McCamy Taylor's Journal
Posted by McCamy Taylor in General Discussion (1/22-2007 thru 12/14/2010)
Fri Jul 25th 2008, 06:57 PM
Learn the name UBS . This company does not just act like Enron. It really is Enron. For one thing, as I will show, UBS Warburg bought the main money making operation of Enron, the Energy Trading Unit that Ken Lay used to price gouge California. And it bought Enron's senator, Phil "Nation of Whiners" Gramm the on again off again on again John McCain financial adviser----though he was an ex-senator by the time UBS acquired him. About the only difference is this round of scandals involves the banking/mortgage industry rather than energy price fixing. All the other ingredients are here. Investors have been defrauded. Insiders have dumped their own securities as prices have fallen. And Republican lawmakers in the administration are engaged in a cover up.
Today, UBS is back in the headlines, because NY state has filed a $37 billion lawsuit on behalf of defrauded investors. This, despite the Bush administration’s vendetta against Eliot Spitzer which was probably designed to discourage states from seeking to punish bank fraud where the feds refused to do so.
I. With So Many Enrons Just Waiting to Happen, Former Senator Phil Gramm Would Not Be Out of Work Long
In 2002, just months after leaving the U.S. Senate in disgrace over the roles which he and his wife played in helping Enron construct its house of cards ( for details and links see my recent journal McCain Economic Adviser Phil "Nation of Whiners" Gramm and Wife Wendy Brought Us Enron
Phil Gramm was hired by USB Warburg.
October 7, 2002
Senator Phil Gramm to join UBS Warburg
UBS Warburg today announced that Texas Senator Phil Gramm will join the firm as vice chairman. In this role, he will advise clients on corporate finance issues and strategy. Senator Gramm plans to join the firm at the end of his term. In his new role, he will work closely with Vice Chairmen Lord Brittan and Ken Costa, who are based in London.
Senator Gramm is retiring after serving 24 years in Congress, including the last 18 years as Senator from Texas.
„Senator Gramm’s experience gained from more than 35 years in academia and government make him uniquely suited to assist our clients to meet the challenges presented by today’s business environment,” said John P. Costas, chairman and chief executive officer of UBS Warburg.
„I am delighted to enter the next phase of my career as an investment banker at UBS Warburg,” said Senator Gramm. „Having spent my professional life working on finance related issues, I look forward to bringing that experience and knowledge to bear on behalf of UBS Warburg clients worldwide.”
II. UBS Is Enron
This employment opportunity did not come out of nowhere. USB Warburg had already bought Enron's Energy Trading Unit in early 2002, making USB the new Enron---literally---since energy trading was Enron's main source of income.
The Enron Corporation announced yesterday that UBS Warburg had won the bidding for its energy-trading business, which was the crown jewel of Enron and was responsible for about 90 percent of its revenue.
''UBS Warburg is excited by the prospect of re-establishing this technology-based trading business,'' John P. Costas, chief executive of UBS Warburg, said in a statement. ''It will be a valuable extension of our worldwide trading activities.''
The New York Times makes it sound like happy days are here again, but read this blog entry from a different source.
While former US Senator Phil Gramm's wife, Wendy Gramm was a member of Enron's audit committee, and also serving on the company's of the Board of Directors, UBS was a consultant for the State of California in 2002 to help fix the State's energy crisis.
The Foundation for Taxpayer and Consumer Rights (FTCR) wanted Governor Gray Davis to fire UBS, saying the company had a conflict of interest since they represented both the State of California and Enron.- Read Article
Senator Gramm defended Enron, and basically told California that the state's energy problems were of their own making.
Shortly after, Enron went bankrupt, and Gramm resigned taking a job with UBS Warburg as a Vice President.
After Enron went bankrupt, UBS Warburg bought Enron's energy trading operations. UBS PaineWebber which is a subsidiary of UBS Warburg, was in charge of Enron's employee stock option program.
In Houston, a former UBS PaineWebber broker, Chung Wu was fired after he advised his clients to sell their Enron stock when it was trading around $36.- Read Article
And here is the link about the broker that UBS fired in August 2001 at the urging of Enron, because he advised employees of Enron who owned stock in their company to sell when shares were at $36. You read that correctly. UBS helped Enron to trick Enron employees into holding onto worthless shares in the company, in order to inflate the company's value, even as Enron executives and friends within the Bush administration were dumping their stock.
Enron (news/quote) executives pressed UBS PaineWebber to take action against a broker who advised some Enron employees to sell their shares in August and was fired by the brokerage firm within hours of the complaint, according to e-mail messages released today by Congressional investigators.
The broker, Chung Wu, of PaineWebber's Houston office, sent a message to clients early on Aug. 21 warning that Enron's "financial situation is deteriorating" and that they should "take some money off the table."
That afternoon, an Enron executive in charge of its stock option program sent a stern message to PaineWebber executives, including the Houston branch office manager. "Please handle this situation," the newly released message stated. "This is extremely disturbing to me."
PaineWebber fired Mr. Wu less than three hours later.
And here is an excellent document that has much, much more on the many ties between UBS-PaineWebber and Enron, including the many Enron assets and executives which EBS obtained, the investigations of UBS related to the Enron scandal and its eventual settlement with the government.
UBS Warburg purchased Enron’s energy trading unit in January of 2002, after the company filed for bankruptcy. The operations were renamed UBS Warburg Energy. In addition to obtaining the business, UBS Warburg acquired two Enron skyscrapers and took aboard 650 former Enron employees, including executives John Lavorato and Louise Kitchen, who had taken the company’s largest bonuses after the bankruptcy ($5 million and $2 million), and Greg Whalley, Enron’s former president.
UBS Warburg faced two additional allegations between the time it fired Wu and settled with federal regulating agencies. In August of 2002, a class action lawsuit was filed against UBS Warburg for its failure to drop its “strong buy” rating of Enron until four days before it filed for bankruptcy. The complaint alleged that UBS Warburg violated Sections 10(b)(5), 11, and 12 the Securities Exchange Act.
For all practical purposes, UBS was and is Enron.
Here is the settlement.
On December 20, 2002 the SEC released information on the $1.4 billion settlement that had been reached between numerous regulating agencies (Securities Exchange Comission
* Keep the research and ratings of analysts separate from the influence of investment banking
* Cease the practice of “spinning” IPOs
* Contract research from at least three independent firms
* Make its ratings and recommendations publicly available
* Pay a monetary settlement
As part of the settlement, UBS Warburg agreed to pay $25 million as a penalty, $25 in “disgorgement,” $25 million to fund independent research, and $5 million for future investor education.
UBS Warburg continues to face allegations regarding its analyst advice and actions in connection with Enron.
Somehow, I do not think that this hand slap taught UBS anything except that corporate fraud can be very, very profitable.
III. UBS Warburg Clients Should Have Paid Attention to What Happened to Enron Investors
Today, New York state Attorney General Andrew Cuomo announced a massive lawsuit against the Swiss giant on behalf of 50,000 investors whom he claims have been swindled out of $20 billion.
The suit alleges that UBS defrauded more than 50,000 customers out of more than $20 billion by knowingly misrepresenting the investments, which are known as auction-rate securities, while several senior bank executives were selling off more than $21 million of their personal holdings in these bonds.
"Not only is UBS guilty of committing a flagrant breach of trust between the bank and its customers, its top executives jumped ship as soon as the securities market started to collapse, leaving thousands of customers holding the bag," Cuomo said in a statement.
Apparently the executives at UBS left an email trail a mile wide, when they began to dump their ARSs, while failing to notify their investors that their own ARSs were going down the toilet. Now, where did that happen before? Ah, that's right! At Enron!
For people like me whose academic specialty is not business, here is a wiki link about Auction Rate Securities. Basically, these were an investment option for the rich and for corporations (minimum buy in $25,000) that promised greater return on investment) which were sold to investors as being risk free because the bank promised that it would step in to guarantee a certain minimum price at auction if no one else wanted to bid on these pieces of paper. Well, surprise, surprise, in February of this year, USB, Citigroup, Morgan Stanley and Merrill Lynch decided that they would not hold up their part of the bargain, no one bid on the ARSs, 80% of them had no bidders, the market failed, values of the ARSs fell----and USB still will not buy up its ARS at the new lower prices, leaving its very rich and powerful investors steaming mad. No wonder so many state attorney generals are taking action where the federal government refuses to do anything.
As if this is not bad enough, the executives of the company have been caught in an insider trading scandal. No, not a Martha Stewart pretend insider trading scandal. This is the real thing. From the WaPo link above.
In one instance, the suit says, UBS's chief risk officer sent an e-mail to the firm's chief executive, who copied another executive, outlining "potential trouble" with the securities, dangers posed by the company's growing inventory of them and the potential damage to the firm's reputation if it didn't fulfill its obligations to investors.
According to the complaint, that second executive, dubbed "Executive A," then forwarded the e-mail to two other senior managers and, just 10 minutes later, wrote another e-mail to his personal financial adviser, stating, "I want to get out of arcs. Let's talk on Monday."
Another UBS executive acted similarly, unloading more than $6 million of his securities after learning of their problems, as did other company officials, according to the complaint. In all, the suit alleges that UBS officials sold more than $21 million in auction-rate securities from November 2007 to Feb. 12.
The suit does not name the executives. We all want to know if Phil Gramm's name is in that lawsuit. And also, did his wife have any of those ARSs and did she sell any of them? And what about the McCains?
IV. How Much of the Blame Rests on Gramm’s Shoulders and How Much Will Stick to Him and McCain?
Even before this lawsuit, people were putting two and two together and coming up with Enron Redux. Here are some of the reviews of UBS’s spectacular fall from grace.
This article from June claims that Phil Gramm’s job was to lobby Congress to keep UBS afloat----which was what Ken Lay paid him to do for Enron when he was a Senator. And it is a PR nightmare for Gramm and McCain because it ties the UBS scandal to Enron and to the GOP presidential candidate and his financial adviser.
After showing initially profitable results, the banking world has since reminded some of why we had particular banking laws in place since the Great Depression. Gramm ignored history and thought he knew better. As the credit crisis grew Gramm, a Washington insider, was tasked with lobbying Congress to ease the pain of the problem he helped create.
The latest scandal to involve the McCain campaign co-chair lobbyist are investigations into UBS by the SEC as well as regulators from Massachusetts and New Hampshire. Is there a "20 strikes and you're out" policy in the McCain team? If you thought ties to Halliburton and Big Oil were bad with Bush, that's nothing compared to Wall Street problems and McCain.
UBS Financial Services Inc. knew as early as December that a segment of the municipal bond business was in trouble, but the Wall Street firm kept selling the investments to some clients without warning them of the risk, according to documents reviewed by the Globe.
In July, the story was still gaining momentum. When investors have lost billions, they tend to make their voices heard.
Critics have charged that Gramm's action as a senator helped lay the groundwork for some of the problems in the housing and oil markets. But it's hard to pin any of the UBS debacles on the former Texas senator. At UBS, Gramm held the post of vice chairman, a position Michelle Leder dubbed in Slate "the greatest job in business" for its combination of high status and low work rate. Gramm was a lobbyist and adviser, not an operating executive. And he had nothing to do with the forces that impelled banks and banking executives into foolish behavior in recent years; cheap money, greed and a bubble mentality are far bigger than Gramm. But UBS's continuing travails should lead us to wonder how effective Gramm is as an elder statesman. As an adviser, an economist, an expert in the ways of Washington and in the American financial system, part of Gramm's job surely was to advise the bank how to stay out of investment and regulatory trouble. Oops!
And then there is this piece which basically lays out the charges for a criminal indictment of UBS---and its agent Phil Gramm
Gramm's UBS is a leader on three important fronts in the effort to destroy the U.S. economy: the $1.3 trillion subprime mortgage catastrophe, the $330 billion Auction Rate Securities (ARS) freeze, and a tax evasion scheme of unknown magnitude.
• Subprime. Politico.com reports that Gramm lobbied Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006 and received a portion of $750,000 in lobbying fees for his efforts that set the stage for the subprime mortgage catastrophe which cost UBS $32 billion in subprime losses alone.
• ARS.Slate.com reports that Massachusetts accused UBS of selling retail brokerage customers ARSs -- about which I posted -- that made money for UBS's investment banking unit but caused the retail customers to suffer significant losses.
• Tax evasion. Slate.com also reports that UBS's asset management business is the subject of an ongoing federal investigation, in which Bradley Birkenfeld, an American UBS private banker who was arrested on tax evasion charges, has plead guilty and is cooperating with the government. Birkenfeld helped a client bring diamonds into the U.S. by shoving them in a tube of toothpaste.
V. I Meant It When I Wrote That UBS Is Enron (Minus Ken Lay)
UBS enabled Enron to pass itself off as a solvent company to investors for several months after it was clear that it was on the verge of bankruptcy. This cost many their life's savings. UBS paid nothing for its crimes. UBS them absorbed Enron---and its senator, Phil Gramm---and began to exploit the Enron loophole that had allowed Enron to make so much paper profit. This produced the exact same results---eventual financial loss for the company and customers, executives who avoided loss through insider trading and misrepresentation to their clients. All of this was made possible by Phil Gramm, who successfully lobbied to get even more privileges for business to allow them to steal even more from investors---even though everyone knew his history and the history of his company when it came to investor fraud.
UBS is Enron. Phil Gramm is a serial enabler of corporate fraud on a massive scale who can not be allowed to direct economic policy in this country. Because if he could get Congress to do what it did for UBS when he was a private lobbyist, imagine what he could accomplish if he had a job in someone's cabinet, making administrative decisions.
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