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Code: The Complicated Signals Fraud

Two articles in the New York Times of May 26, 2015 indicating different approaches of the respective prosecuting / enforcement attorneys are referenced: See 1) RE: Deutsche Bank and 2) RE: Citigroup and UBS. In the DB case an SEC enforcement attorney asserted (to the NYT) that the case was “most challenging and complex,” whereas in the Citigroup and UBS case the prosecuting attorney for the Serious Fraud Office (is there any other kind of fraud?) ’emphasized the complex case was quite simple’ before the jury. Contrast these attorney opinions with the jurors’ note sent to the Hon. J.S. Rakoff in the case of the SEC v. Stoker (2012) with the motivation according to at least one juror in reaching a verdict of non-liability against Stoker that a ‘jury of regular folds could in fact understand complicated Wall Street transactions.’

I would be quite surprised if the teams of accounting clerks at DB found the underlying transactions as difficult to understand and value as the SEC attorney, who had the benefit of at least two whistleblowers from DB to assist him in the interpretation of the accounting and corroborating / conflicting data and evidence. In fact, the DB team needed to understand the probable monetary value of these transactions to (im)properly overstate their values, unless the DB team and senior management were comprised entirely of BSers, an economic reality not usually seriously entertained when things go well, especially at bonus time, but certainly an option to mitigate any charge of possessing a guilty state of mind before law enforcement agency inquiries. As the SEC settled the matter in a “densely written” order, whether a jury of regular Americans could understand the transactions will not be tested.

The point of this RE: fact-finding of accounts is that one of the primary rules of the Code is under no circumstances is the consultant / expert / lay person to accept the excuse that the subject matter is too difficult for their comprehension. Whether allegedly sophisticated individuals bought the investments without reading about their legal rights and obligations is their problem (often, these circumstances are caused by hasty buyer reliance on the greater fool theory). You may rest assured that the creators of these investments had a pretty good idea of their contingent values. No matter how many conditions precedent / consequent are built into the transaction agreement, no matter how many future values need to be discounted to present values, no matter how many expected values need to be aggregated, etc. – these have all been done before by many an accounting clerk with an Excel spreadsheet.

Often, the term “complex” is used to describe that which is merely intentionally complicated, usually to thwart understanding and to intimidate. Attorneys are especially prone to describing things as complex, which undoubtedly requires more professional fees to translate for lay persons. (Does anyone know a private sector attorney that does not do “complex” white-collar criminal defense – is there any other kind?) Financial instruments are commonly exchanged. Also, they are commonly understood and understandable with effort short of reinventing the wheel and fusing the nuclei of atoms. Perhaps, a densely written settlement order indicates a failure of thinking (and borrowing too much from DB without adequate understanding and/or without intention to communicate useful information to the regular American folds) and not a subject matter rivaling quantum mechanics, Riemann geometry, etc.?

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