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USD Index Flash Crash Sparks EUR Surge

Another day, another flash crash in the USD Index. As the Sept 2015 USD Index Futures contract suddenly crashed instantly, so EURUSD surged (and TSY yields tumbled)... something broke...

Something Broke...

http://www.zerohedge.com/news/2015-06-12/usd-index-flash-crash-sparks-eur-surge

Is Deutsche Bank The Next Lehman?

Submitted by NotQuant.com

Looking back at the Lehman Brothers collapse of 2008, it’s amazing how quickly it all happened.  In hindsight there were a few early-warning signs,  but the true scale of the disaster publicly unfolded only in the final moments before it became apparent that Lehman was doomed.

First, for purposes of drawing a parallel, let’s re-cap the events of 2007-2008:

There were few early indicators of Lehman’s plight.   Insiders however, were well aware:   In late 2007, Goldman Sachs placed a massive proprietary bet against Lehman which would be known internally as the “Big Short”.  (It’s a bet that would later profit from during the crisis).

In the summer 2007 subprime loans were beginning to perform poorly in the marketplace.  By August of 2007, the commercial paper market saw liquidity evaporating quickly and funding for all types of asset-backed security was drying up.

But still — even in late 2007,  there was little public indication that Lehman was circling the drain.

Probably the first public indication that things were heading downhill for Lehman wasn’t until June 9th, 2008,  when Fitch Ratings cut Lehman’s rating to AA-minus, outlook negative.   (ironically, 7 years to the day before S&P would cut DB)

The “negative outlook” indicates that another further downgrade is likely.   In this particular case, it was the understatement of all time.

A mere 3 months later, in the course of just one week,  Lehman would announce a major loss and file for bankruptcy.

And the rest is history.

Could this happen to Deutsche Bank?

First, we must state the obvious:  If Deutsche Bank is the next Lehman, we will not know until events are moving at an uncontrollable and accelerating speed.   The nature of all fractional-reserve banks — who are by definition bankrupt at all times – is to project an aura of stability until that illusion has already begun to implode.

By the time we are aware of a crisis – if one is in the offing — it will already be a roaring blaze by the time it is known publicly.   It is by now well-established that truth is the first casualty of all banking crises.  There will be little in the way of early warnings.   To that end, we begin connecting the dots:

Here’s a re-cap of what’s happened at Deutsche Bank over the past 15 months:

• In April of 2014,  Deutsche Bank was forced to raise an additional 1.5 Billion of Tier 1 capital to support it’s capital structure.  Why?
• 1 month later in May of 2014, the scramble for liquidity continued as DB announced the selling of 8 billion euros worth of stock – at up to a 30% discount.   Why again?  It was a move which raised eyebrows across the financial media.  The calm outward image of Deutsche Bank did not seem to reflect their rushed efforts to raise liquidity.  Something was decidedly rotten behind the curtain.
• Fast forwarding to March of this year:   Deutsche Bank fails the banking industry’s “stress tests” and is given a stern warning to shore up it’s capital structure.
• In April,  Deutsche Bank confirms it’s agreement to a joint settlement with the US and UK regarding the manipulation of LIBOR.   The bank is saddled with a massive $2.1 billion payment to the DOJ.  (Still, a small fraction of their winnings from the crime). 
• In May,  one of Deutsche Bank’s CEOs, Anshu Jain is given an enormous amount of new authority by the board of directors.  We guess that this is a “crisis move”.  In times of crisis the power of the executive is often increased.
• June 5:  Greece misses it’s payment to the IMF.   The risk of default across all of it’s debt is now considered acute.   This has massive implications for Deutsche Bank.
• June 6/7:  (A Saturday/Sunday, and immediately following Greece’s missed payment to the IMF) Deutsche Bank’s two CEO’s announce their surprise departure from the company.  (Just one month after Jain is given his new expanded powers).   Anshu Jain will step down first at the end of June.  Jürgen Fitschen will step down next May.
• June 9: S&P lowers the rating of Deutsche Bank to BBB+  Just three notches above “junk”.  (Incidentally,  BBB+ is even lower than Lehman’s downgrade – which preceded it’s collapse by just 3 months)

And that’s where we are now.  How bad is it?  We don’t know because we won’t be permitted to know.  But these are not the moves of a healthy company.

Jürgen Fitschen will step down May 2016. Jain will step down at the end of this month.

How exposed is Deutsche Bank?

The trouble for Deutsche Bank is that it’s conventional retail banking operations are not a significant profit center.  To maintain margins, Deutsche Bank has been forced into riskier asset classes than it’s peers.

Deutsche Bank is sitting on more than $75 Trillion in derivatives bets — an amount that is twenty times greater than German GDP.    Their derivatives exposure dwarfs even JP Morgan’s exposure – by a staggering $5 trillion.

With that kind of exposure, relatively small moves can precipitate catastrophic losses.   Again, we must note that Greece just missed it’s payment to the IMF – and further defaults are most certainly not beyond the realm of possibility.

Not good.

And if the dominos were not adequately stacked already, there is one final domino which perfects the setup.

Meet Tom Humphrey.  He heads up Deutsche Bank’s Investment Banking operations on Wall Street.

He was also head of fixed income at Lehman.

Prior history.

History never repeats.   But it does rhyme.    In market terms, it tends to rhyme just about every 7 years.

* * *

For more read the Zero Hedge piece from April 2014: The Elephant In The Room: Deutsche Bank's $75 Trillion In Derivatives Is 20 Times Greater Than German GDP

http://www.zerohedge.com/news/2015-06-12/deutsche-bank-next-lehman 

"That’s An Interesting Conspiracy Theory"

One of the reasons we don't mind (and often enjoy) being labeled "conspiracy theorists" is that as consistently happens, the theory becomes fact,usually with a delay of anywhere between 6 months and 6 years.

A great example is one of our very first posts from January 2009: "This Makes No Sense: LIBOR By Bank" in which we first alleged Libor manipulation.

An even better example comes courtesy of the WSJ which reveals that one of the biggest perpetrators of Libor rigging, the same bank that was raided earlier today for reasons still unknown, namely Deutsche Bank had a quick and easy response to allegations of interest rate rigging: call it "conspiracy theory" and promptly sweep it under the rug.

From the WSJ:

A Deutsche Bank AG executive whose employees have been accused of rigging interest rates told a British trade group that such manipulation was nothing more than a “conspiracy theory,” a London court heard on Tuesday.

David Nicholls, who oversaw a group of employees that included some who have been fired for trying to manipulate the London interbank offered rate, or Libor, had a 2008 phone call with a British Bankers’ Association official to discuss mounting concerns about the integrity of Libor.

In the recorded call, which was played to a London jury on Tuesday, Mr. Nicholls repeatedly dismissed concerns that Libor could be manipulated. “Banks do not collude to try to set a Libor rating,” he told John Ewan, the BBA official in charge of running Libor.

“I think I am just hearing a lot of hysteria about Libor that is just misinformed,” Mr. Nicholls added.

When the Deutsche Bank official argued that an individual bank wouldn’t be able to improperly influence Libor, which at the time was set by a group of 16 banks, Mr. Ewan responded: “A cabal of them could.”

“What’s a cabal?” Mr. Nicholls asked.

“A group together could,” Mr. Ewan said.

“That’s an interesting conspiracy theory,” Mr. Nicholls responded.

It was also the truth.

David Nicholls left Deutsche Bank two and a half years ago. According to WSJ's David Enrich, he couldn’t be immediately reached for comment, even though it is quite clear what he would have said: continue denying that anything like a massive, coordinated, market0rigging cabal could ever take place.

And yet, nobody has learned anything.

Just like the first big post-crisis settlement involving Goldman Sachs was blamed entirely on one then-28 year old employee and nobody else, so in the case of the massive Libor/FX settlements, not a single senior banker was implicated.

Which is beyond ridiculous. It is also ironic: as the first man charged with Libor rigging, one who was instrumental in turning and handing the case to the prosecution on a silver platter, UBS' Tom Hayes previously told The Wall Street Journal in a text message “this goes much much higher than me.”

But if Nicholls couldn't see the open fraud taking place literally in front of him simply because he couldn't possibly imagine of such a "conspiracy theory", how are regulators and prosecutors to possibly conceive that the very people who keep the bribe machine well greased, could be guilty of the same.

So to answer our own question: why has nobody "higher" than Hayes been investigated yet? Because the mere suggestion that executives at UBS, and all the other market manipulating banks, are outright criminals themselves would be, you guessed it, just another "conspiracy theory."

http://www.zerohedge.com/news/2015-06-09/that%E2%80%99s-interesting-conspiracy-theory

The PetroYuan Is Born: Gazprom Now Settling All Crude Sales To China In Renminbi

Two topics we’ve deemed critically important to a thorough understanding of both global finance and the shifting geopolitical landscape are the death of the petrodollar and the idea of yuan hegemony. 

Last November, in “How The Petrodollar Quietly Died And No One Noticed,” we said the following about the slow motion demise of the system that has served to perpetuate decades of dollar dominance:

Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company - the end of the system that according to many has framed and facilitated the US Dollar's reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop.

The main thrust for this shift away from the USD, if primarily in the non-mainstream media, was that with Russia and China, as well as the rest of the BRIC nations, increasingly seeking to distance themselves from the US-led, "developed world" status quo spearheaded by the IMF, global trade would increasingly take place through bilateral arrangements which bypass the (Petro)dollar entirely. And sure enough, this has certainly been taking place, as first Russia and China, together with Iran, and ever more developing nations, have transacted among each other, bypassing the USD entirely, instead engaging in bilateral trade arrangements.

Falling crude prices served to accelerate the petrodollar’s demise and in 2014, OPEC nations drained liquidity from financial markets for the first time in nearly two decades:

By Goldman’s estimates, a new oil price “equilibrium” (i.e. a sustained downturn) could result in a net petrodollar drain of $24 billion per month on the way to nearly $900 billion in total by 2018. The implications, BofAML notes, are far reaching: "...the end of the Petrodollar recycling chain is said to impact everything from Russian geopolitics, to global capital market liquidity, to safe-haven demand for Treasurys, to social tensions in developing nations, to the Fed's exit strategy.”

Shifting to the idea of yuan hegemony, China is aggressively pushing its Silk Road Fund and Asian Infrastructure Investment Bank.

The $40 billion Silk Road Fund is backed by China’s FX reserves, the Export-Import Bank of China, and China Development Bank and seeks to increase ROIC for Chinese SOEs by investing in infrastructure projects across the developing world, while the $50 billion AIIB is funded by 57 founding member countries (the US and Japan have not joined) and will serve to upend traditionally dominant multilateral institutions which have failed to respond to the rising influence and economic clout of their EM membership. China will push for the yuan to play a prominent role in the settlement of AIIB transactions and may look to establish special reserves in both the AIIB and Silk Road fund to issue yuan-denominated loans.

Back in early November, SWIFT data showed that 15 new countries had joined a list of nations settling more than 10% of their trade deals with China in yuan. "This is a good sign for [yuan] adoption rates and internationalisation. In particular, Canada's [yuan] usage for payments, which has increased greatly over this period, is very interesting since we have not seen strong adoption of the [yuan] from North America to date,” Astrid Thorsen, Swift's head of business intelligence said.

Earlier that month, China and Russia indicated that going forward, more trade between the two countries would be settled in yuan. From Reuters, last November:

Russia and China intend to increase the amount of trade settled in the yuan, President Vladimir Putin said in remarks that would be welcomed by Chinese authorities who want the currency to be used more widely around the world.

Spurred on by their often testy relations with the United States, Russia and China have long advocated reducing the role of the dollar in international trade.

Curtailing the dollar's influence fits well with China's ambitions to increase the influence of the yuan and eventually turn it into a global reserve currency. With 32 percent of its $4 trillion foreign exchange reserves invested in U.S. government debt, China wants to curb investment risks in dollar.

The quest to limit the dollar’s dominance became more urgent for Moscow this year when U.S. and European governments imposed sanctions on Russia over its support for separatist rebels in Ukraine.

"As part of our cooperation with this country (China), we intend to use national currencies in mutual transactions.The initial deals for rouble and yuan are taking place. I want to note that we are ready to expand these opportunities in (our) energy resources trade," Putin said at the time, suggesting that going forward, Russia may look to settle sales of oil in yuan. 

Sure enough, Gazprom has confirmed that since the beginning of the year, all oil sales to China have been settled in renminbi. From FT:

Russia’s third-largest oil producer, is now settling all of its crude sales to China in renminbi, in the most clear sign yet that western sanctions have driven an increase in the use of the Chinese currency by Russian companies.

Russian executives have talked up the possibility of a shift from the US dollar to renminbi as the Kremlin launched a “pivot to Asia” foreign policy partly in response to the western sanctions against Moscow over its intervention in Ukraine, but until now there has been little clarity over how much trade is being settled in the Chinese currency.

Gazprom Neft, the oil arm of state gas giant Gazprom, said on Friday that since the start of 2015 it had been selling in renminbi all of its oil for export down the East Siberia Pacific Ocean pipeline to China.

Russian companies’ crude exports were largely settled in dollars until the summer of last year, when the US and Europe imposed sanctions on the Russian energy sector over the Ukraine crisis...

Gazprom Neft responded more rapidly than most, with Alexander Dyukov, chief executive, announcing in April last year that the company had secured agreement from 95 per cent of its customers to settle transactions in euros rather than dollars, should the need to do so arise.

Mr Dyukov later said the company had started selling oil for export in roubles and renminbi, but he did not specify whether the sales were significant in scale.

According to Gazprom Neft’s first-quarter results issued last month, the East Siberian Pacific Ocean pipeline accounted for 37.2 per cent of the company’s crude oil exports of 1.6m tonnes in the three months to March 31.

With that, the "PetroYuan" has officially been born and while FT notes that "other Russian energy groups have been more reluctant to drop the dollar for settlement of oil sales," the fact that Russian producers are now openly considering a shift at the same time that officials in the US and Europe are openly discussing stepped up economic sanctions suggests renminbi settlements may become more commonplace going forward.

To understand why and to what extent this is significant in the current environment, consider the following from WSJ:

Officials of the Organization of the Petroleum Exporting Countries, which declined to cut oil production last year, reasoned that maintaining high production levels would protect market share in crucial importing nations.;

But Chinese customs data released Friday show that China’s crude imports from some big OPEC nations have plummeted, while imports from Russia surged 36% in 2014. Meanwhile, imports from Saudi Arabia fell 8% and those from Venezuela dropped 11%.

To summarize: Western economic sanctions on Russia have pushed domestic oil producers to settle crude exports to China in yuan just as Russian oil is rising as a percentage of total Chinese crude imports. Meanwhile, the collapse in crude prices led to the first net outflow of petrodollars from financial markets in 18 years, and if Goldman's projections prove correct, the net supply of petrodollars could fall by nearly $900 billion over the next three years. All of this comes as China is making a concerted push to settle loans from its newly-created infrastructure funds in renminbi.

Putting it all together, the PetroYuan represents the intersection of a dying petrodollar and an ascendant renminbi.

http://www.zerohedge.com/news/2015-06-09/petroyuan-born-gazprom-now-settling-all-crude-sales-china-renminbi

Robots pursue banking careers in San Francisco

Robots have enjoyed phenomenal success on the nation's factory floors. Now they've got their eye on banking.

Sterling Bank & Trust has "hired" two robots as greeters at the bank's new locations opening in Cupertino and Alhambra, in the Los Angeles area. As part of their training, the two robots have made appearances at the bank's San Francisco branches.

Credit for bringing the robots on board goes to the bank's owner, Scott Seligman of San Francisco-based Seligman & Associates.

He got the idea after reading a Wall Street Journal story about the Bank of Tokyo Mitsubishi UFJ relying on robots to better serve customers in Japan. Sterling Bank says the robots' appearances have drawn an enthusiastic response from customers, many of them Asian.

The robots are especially popular with customers' children and grandchildren, said Steve Adams, senior vice president of Sterling Bank & Trust. They especially enjoy the robots having fun demonstrating their kung fu moves and dancing to Psy's song "Gangnam Style." That is when the robots aren't hard at work greeting customers or handing out bankers' business cards.

And the cute factor can't be overlooked, with their blinking eyes and gestures, as they demonstrated in the accompanying video.

Adams hopes the robots might draw in prospective customers as well. Sterling Bank's San Mateo location features a huge window, allowing the robots to show off their stuff to those who aren't banking with Sterling — yet.

Adams is quick to give credit for the robots' banking ambitions at Sterling to Financial Consultant Gary Ng and Ken Yu, a customer service representative for the bank. The two men spent the last three months training the robots for success in banking. They continue to "mentor" the two robots as their handlers.

One of the robots picked up the name Lucky Chance somewhere along the way, but he's likely to take on a new name as he pursues a career in banking.

Although greeters today, Ng says the robots could eventually do far more to help Sterling Bank serve customers.

For instance, the robots have the ability to recognize a customer's face and greet them by name, but Ng says they sometimes get his name wrong. "The facial recognition software works about 80 percent of the time, but they'll get better," he said. Clearly, Ng's teaching the robots an important rule for a successful career in banking — under-promise and over-deliver.

"The robots are focused on marketing and entertaining customers," Adams said, adding that none of the robots' human colleagues have to worry about losing their jobs to them.

The robots cost $8,000 each and bringing them on board is not a cost-cutting move, he insists.

Of course, some might wonder why robots weren't brought into banking sooner. Perhaps the financial crisis could have been avoided altogether if the robot from the 1960s TV program "Lost in Space" had been circling through the mortgage-loan departments at our nation's banks warning, "Danger, danger, Will Robinson."

http://www.bizjournals.com/sanfrancisco/blog/2015/06/robots-banking-careers-san-francisco-sterling-bank.html?s=print

Prosecutors search Deutsche Bank offices for client transaction evidence

German prosecutors have raided Deutsche Bank (DBKGn.DE) offices in Frankfurt in a search for evidence related to client securities transactions, as Germany's largest lender struggles to break free of regulatory issues that contributed to an overhaul of its top leadership this week.

A source familiar with the situation said Tuesday's raid was tied to a tax rebate strategy by some of the bank's clients known as "dividend stripping", in which a stock is bought just before losing rights to a dividend, then sold, taking advantage of a now-closed legal loophole which allowed both the buyer and the seller to reclaim capital gains tax.

Deutsche Bank confirmed the raid but declined to comment on what prompted it. A spokesman for the lender said no employees have been accused of wrongdoing in the case.

Frankfurt prosecutors carried out "wide-ranging investigative measures," a spokesman for the prosecutors' office said, declining to give details of the target or cause of the probe.

Deutsche Bank shares were the biggest decliners in Germany's Dax .GDAXI index of blue chip companies, falling 2.8 percent by 8 a.m. EDT. The Dax fell 0.9 percent, while the STOXX Europe 600 banking index .SX7P was down 0.8 percent.

The lender, which on Sunday announced the surprise departure of co-chief executives Anshu Jain and Juergen Fitschen following a sharp drop in shareholder confidence, has been straining to maintain its reputation in face of a raft of legal and regulatory problems.

Those problems have prompted billions of dollars in fines and settlements.

Authorities have repeatedly raided its offices in recent years, in connection with investigations linked to the collapse of the Kirch media empire and a tax fraud case related to the trading of carbon dioxide emissions rights.

A separate source familiar with the situation had said earlier on Tuesday that the latest investigation was related to German private bank Sal. Oppenheim, which Deutsche bought in 2010. The bank said the raid was not linked to Sal. Oppenheim.

(Writing by Jonathan Gould; Editing by Maria Sheahan and David Holmes)

http://www.reuters.com/article/2015/06/09/us-deutsche-bank-raid-idUSKBN0OP0VU20150609

Historical Bond Fraud

Historical bonds are those bonds that were once valid obligations of American entities but are now worthless as securities, are quickly becoming a favorite tool of scam artists. Here are several things that you should know about them:

Types of Historical Bonds Used for Fraud

Although all sorts of historical bonds are collected and traded, historical railroad bonds comprise most of the bonds used to perpetrate fraud. Historical railroad bonds commonly used by scam artists include those issued by the Chicago, Saginaw, and Canada Railroad Co., the East Alabama and Cincinnati Railroad Co., the Mad River and Lake Erie Railroad Co., the Galveston, Houston & Henderson Railroad Co. and the Richmond, and York River Railroad Co. These railroad bonds are but a few of the 12,000 to 15,000 varieties of historical railroad bonds that are known to exist. Non-railroad historical bonds commonly used by scam artists include bonds issued by the Noonday Mining Co.

Lies Used

Lie: Historical bonds are payable in gold.
Fact: Historical bonds are not payable in gold.
Historical bonds are not valid obligations. Even if they were valid obligations, they would not be payable in gold because gold clauses in bonds issued before 1977 are unenforceable in U.S. courts. Adams v. Burlington Northern R.R. Co., 80 F.3d 1377, 1380 (9th Cir. 1996)(26K TXT file, uploaded 9/28/98); 31 U.S.C. § 5118(d)(2) (2.5K TXT file, uploaded 9/28/98).
Lie: Historical bonds are backed by the Treasury Department.
Fact: Historical bonds are not and have never been backed by us.
While historical bonds often have the words "United States of America" printed on them, these references were merely to identify the bonds as issued by entities located in the United States. Nowhere on historical bonds are there any statements that the bonds are issued or backed by us or any other part of the United States Government. Only in limited and well-known circumstances have we guaranteed obligations issued by private parties, for example, the bonds issued by the Chrysler Corporation in the early 1980s.
Lie: The Treasury Department has established a federal sinking fund to retire historical bonds.
Fact: There is no federal sinking fund to retire historical bonds.
As these historical bonds were neither issued nor backed by us or any other part of the United States Government, it would be patently absurd to suggest that we would establish a sinking fund to retire these historical bonds.

Lie: Historical bonds can be used in high-yield investment "trading program" sanctioned by any, some, or all the following entities: the International Chamber of Commerce ("ICC"), the IMF, the World Bank, the United Nations, the Federal Reserve Board, a Federal Reserve Bank, and the Treasury Department.
Fact: There are no such "trading programs," and none of these entities ever sanctions or regulates such private investment activity. For example, the IMF has issued a warning about financial schemes misusing its name.

Lie: Funds in, or some proceeds from, these high-yield trading programs go to humanitarian purposes or infrastructure development projects that are approved by the United Nations, the World Bank, or the Treasury Department.
Fact: There are no such "trading programs" or "high-yield investment programs."

The scam artist's use of humanitarian or infrastructure development theme is a trick to (1) make the investor want to believe that the trading programs are real and (2) make the investor believe that they could be helping a Third World country by forking over their money.

Lie: Historical bond trading programs yield high rates of return through the buying and selling of "debenture" or "medium term notes" supposedly issued by "prime" or "top" European or "World" banks.
Fact: Officials of leading European banks, including Barclays Bank, have denied any participation in such programs and there is no evidence that the market for such instruments exists as described by scam artists.

This appears to be a recycling of the "prime bank" schemes that have long been labeled as bogus by countless domestic and foreign banking authorities. See, for example, the warnings issued about "prime bank" scams by the Federal Reserve Board, the Federal Reserve Bank of New York and the SEC. Courts have repeatedly held that prime bank trading programs, including those purporting to generate profits through the use of historical railroad bonds, are fictitious. See, e.g., SEC v. The Infinity Group, 993 F. Supp. 324 (E.D. Pa. 1998) (prime bank instruments described as "fantasy securities")(28K TXT file, uploaded 9/28/98); SEC v. Lauer, < link to cclauer.txt> 52 F.3d 667, 670 (7th Cir. 1995) (such instruments "do not exist")(12K TXT file, uploaded 10/5/98); SEC v. Daniel E. Schneider et al., No. 98-CV-14-D (D. Wyo. February 13, 1998) (order granting preliminary injunction; "prime bank trading schemes are fictitious according to readily available information")(22K TXT file, uploaded 9/25/98).

True Values of Historical Bonds

Historical bonds are worthless as securities. None of the historical United States railroad bonds are payable by today's successor railroads such as CSX, Norfolk Southern and Union Pacific. Instead, historical bonds only have value as collector's items. A 1995 publication, Stocks and Bonds of North American Railroads: Collectors Guide with Values (one of many available publications) assessed the collector's value of the historical railroad bonds listed at between $25 and $700 each. Moreover, there are many sites on the Internet that you can visit to evaluate the collector's value of any particular bond.

Bogus Third-Party Valuations to Trick Investors

Scam artists are selling historical bonds to unsophisticated investors at inflated prices far exceeding their fair value as collectibles. They often use third-party valuations, which state that the bonds are worth millions or billions of dollars each. These valuations or authentications, which are often referred to as "hypothecated" or "hypothetical," are bogus. A typical valuation (104K JPG file, file uploaded 1/24/98) will falsely overstate the value of these bonds by assuming erroneously that, despite the unenforceability of the gold clauses contained in the bonds, and the defunct and bankrupt status of most of the bonds' issuers, some person or entity is obligated to redeem the bonds in gold bullion. See SEC v. Gerald A. Dobbins et al., No. 98-229 (C.D. Cal. May 19, 1998) (findings on order to show cause re: preliminary injunction; valuations of historical bonds held to be "misstatements")(8.5K TXT file, uploaded 9/25/98).

Scam artists using such valuations may also make the false assertion that while perhaps not payable today in gold or in money, the bonds are used in high-yield trading programs in the United States, offshore and in Europe. As stated above, there are no such trading programs. In several cases, the third parties issuing the valuations appear to be working in conjunction with the scam artists. All these false assertions have been used to defraud investors into paying as much as $150,000 for historical bonds that regularly trade for $25.

Chicago, Saginaw and Canada Railroad Co. Bonds

A historical bond fraud case in point involves bonds issued by the Chicago, Saginaw and Canada Railroad Co. (CS&C). It has been alleged that these securities are payable by us in gold. We neither issued these bonds, nor are they payable in gold, backed, or guaranteed by us or any other part of the United States Government. In 1873, CS&C issued 5,500 thirty-year gold-backed bearer bonds, paying seven percent interest to finance construction of a proposed railroad. Click to view a full-size image of a CS&C bond (99K JPG file, uploaded 1/24/98).

CS&Cs creditors forced it into bankruptcy in 1876 and a predecessor of CSX Transportation, Inc. ("CSX") purchased its assets. CSXs predecessor did not assume any of CS&Cs outstanding debt, including the railroad bonds. All claims to money due under the bonds, which had a face value of $1,000 each, were resolved 112 years ago in the 1876 bankruptcy proceeding. At that time, investors presented their bonds for payment out of funds from the foreclosure sale and received a distribution amounting to less than 25 cents on the dollar. After the bankruptcy proceeding, the bonds remained in court archives until they were discovered in the basement of a federal building. A museum in Grand Rapids, Michigan, packaged the bonds with other historical information about this railroad for sale as collector's items for $29.95 each. Despite what a bogus valuation (104K JPG file, file uploaded 1/24/98) might claim about CS&C bonds, the bonds have no value other than as collectible memorabilia, since CSX has disclaimed any liability for redemption of these bonds, and they are most certainly not payable in gold. See Adams (26K TXT file, uploaded 9/28/98); 31 U.S.C. § 5118(d)(2)(2.5K TXT file, uploaded 9/28/98).

Courts have held that the CS&C bonds have only nominal value as collectibles. See Schneider (22K TXT file, uploaded 9/25/98) (preliminary injunction entered against defendants; bonds have "no value, except that of a collectible"). Similarly, other courts have found that bonds issued in the 1800s by the East Alabama & Cincinnati Railroad Co. and the Marietta & Northern Georgia Railway lack any investment value. See SEC v. Dobbins (C.D. Cal. March 9, 1998) (complaint)(13K TXT file, uploaded 9/25/98); SEC v. Dobbins (C.D. Cal. May 19, 1998) (8.5K TXT file, uploaded 9/25/98) (findings on order to show cause re: preliminary injunction); SEC v. Dobbins (C.D. Cal. May 19, 1998) (preliminary injunction) (7.6K TXT file, uploaded 9/25/98); Infinity Group, 993 F. Supp. at 330(28K TXT file, uploaded 9/28/98).

http://www.treasurydirect.gov/instit/statreg/fraud/fraud_historicalbond.htm

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Goldman Sachs expected to settle forex suit for almost $130 million: WSJ

Goldman Sachs Group Inc is expected to pay $129.5 million to settle its portion of a lawsuit that accuses banks of rigging prices in the foreign exchange market, The Wall Street Journal reported, citing a person familiar with the matter.

The Journal said in its report that a final agreement may be reached in the next several weeks.

The lawsuit accused traders at a dozen banks of improperly sharing confidential information about their clients' orders through electronic chat rooms, then using that information to make money at the expense of their clients.

In April, Bank of America Corp had agreed to pay $180 million to settle the lawsuit. JPMorgan Chase & Co settled for $99.5 million in January, and Switzerland's UBS AG settled for $135 million in March.

Goldman Sachs was not available for comment outside regular U.S. business hours.

http://www.reuters.com/article/2015/05/09/us-goldman-forex-idUSKBN0NU00Z20150509

Forex’s ‘Last Look’ Practice Gets Curbed

Two of the world’s biggest currency-trading platforms plan to restrict a controversial industry practice in which banks can pull out of trades at the last moment if the market moves against them.

Thomson Reuters Corp. and BATS Global Markets Inc. will limit the practice, known as “last look,” on their platforms in coming weeks, in a move aimed at increasing transparency in the foreign-exchange market.

The change comes amid a broader shake-up of the trading industry prompted by concerns about traders’ efforts to manipulate a range of financial markets. Markets for precious metals, interest rates, stocks and currencies have all come under scrutiny from regulators in recent years because of allegations of inappropriate behavior.

Regulators in the U.K., the global hub for foreign-exchange trading, are expected to report next month on their own review into the supervision and transparency of some markets, including the foreign-exchange market. The so-called Fair and Effective Markets Review, or FEMR, specifically asked asset managers and other bank clients about their views on last look.

While some foreign-exchange platforms already don’t permit last look, it is still allowed on some large venues, including Hotspot, owned by BATS; and FXall, owned by Thomson Reuters. Hotspot and FXall account for about 25% of clients’ electronic forex trading, according to financial-industry consultants Greenwich Associates.

The last look practice is a legacy of over-the-phone currency trading, when traders would take a final check of the market before executing an order. It has survived even as foreign-exchange trading moved onto electronic platforms, leaving banks with the option to back out of an order after it was accepted by a client.

Thomson Reuters and BATS plan to tighten the time frame for canceling quotes and introduce a minimum acceptance rate banks have to respect.

Phil Weisberg, global head of foreign exchange at Thomson Reuters, said last look requires “more clarity.” Some clients don’t understand “the rules of engagement with the bank” and “are confused about trading protocols,” he added, referring to the exact conditions banks have to respect on the execution of each specific trade.

William Goodbody, head of FX at Hotspot, said, “Last look is a widely used practice in the industry. To make it work, it needs a clear set of guidelines.”

In June 2014, the U.K. Treasury, the Bank of England and the Financial Conduct Authority, the U.K.’s financial watchdog, launched the FEMR to consider ways to improve the supervision and transparency of some markets. FEMR findings, due to be released on June 10, are expected to establish rules on the execution of currency trades.

Foreign exchange is a highly unregulated market, compared to stock trading, as currencies aren’t traded on exchanges.

Banks’ foreign-exchange trading clients are likely to welcome the move to curb last look, said Kevin McPartland, a principal at Greenwich Associates.

“Giving market participants more visibility into where, how and with whom their orders are executed is a good thing,” Mr. McPartland said.

Javier Paz, a senior consultant at Aite Group, said last look echoes the equity-market practice of “spoofing,” an illegal strategy in which traders place orders they don’t intend to execute to move the market to their advantage.

But there are also some significant differences, he said. In spoofing, a trader places an offer to buy or sell, then cancels it quickly, whereas in last look, there’s always a client willing to execute one side of the trade, Mr. Paz said.

Write to Chiara Albanese at chiara.albanese@wsj.com

http://www.wsj.com/articles/forexs-last-look-practice-gets-curbed-1432768404

The Justice Department has begun looking into a common practice in foreign-exchange markets that allows banks to back out of unfavorable trades at the last moment, a person briefed on the matter said.

Prosecutors, along with the Securities and Exchange Commission, have asked Barclays Plc for information related to its electronic-trading platform, which contains a program that allows traders to take a “last look” at an order before executing it, according to the person, who asked not to be named because the matter isn’t public.

Prosecutors’ interest in the last-look practice has grown out of a broader investigation into the manipulation of benchmarks and client orders in the $5.3 trillion-a-day currency market. The inquiries follow an investigative path laid out in recent months by Benjamin Lawsky, New York’s banking regulator.

Barclays said earlier Tuesday that it set aside an additional 750 million pounds ($1.2 billion) to cover the cost of settling the currency-rigging investigation, bringing its total expected cost to about 1.25 billion pounds.

Vestige Practice

The last-look option is a vestige of the early computer era when the time lag between an order being entered at one bank and confirmed at another was long enough to expose the market maker to unpredictable price fluctuations. As that lag tightened, banks retained the right to halt currency trades on a last-look basis.

Critics of the practice say it’s obsolete and can harm investors.

“Last look is a hangover from a technology problem that no longer exists, yet still allows traders to reject trades and re-quote orders to the disadvantage of clients,” David Mercer, chief executive of LMAX Exchange, a forex trading platform, said in a Feb. 20 statement.

BlackRock Inc. said last month that last looks can cause market participants to experience so-called phantom liquidity where prices that appear to be available suddenly disappear, in response to the Bank of England’s Fair and Effective Markets Review. Making completed trades available and transparent would make the market better, BlackRock said.

“These developments, would in our view, facilitate fairer outcomes for end investors and increase market effectiveness and efficiency,” BlackRock said.

New Front

It isn’t clear whether the Justice Department’s review of last-look practices will lead to a new front in its forex investigation. The SEC is exploring whether any elements of the practice violate disclosure laws, another person briefed on the matter said.

Peter Carr, a Justice Department spokesman, declined to comment on any inquiry specifically into last-look practices, as did Florence Harmon of the SEC.

Until now, regulators in the U.K., Switzerland and the U.S. have been primarily focused on manipulation of benchmark currency exchange rates by traders at some 30 global banks, with an emphasis on collusive behavior. The last-look review indicates that regulators and prosecutors are turning their focus to established practices that could make markets unfair.

The prosecutors’ request appears to bolster a line of inquiry opened up by Lawsky, superintendent of New York’s Department of Financial Services, who said last month that he was looking into the practice.

In its annual report released Tuesday, Barclays said that various “regulatory and enforcement authorities,” including the Justice Department, SEC and Lawsky’s agency, “are investigating a range of issues associated with Foreign Exchange sales and trading, including electronic trading.” Kerrie Cohen, a spokeswoman for Barclays, declined to comment.

http://www.bloomberg.com/news/articles/2015-05-29/amex-president-gilligan-dies-at-55-after-becoming-ill-on-flight