JDS Uniphase Wins Class Action Trial

The fact that the JDSU class action was going to trial was big news a while back, since so few class actions make it to a jury.

The bigger news is that there was a defense verdict. JDSU and its four executives who were named in the suit received a complete win, with the jury denying the plaintiff's 18 billion (no typo) in damage claims.

Maybe some of these "indefensible" class actions really are defensible? Maybe, just maybe, there needs to be a re-examination of the common wisdom that large cases, the "bet the company" type of cases have to settle.

E*Trade Looking to Merge?

E*Trade Financial Corp is believed to be in merger talks with Charles Schwab Corp and TD Ameritrade Holding Corp, according to a report on Friday on business news channel CNBC. Reuters

Citigroup faces $15 billion writeoff: GS

Goldman Sachs & Co on Monday downgraded Citigroup Inc to 'sell' from 'neutral,' and said the largest U.S. bank may have to write off $15 billion over the next two quarters as mortgage losses reduce earnings." Reuters

What Were They Smoking?

So screams the front page of next week's Fortune magazine, with pictures of Wall Street CEOs and their subprime losses -

Chuck Prince - Citigroup - $9.8 billion
Jimmy Cayne - Bear Stearns - $450 million
John Mack - Morgan Stanley - $3.7 billion
Stan O'Neal - Merrill Lynch - $7.9 billion

How the best minds on Wall Street lost billions...

The Height of Political Correctness

I sincerely hope we have reached the top of this wave of political correctness and that we are headed back to normalcy. If this isn't the top, we are in quite a bit of trouble.

Santas warned 'ho ho ho' offensive to women: "Santas in Australia's largest city have been told not to use Father Christmas's traditional 'ho ho ho' greeting because it may be offensive to women, it was reported Thursday"

Merrill Names NYSE Chief Thain As New CEO

Reuters is gushing - "Merrill Lynch & Co Inc on Wednesday named NYSE Euronext Chief Executive John Thain as its new CEO, bringing in an outsider with a Goldman Sachs pedigree to repair an image battered by wrong-way bets on subprime mortgages."

Uhh, how about "...bringing an NYSE insider fresh off a win of civil insider trading charges involving the NYSE..."

It's like politics and Hollywood. Isn't there any new talent anywhere, or is Jean Smart the only blond actress over 40?

Genuis Level Blog?

A complete aside, but interesting. Have you seen this blog readability test? You plug in the name of a blog, and it tells you what level of education is required to understand the blog, from genius, down to elementary school.

This blog came back as genius, which has more to do with using big words like "securities" and "regulation" and "arbitration" rather than any great writing skills or intellectual ability of the author, but the results of plugging in other blogs is interesting.

Most of the blogs at the law professor network come back "genius." No surprise there. But some of the most popular blogs in the world come back very low. Instapundit has a "Junior High" readability level, as does the Volokh Conspiracy.

The media sites also rank low, which is undoubtedly attributable to intentional conduct on the part of the authors - Washington Post, Time and the Wall Street Journal all ranked at the High School Level, and CNN and the New York Times came in at the Junior High Level.

Bringing up the rear, the Drudge Report, with a readability level of Elementary School.

Thanks to Concurring Opinions for doing the legwork.

Subprime Losses Could Reach $400 Billion

Banks worldwide may lose as much as $400 billion from subprime mortgages, as at least one in four of the risky home loans go into default, analysts said on Monday. Mike Mayo, an analyst at Deutsche Bank Securities, estimated $150 billion to $250 billion of losses based on $1.2 trillion of U.S. subprime loans, and an additional $150 billion of losses on derivatives linked to subprime debt. CNBC.com

Goldman Folks Still Getting Bonuses

Not everyone on the street is being stiffed this year. Goldman Sachs has put aside $16.9 billion for year-end bonuses. To put the number in perspective, its larger than Bear Stearns’s market cap and Panama’s gross domestic product. Deal Journal

Citigroup CEO Prince to Resign In Subprime Woes

Citigroup Inc (C.N) Chief Executive Charles Prince plans to resign this weekend, the Wall Street Journal said, as the widening subprime mortgage crisis deals a final blow to a reign long under attack. The largest U.S. bank by assets plans to hold an emergency board meeting on Sunday, at which Prince will step down, the newspaper said on Friday, citing people familiar with the situation.

UPDATE - Reuters reports that Citi will take an 11 billion dollar write-down for its subprime losses

Merrill Lynch Responds to Wall Street Journal Story

Merrill Lynch has denied the story in the WSJ. A few minutes ago it sent out a press release

This morning, an article in the Wall Street Journal about Merrill Lynch & Co., Inc., (NYSE: MER - News), relying on unidentified sources, speculated about inappropriate transactions that “may have been designed” to avoid write-downs that “might have been” required earlier in the year. The story is non-specific and relies on unidentified sources. We have no reason to believe that any such inappropriate transactions occurred. Such transactions would clearly violate Merrill Lynch policy.

Some might argue that this is a bit too wishy-washy at this point in the saga, but at least it is a denial.

Merrill Shares Fall as Credibility Questioned

Apparently I was not the only one who noticed the parking violation in the story reported by the WSJ this morning. Reuters just released another piece Merrill shares fall as credibility questioned: " Merrill Lynch & Co Inc's credibility is coming under increased attack after an analyst said the biggest brokerage sought to mitigate write-downs by parking subprime-related assets with hedge funds"

I obviously do not know the facts, and there could be a rational explanation for this conduct, or the WSJ could have gotten it all wrong. Merrill has some extremely talented and intelligent in house attorneys and compliance personnel. Either management is not using its resources, or the WSJ story is wrong, but Merrill has got to get this subprime mess under control or get the correct story out to the press.

Merrill Parking Its Bad Subprime Loans?

Everyone is waiting for the other shoes (plural) to drop at Merrill, including an accurate count of its subprime losses, which are expected to go higher.

Reuters posted a story this morning with the headline "Hedge Funds deals postpone Merrill losses" which references a Wall Street Journal story that claims that a hedge fund bought $1 billion in commercial paper issued by a Merrill-related entity containing mortgages, and the hedge fund had the right to sell back the commercial paper to Merrill after a year for a guaranteed minimum.

I obviously don't know if the story is true, but if it is, that transaction sure sounds like parking or a wash trade, and if a broker on a trading desk entered into such a transaction, FINRA would be all over him. Parking is illegal, you cannot sell a security to your buddy, and promise to take it back from him later at an agreed price. That is a fraud, and the SEC and FINRA are very aggressive about prosecuting such frauds.

Or are they? Merrill must be under extreme pressure to take a write-down if the entity was unable to sell the commercial paper to other investors and suffered losses. If this story is true, the parking transaction lets Merrill delay recognition of the losses for a year.

The WSJ article claims these types of trades are happening with increasing frequency as firms try to address their subprime losses, but does that make it legal? I have been involved in a number of parking cases, most of them involving a trader's attempt to "address" losses in his portfolio. For whatever portfolio reasons, a trader has another trader "do me a favor, hold this position for me." The second trader buys the position from the first trader, and the first trader takes it back from him some time later. If it goes down that way, and there is an agreement as to price, it is a park, and illegal.

Reading the WSJ article, the transactions that are being discussed sound like the exact same type of trade, dressed up by a big brokerage firm name, and an agreement to buy the paper at an "auction" or to give the first broker a mandatory call.

Nonsense. If a small firm or individual trader did this, its a fraud. Why is it any different when Merrill does it?

No More Corporate Crime

Prosecutors and class action attorneys have wiped out corporate crimes. That is the only explanation for the huge drop in prosecutions, right? Law Blog.

IRS Looking At Hedge Funds

The IRS is looking at hedge funds for tax abuse - is there really a significant number that do not even file returns? Institutional Investor

The $460 Million Fee Request

Not a bad fee...then again, the award was 3.2 billion. From the WSJ law blog.