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Wednesday, November 11, 2009

Bear Stearns, Cioffi and Tannin Acquitted

This is absolutely intolerable.

Having been a primary witness to a jury allowing high-class fraudsters off scott free (JDS Uniphase), watching this happen with Bear Stearns gives me real doubt about our judical system, and what it means to be tried before a jury of your peers.

Voir Dire is the process by which juries are selected. It involves some intense questioning of the witness by both parties and the Judge. The answers automatically disqualify jurors in certain cases. If you owned Bear Stearns or JPMorgan stock for instance, you would have been immediately disqualified. It's a necessary process, but sometimes I think the term "peers," is taken too loosely.

Complex financial fraud is incomprehensible. I've been studying Accounting for nearly two years now, and I still don't understand much of it. Maybe I'm an idiot--but consider the following terms and tell me how much you know about each, derivative, mortgage-backed securities, loan loss reserves, credit default swaps, credit default obligations, Credit-default window. How much do you understand about securities? Do you understand the difference between trading securities, available-for-sale securities, and held-to-maturity securities? Do you know what options backdating is? Maybe the call price of an option?

High finance has moved far beyond the realm of what someone who isn't "in the biz" can realistically comprehend. That trial wasn't a jury of peers, but a jury of inanimate objects. All they can look at is the physical. (Times article with Jury consultant, Robert S. Duboff "“Both sides will probably pitch this at a very gut and emotional level, which is how most cases are decided anyway,” Does this man look guilty? Is he crosseyed, or does he look shifty? I mean, the defense ended their closing remarks with a remark addressed to Tannin, "Send this boy back to his family," for chrissakes!

Worse, every poor person in America has the essential belief that he too can be rich someday. So people are sympathetic to the rich. That is--until they can't eat. The Jury made their decision in 6 hours. The JDS jury made their decision in 1 day. There were mountains of documents, literally twenty or thirty boxes of bankers boxes to look at--6 hours? In JDS, Lawyers on both sides spent six years fighting about the case, and you're telling me a fair decision was made in 1 day?

Traditional jurors are not equipped to decide financial fraud. Despite the proliferation (read: inflation) of stock market sales, the only precedent for which occured prior to the Great Depression, still less than 10% of the country will ever buy a stock. Pension plans, Contribution plans be damned. Most of these holdings are managed by professionals and the principals never even see their money. Most of whom have never purchased a stock in their lives, let alone experienced a loss. And the law is strict on juror research. If a juror attempts to gain outside insight on a case--they are promptly thrown out, and either party can seek a mistrial. What hope does the average man have in understanding financial fraud based on two weeks of testimony?

I don't have time to be more coherent. Let me just say: I am incensed. Cioffi and Tannin, weren't the worst of what the financial industry had to offer, they were doing the same thing everybody else in high finance was doing. But someone needs to hang for this. Bernie Madoff was a patsy, a straw man. Ponzi schemes? Illegal, but insignificant precisely because they have always existed. However, when the spirit of an entire profession has been corrupted by greed and willful blindness, (rest assured, Tannin and Cioffi will have great new jobs before the year is over,) then the industry as a whole has to hang out a few examples.

The jury forewoman made the following statement, which closed the Times piece, ‘We’re not going to look at the fact that we’re in a recession, or that the markets are down. Because that wasn’t relevant to the case.’" That is surely what the defense thought. And given Judge Frederick Block's resistance to try the case, what he thought as well. But it is the point--It's the point exactly. The Bear Stearns Hedgefunds, when they closed, were the bellweather for the entire crash and recession. The industry started to turn things around then--but it was far too late.

I'd like to make one point to the Jury: If a black man shoots someone while making an attempted robbery of $50--he can go to prison for life. That's a nice black and white line because all a juror needs to know is whether or not the man shot the victim. But when two men lose 1.6 billion dollars, there's no brightline for right and wrong. The crime is that these men lost what most other people will never see the thousandth of a percentage because they were over-confident, misinformed, and negligent. Worse, when things started to go south, they lied about it to their investors, in desperate plan to get out before the market blew up. Their negligence destroyed Bear Stearns, and the investment industry as a whole.


Anonymous said...

You are an idiot. Somebody had to hang? You going to put "somebody" with a family away for 20 years on account of this? Actually, you are a scary idiot.

HammClov said...

Actually, I do believe that, Anonymous. But, I may be an idiot--it's hard to tell from this perspective.

Allow me to explain. I don't care if Cioffi or Tannin had families. It doesn't take much to start one, but it does take a lot to care for one. People who manage other people's money should be patently aware of that.

1.6bn dollars was lost in this very specific case. That's a lot of livelihoods, a lot of healthcare coverage, a lot of food on the table. Cioffi and Tannin's bets may well have cost the entire firm of Bear Stearns to crumble. That's a lot of families screwed over because a couple of men were greedy, and made very poor decisions.

I don't think that's scary. I think the fact that there are no consequences for the elect is a denial of justice--and that is really scary.