It's not often something shocks me in the world of finance any more, but it happened yesterday. Omer Rosen, a former corporate derivatives guy from Citigroup, aired some very dirty laundry. How dirty? I've got a former boss doing nine years in the Federal pen today for running a similar scam. I'm not sure what shocked me more: the nonchalance towards the complete and utter breach of any semblance of fiduciary duty, or the fact that the author actually came out and admitted it. Without further ado, here's the article:
My post on quitting banking yesterday drew many interesting and well-thought out comments, but one really stuck in my head after reading this article. It was the comment by A Posse Ad Esse which stated he'd quit banking the moment he compromised his morals. I'm sure many of you feel the same way. What you might not realize is how big a sewer some aspects of banking have become.
This is not an isolated incident. If stuff like this is happening at Citigroup, it's happening everywhere. For those who don't know what a bucket shop is, Investopedia defines the term thusly:
2. A brokerage that makes trades on a client's behalf and promises a certain price. The brokerage, however, waits until a different price arises and then makes the trade, keeping the difference as profit.
- The second definition for a bucket shop comes from more than 50 years ago, when bucket shops would do trades all day long, throwing the tickets into a bucket. At the end of the day they would decide which accounts to award the winning and losing trades to.
Now, here's what Rosen says his desk was doing:
If a client requested verification of our pricing, we volunteered to fax a time-stamped printout of market data from when the trade was executed. One person talked to the client on the phone while another stood by the computer and repeatedly hit print. The printouts were sorted, and the one showing the most profitable rate for the bank was faxed to the client, regardless of which rate was actually transacted. If a rate for the client’s specific trade was not on the printout, we might create rigged conversion spreadsheets for them to use in conjunction with the printout.
Can someone explain to me how that's not bucketing a trade?
I'm not about to claim we were angels back when I was swinging the bat. We colored outside the lines plenty. The difference was - and this is an important difference - it wasn't institutional.
If a guy wanted to take a chance trading on inside information or something like that, it was him doing it individually. It wasn't something the whole bank was doing as a matter of policy. In fact, it was often the guy's own compliance department who caught him, fired him, and turned him into the regulators.
Today the cheating has been institutionalized, and it goes all the way to the top. When the C-level executives at a bank are running Repo 105 scams, what the hell do you think is going on downstairs on the trading floor?
UPDATE: Here is Citi's official response to the article:
“The allegations of this former employee, who last worked at Citi seven years ago, are unfounded and any implication that unethical behavior is accepted or rewarded by the firm is completely without merit. Citi strives to create the best outcome for its clients through conduct that is transparent, prudent and dependable.”
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