So, now we have the culture that you are bad if you 'SNITCH' at work and we have a dismantled oversight and accountability of local, state, and now Federal government ---that means fraud and corruption as happens in third world nations will flow. THAT IS WHAT CLINTON/BUSH/OBAMA HAS BEEN ABOUT---if you are going to be a global colonial entity called BLOOMBERG 2 INTERNATIONAL ECONOMIC ZONE NORTH AMERICA----the rich will take from people as much as they want.
WE ALL KNOW THE SOLUTION------WE REINSTATE ANTI-TRUST AND MONOPOLY LAWS THAT FORBID CORPORATIONS GET THIS BIG -----WE BUILD LOCAL ECONOMIES PUSHING THE BAD CORPORATE CITIZENS OUT----AND REBUILD RULE OF LAW AND EQUAL PROTECTION THROUGHOUT CITY, STATE, AND FEDERAL GOVERNMENT.
Below you see the next condition that allows corporate fraud to soar----and it is worse under Obama and Clinton neo-liberal Congress-----NOW THE AUDITORS ARE CORRUPT. We already saw that with Enron and the global accounting firm that hid those crimes. Congress passed laws protecting against this----AND GLOBAL POLS IGNORE THESE FEDERAL LAWS.
Now, we cannot even trust that the accountants and lawyers protecting Rule of Law are not aiding and abetting as in the massive subprime mortgage fraud.
Deals | Thu May 9, 2013 3:56pm EDT
Related: Regulatory News, Breakingviews
Auditors miss basic steps in corporate fraud cases: study
NEW YORK | By Dena Aubin Reuters
Auditors sanctioned in U.S. corporate fraud cases are making simple mistakes, like overlooking suspicious documents, according to a study released on Thursday that sheds light on why auditors sometimes miss blatant accounting scams.
The long-term analysis of frauds from 1998 through 2010 found that auditors sometimes did not question documents that appeared to be fabricated or that they overlooked discrepancies between real inventory and amounts on the books.
In at least one case, an auditor trusted managements' word that no fraud had occurred, the study found.
"It's not that auditors failed to execute some esoteric procedures, or didn't understand complex accounting rules," said Joseph Carcello, one of the study's four co-authors and a University of Tennessee accounting professor. "It's really pretty basic in these cases."
The study looked at 87 sanctions against auditors brought by the U.S. Securities and Exchange Commission in fraud cases involving public companies.
The most common auditor failings were lack of competence and diligence, lack of professional skepticism, and failure to assess and respond to fraud risks.
Auditors could be missing basic steps because of time or budget constraints, or fear of alienating clients by pushing too hard, Carcello speculated.
The study also showed auditor sanctions declined sharply after enactment of 2002's Sarbanes-Oxley Act, designed to curb accounting abuses after the Enron and WorldCom frauds.
Of the 87 sanctions studied, 76 occurred in 1998-2002; only 11 occurred in 2003-2010, although some investigations from those years may still be pending, the study noted.
Large national firms accounted for 35 of the 87 sanctions. Nine were brought against Arthur Andersen, which went out of business in 2002 after being convicted for its role in Enron Corp's fraud, a verdict that was later overturned.
I love this chart that shows how the breakdown in the Constitutional laws regarding anti-trust and monopolies were ignored as global corporate pols in both parties took hold. Republicans were the most protective of free market competition and know this consolidation kills competition----but it also creates the power and wealth that allows corporations feel they have impunity. Their operations become so complex-----much is done overseas to hide actions----that is becomes impossible to hold these global corporations accountable.
THIS IS WHAT EVERY CONGRESSIONAL POL KNEW WHEN CLINTON ERA GLOBAL MARKET POLICIES CREATED THIS MESS. ALL OF MARYLAND'S POLS ARE GLOBAL BUSH/HOPKINS NEO-CONS OR CLINTON NEO-LIBERALS.
Capitalism does not have to work this way-----but citizens must have regulations-----they must have oversight to keep these corporations in check. Small businesses require this anti-trust measure---IT IS GOOD FOR SMALL BUSINESS TO ENFORCE MONOPOLY LAWS AND REGULATIONS to keep competition alive.
Global corporate pols say----oh well, let the NEW WORLD ORDER begin-----social Democrats say-----wait just a minute, we are going back to first world Rule of Law social benefit legislation!
The article below is too long to post but take a look to remind ourselves that none of this corporate fraud and government corruption will change without limiting local economic control by global corporations.
Monopoly and Competition in Twenty-First Century Capitalism
by John Bellamy Foster, Robert W. McChesney and R. Jamil JonnaTopics: Economic Theory , Global Economic Crisis , Political Economy , Stagnation
John Bellamy Foster (jfoster [at] monthlyreview.org) is editor of Monthly Review and professor of sociology at the University of Oregon. Robert W. McChesney (rwmcches [at] uiuc.edu) is Gutgsell Endowed Professor of Communication at the University of Illinois at Urbana-Champaign. R. Jamil Jonna is a doctoral candidate in sociology at the University of Oregon. This is a chapter from Foster and McChesney’s Monopoly-Finance Capital: Politics in an Era of Economic Stagnation and Social Decline, forthcoming next year from Monthly Review Press.
A striking paradox animates political economy in our times. On the one hand, mainstream economics and much of left economics discuss our era as one of intense and increased competition among businesses, now on a global scale. It is a matter so self-evident as no longer to require empirical verification or scholarly examination. On the other hand, wherever one looks, it seems that nearly every industry is concentrated into fewer and fewer hands. Formerly competitive sectors like retail are now the province of enormous monopolistic chains, massive economic fortunes are being assembled into the hands of a few mega-billionaires sitting atop vast empires, and the new firms and industries spawned by the digital revolution have quickly gravitated to monopoly status. In short, monopoly power is ascendant as never before.
This is anything but an academic concern. The economic defense of capitalism is premised on the ubiquity of competitive markets, providing for the rational allocation of scarce resources and justifying the existing distribution of incomes. The political defense of capitalism is that economic power is diffuse and cannot be aggregated in such a manner as to have undue influence over the democratic state. Both of these core claims for capitalism are demolished if monopoly, rather than competition, is the rule.
For all economists, mainstream and left, the assumption of competitive markets being the order of the day also has a striking impact on how growth is assessed in capitalist economies. Under competitive conditions, investment will, as a rule, be greater than under conditions of monopoly, where the dominant firms generally seek to slow down and carefully regulate the expansion of output and investment so as to maintain high prices and profit margins—and have considerable power to do so. Hence, monopoly can be a strong force contributing to economic stagnation, everything else being equal. With the United States and most of the world economy (notwithstanding the economic rise of Asia) stuck in an era of secular stagnation and crisis unlike anything seen since the 1930s—while U.S. corporations are sitting on around $2 trillion in cash—the issue of monopoly power naturally returns to the surface.1
In this review, we assess the state of competition and monopoly in the contemporary capitalist economy—empirically, theoretically, and historically. We explain why understanding competition and monopoly has been such a bedeviling process, by examining the “ambiguity of competition.” In particular, we review how the now dominant neoliberal strand of economics reconciled itself to monopoly and became its mightiest champion, despite its worldview—in theory—being based on a religious devotion to the genius of economically competitive markets.
When we use the term “monopoly,” we do not use it in the very restrictive sense to refer to a market with a single seller. Monopoly in this sense is practically nonexistent. Instead, we employ it as it has often been used in economics to refer to firms with sufficient market power to influence the price, output, and investment of an industry—thus exercising “monopoly power”—and to limit new competitors entering the industry, even if there are high profits.2 These firms generally operate in “oligopolistic” markets, where a handful of firms dominate production and can determine the price for the product. Moreover, even that is insufficient to describe the power of the modern firm. As Paul Sweezy put it, “the typical production unit in modern developed capitalism is a giant corporation,” which, in addition to dominating particular industries, is “a conglomerate (operating in many industries) and multi-national (operating in many countries).”3
In the early 1980s, an unquestioning belief in the ubiquitous influence of competitive markets took hold in economics and in capitalist culture writ large, to an extent that would have been inconceivable only ten years earlier. Concern with monopoly was never dominant in mainstream economics, but it had a distinguished and respected place at the table well into the century. For some authors, including Monthly Review editors Sweezy and Harry Magdoff, as well as Paul Baran, the prevalence and importance of monopoly justified calling the system monopoly capitalism. But by the Reagan era, the giant corporation at the apex of the economic system wielding considerable monopoly power over price, output, investment, and employment had simply fallen out of the economic picture, almost as if by fiat. As John Kenneth Galbraith noted in 2004 in The Economics of Innocent Fraud: “The phrase ‘monopoly capitalism,’ once in common use, has been dropped from the academic and political lexicon.”4 For the neoliberal ideologues of today, there is only one issue: state versus market. Economic power (along with inequality) is no longer deemed relevant. Monopoly power, not to mention monopoly capital, is nonexistent or unimportant. Some on the left would in large part agree.
As with accounting firms----it was the lawyers who aided and abetted all this corporate fraud and it is because lawyers are complicit that WE THE PEOPLE have no legal actions bringing justice from these frauds----from Obama US Justice Department under Holder and now Lynch----to Maryland's State Attorney General under Gansler and now Frosh----all these politicians/lawyers fail to pursue corporate fraud because so many lawyers were made wealthy from it----
What is a Rule of Law nation to do when all the elements that make it a Rule of Law nation are captured by lying, cheating, stealing thugs?
Well, the first thing a Mayor of Baltimore would do is set aside a few million dollars as grants for any Baltimore citizen with a degree to attend University of Baltimore Law School for public justice degrees with a requirement to work for the city in pursuing just these corporate fraud and government corruption cases. The next thing a mayor would do is send out across the US job offerings to all law school graduates currently unemployed to come to Maryland to investigate corporate fraud and corruption.....did you know that just because Obama and the Feds do not enforce Constitutional and Federal law does not mean a Mayor of Baltimore cannot?
SEE WHY CLINTON/OBAMA WALL STREET NEO-LIBERALS AND BUSH/HOPKINS NEO-CONS WORK SO HARD TO CAPTURE PRIMARY ELECTIONS!
Punishing Lawyers in Corporate Frauds
Peter J. Henning
January 19, 2010 9:01 am January 19, 2010 9:01 amPeter J. Henning, a professor at Wayne State Law School, specializes in issues related to white-collar crime and follows them for DealBook’s White Collar Watch.
Joseph P. Collins, a former partner at the international law firm Mayer Brown, received a seven-year prison sentence for his role as the lead attorney for the failed futures trading firm Refco Inc., whose collapse as a result of accounting fraud cost investors and lenders more than $2 billion. Mr. Collins was convicted of conspiracy, wire fraud and securities fraud in July 2009 for his role in the stunning demise of Refco only weeks after the firm’s initial public offering.
The company hid debts owed by its chief executive, Phillip R. Bennett, from a buyout firm in an leverage buyout in 2004 and then in the public offering in 2005. In addition to Mr. Collins’s conviction, Mr. Bennett received a 16-year sentence, and Refco’s former president, Tone N. Grant, was sentenced to 10 years for their role in the accounting fraud.
Mr. Collins was Refco’s long-time outside counsel and the firm was his largest client, generating $35 million in billings for Mayer Brown. It is rare that an outside lawyer is prosecuted for legal representation of a client, and the case can be understood as part of a growing trend in which federal prosecutors and regulatory agencies, including the Securities and Exchange Commission, focus on those who enable corporate fraud along with the officers and directors who orchestrate it. The punishment of Mr. Collins is substantial, and The New York Times’s chief financial correspondent, Floyd Norris, asked on his blog last week, “What are the longest sentences given to partners (or former partners) of major law firms, for crimes committed on behalf of clients?”
Although uncommon, Mr. Collins is not the first outside lawyer to be prosecuted for work on behalf of a client, although his sentence is among the most severe. Other lawyers are included on the list of those who have been convicted for conduct related to their legal practice:
- Terry Christensen, a well known entertainment lawyer, received a three-year prison sentence for his role in the wiretapping of the ex-wife of his client, the billionaire Kirk Kerkorian,the during a child-support case. Mr. Christensen worked with private investigator Anthony Pellicano, the so-called “private eye to the stars” who was convicted in other cases.
- Raymond Ruble, a tax lawyer at Sidley Austin, received a 6½-year prison term for his role in the sale of tax shelters by KPMG that resulted in more than $100 million in avoided taxes.
- Melvyn I. Weiss and William S. Lerach, name partners at the plaintiffs class-action firm Milberg Weiss (which later split into two firms), received sentences of 30 months and 24 months, respectively, for their role in paying kickbacks to lead plaintiffs and expert witnesses in the firm’s cases. Two other name partners from the firm, Steven G. Schulman and David J. Bershad, received six-month prison terms.
- John G. Gellene, a leading bankruptcy lawyer at Milbank Tweed, received a 15-month prison term for filing false documents in a corporate bankruptcy proceeding in 1994 that did not disclose a conflict of interest he had through prior work on behalf of a major creditor of the company. An excellent book by Professor Milton C. Regan Jr., “Eat What You Kill: The Fall of a Wall Street Lawyer,” looks at how Mr. Gellene came to find himself in a criminal prosecution.
In-house counsel have also been the subject of criminal prosecutions, most recently in the options backdating cases. For example, the former general counsel of Comverse Technology, William Sorin, received a year-and-a-day sentence for his role in the issuance of backdated options by the company.
Not every case involving the prosecution of lawyers is successful, however, as juries have acquitted inside lawyers from McAfee, Tyco International and McKesson.
What is striking about the sentence that Mr. Collins, the former Mayer Brown lawyer, received is its length. This is largely a product of a change in the Federal Sentencing Guidelines adopted in late 2001 that substantially increased the likely sentence in fraud cases. The United States Sentencing Commission amended the fraud-loss table used to calculate the sentences so that a loss of more than $400 million pushed the potential punishment to more than 20 years and could even result in a term of life in prison when other factors, such as the number of victims, were considered.
The timing of that change could not have been more propitious for prosecutors because shortly afterward financial meltdowns at companies like Enron, WorldCom and Adelphia Communications hit. While at one time prison sentences for white-collar offenders were uncommon, and anything over two years almost unheard of, the sentencing guidelines made substantial prison terms much more likely when a large corporation collapsed. Thus, defendants like WorldCom’s chief executive, Bernard Ebbers, got 25 years; Adelphia’s chief executive, John Rigas, 15 years; and Enron’s chief executive, Jeffrey K. Skilling, more than 24 years, although that term will be reduced and he could even be back in court for a new trial if the Supreme Court reverses his conviction.
More recently, Mr. Dreier received a 20-year sentence for his fraud that cost victims at least $400 million. A Florida lawyer, Scott Rothstein, has been accused of a similar scheme that may exceed $1 billion in losses, and he is likely to receive at least as much prison time if he pleads guilty as expected on Jan. 27.
Given the sizable losses in the Refco case, Mr. Collins may be fortunate to have received only seven years, as the potential punishment under the sentencing guidelines called for a maximum of 85 years in prison. The Federal District Court rejected his request not to be sent to prison at all, an unlikely result given the amount of the loss. Mr. Collins is seeking a new trial based on recently revealed e-mails, and he is certain to appeal the conviction. Whether the district court permits him to remain free pending the appeal remains to be seen.
The substantial sentence is sure to be noticed in major law firms throughout the country, but whether it has any deterrent effect is another issue.
The next big propaganda being spread by global corporate pols is that there is a time limit----statutes of limitation that will make all the ability of WE THE PEOPLE to seek justice in tens of trillions of dollars go away. Just because Americans were held hostage from justice by Obama and Clinton neo-liberals in Congress----we can no longer get that money back. If politicians are aiding and abetting crime by refusing to work to recover fraud----then statutes of limitations HAS NOT STARTED.
THESE GLOBAL CORPORATIONS AND POLS ONLY WISH THAT WERE TRUE!
Now we are hearing Congressional pols shouting---we must send these bankers to jail----well, they will be dead before we get that justice---we simply want the corporate fraud back ----low-hanging fraud could bring trillions of dollars with no work. Just as FED chairman Greenspan who is the biggest fish in these frauds said 'I DIDN'T SEE THAT COMING'----now we hear Holder saying the same-----'WE GOT IT WRONG'----they both did exactly what they were told.
I'm disappointed at Bill Black for suggesting all this can go away by simply Obama and his AG ignoring crime. The American people are not that naive!!!
'Americans need to come together to demand that the Department act, not just talk, to restore the rule of law and prosecute the bankers that led the fraud epidemics that drove the financial crisis. There is very little time left to prosecute, so the effort must be vigorous and urgent and a top priority'.
DOJ Admits: “We Got it Wrong”
by Bill Black - September 13th, 2015, 4:00pm
Now the DOJ Admits They Got it Wrong
William K. Black
September 10, 2015
By issuing its new memorandum the Justice Department is tacitly admitting that its experiment in refusing to prosecute the senior bankers that led the fraud epidemics that caused our economic crisis failed. The result was the death of accountability, of justice, and of deterrence. The result was a wave of recidivism in which elite bankers continued to defraud the public after promising to cease their crimes. The new Justice Department policy, correctly, restores the Department’s publicly stated policy in Spring 2009. Attorney General Holder and then U.S. Attorney Loretta Lynch ignored that policy emphasizing the need to prosecute elite white-collar criminals and refused to prosecute the senior bankers who led the fraud epidemics.
It is now seven years after Lehman’s senior officers’ frauds destroyed it and triggered the financial crisis. The Bush and Obama administrations have not convicted a single senior bank officer for leading the fraud epidemics that triggered the crisis. The Department’s announced restoration of the rule of law for elite white-collar criminals, even if it becomes real, will come too late to prosecute the senior bankers for leading the fraud epidemics. The Justice Department has, effectively, let the statute of limitations run and allowed the most destructive white-collar criminal bankers in history to become wealthy through fraud with absolute impunity. This will go down as the Justice Department’s greatest strategic failure against elite white-collar crime.
The Obama administration and the Department have failed to take the most basic steps essential to prosecute elite bankers. They have not restored the “criminal referral coordinators” at the banking regulatory agencies and they have virtually ignored the whistleblowers who gave them cases against the top bankers on a platinum platter. The Department has not even trained its attorneys and the FBI to understand, detect, investigate, and prosecute the “accounting control frauds” that caused the financial crisis. The restoration of the rule of law that the new policy promises will not happen in more than a token number of cases against senior bankers until these basic steps are taken.
The Justice Department, through Chris Swecker, the FBI official in charge of the response to mortgage fraud, issued two public warnings in September 2004 — eleven years ago. First, there was an “epidemic” of mortgage fraud. Second it would cause a financial “crisis” if it were not stopped. The Department’s public position, for decades, was that the only way to stop serious white-collar crime was by prosecuting the elite officials who led those crimes. For eleven years, however, the Department failed to prosecute the senior bankers who led the fraud epidemic. The Department’s stated “new” position is its historic position that it has refused to implement. Words are cheap. The Department is 4,000 days late and $24.3 trillion short. Economists’ best estimate is that the financial crisis will cause that massive a loss in U.S. GDP — plus roughly 15 million jobs lost or not created.
Americans need to come together to demand that the Department act, not just talk, to restore the rule of law and prosecute the bankers that led the fraud epidemics that drove the financial crisis. There is very little time left to prosecute, so the effort must be vigorous and urgent and a top priority.
Here is an example, in the cartel context, of the Department’s long-standing position that deterrence of elite white-collar crimes requires the prosecution and incarceration of the businessmen that lead the crimes. It contains the classic quotation that the Department has long used to explain its position. Note that the public statement of this position was early in the Obama administration (April 3, 2009), but plainly was already long-standing. The Department’s official made these passages her first two paragraphs in order to emphasize the points – and the fact that deterrence through the criminal prosecution of elite white-collar criminals works.
“It is well known that the Antitrust Division has long ranked anti-cartel enforcement as its top priority. It is also well known that the Division has long advocated that the most effective deterrent for hard core cartel activity, such as price fixing, bid rigging, and allocation agreements, is stiff prison sentences. It is obvious why prison sentences are important in anti-cartel enforcement. Companies only commit cartel offenses through individual employees, and prison is a penalty that cannot be reimbursed by the corporate employer. As a corporate executive once told a former Assistant Attorney General of ours: “[A]s long as you are only talking about money, the company can at the end of the day take care of me . . . but once you begin talking about taking away my liberty, there is nothing that the company can do for me.”(1) Executives often offer to pay higher fines to get a break on their jail time, but they never offer to spend more time in prison in order to get a discount on their fine.
We know that prison sentences are a deterrent to executives who would otherwise extend their cartel activity to the United States. In many cases, the Division has discovered cartelists who were colluding on products sold in other parts of the world and who sold product in the United States, but who did not extend their cartel activity to U.S. sales. In some of these cases, although the U.S. market was the cartelists’ largest market and potentially the most profitable, the collusion stopped at the border because of the risk of going to prison in the United States.”
As prosecutors, (real) financial regulators, and criminologists, we have known for decades that the only effective means to deter elite white-collar crimes is to imprison the elite officers that grew wealthy by leading those crimes (which include the largest “hard core cartels” in history – by three orders of magnitude). In the words of a Deutsche Bank senior officer, the bank’s participation in the Libor cartel produced a “mountain of money” for the bank (and the officers). Holder’s bank fines were useless – and the Department’s real prosecutors told him why they were useless from the beginning. No one, of course, thinks Holder went rogue in refusing to prosecute fraudulent bank officers. President Obama would have requested his resignation six years ago if he were upset at Holder’s grant of de facto immunity to our most destructive elite white-collar criminals.
Our saying during the savings and loan debacle was that in our response we must not be the ones “chasing mice while lions roam the campsite.” Holder, and his predecessors under President Bush, chased mice – and fed them to the lions. They overwhelmingly prosecuted working class homeowners who had supposedly deceived the most fraudulent bankers in world history – acting like a collection agency for the worst bank frauds.
As a U.S. attorney, Loretta. Lynch failed to prosecute any of the officers of HSBC that laundered a billion dollars for Mexico’s Sinaloa drug cartel and violated international and U.S. anti-terrorism sanctions. The HSBC officers committed tens of thousands of felonies and were caught red-handed, but now Attorney General Lynch refused to prosecute any of them – even the low-level fraud “mice.” Dishonest corporate leaders are delighted to trade off larger fines – which are paid for by the shareholders – to prevent the prosecution of even low-level officers who might “flip” and blow the whistle on the senior banksters that led the fraud schemes. To its shame, the Department’s senior leadership, including Holder and Lynch, have pretended for at least 11 years that the useless bank fines were a brilliant success. Those bank fines are paid by the shareholders. The Department’s cynical sweetheart deals with the elite criminals allowed them to keep their jobs and massive bonuses that they received because of the frauds they led. The Department compounded its shame by bragging that it was working with Obama’s (non) regulators to create guilty plea “lite” in which banks that admitted they committed tens of thousands of felonies involving hundreds of trillions of dollars of fraud were relieved of the normal restrictions that a fraud “mouse” is invariably subjected to for committing a single act of fraud involving $100.
The Department’s top criminal prosecutor, Lanny Breuer, publicly stated his paramount concern about the fraud epidemics that devastated our nation – he was “losing sleep at night over worrying about what a lawsuit might result in at a large financial institution.” That’s right – he was petrified of even bringing a civil “lawsuit” – much less a criminal prosecution – against “too big to prosecute” banks and banksters. I lose sleep over what fraud epidemics the banksters will lead against our Nation. The banksters have learned to optimize “accounting control fraud” schemes and learned that they can grow immensely wealthy by leading those fraud epidemics with complete impunity. None of them has a criminal record and even those that lost their jobs are overwhelmingly back in financial leadership positions. In the aftermath of the savings and loan debacle, because of the prosecutions and criminal records of the elites that led those frauds, no senior S&L fraudster who was prosecuted was able to become a leader of the fraud epidemics that caused our most recent financial crisis.
We have known for decades that repealing the rule of law for elite white-collar criminals and relying on corporate fines always produces abject failure and massive corporate fraud. We have known for millennia that allowing elites to commit crimes with impunity leads to endemic fraud and corruption. If the Department wants to restore the rule of law I am happy to help it do so. We have known for over 30 years the steps we need to take to succeed against elite white-collar criminals through vigorous regulators and prosecutors. We must not simply prosecute the current banksters, but also prevent and limit future fraud epidemics through regulatory and supervisory changes. I renew my long-standing offers to the administration to, pro bono, (1) provide the anti-fraud training and regulatory policies, (2) help restore the agency criminal referral process, and (3) embrace the whistleblowers and the scores of superb criminal cases against elite bankers that they have handed the Department on a platinum platter. We can make the “new” Justice Department policy a reality within months if that is truly Obama and Lynch’s goal.
Let's be clear-----O"Malley made every single Wall Street financial instrument leading to fraud of Maryland citizens he could just so he could run for President and go into national politics. O'Malley as a Baltimore City Council person and then Mayor of Baltimore never funded public pensions-----allowed them to be invested in fraudulent investment vehicles---and then as Governor sent teacher's pensions to localities he knew could not afford them at the time-----AS HE LOADED THE STATE OF MARYLAND WITH CREDIT BOND DEBT setting the stage for the next massive loss of revenue by Maryland citizens in this bond market crash. Yet, somehow he always received the backing of labor and justice organization groups whose members will be killed by all this corruption.
THE POINT IS THIS------SINCE IT ALL INVOLVES FRAUD AND SINCE THESE BANKS KNEW IT-----MARYLAND AND BALTIMORE PENSIONS CAN BE PROTECTED FROM THESE BAD DEALS.
No doubt O'Malley is counting on this culture of neo-liberalism and neo-conservatism with all its fraud and corruption to maintain control-----BUT WE THE PEOPLE ARE REINSTATING RULE OF LAW IN MARYLAND AND NATIONALLY.
Maryland Lost Big On Wall Street Pension Gamble
September 23, 2014
Posted with permission from International Business Times
Maryland Governor Martin O'Malley addresses the 2012 Democratic National Convention in Charlotte, North Carolina, Sept. 4, 2012. REUTERS/Jim Young
Maryland has joined a not-very-exclusive club: States that have moved pension funds into riskier Wall Street investments and received, in return, below-median results. That underperformance by Maryland's $40 billion public pension fund cost state taxpayers more than $1 billion in unrealized returns in fiscal year 2014 alone, according to a new study by Jeffrey Hooke, a former investment banker, and the Maryland Public Policy Institute's John Walters.
The Maryland data lands amid a simmering debate over whether public pension systems should continue moving retiree money into private equity, hedge funds, venture capital firms, real estate. Over recent years, pension officials have shifted more money into these so-called alternative investments, vs. less-risky and less-complex investments with lower fees, like mutual funds and stock index funds.
Last week, the nation's largest public pension system, CalPERS (the California Public Employees' Retirement System), announced its decision to divest from all of its hedge fund holdings, and the nation's sixth-largest pension fund, the Teacher Retirement System of Texas, slashed its hedge fund allocations. Those moves followed legendary investor Warren Buffett urging San Francisco pension officials to avoid investing in alternatives. It also followed revelations that public pension systems in New Jersey, Rhode Island and North Carolina have delivered below-median returns after making major investments in alternatives.
In Maryland, officials have pushed to increase the pension system's alternative-investment portfolio. Bloomberg News reported in 2013 that the state "increased its holdings in private equity, hedge funds and real estate to about 29 percent of its portfolio from 14.6 percent in 2008."
According to Walters and Hooke, a former Lehman Brothers executive, that shift coincided with below-median returns for Maryland's public pension system.
"Ironically, as the fund’s relative performance has declined, its Wall Street money management fees have risen," the report says. "In fiscal year 2014 alone, the Maryland state pension fund paid out roughly $300 million in fees to Wall Street money managers. Over the past 10 years, these money management fees amounted to over $1.5 billion, according to the fund’s annual financial reports. Nevertheless this high-priced advice resulted in 10-year returns that were $3.22 billion (net of fees) below the median."
If the fund had matched median returns for public pension systems across the country, "the state could have awarded 80,000 poor children with $40,000 four-year college scholarships," Hooke and Walters wrote.
Maryland's shift into alternative investments happened while the securities and investment industries made more than $292,000 worth of campaign contributions to Democratic Gov. Martin O'Malley, who appoints some members of the Maryland pension system's board of trustees. Vice News has reported that the Private Equity Growth Capital Group is a financial backer of a 501(c)4 group co-founded by O'Malley. In May, Pensions and Investments magazine reported that the Maryland governor appointed a managing director of an alternative investment firm called The Rock Creek Group to head a state task force on retirement policy. Meanwhile, the chief investment officer of Maryland's pension system was recently appointed to a senior position in the U.S. Treasury Department overseeing public pension policy.
In 2013, Republican State Delegate Steve Schuh pushed legislation to reduce the state's investments in alternatives, but the bill did not pass the state legislature.
Hooke has testified before the legislature in support of putting more pension money into low-fee stock index funds.
"Eliminating active managers, selling alternative investments, and adopting indexing for 90 percent of the state’s portfolio would ensure median performance," his report concludes. "These actions would also save the state huge amounts in money management fees."