

This is at a time when the many European nations are relying on the ECB to insure they don’t have a failed bond auction (by the way Germany had a failed bond auction just a few weeks ago).

Suffice to say, the German banking system isn’t as rock solid as the mainstream consensus. The German government knows about this situation which is why it’s already preparing for the potential nationalization of Germany’s largest banks should things get messy.

Germany’s sovereign balance sheet isn’t a whole lot better either. Officially, Germany has a Debt to GDP ratio of 84%. However, according to Axel Weber, the most recent head of Germany’s Central Bank (he left April 2011), Germany is in fact sitting on a REAL Debt to GDP ratio of over 200%. This is Germany… with unfunded liabilities equal to over TWO times its current GDP.

What’s truly frightening about this is that Weber is most likely being conservative here. Jagadeesh Gokhale of the Cato Institute published a paper for EuroStat in 2009 claiming Germany’s unfunded liabilities were in fact closer to 418% (and that was two years ago).

This further goes with my primary view: Germany has its own problems to deal with. So the idea that Germany is somehow going to prop up the EU is not really realistic. After all, if Germany was indeed going to serve as the mega-European backstop, don’t you think it would already have done so?

The truth is this: the German constitution won’t permit the issuance of Euro bonds. And the German population/ social contract between German politicians and voters will not stand for money printing of any kind.

So… don’t bank on Germany coming to save the day. Indeed, even the option of Germany somehow taking over other EU nations budgetary controls is ridiculous as NO EU member would submit to that.

Read the rest of the post here: Forget Europe… Germany’s Got Its Own Problems to Deal With | ZeroHedge

Bloomberg News Responds to Bernanke Criticism - Bloomberg

Bloomberg News Responds to Bernanke Criticism

By Bloomberg News - Dec 7, 2011 12:01 AM GMT+0100

Federal Reserve Chairman Ben S. Bernanke said in a letter to four senior lawmakers today that recent news articles about the central bank’s emergency lending programs contained “egregious errors.”

While Bernanke’s letter and an accompanying four-page staff memo posted on the Fed’s website didn’t mention any news organizations by name, Bloomberg News has published a series of articles this year examining the bailout. The latest, “Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress,” appeared Nov. 28.

“Bloomberg stands by its reporting,” said Matthew Winkler, editor-in-chief of Bloomberg News.

Here is a point-by-point response to the Fed staff memo.

From Fed memo: “These articles have made repeated claims that the Federal Reserve conducted ‘secret’ lending that was not disclosed either to the public or the Congress. No lending program was ever kept secret from the Congress or the public. All of the programs were publicly announced when they were initiated, and information about all lending under the programs was publicly released -- both on a weekly basis through the Federal Reserve’s public balance sheet release and through detailed monthly reports to Congress, both of which were also posted on the Federal Reserve’s website.”

Response: Bloomberg’s Nov. 28 story about Fed lending reported that the central bank published regular reports on the scope of borrowings from the discount window and other emergency or temporary programs. The loans were described as “secret” because the amounts, names of borrowers, dates and, often, interest rates weren’t disclosed. The stories reported that the Fed’s rationale for keeping the loans secret was to prevent bank runs.

From Fed memo: “The Federal Reserve took great care to ensure that Congress was well-informed of the magnitude and manner of its lending.”

Response: Bloomberg’s story said Congress wasn’t fully apprised of the details of the Fed’s efforts. “We were aware emergency efforts were going on,” U.S. Representative Barney Frank, who served as chairman of the House Financial Services Committee, said in the Nov. 28 story. “We didn’t know the specifics.” Other members of Congress on both sides of the aisle also said they weren’t aware of the details.

See the rest of the Bloomberg article here: Bloomberg News Responds to Bernanke Criticism - Bloomberg

The text of the Fed Note is below:

Why did the Federal Reserve lend to banks and other financial institutions during the financial crisis?

Intense strains in financial markets during the financial crisis severely disrupted the flow of credit to U.S. households and businesses and led to a deep downturn in economic activity and a sharp increase in unemployment. Consistent with its statutory mandate to foster maximum employment and stable prices, the Federal Reserve established lending programs during the crisis to address the strains in financial markets, support the flow of credit to American families and firms, and foster economic recovery.

All of the Federal Reserve's lending programs were announced prior to implementation and the amounts of support provided were easily tracked in weekly and monthly reports on the Federal Reserve Board's website.

The Federal Reserve followed sound risk-management practices under all of its liquidity and credit programs. Credit provided under these programs was fully collateralized to protect the Fed--and ultimately the taxpayer--from loss. As verified by our independent auditors, the Federal Reserve did not incur any losses in connection with its lending programs. In fact, the Federal Reserve has generated very substantial net income since 2007 that has been remitted to the U.S. Treasury.

Most of the Fed's lending facilities were priced at a penalty over normal market rates so that borrowers had economic incentives to exit as market conditions normalized. Lending peaked at $1.5 trillion in December 2008.^* All of the emergency support programs established during the crisis were closed to new lending in 2010. Detailed information on the support provided to individual firms under these programs is available on the Federal Reserve Board's website.

* Liquidity Facilities include: Term Auction credit; primary credit; secondary credit; seasonal credit; Primary Dealer Credit Facility; Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility; Term Asset-Backed Securities Loan Facility; Commercial Paper Funding Facility; and central bank liquidity swaps.



See the Bloomberg article here:
Bloomberg News Responds to Bernanke Criticism - Bloomberg