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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

WaMu Insider Trading and Naked Short Selling

Companies / Market Manipulation Oct 19, 2009 - 01:27 AM GMT

By: Mike_Stathis

Companies

Diamond Rated - Best Financial Markets Analysis ArticleA couple of weeks ago, I wrote a piece discussing allegations of insider trading and illegal naked short selling of Washington Mutual, involving the banking cartel and potentially their hedge fund clients.

In this piece, I provided a link to the SEC complaint I submitted on October 7, 2008.


You might have noticed the complaint was marked as a “draft.” Some people have asked me of the complaint was ever submitted since it is marked as a draft. 

Yes, it was submitted. 

If you want to verify this, all you need to do is contact the San Francisco SEC office; the office heading up all investigations on Washington Mutual.

The reason why it was marked as a draft was because there is much more I did not include in the complaint. 

You see, rather than spend even more of my time writing a complete report, I wanted to see whether the SEC would move forward on it. As you can imagine, I was confident they would not go forward with a real investigative inquiry because it would bring down some very large banks and individuals – all tied very close to Washington. 

While I was contacted by SEC attorneys, I have no reason to believe that an adequate investigation was ever made.

It looks like I was correct in my assumption because at the very least, after one year, the agency could have easily identified the massive insider trading if it wanted to.

You have to keep in mind that the SEC is a government agency. That means it is directly connected to Washington, AND hence financial industry lobbyists.

So here, I want to discuss some additional material not contained in the complaint. 

But first, I’d like to share with you some previously published material that is related to WaMu and the banking cartel. I feel this will help you gain a better understanding of how things work. 

I have mentioned the WaMu heist briefly many times since submitting my complaint to the SEC on October 7, 2008. 

First, I discussed the failures of this agency in 2006 in America’s Financial Apocalypse. 
http://www.avaresearch.com/files/20090514024432.pdf

Among other criticisms, I discussed how securities laws permit legalized insider trading for executives and companies.

Another time was just this past spring in an article titled the “Price of Honesty.”
http://www.avaresearch.com/article_details-141.html

Now I want to show you some excerpts of an article first published on November 23rd, 2008, titled “Obama’s Change,” as I discuss the banking cartel and the FDIC.

People need to understand that the Federal Reserve is a private mafia owned and operated by a banking cartel. You should be familiar with the members of this cartel by now. If you don’t know who they are, just have a look at the SEC’s initial short sale ban list on July 21, 2008. I also advise you to read some of my previous articles which detail the activities of this syndicate. 

The kingpins of this cartel are JP Morgan Chase, Bank of America and Citigroup. These are the guys who’ve been given trillions of dollars of YOUR tax dollars to buy up banks left out of this elite club. But don’t think for a minute this cartel is exclusive to the United States. It’s a global syndicate with members extending to the UK and Europe. Together under the auspices of the U.S. Treasury, World Bank and IMF, the banking cartel does as it pleases using taxpayer funds for its benefit.

Have you ever wondered why Bear Stearns, Lehman Brothers, Washington Mutual, IndyMac and other banks were allowed to fail while the others were bailed out? The reason is quite simple. They were not part of the banking cartel.

AIG is an exception. While not part of this mafia syndicate, the fact is that Goldman Sachs is. And if AIG was allowed to fail, Goldman stood to lose billions. This is precisely why former Goldman CEO Paulson bailed them out.

It’s also the reason for the resistance by the FDIC for the Wells Fargo-Wachovia buyout. As you will recall, Citigroup made a ridiculously low $2.1 billion bid for Wachovia’s $900 billion in assets and over $1.3 trillion in worldwide deposits. This heist would have provided a tremendous boost to Citi’s cash flow situation, essentially buying them more time.

Just a few days later, Wells Fargo made a $15.1 all-stock bid, salvaging Wachovia shareholders and shielding taxpayers. Immediately, Shelia Bair, the Chairman of the FDIC sought to block Wells Fargo’s bid.

Why would Bair favor wiping Wachovia shareholders out with a paltry bid from Citigroup, especially when it would be using taxpayer funds?

You need to understand that the FDIC is a partner of the banking cartel just as the SEC is. And this agency, under Bair’s leadership has pulled off what I believe to be many illegal activities, including but not limited to an undisclosed role in the seizure of WaMu.

Make no mistake. The FDIC is just as guilty as the Fed and Paulson in squandering taxpayer funds. And Shelia Bair has escaped any scrutiny. Instead, the clueless media journalists swallow the bull fed to them by insiders who praise her fascist policies. Again, I’ll get back to this at another time.

If the FDIC’s fight for Citi wasn’t enough to make you realize they were in deep trouble, you should’ve been tipped off by their aggressive online ad campaign offering 3.55% and 4.00% for online savings and CDs respectively.

Remember this, when you start seeing very high rates for savings accounts and CDs you know the bank is about to fold. I also highlighted this fact in previous articles.

Even now as Citigroup struggles to stay afloat, the U.S. Treasury worked overtime with the Fed to arrange another blank check, compliments of taxpayers. The full details of the plan have not yet been released but the preliminary proposal calls for a $20 billion capital infusion from the TARP in exchange for $27 billion in preferred stock, while guaranteeing $306 of problem assets. This follows an earlier $20 billion Citi received from TARP.

Citigroup will be responsible for the first $29 billion in losses while the Treasury (taxpayers) will be responsible for 90% of the next $5 billion in losses, with Citi on the hook for the rest. The FDIC will absorb 90% of the next $10 billion while Citi takes the rest and for losses beyond that. The Fed will take 90% of the losses while Citi is expected to assume the remaining 10%, although this isn’t likely to be possible.

This further creates incentive for the FDIC to seize more banks claiming they are insolvent without proving insolvency to taxpayers. And if you really think it was the OTS that seized WaMu, you have no idea what’s going on. It was the FDIC that made the call.

http://www.avaresearch.com/article_details-366.html

Now, let’s come back to the latest news; record bonuses for Goldman Sachs employees.

You should note that the recent record bonuses paid out to Goldman employees came from YOUR TAX DOLLARS.

Let me explain.

Remember, Paulson bailed out AIG to the tune of more than $180 billion because Goldman stood to lose billions of dollars in credit default swaps.

Once AIG was handed your tax dollars, AIG paid Goldman to close out these swap contracts. And as you can imagine, this taxpayer-funded income from AIG contributed to Goldman’s earnings, which ultimately went towards bonuses for Goldman employees.

This is the story you won’t hear about on the financial televised networks or read about in the financial press.

The financial bloggers aren’t likely to pick up on it either because they are followers of the financial media.

More on WaMu Trading Activity
I also wanted to mention what I noticed as extremely bizarre WaMu stock price movements. 

From about March to June 2008, as WaMu average trading volume soared to over 200 million shares traded daily (to the best of my memory), I found WaMu stock price movements for most days over that period difficult to explain.

Let me be clear on this.

I closely followed WaMu every day during that period. 

I also followed the other banking stocks.

All of the other bank stock price movements during that period were explainable based on market strength, material public disclosures and financial industry investor sentiment. 

But the stock price movements of WaMu were quite bizarre in my opinion.

I was so actively involved that I placed approximately 200 day trades in WaMu from my personal account during a 3-month period. 

That may not be a lot of trades for some of you, but it was for me since I’m not a day trader.  

Day trading WaMu on many occasions was easy for even me; someone who focuses more on short-term and intermediate trades.

To be a successful day trader, you need to focus less on rational and fundamentals and more on instincts and technical analysis. Of all things that are of benefit to day traders, trading volume can be one of the most revealing. 

Day trading is much different than longer-term trading. It’s more of a crap shoot because many of the most valuable resources (such as valuations, market strength, etc.) are not that important since the trades are very short-term.

Yet, day trading WaMu in the Spring of 2008 was quite easy because many of the stock price movements (once they were in play) were easy to profit from because they occurred on huge volumes with a great deal of block trading. 

All one had to do was wait for the price move on heavy block trades and jump aboard for the ride.

And of course, make sure to get out before the end of the day.

I recall noting that for approximately 80% to 90% of the trading days over that time frame, WaMu stock price movements made absolutely no sense given the disclosed material for the bank as well as the general movement from the other banks (note that I previously stated that day trading was easy because the price movements could often be anticipated. Do not take that to mean that the price direction made sense).

Finally, note that there were several days (maybe 20-30) when WaMu had intraday swings of 15-20%, once again on heavy trading volume. 

It was one of the most bizarre periods of trading activity over a several month period I have ever seen.

If you are able to go back and study all of the data for each day during that period (and that would consume an enormous amount of time) you would understand what I mean. Some of you might have been trading WaMu during that period and know precisely what I’m talking about. 

So what do these observations mean?

I have no idea.

What I do know is that something very strange was going on with WaMu stock; not for one day or one week; not even for one month, but for several months. 

And this bizarre price activity was occurring on huge trading volumes. 

The question I have is this; how could so many shares behave so unpredictably and contrary to reason based on my own assessment of all publicly released data, and for such a long time frame?

Remember, I’m the guy who wrote in a book (2006) to short Fannie, Freddie, Accredited Lenders, Fremont General, Novistar, the banks and homebuilders.

So for those of you who don’t know who I am (which is understandable since the financial media has banned me), I can guarantee you there is no one who has more insight on this collapse. 
http://www.avaresearch.com/files/20090510131858.pdf

In fact, if you doubt me, perhaps you’d like to take a stab at the $20,000 reward I’m offering.
http://www.avaresearch.com/article_details-385.html

Even after TPG funded WaMu with over $7 billion in the Spring of 2008, the stock continued to trade in a very unpredictable manner. 

This too was very strange. 

In fact, as I previously mentioned, WaMu stock collapsed down to a price (~$9.25 from my best memory) shortly after TPG purchased WaMu shares for ($8.75). 

Now we know that during that time frame, JPM made an offer of around $8/share for WaMu.  Was this information spread illegally and acted upon by funds or banks? 

I’d say the SEC needs to add this investigation to the list I have made. 

You might recall that one of my claims in the SEC complaint was that WaMu was not insolvent.

Since the seizure, court documents now reveal that JPM has claimed WaMu was NOT insolvent.

If WaMu was not insolvent, why was insolvency listed as the official reason for the seizure by both the OTS and FDIC? 

When I made calls to the OTS and FDIC requesting proof of insolvency, officials kept using various methods of distraction and sidelining the issue. After I educated them on what was going on with the banking scams, they appeared to get nervous.

Let me be clear. The FDIC, under Shelia Bair robbed WaMu shareholders.

WaMu shareholders must demand answers.

Where is the proof that JPM was the only bidder for WaMu?

Why was JPM permitted to steal WaMu assets and deposits totaling over one-half trillion dollars for a paltry $1.9 billion?  The WaMu brand name combined with its 5000 fully-owned ATMs and 2200 branches alone was worth at least this much. 

Why was JPM permitted to take over $20 billion in cash from WaMu Federal Savings Bank and $4 billion from WaMu’s bank holding company?

Since the seizure, we also know that JPM had access to WaMu’s books when the bank was conducting due diligence. We must ask whether JPM leaked any rumors or inside information to other parties, which might have caused further naked shorting activities.

The SEC could easily find out this information if it wanted to.  The sad thing is that we will never know whether they checked. 

You should assume they did not and will not investigate any of the issues I have raised, UNLESS people start raising Hell with Washington.

In other words, YOU NEED TO SEND YOUR CONGRESSMEN AND SENATORS THESE ARTICLES AND DEMAND A FULL INVESTIGATION BE CONDUCTED BY OUTSIDE PARTIES.

Finally, we know that WaMu was not included on the initial short ban list in July 2008. But we now know that former CEO Kerry Killinger sent a letter to the SEC specifically requesting to be included in this list.  http://www.avaresearch.com/article_details-394.html 

As I have previously stated, excluding Fannie and Freddie, there was absolutely no reason why the remaining 17 financial institutions would be added to this list based upon short interest data and financial information as of that period. 

The short interest ratio for the remaining financial firms was very low, and investors still had no idea of the extent of the problems with the banks’ toxic assets. 

In contrast, rumors were being spread about WaMu, Wachovia and E-Trade. As well, the financial instability of these three banks was the most vulnerable of all other financial firms.

As a result, the short interest ratio for each of these three firms ranged between 15-25% (WaMu short interest was 25%) during the time which this first short ban list was created.

Once again, the SEC needs to investigate the source of rumors regarding WaMu.

I’m willing to bet at least some of the rumors originated from someone inside JPM.

Perhaps the most sickening thing out this entire charade was that, all throughout, America’s mass-media propaganda machine hailed JP Morgan as a hero, rushing in to save America as it had done a few months earlier when it was handed Bear Stearns for pennies on the dollar, and with O risk involved.  http://www.avaresearch.com/article_details-161.html

In reality, the two largest banking heists in world history are certain to add tens of billions of dollars in net worth to JP Morgan, and potentially a similar amount of net income.

After writing down $118 billion in impaired WaMu assets by 25%, JPM is already making money. Just a few months later, those impaired assets have resulted in a net income of some $1.5 billion for the quarter (2009).

Estimates now show that those write downs could flip-flop into $29 billion of net income over the life of WaMu’s debt maturity. 

And of course, the media has propped Jamie Dimon as some kind of hero.

The media has also praised Shelia Bair as another superstar.

Similar to how the media praised Alan Greenspan for so many years, my guess is that down the road, the media will once again be eating its words when the truth comes out about JPM, Jamie Dimon, the FDIC, and the biggest banking heist in world history.

It would appear that Dimon has no intention of sticking around when the full truth surfaces.  Just as class-action lawsuits are starting to pile up from WaMu shareholders, Dimon has recently announced a coming resignation. 

Is his announcement a coincidence?  Decide for yourself. 

Perhaps you recall in late 2007 when Bank of America CEO Ken Lewis made a bid for Countrywide Financial.

Do you remember how the financial media was painting him out to be some great banking genius? 

A year later when Lewis announced the Merrill Lynch deal, the media continued with its praise. You might recall I wrote an article immediately after the announcement, exposing the real deal. Only in 2009 have I been proven correct. http://www.avaresearch.com/article_details-86.html

Like always, America’s useless media is now eating its words.

Meanwhile, the media continues its ban on me because they don’t want the truth to come out. They are protecting the interests of their financial sponsors; the financial industry.

That is precisely why they have selected the hams you read about and see on TV. I don’t think I need to mention any names.  

I have no reason to believe I will not be proven correct about WaMu, the FDIC, and JPM.

I don’t need to wait for the facts to surface because I already know the reality. And I’m willing to bet any amount of money that I’m right. 

Any takers? 

Perhaps Dimon wants to exit while the glamour is still there.  After all, it’s much better to exit as a star than a disgrace. 

The media needs to stop avoiding the WaMu heist and get on top of things for once.
http://www.avaresearch.com/article_details-338.html

FDIC is Immune from Legal Action
Last year, I spoke with an attorney representing WaMu shareholders. I told him about my SEC complaint.

I also insisted I could make a great case showing JPM and the FDIC were involved in numerous counts of fraud. The attorney told me the following:

“I was an attorney with the FDIC for twenty years, including during the S&L Crisis. I remember quite a few banks that were inappropriately seized during the S&L Crisis. Your claims seem very credible and you appear to have some really unique insight into this situation, but I have to tell you that no one can touch the FDIC because they are in with the government” (paraphrased).

He mentioned an interest in pursuing JPM down the road AFTER his pending case.

As far as the statements about the FDIC, maybe he was telling me this because he represents the FDIC as an outside legal firm, and therefore cannot take a case against them. I believe he was telling me what he believes to be true.

We will soon see, as the FDIC has been named in at least one class-action lawsuit in connection with WaMu.

And of course, JPM has also been named in a few lawsuits as well. But take my word on this, the current lawsuits are trivial compared to the real fraud.

The FBI is Lying
One more caveat. If you really think the FBI is conducting relevant investigations pertaining to this multi-trillion real estate-banking Ponzi scheme, you are mistaken.

Let me explain.

You see, when the announcement was made last year that the FBI was devoting a large portion of its manpower towards investigating banking fraud, I actually submitted an application to the agency in order to confirm what I suspected; it was just a PR campaign to try and assure the public they would go after the criminals. 

The ONLY think the FBI is targeting is small-time cases of mortgage fraud as a way to make the public feel they are on your side. They have no intention of going after the real criminals behind the biggest Ponzi scheme in world history. 

If they had any intention of going after the real villains, it would lead to criminal indictments for hundreds of executives from Wall Street, the major banks, credit rating agencies and even U.S. government officials.

After not hearing anything from anyone at the FBI for several months, I then made several calls to FBI headquarters notifying them of who I was and my intentions to help with their investigations. 

You might recall the FBI was going around the country to recruit agents at job fairs. This too was a publicity stunt.  Yes, they were looking for new recruits; inexperienced kids.

The last thing the FBI wants are experts on their investigative team because they have no intention of going after the real criminals.

Despite applying more than ten times, I have received no returned calls, emails or any other correspondence from the FBI regarding my application.

It was a bluff. And I won. Unfortunately, it also means that taxpayers and WaMu shareholders lose. 

I continue here with the SEC http://www.avaresearch.com/article_details-403.html

2

By Mike Stathis
www.avaresearch.com

Copyright © 2009. All Rights Reserved. Mike Stathis.

Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.

The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.

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