Yesterday’s post about Iswap and its openness to broadscale derivative-rate manipulation was, more than anything else, asking questions on the ‘fit and proper people’ dimension. Given it’s a joint-venture company largely owned by four international banks – and given it answers to nobody for the veracity of its quoted rates – then in the light of Libor (Barclays) jiggery-pokery about Lehman Brothers (JP Morgan-Chase), or wobbliness (Bank of America), the criminal attitude and motive is there for all to see.
But there is also the central management role cheerfully given to Michael Spencer’s Icap group (itself a broker heavily implicated in the Libor scam). Spencer is a former Conservative Party treasurer impolitely asked to leave that job under something of a share-dealing cloud in 2010. The rest of his swashbuckling financial career seems also to have involved dark clouds, smoke and thus – at various times – the likely presence of fire and rain.
As long ago as June 2004, Mr Spencer bought £5.5m worth of shares a day after meeting his friend Stuart Rose, 16 days before the takeover approach, and 20 days before Mr Rose became chief executive.
The FSA decided that¸ on the basis of that ‘meeting’, they’d pay Spencer a little visit. This didn’t worry the blasé broker:
“I don’t dictate FSA policy but I guess it’s quite likely they will interview me,” admitted Mr Spencer at the time. “The prospect doesn’t fill me with great concern. I don’t think it will take a huge amount of time. You can only evaluate your own actions in reflection to your own standards. My conscience is 110% clear.”
Working myself for financial services clients throughout the 1990s, I can attest that Spencer’s low opinion of the FSA (and belief that it had no teeth) was entirely typical. But Michael Spencer has very high standards (according to Michael Spencer) which I suppose you’d have to have if your conscience was 10% over-leveraged. However, over the years – as I will demonstrate – his penchant for sudden purchases and sales of shares has raised a great many eyebrows.
Five years later – in January 2009 - Icap announced a $25m (£15.5m) settlement with America’s Securities & Exchange Commission to see off charges that it displayed fake trades to encourage activity by customers. The announcement was made soon after the UK markets closed (smart move) .
“It is essential that Icap and other inter-dealer brokers refrain from engaging in conduct that discredits their privileged position in the marketplace,” Lorin Reisner, deputy director of the SEC’s division of enforcement, said at the time. The SEC charged (and proved) that brokers on ICAP’s U.S. Treasuries desks displayed thousands of fictitious flash, or “bird,” trades on computer screens between December 2004 and December 2005.
But just five months later, on July 1st 2009, the US Financial Industry Regulatory Authority (Finra) fined Icap $2.8 million and sanctioned a former broker for what it described as ‘numerous improper communications with other interdealer brokerage firms about customers’ proposed brokerage rate reductions in the wholesale credit default [CDS] market’.
Once again, I would remind Sloggers that this is the company and owner behind Iswap – an equivalent Libor for the equally secretive derivative rates process recorded on the now infamous ‘page 19909’.
Icap’s fine was split into $1.8 million for its supervisory failures — specifically, failing to detect and prevent improper inter-firm communications — and $1 million for engaging in conduct through its CDS desk manager that was designed to improperly influence other firms and their employees.
Seven months on, and Michael the Chatterbox was once more in ‘constructive talks’ (during February 2010) with the UK’s FSA. Although a couple of bad years had overstretched Spencer’s assets to the point where, well, they weren’t really assets, he kept on presenting them as such.
The Daily Telegraph reported at the time, ‘Last year, IPGL [majority-owned by Spencer and his brood] secured a new £200m loan from HSBC to refinance. The loan, was secured against Mr Spencer’s stake in ICAP, but he used these shares as collateral without declaring it as such to HSBC.’ Naughty, naughty.
In order to reduce the horrendous borrowing requirement of his IPGL, in January he had also sold a £45m stake in ICAP….just three weeks before ICAP gave a profit warning. This too earned him a City censure. He was, in fact, a desperately indebted man bending the rules of engagement to breaking point and beyond. But the sale helped reduce IPGL’s borrowings to £119m by the time the accounts were signed off on February 1 2010.
2010 was another tough year for highly-leveraged millionaires, and not long afterwards, mealy-mouthed Michael’s investment company IPGL was using shares in Numis, a stockbroking firm he chairs, as security against yet another loan. Here too, he did so without telling the firm. David Cameron was called upon to condemn this fly wheeze (as Spencer had not by then been found out by the Tories) and he refused to do so. Just as he refused to condemn Jeremy Hunt’s tax avoidance scheme of 2011, and Hunt’s failure to tell Parliament more than a sanitised version of his Newscorp dealings in 2012….Cameron having roundly condemned both practices in general only weeks earlier. As always with Cameron, he tends to generalise, but in practice, he isn’t that particular.
“Would you buy a used car from this man?” was perhaps one of the nastier 1960 Presidential campaign posters used against Richard Nixon – although it did prove remarkably percipient over time. In 2012, based on the ‘form’ presented above, you’d be ill-advised to buy a second-hand car off Michael Spencer. But to give his company the rate-setting control of a $64trillion derivatives market (in partnership with four proven dealers off the bottom of the pack) you would have to be comprehensively deranged, or as bent as a nine-bob note. Or a 24-carat Bob Diamond.
Last year, Michael Spencer was still the Conservative Party’s largest donor. Nobody can know that such a donation is to guarantee he is left alone by the authorities, but that must be the impression lots of young and floating voters are being given. Add this to Hunt Balls, Hackgate, Libor, Met Police corruption, cynical EU-turns and incompetent (but devious) NHS reform, and it is almost as if Camerlot is setting out deliberately to hand the moral high-ground to the Ed Miller Band.
The fact that the Opposition doesn’t deserve so much as a square foot of it is neither here nor there: the connections, practices, naked whoring, and extremely economical veritas of the Cameron Conservatives demonstrate how the cabal running the Party has ventured way beyond normal levels of despicable cynicism, and marched purposefully on into that bleak desert of depravity occupied by Mandelson, Blair, Whelan, Brown, Lagarde, Schauble, Geithner, Blankfein, Obama, and others of that ilk.
It is clear that, in order to defend his power base, David Cameron the Prime Minister is prepared to turn a blind eye to anyone and anything, and excuse any action – no matter how unethical, fast and loose or despicable it might be. He will renege on any promise, reverse any categorical statement, and befriend any life no matter how low….in order to get what he wants – which is very rarely what the country needs.
Beneath that level, there are those in the Tory Party and among the new Young Right prepared to ‘explain’ any amoral sleaze and sellout rather than have what they see as a suburb of soviet Moscow in charge. Sad as I find it, Dan Hannan has joined this club in recent months: his ‘conclusion’ from all the revelations of banking depravity – that regulators make no difference and therefore should be abolished – takes no account whatsoever of the almost total erosion of commercial and professional ethics over the last three decades. The fact is that if the police and judicial systems did their job without fear or favour, there would indeed be no need for regulators….and most of the current generation of senior investment bankers would be in jail.
The jail reference evokes guffaws of hor-hor braying laughter from the Right, but it shouldn’t: yesterday, criminal conman Thomas Scrugg was sentenced to 17 years in prison for his role in defrauding people of some £34m between 2002 and 2008. This is small fry compared to the daylight robbery inflicted upon investors and bank customers during that time. What we are uncovering – as 2012 both unfolds and unravels – is the biggest, most global fraud in history. Starting with MPs’ expenses and Whitehall pension grabs, we have progressed through the bribery and casual law-breaking of Newscorp, and now onto a scam that will dwarf them all.
In the US, Federal and tax teams of seasoned finance cops are crawling all over it. Even the sleepy EU plonkers of Brussels have serious Interpol heavies on the case.
In the UK, investors and taxpayers are being cheated daily by cyber attacks on market data, rate fiddling, and reckless gambling. But the police clearly have no intention of intervening.
It’s time to stop snorting cynically and going “Hahaha, well what do you expect?”: it’s time instead to demand that the rule of Law in our country be upheld. What I expect is something better – and as a taxpaying British citizen, I am entitled to it.