Juggling Dynamite

Hat tip to Wall Street on Parade for bringing the filing of an encouraging class action law suit to my attention. See the class action statement of complaint for violation of Federal Securities laws here: City of Providence, Rhode Island et al vs. BATS et al. The Defendants include all the major stock exchanges, broker/dealers (Goldman, JP Morgan, Citi)… and HFT firms that have been flagrantly abusing customers and investors in public markets over the past 5 years.

The really encouraging part is not only is the Plaintiffs’ counsel known for their expertise in securities fraud and successful claims in high profile cases such as Enron, Worldcom and Visa/Mastercard anti-trust etc., but aided by The Flash Boys research, they have beautifully cut through the intentional confusion and complexity of current financial intermediaries to succinctly frame the particular offenses in law. To wit, directly from the pleadings:

“Defendants’ misconduct rigged the market and manipulated the prices at which shares were traded during theClass Period, causing substantial damage to Plaintiff and the Plaintiff Class as a result thereof.

Defendants’ Scheme and Wrongful Course of Business

For at least the last five years, the Defendants routinely engaged in at least the following manipulative, self-dealing and deceptive conduct:

“electronic front-running”– where, in exchange for kickback payments, the HFT Defendants are provided early notice of investors’ intentions to transact by being shown initial bids and offers placed on
exchanges and other trading venues by their brokers, and then race those bona fide securities investors to the other securities exchanges, transact in the desired securities at better prices, and then go back and transact with the unwitting initial investors to the their financial detriment;

“rebate arbitrage” – where the HFT and Brokerage Firm Defendants obtain kickback payments from the securities exchanges without providing the liquidity that the kickback scheme was purportedly designed to entice;

“slow-market (or latency) arbitrage” – where the HFT Defendants are shown changes in the price of a stock on one exchange, and pick off orders sitting on other exchanges, before those exchanges are able
to react and replace their own bid/offer quotes accordingly, which practices are repeated to generate billions of dollars more a year in illicit profits than front-running and rebate arbitrage combined;

“spoofing”– where the HFT Defendants send out orders with corresponding
cancellations, often at the opening or closing of the stock market, in order to manipulate the market price of a security and/or induce a particular market reaction;

“layering” – where the HFT Defendants send out waves of false orders intended to give the impression that the market for shares of a particular security at that moment is deep in order to take advantage of the market’s reaction to the layering of orders; and

(Since the publication of Flash Boys, the U.S. Federal Bureau of Investigation (“FBI”) and the U.S. Justice Department (“DOJ”) have both announced they are investigating high frequency trading. The DOJ is investigating whether the activities violated the federal insider trading prohibitions. Likewise, New York Attorney General Eric Schneiderman (the “NY AG”), the Commodity Futures Trading Commission (“CFTC”), and the SEC are also reportedly probing the unlawfulness of high frequency trading. Case 1:14-cv-02811-KMW Document 2 Filed 04/18/14)

“contemporaneous trading” – whereby obtaining material, non-public information concerning the trading intentions of Plaintiff and the Plaintiff Class and then transacting against them, Defendants violate the federal securities laws, including §20A of the Exchange Act.

Defendants’ wrongful acts and unlawful practices constitute the manipulative use of devices and contrivances in violation of the Exchange Act and the SEC rules promulgated thereunder and constitute a scheme and wrongful course of business that has operated as a fraud or deceit on investors on U.S.-based exchanges and alternate trading venues for at least the past five years.”

It is such a treat to see the illegal actions so clearly articulated. A great start to hopefully a fruitful, sea change law suit against some very culpable actors.

This morning the Advance US April retail sales report disappointed bulls with a flat 0.1% month-over-month read, down from 1.5% in March. Core Retail Sales (ex Autos) was 0.0% in April, down from 1.0% in March. Over all the trend in year over year retail sales numbers has been down since the summer of 2011 as shown in this chart courtesy of Doug Short.

The truth is that consumption in the 2009 recovery cycle peaked in the summer of 2011 (with commodity prices and the Canadian dollar) and is not reviving this spring. This is not about weather, this is about the business cycle and its driver, the consumer–struggling under low wage growth, negative to low home equity and still anemic savings. As much as the many market riggers are striving to convince us otherwise, this demand cycle is continuing to slow not accelerate.

Bill Black is one of the rare good guys: someone who knows all about the inner workings of financial firms and their crimes but who cannot be bought by them and has been in the trenches fighting for lawfulness and prosecution in the sector most of his life. Here is his bio.

Former NY Fed head and then Treasury Secretary Timothy Geithner has a new book out called “Stress Test” in which he follows a now long tradition of rewriting one’s history of harmful acts by explaining how he did nothing wrong and anyway everything was all in the best interests of the country. Bill Black has written a series of worthwhile articles in response to the partial truths and blatant fabrications laid out by Tiny Tim in his new book. Here is a sampling:

“Geithner is a target rich environment for critics and he has a gift for saying things that are obviously depraved, but which he thinks are worthy of a public servant.

He did vastly more harm to the Nation as the President of the New York Fed than he did as Treasury Secretary. He was supposed to regulate most of the largest (and most criminal) bank holding companies – and failed so completely that he testified to Congress that he had never been a regulator and that the problem in banking leading up to the crisis was excessive regulation. His statement that he was never a regulator was truthful – but you’re not supposed to admit it, and you’re certainly not supposed to be proud of it. Geithner, Greenspan, and Bernanke are the three Fed leaders who could have prevented the entire crisis by being even modestly effective regulators.

…as the recent leaks by the Department of Justice (DOJ) reveal, it was Geithner and his subordinate officials at the Office of the Comptroller of the Currency (OCC – a bureau within Treasury) who led the chorus of alarm that led an already cowardly DOJ to adopt the infamous “too big to prosecute” doctrine that Attorney General Eric Holder is now desperately seeking to walk back. Every reference by Geithner to elite bank fraud is designed to mock anyone that would take it seriously and try to hold the elite bank officers accountable for their crimes. Geithner makes his childish, sneering tone on the subject obvious to even the most casual reader with phrases such as “Barofsky’s[auditor for the TARP program] desire to prevent perfidy” in addition to mocking the entire concept that fraud was important enough to warrant providing SIGTARP’s LEOs with even the most basic, essential forms of personal protection to reduce the risk that they would be maimed or killed in the performance of their duties….”

See the whole article: Geithner’s Single Most Revealing Sentence