UPDATE: Bill Singer's Ennui In Response To The DOJ FOREX Press Junket

May 20, 2015

It is now 8:30 a.m. EDT on May 20, 2015 and I am posting this BrokeAndBroker.com Blog without much enthusiasm - I think the fancy French word for how I feel is "ennui." Look it up. It will make you feel cosmopolitan and sophisticated. Nothing like expanding your vocabulary on a Wednesday.

According to rumors running rampant in the media, we are all breathlessly awaiting an announcement, perhaps at 10 a.m., that the United States Department of Justice ("DOJ") has settled its pending currency market rigging case with JPMorgan Chase, Citigroup, Barclays, the Royal Bank of Scotland ("RBS") and UBS.  Word has it that the five banks will be pleading guilty to criminal antitrust and fraud charges attendant to their manipulation of the foreign-exchange markets ("FOREX").

Well, at least some if not all of the banks will be pleading - alas, the vagaries of last-minute rumors. And, sure, the spin will likely be that it wasn't actually the banks that did this but a small group of renegade employees, who conspired sub rosa and unbeknownst to the higher-ups who actually ran the banks. Then there's that thing about the higher-ups because, you know, those higher-ups who were running things at the times cited by DOJ have largely moved on and out and there is a whole new cadre of higher-ups, untainted by this current scandal. I'm guessing (going out on a limb here) that the banks will argue we shouldn't blame a humongous international organization for the misdeeds of a few out-of-control traders who kept it all off the firms' state-of-the-art compliance radar screens.

I have a pretty good idea of what the fanfare will be like at DOJ in a few hours. 

The blowing of the horns will trumpet the largest fines in the history of mankind going back to the beginning of time as we know it and running through the present.

We will be told that today's announcement marks the culmination of many years of hard work. We will learn that the miscreants engaged in a foul conspiracy that undermined the "integrity" of the markets and investor confidence.

The high notes will cheer us with admonitions that a message is being sent to the financial community that such crimes and conspiracies will no longer be tolerated. Oh, yes, this time, DOJ means business! The low notes will recount the gazillon dollars, Euros, and other currencies that were stolen from other market participants. The refrain will be that business as usual in the FOREX community must end, that this is just the beginning of a new regime of oversight and consequences, and that today's announcement is not the end of this investigation/prosecution because individuals responsible for crimes will be brought before the bar of justice to pay for their misdeeds.

And then, tomorrow, a lot of folks will head out for their Memorial Day vacation.

The banks will still be open for business as usual.

The ensuing press releases from the banks will tell us that they are happy to put this incident behind them. The folks in charge are no longer here. We've hired consultants and academics to tell us how to set things right. It's a new day. We'd like to offer you a free toaster with a new bank account. Can we interest you in a new credit card?

At some point, we will learn, perhaps in a footnote to some financial document that the banks set aside reserves for the eventuality of large DOJ fines.  No big deal, they will assure us. We're just going to pay the DOJ fines from the reserves and go on our merry way.  Yes, we know, it's actually a fine coming out of the pockets of our public shareholders but, hey, what else did you expect?

What was that word I suggested you look up?  Oh, yes, "ennui."

Call me cynical.. I love that accolade. Call me sarcastic, caustic, and a gadfly. Pile it on. I've heard it before and it's a badge of honor.

You want a real barometer of how much (or little) things are going to change after today's historic settlement of epic proportions that will forever alter the primordial forces of FOREX and Wall Street? Here's an idea: Visit the Financial Industry Regulatory Authority's ("FINRA") online roster of that self-regulatory organization's Board of Governors at https://www.finra.org/about/finra-board-governors. Listed among the sitting Governors is "Joseph M. Mecane, Barclays, New York, NY."

If, in fact, Barclays does plead out today, I wonder whether FINRA will ask Mecane to step down. When Mecane was hired by Barclays in 2014, Reuters reported in "Barclays hires ex-NYSE official to bolster trading after lawsuit" (Reuters, November 18, 2014, Reporter Herbert Lash):

Barclays Plc (BARC.L) said on Tuesday it hired a former senior executive at the New York Stock Exchange to help with the bank's electronic trading, an area in which it was accused of fraud by the New York attorney general in a pending lawsuit.

. . .

New York Attorney General Eric Schneiderman in June said Barclays misled clients by not protecting them from "predatory" high-frequency traders in its "dark pool," a trading venue known as LX, despite the bank's assurances it was doing so.

. . .

Mecane will help Barclays develop its electronic product offerings, with a focus on equities and credit markets, the bank said in a statement. . .

Shortly after he was hired, Mecane was named to FINRA's Board. As reported in"Barclay's Joe Mecane brings expertise in market structure issues" (Investment Executive, December 10, 2014, Reporter James Langton):

In a nod to rising importance of market structure issues, the U.S. Financial Industry Regulatory Authority (FINRA) has named an expert in electronic trading to its board.

[T]he self-regulatory organization notes that Mecane is a "recognized industry expert in market structure issues and the regulation of markets."

"Joe's valuable expertise and depth of experience in market structure issues will help FINRA's board move forward as we advance our mission of protecting investors and ensuring the integrity of our markets," said Richard Ketchum, FINRA's chairman and CEO.

Mecane was recently hired by Barclays to help develop its electronic product offering, with a particular focus on equities and credit markets. Before joining the firm, Mecane served as executive vice president and head of U.S. equities at the NYSE. Prior to that, he was managing director at UBS, responsible for overseeing the firm's wholesale and retail trade execution business. He was also previously managing director and chief operating officer at the Schwab Capital Markets division of Charles Schwab & Co., where he oversaw Schwab's broker-dealer business. . .

So, where's the smart money placed?  Will Mecane resign from FINRA's Board? Will he be asked to resign? Will he be removed? Or will the press machinery wind up to admonish us that Barclays is a banking and finance conglomerate and that Mercane is merely an officer of a division or a subsidiary or some entity that's not exactly the same as the one settling.

To be clear, very clear, given that he was first hired in 2014, Mecane had no role whatsoever with the FOREX issues before DOJ. Also, to be clear, to be very clear, it does appear that Barclays (Mecane's ultimate employer/parent) did have a role.

It's interesting how the sending of messages often takes on nuance when there is a discomforting issue to resolve, such as whether a firm that settles with a criminal prosecutor should be permitted to retain a seat on the Board of Governors of Wall Street's self-regulatory organization. Then again, readers of the BrokeAndBroker.com Blog know that I am no fan or FINRA or supporter of self regulation.

If and when DOJ posts an online copy of the settlements, I will come back to this page later today or whenever and add the links. Until then. Have a nice day. Remember, today's word was "ennui."

UPDATE 10:11 a.m:

The remarks of Attorney General Lynch:

Good morning, everyone. I am joined by William Baer and Leslie Caldwell of the Criminal Division, as well as our partners from the FBI and CFTC, Andrew McCabe and Aitan Goelman .

We are here to announce a law enforcement action against financial institutions that participated in a display of collusion and foreign-exchange rate market manipulation. They will pay a total of nearly $3 billion in fines and penalties. The resolution is the latest in our ongoing efforts to investigate and prosecute financial crimes and serve as a reminder that this Department of Justice will vigorously prosecute all of those who tilts the economic system in their favor, who subvert our market places and enrich themselves at the American consumer.

Starting as early as 2007, currency traders at several banks formed a group they dubbed the Cartel. It is fitting they chose that name as it describes the illegal behavior they were engaged in on a five-year basis. Almost every day for five years, they used a private electronic chat room to manipulate the exchange rate between euros and dollars using coded language to conceal their collusion. They acted as partners rather than competitors to push the exchange rate in directions favorable to their banks, but detrimental to many others. The prices the market sets for the currency influences every sector of every economy in the world. It harmed countless consumers, investors, and institutions around the world. Including the banks' customers who placed their faith in the market and relied on it to produce a competitive exchange rate. Four of the largest banks have agreed to plea guilty to antitrust violations.

Citicorp, JPMorgan Chase and Company, Barclays, and the Royal Bank of Scotland: These banks having acknowledge their role in this conspiracy and are committed to changing corporate cultures starting at the highest levels. They have agreed to pay criminal fines totaling more than 2.5 billion dollars. The fine that Citicorp alone will pay, $925 million, is the largest fine ever imposed for a violation of the Sherman Act. These figures appropriately reflect the conspiracies, the systemic reach and significant impact.

A fifth bank, Switzerland's UBS has agreed to pay a criminal penalty for breaching the non-persecution agreement -- the nonprosecution agreement. The breach of the nonprosecution agreement was based in part on UBS' fraudulent sales practice related to exchange markets and its failure to take adequate action to prevent unlawful conduct after prior civil, criminal, and criminal resolutions. UBS promised not to commit additional crimes, but it did. This represents the first time in recent history that the department of justice has found a company breached a nonprosecution agreement over the objection of that company. I want to be clear. The Department of Justice will not hesitate to file criminal charges for financial institutions that reoffend. Banks that cannot or will not clean up their act need to understand it carries real consequences and it will be enforced. It is commensurate with the harm that was done. It should deter competitors from chasing profits without regard to fairness to law or public welfare.

The resolutions are a testament to the efforts of the Antitrust Division's Criminal Enforcement Division, the Fraud Section, and the FBI's Washington field office. I want to thank everyone who contributed their time and talents to achieve these results. I want to express appreciation for the cooperation and assistance we received from the agencies who stood with us and our pursuit of justice, including the bodies I mentioned, the Commodities Futures Trading Commission, The Office Of The Comptroller Of Currency, The Security Exchange Commission and The Federal Reserve Bank. I would like to acknowledge my predecessor, Eric Holder, who oversaw this investigation. His work made this possible. I want to thank him for his commitment to this work. I would like to introduce William Baer, who will provide additional details on the announcement. Thank you.

UPDATE 12:07 p.m.


Citicorp, JPMorgan Chase & Co., Barclays PLC, The Royal Bank of Scotland plc Agree to Plead Guilty In Connection With The Foreign Exchange Market and Agree to Pay More Than $2.5 Billion In Criminal Fines

UBS AG Agrees to Plead Guilty to Manipulating LIBOR; Admits its Conduct in Foreign Exchange Market Breached Its Non-Prosecution Agreement Resolving the LIBOR Investigation and Agrees to Pay $203 Million

UPDATE May 21, 2014