good afternoon. we begin with breaking news. this is a power lunch filled with breaking news. that picture there is a look at a gentleman who is actually going to be testing the microphones at the podium inside the office for the u.s. attorney in new york's southern district. that is just a few blocks uptown from where we are here at the new york stock exchange. stoern r -- attorney preet b

bhahara expected to speak any time now. as we wait, attorney preet bhahara, let's bring sue back in today. cnbc contribute tore ron used to work at sec. bob bazani here at the new york stock exchange with me. it's going to be a very busy, very fast-moving hour. let me begin with you, bob, if i might. what are they watching for? >> i think there is a lot of concern down here simply because they are a big part of the business. the stock trading business has been awful for years, it's a low volume, low margin business, and it's widely believed that they are 3% of the total volume down here. that's never been totally confirmed, but they believe that. also one of the top ten commission payers out there. any pullback from them could hurt the pocketbooks of sktock

traders around the united states. >> what's taking place for us this morning? what do we expect to hear this afternoon? will mr. bharara going to be taking questions or is it just a statement? >> i imagine he probably will take questions. it's certainly a very big statement. i spoke with the securities attorney andrew stoltman who said this was i second choice of the u.s. attorney. they would have liked steve cohen himself, but to shut down the firm if they can prove these charges is the next best thing. they unsealed the indictment this morning, we've all been reading through it. 41 pages, five counts, one count of wire fraud, four counts of securities fraud from each of the divisions of sec capital. while it doesn't name steven cohen directly as a defendant, it does say that he was part of this organization, he was aware of what was going on, and

effectively, that sec capital was run as an organization that thrived and really encouraged insider trading. george venezuela, the fbi director here in new york, said effectively they not only tolerated cheating, they encouraged it, and if your information edge is inside information, you can't trade on it. there is a lot of talk about the inside edge that portfolio managers brought, and according to this indictment, it was all inside information. >> all right, bertha, stay there. sue, let me bring you in because you have folks there at headquarters, scott and ron, so take it away. >> ron, i'd like to ask you, you worked at sac for about five and a half months. talk to me about the indictment. you've looked through it. what strikes you first? and also, do you think this is a change in approach by the u.s. attorney? because if they can't get steve cohen himself, they're going after the organization.

but that refers back to something that preet bharara said about delivering alpha last week to us. nothing is too big to jail. is this a change in their approach? >> there are a couple things, sue, that were relative to everybody's expectation to timing. the sec went first with its administrative complaint against sac, which is unusual for them to go ahead of the u.s. attorney's office, sdmthen the . attorney's office comes in with today's indictment that was handed up. i don't know if it's a change. it certainly represents a far more agressive stance than we've seen in recent years. don't forget, lobear was put out of business because michael milkin was indicted separately from that. the enron case went out of business which was later overturned. as bertha said, it clearly looks like, in this instance, if they don't have substantial

information that steve cohen traded outside information, they will put the business up which is mostly owned by steven cohen. >> what ripples do you think there will be in the market? >> i don't think there will be. i think we would have seen them already. one doesn't have to worry about large-scale liquidating positions at sac. they do have a quantitative trading operation, but they run with probably, i would say, the industry average. they're not a 17 or 20 times leveraged operation where you're going to see margin calls and things get wiped out because of this type of thing, or other hedge funds in their positions. >> do prime brokers stay with them? because they can't trade if they don't have the prime brokers. >> they can't trade certainly on a leveraged basis. as jim carl and cramer were discussing this morning, i'm sure you can do cash on cash business with anybody irrespective of the situation, and steve has been proven guilty yet, either, which is something

his partners in that regard would have to take into consideration. >> ron, this is clearly a broadside at the entire operation of sac capital. you were on the inside of it. this is an assault on the way it was run, the culture of the place, the nature of its particular business. what did you see while you were on the inside there? did you see what is alleged in the u.s. attorney's indictment? >> of course not, tyler, because if i did, i certainly would have obviously left earlier than even the short five and a half-month stint that i spent there. i remember the period in which i joined sac, it was the week before the lehman brothers collapsed, and i left about a week before so the market bottomed in 2009. the world was in crisis. i was engaged in other types of conversations that had to do with macroeconomics and things like that. and i have to say, i knew a handful of the portfolio managers reasonably well there, and we should remember, of the thousand people that work at sac, irrespective of how this

all turns out, there are some very high quality -- many high-quality, honest professionals who work at the firm who do their business appropriately despite the fact many were convicted, former portfolio managers and some are still under investigation. it is a fairly large firm. there are 125 or thereabouts portfolio managers, each of who has an analyst. did i see anything that i thought was, you know, amiss? no. and if i did, i certainly wouldn't have -- >> how would you characterize the culture there? >> eat what you cook or eat your own cooking, kill or be killed type culture. if you're in a competitive environment, and i think this is true of many, many hedge funds. if you're in an environment where your life, your professional life, depends upon being right, you are going to trade aggressively, you're going to trade with as much, you know, legitimate information as you can, and it's a very tough environment.

it's a demanding environment. but i think in that regard, from a perfectly generic perspective, steve would be no different than any other manager of his ilk in demanding excellence from his people. >> let's listen in. >> good afternoon, everyone. my name is preet bharara and i'm the u.s. attorney for the state of new york. today we announce three wrongful actions related to the sac group of hedge funds. first we uncover wire fraud charges and which employed the many people responsible for what can only be described as rampant insider trading within those funds. second, we have filed civil money laundering charges against numerous sac funds, seeking appropriate forfeiture of assets

addressing sac's liability. and third, we unseal the guilty plea of yet another portfolio manager at sac, richard lee, who just this past tuesday pled guilty to committing insider trading offenses while an employee at sac. mr. lee brings to eight the number of employees so far convicted of or charged with insider trading for the benefit of sac. what today's indictment against sac makes clear is this. when so many people from a single hedge fund engage in insider trading, it is not a coincidence. it is instead the predictable product of substantial and pervasive institutional failure. as alleged, sac trafficked inside information on a scale without any known precedent in the history of hedge funds. as described in the indictment,

the scope of illegal trading was deep and it was wide. it spanned more than a decade in time, involved securities of at least 20 public companies, extended across multiple sectors of the economy and benefits sac to the tune of at least hundreds of millions of dollars. today's indictment, though, is not just a narrative of names and numbers. it is more broadly an account of a firm with zero tolerance for low returns but seemingly tremendous tolerance for questionable conduct. and so sac became, over time, a v veritable magnet for market cheaters. the sa krrc made a system that appeared to talk the talk but almost never walked the walk. that's why the institution

itself as well as individuals stand charged with wire and securities fraud. now, before i review some of the charges in detail, let me introduce our partners in this investigation and prosecution. i'm joined by our partner in this and so many other cases, the fbi, led by george venezu a venezuela, in charge of the operation here in new york, and april brook. i want to thank george and april and their dedicated team, matthew callahan, mathew thorsel for their incredibly hard work and assistance on not just this particular case but all the cases that led up to this point. i especially want to acknowledge the career prosecutors from my own office. they are antonio aps, devon brown and john zach. they are handling the prosecution, and their chiefs, mike berger and also michael smith for his work on the

forfeiture aspects on the case and also chief sharon levin. i especially want to acknowledge the work of the chief criminal division lauren wisener and lauren zable. let me talk about the charges and the guilty plea. the guilty plea we announced today was by one of sac's portfolio managers, richard lee. who until very recently co-managed a $2.15 billion portfolio with special mergers and acquisitions. while still a portfolio manager at sac, lee obtained inside information with respect to various securities, including yahoo and 3com corporation. as set forth in the larger indictment, the particular story of richard lee's time at sac is embl emblematic of the broad culture problem at the fund.

as alleged, the sac companies hired richard lee despite a reputation for insider trading. indeed, he was hired over objections from sac's own legal department despite specific warnings during the application process that lee had improperly been part of an insider trading group at his prior employer. and so, predictablpredictably, virtually the inception of his employment at sac in 2009, richard lee began to trade on inside information. conduct, as i mentioned, that he pled guilty to two days ago. and he is continuing to cooperate with the government's investigation. second, as i mentioned, this morning we filed a civil forfeiture action in federal court. the forfeiture complaint alleges that the sac company engaged in money laundering of insider trading with other assets using the profits of additional

insider trading and transferring the profits. our action today does not seek to freeze any of sac's assets, and we are always, in this case and other cases, mindful to minimize risks to third-party investors. in other words, we have not today restrained any money, and we will discuss with the company a reasonable method going forward to protect all parties' legitimate interests. and finally, as i mentioned, the indictment unsealed today charges the four management companies with insider trading. if you look at the very simple chart to my right, you see that the four management companies were cigna capital, management llc, management capital advisers, llc, and cr intrinsic investors, llc. the count now is up to eight individuals who during the time as either portfolio managers or research analysts at one of the

management companies have been charged or pled guilty. six have been convicted and two are still awaiting trial. most recently, as i mentioned, richard lee, who was a portfolio manager at sac who pled guilty on july 20, 2013. he's not even the first richard lee because we have one over here who has pled guilty in connection with ongoing insider trading at sac. so why are the sac entities being charged? in addition to individuals, sometimes the organizations that employ them are criminally culpable and merit prosecution, too. the sac companies are being held accountable for the criminal act of so many of their employees because the misconduct was pervasive because those employees were acting for the direct financial benefit of the firm, and because the company did not effectively police its own precincts. as alleged in the indictment, the sac companies went out of

their way to find employees with personal networks of company insid insiders but did not correspondingly consider whether the employees were using such contacts to obtain inside information despite red flags. by way of just one example, john horvath was an analyst in the tech sector for one of them charged today. they touted horvath had investment ideas by mining data points, closed quote. last september mr. horvath pled guilty for mining illegal inside information from that very network. the failures of sac to police itself are legion as alleged in the indictment. red flags and warning signs were repeatedly ignored until late 2009. the compliance department rarely reviewed electronic communications by sac employees containing suspicious terms, and

failed to detect "the insidet t trading by any of the people to date. sac identified possible insider trading by any of its employees just once. and on that occasion, sac not only failed to report the matter to law enforcement or regulators, but those individuals were not even terminated from employment. in fact, so far as we can tell, sac never reported suspicious trading to any regulator or criminal authority, ever. now, a company reaps what it sows. they ceded themselves with corrupt traders and looked oeth other way despite red flags all around.

sac repeatedly encouraged the no holds barred suit of an edge that literally has carried it over the edge into corporate criminality. companies, like individuals, need to be held to account and need to be deterred from becoming dens of corruption. so to all those who run companies and value their enterprises but pay attention only to the money their employees make and not how they make it, today's indictment hopefully gets your attention. now, it is my honor to call to the podium the head of the fbi here in new york, john venezuelas. >> thank you, preet. good afternoon. i have a short statement to read here. this case is about corporate conduct and corporate responsibility. the indictment says it best. illegal conduct by employees and

institutional indifference resulted in insider trading that was substantial, pervasive and on a scale without known precedent. sac capital and its management forced a culture of permissiveness, to be blunt. sac, through the actions and inactions of its management, not only tolerated cheating, it encouraged it. management at sac capital, including the firm's owner, actively recruited portfolio managers and research analysts with access to inside information. once hired, these employees were rewarded financially for passing on inside information to the sac owner. repeatedly they described their information edge as contacts at

the company or my guy at such-and-such company. compliance at sac, to the extent that it existed, was woefully inadequate. that is to say it was woefully inadequate to the task of monitoring and preventing the acquisition and use of insider information. the compliance department did enable sac capital to say it had a compliance department. and the compliance department was effective in explaining away potentially troublesome employee e-mails that seemed to describe access to insider information. the e-mails were typically documented as being simply the result of careless writing by a portfolio manager or analyst. essentially, the compliance people were saying this e-mail

isn't evidence of insider information, it's just badly written. despite a history of inside trading at sac capital, including the conduct that resulted and the six guilty pleas outlined in the indictment, sac's compliant department uncovered just one single case of employee insider trading in its entire history. the charges against a corporate entity are serious crimes. the indictment recounts a history of systemic insider trading at sac capital for over a period of a decade. we don't draw anything from sac capital or anyone who works

there. it comes from years of work at the two offices. these investigations have already led to dozens of people being charged with insider trading. information developed in one case often forms the pred indicati ication of another one. we will continue to work with the investigators and the securities exchange commission. it sends a message to anyone inclined to break the law. if your insider edge is inside information, you can't trade on it. i want to thank preet and the assistant u.s. attorneys aaron devlin brown, brown zach. as well as to fbi special agents matthew callahan, matthew

torson, ron burn, james hinkle, b.j. burn and ron mackle. thank you very much. >> i'd be happy to take your questions. [ inaudible ] >> we're not going to get into internal deliberations with the department. i can tell you that we proceeded with our case and everyone was on board with our proceeding with our case. yeah. [ inaudible ] >> today we're bringing the charges that i've described, unsealed the guilty plea i've described, and i'm not going to say what tomorrow may or may not bring. [ inaudible ] >> my understanding is that it's not. i believe there was a smaller hedge fund that was indicted criminally and i think pled

guilty to an offense last year out of the district of new jersey. yeah. [ inaudible ] >> again, i'll repeat what i said a second ago. today's case is today's case. the investigation remains ongoing. there have been a lot of cases we have brought with respect to insider trading at a lot of different places, and as mr. vinezeles said a moment ago, sometimes you bring one case and it opens doors for another case in the future. i'm not going to disclose anything, but you'll have to wait and see. [ inaudible ] >> we don't specify an amount here. forfeiture is a process that takes place through court proceedings, and our aim is to make sure that what is consistent with the criminal law interest of deterrents and penalty and disgorgement of profit is what the ultimate number will be, but i can't disclose that at this moment. >> the sec basically paid in

march $16 million. if you could explain to those of us who don't understand how it is that government in a criminal case can go forward in a legal action and other profits made of a crime? [ inaudible ] >> the sec has its mandate in the way it proceeds with cases wait that it does and mandates the way that it does. criminal law allows for penalties also, and we have a different mandate and a different mission. part of that is to penalize companies and individuals who engage in disconduct, so i'm not going to guess at what other agencies do in their cases, but we do things for different reasons. [ inaudible ] >> correct. correct. >> inaudible ]. >> as i said a moment ago, we

are seeking forfeiture of what will ultimately deem to be reasonable based on all the elements with respect to what an appropriate penalty is and what is appropriate given the profits that were made, and i can't specify a precise amount at this moment. yeah. [ inaudible ] >> the criminal forfeiture complaint makes reference to power and ability of the government. it is a broad and powerful law and allows the government to seek in the same way that in criminal matters a criminal penalty offense can be a large amount. sometimes up to life. that does not mean the government intends to seek an amount that is allowable under law in the most extreme circumstances. as i said, and i said a couple times now, what the criminal law hopes to achieve and what we intend to do in conforming with the criminal law is to get back what makes sense given actions

that have been taken before and given what the conduct of people was at the companies, given what profits were made and given what appropriate criminal penalty might be. but again, we're getting ahead of ourselves because the indictment was just unsealed today. over here. [ inaudible ] >> our decision is based on the evidence we have, and it's brought against certain individuals when it's appropriate to bring them, and today i'm not going to talk about dimindictments and why we bring particular cases when we bring them and why people are or are not charged on certain days. [ inaudible ]

>> this is the fourth time i've been asked the question about the precise dollar figure. the indictment alleges hundreds of millions. i'm going to stick with that round figure. [ inaudible ] >> i'm not going to get into that at this point. [ inaudible ] >> in all cases, when a case is brought, sometimes cases go to trial, and if they don't go to trial, then they settle. so everyone's mind is open on the criminal side and the civil side, i hope, whether you're a regulator or a prosecutor, and what tomorrow brings tomorrow brings. [ inaudible ] >> the department is required, and every prosecutor in the department, is required to consider a number of factors before bringing a criminal charge against a corporate entity, whether it's a financial institution, a hedge fund, a toy

manufacturer, whatever the case may be, and we take them seriously and we look at them, and among the collateral consequences you consider depending on the nature -- speaking generally, not about this case -- depending on the nature of the conduct alleged and the nature of the business and the nature of the industry, among the collateral consequences that is appropriate to consider and be concerned about are people who lose their jobs, people who lose access to a particular product, shareholders who lose value. all of those things you have to consider and we do. there are collateral consequences in cases against individuals as well. you take all those things into account as a whole, and you consider what the level of pervasiveness and seriousness of the conduct was, and over what period of time it took place, and how many people were involved in it and what the dollar value was and whether or not there was any remorse about it and whether or not a compliance program at the financial institution or the business organization did anything about it or turned a blind eye. you take all those things together and you make a determination whether or not this -- in any particular case,

it is the rare occasion when appropriate to bring the criminal law to bear in this way. and in this case, we felt it was. yeah. [ inaudible ] >> you know, i don't know that that's all known, and i don't have that off the top of my head. we can get that to you. [ inaudible ] >> i didn't catch the beginning of your question. [ inaudible ] >> if your questions are criminal intent do you have to prove a criminal?

the answer is yes. [ inaudible ] >> i think there is a paragraph in it on the indictment. i think i've spoken about what that describes. [ inaudible ] >> no. there is nothing that mandates that a company close its doors after it's convicted of a crime. [ inaudible ] >> people like to talk about fish and size of fish. we don't think about it that way. sometimes a small fish is very delicious also. you know, we bring the cases we bring when they're appropriate to bring them. and sometimes you begin looking at a case and it becomes large by the measures of some people because of the noteriety of the

person or because of the bank account of the person or the fame of the person, and that's not really of any consequence to us. there are small fish who have the potential to affect great harm on a lot of people, and sometimes there are people who folks on the other side of the podium like to call big fish. we don't think of it that way, and we don't think of any particular moment as a capstone. people talked about a trial we had a couple years ago with respect to the galleon hedge fund. was that a big fish? no. years ago we successfully held a trial against gold mman sachs. we don't think of it that way. we bring the cases we bring, and the fbi bring the cases they bring depending on what the evidence shows. sometimes it leads to someplace that you consider big, sometimes it doesn't lead to someplace you consider big. we bring the case based on the evidence in the law as we see them. last question. [ inaudible ]

>> again, the indictment was just unsealed today. i imagine that it will be contested. there are financial penalties that are outlined in the press release. and, you know, that remains to be seen. it is also possible, i think you asked the question before what kind of resolution can happen in a civil case, resolutions happen in criminal cases also. there is a range of possibilities for resolution, but i think it's way too early to talk about any of that right now. thanks very much, everybody. >> u.s. attorney preet bharara basically detailing that indictment. lots of questions for reporters in terms of what the consequences of that would be. interestingly enough, he did not rule out further indictments down the line. they pressed him on that a little bit. you know, it's going to be interesting to see as the week

unfolds whether or not we do see more dimindictments, perhaps, against steve cohen, perhaps not. our panelists are still with us and we're going to talk about what we just heard. scott cohen, i'd like to talk to you first. when the u.s. attorney mentioned the word money laundering, we both looked at each other. i just reread the indictment. i don't specifically see that in the indictment. would that fall under the wire fraud charge, or is this something in addition that wasn't in the original indictment? >> no, it's not in the indictment, but it's an element of the fraud. so as this case progresses, that's something that they apparently will try to bring in to the prosecution. this was really interesting as you kind of read between the lines. as you guys said, he did not rule out further indictments in the future, he did not rule out indicting steve cohen personally in the future. as i was listening to that, i

was looking at the justice department's guidelines for appropriations. he talked about that a little bit, and it was as if he was ticking off boxes going down the list. let me read some of them to you, things they have to consider. the nature and seriousness of the offense, the pervasiveness of the wrongdoing, the company's timely disclosure of wrongdoing, the effect of the compliance program, the remedial actions, and then it goes on to the adequacy of the prosecution of individuals. we heard about eight people who have been prosecuted, employees, former employees or related to s sac. but one of the things as you go through this justice department set of guidelines, it talks about how management is responsible for a corporation's wrongdoing, and yes, steve cohen, based on the forfeiture, could be basically ruined financially. right now he has no exposure to prison time, but the implication here was that could change.

>> right. ron, speak to me about compliance. you know, when you were at sac for those five and a half months, a lot of people in the industry say that their compliance is incredibly strict. obviously the u.s. attorney refutes that and that's one of the reasons he took this action. but what was your experience with the compliance department? >> i can only speak for myself here, sue, obviously. if there was a situation that was in the private he can with it -- equity side of the business which sac form krrkc f, and there was one discussion about how they were going to handle a bank involved, i was instructed not to talk about that because i would be crossing a wall. they were quite strict with me. i can only speak to the way in which i was dealt with. i was not a portfolio manager, i was probably an upper mid-level manager but i was a managing director at the place.

with respect to that, there was a restricted list they kept just like any brokerage house with respect to which stocks you had to go to compliance and get permission to trade if, indeed, there was other activity taking place within the firm. all those things were there. the question away from me is were other people treated differently than those of us who maybe joined the business later on, and in my case, a short period of time, was there a different code of conduct, and that's what preet bharara seems to be suggesting here, that there was a set of analysts with entirely different rules. >> did steve cohen's team stay with him? they've had a very good track record in terms of trading this year. >> yeah, they're up in the low double digits so far this year, from what i heard this morning from david faber. there have been, as kate kelly reported, redemption requests total sometime this year close to $4 billion or so, so if no

one else chooses to redeem, there may be a couple billion dollars in outside investor money. i think it may be a challenge for outside investors not to request redemptions given the criminal indictment and given the fiduciary responsibility they have to their own investors. so that's going to be challenging for those institutions that still have money at the firm. >> ron, i couldn't echo that more. i don't have the ninside info, admitted admittedly, but the idea that an endowment or pension fund would choose to leave money at a company that is under an active indictment would sort of boggle the mind, whether you're making low double digits or what. it seems like it would be a problem for them. folks, we have to leave it there. i'm sure we'll talk more about this breaking news later this hour and throughout the rest of the day. but scott, ron, bob, sue, we'll leave it here for now and talk about a big turnaround for the markets when we return in two

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welcome back to "power lunch." we just finished up an auction a bit ago. 29 billion. the grade i gave it was a b-plus. the yield was 2.026, highest yield at an auction in about two years for a seven-year. the bid to cover the 204 was the closest but yet it was still the lowest since 2009. they were the best since august of 2011. b-plus auction. looking at the markets, if you look at that in the seven-year,

you can see yields that moved down a bit, but the next chart is the big chart. there's been dramatic steepening even though it moderated a little bit close to two-year wides. >> let's go uptown from the nyc to nasdaq, and there we see sema. hi, sema. >> the dow as well as s&p 500 are outperforming, and keep in mind it's not just facebook. we have solid earnings from trip adviser, qualcomm. they are beating expectations at a time when i.t. spending is still quite low. imagine what happens when i.t. spending does actually pick up to levels we just saw pre-2007. moving forward, all eyes on amazon given it's trading at record highs. analysts tell me earnings at this quarter have to be strong. tyler, back to you.

>> stocks haven't erased those earlier losses, folks, and those small caps have helped drive markets this year. outperforming the broader markets, up about 23%. all-time high earlier this week for the russell 2, but are small caps getting overheated? could they be a threat to the recent rally? senior writer jeff cox wrote an article about it this morning. jeff, why don't you kick it off? make the case for these stocks being a little overhot. >> tyler, i think you have to look at what drove the rally so far this year, and i think it's been that sort of u.s.-centric kind of trade or whatever metaphor you want to use. you look at the russell 2000 and it's really ea valuation study. you're getting 17 or 18 earnings

where that's trading right now. it's not spectacular. it's been an okay season kind of clearing the low bar. credit swiss did a survey of their clients. only 18% now finding valuations compelling. long-term view bullish. but if you want to look for a place where the market pauses, i think russell 2000, maybe leadership on the way up, leadership on the way down as well. >> jeff's got it right. the reason we had small caps outperforming is because it's a belief that u.s. is the place to be. here's the problem with that analysis. we've recently heard a lot of commentary that europe may be bottoming. we've seen better numbers out of europe recently. we've also heard emerging markets are much more stable here after a big decline, some of them down 20% or more in the recent downturn about a month ago. so if the idea is buy low and sell high, then there is a possibility -- this is the rotation argument jeff is sort of implying -- that you might want to look elsewhere here and

take some profits on those particular gains. again, it's a tough call right now on emerging markets, but europe is starting to show signs of bottoming. i think it's an interesting concept to bat around. >> we had an interesting hour here. just pick up jump ball, whatever you want to talk about here, on small caps versus large caps. i saw this morning irish stocks at a five-year high, for example. >> right. i think all the comments are right. i think if people are going to look to take some money out of the better performers and put it back, because i do think the economy in this country is going to turn around, 2013, 2014, is going to be the next surge in the u.s. market. so it makes perfect sense if you start seeing money coming out of what has performed very well to this point. >> a 30% gain in that russell 2000. >> it's so easy to invest in these. the exchange trading funds have huge money in them now, and that's part of the problem. easy money come in, easy money

come out. we saw that, jeff, with the emerging market etfs. what traumatic outflows we saw about a month, month and a half ago. >> final thought, jeff. >> it's really been a story of capital outflows from emerging markets this year and that whole bottoming thing. interestingly enough, credit swiss is kind of changing some of their valuations. one of the things i actually like is their small cap banks. while we watch the large cap banks, the smaller institutions may be the place. >> thank you very much. we'll see you later this hour or later in the day. next on "power lunch," that terrible train crash over in spain. new information, new video. we'll have both for you after the break. my goodness. plus another big disaster in the gulf of mexico. a natural gas rig that you see right there. it is still burning in the gulf. we'll talk about the environmental impact of that one, next. nd trading. tdd#: 1-800-345-2550

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welcome back. some few information this hour about that terrible train crash in spain yesterday. michelle cabrera has been watching it for us. michelle? >> thank you.

we need to watch this video we received a while ago. you see the train approaching. just watch. horrific. this all happened last night 8:42 local time in spain in the northwestern part of the country. at least 80 people are dead. hundreds hurt, including five americans. authorities are already saying they believe excessive speed caused the crash. early reports say the train was moving 118 miles an hour. that's twice as fast as the train was supposed to be going. a short time ago, the train's conductor was put under formal investigation. rescue workers at the scene say the wreckage and the casualties were so bad, they were stunned into silence. this is europe's worst train crash in more than 25 years. you'll recall there was a terrorist attack on a train in madrid in 2004 that killed 191 people. we have late word now, sue, that one american is dead. that just came in. >> such an awful situation. it really is. michelle, thank you very much. all right, we're also

keeping a very close eye on that fire that erupted on a nat gas rig in the gulf of mexico. regulators say natural gas has stopped flowing from that well, and the remaining small flames are from the gas that is still left in the pipes. sharon epperson tracking that story, looking at what the impact has on gas prices. sharon? >> reporter: sue, we did see that well operator lose control a few days ago and the fire that ensued. right now, as you mentioned, regulators are saying the flames are small and the fire seems to be contained. here on the floor, natural gas traders are really not as concerned about it right now. they seem to believe there will be a minimum environmental impact, so we are not seeing a dramatic impact on natural gas futures. in fact, they're slightly lower with traders more focused on the cooling temperatures we're seeing in the northeast. meanwhile, take a look at gold prices because gold just closed shortly, and we're looking at gold prices that are above 13.25 an ounce, a very key technical

level there. gold seems to be firm right now above that level. back to you. >> sharon, thank you very much. sharon epperson. coming up next, crime and punishment. cnbc goes undercover to expose the multi-million-dollar luxu counterfeit luxury. can you tell if these bags are fake or are they real? it's become a huge and legal business. up next on "power lunch."

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>> designer fakes for sale by the hundreds. a secret world with sellers finding new ways to dodge the cops, constantly changing their game to sell knock-off bags on the sly. and the well-organizing gangs doing whatever it takes to avoid jail, selling goods out of apartments, empty rooms, using smartphones to show what they have. and spotters out everywhere.

>> you're never alone. there are a hundred guys on the street. they're on bicycles, they're on rooftops. >> what's happening here, here and here is just one piece of a global epidemic. maya surdari is a brand professor at nyu. >> there could be funding over terrorist organizations. >> she says as tough designers lose out, wall street is hit hard. a direct impact on companies like louis vuitton and prada. >> you have sales decreasing, and once you get in a negative cash flow area, you can see the earnings being affected, and this is how it ends up affecting wall street. >> reporter: and according to experts, luxury companies spending tens of millions every year on global investigators to fight counterfeiting. bill ryan is a retired nypd detective. he's now a private investigator, working for a major designer. >> our client wants us to find the bags and put the bag sellers

out of business. >> reporter: we went undercover with ryan's team to see how the knock-off sellers are adapting to increased pressure from law enforcement. our first stop, right in new york city's chinatown. we're not looking for vendors selling low-quality bags on the streets but bags meant to look like the real deal. they attract tourists by the thousands. they said the hawkers have moved from back rooms on canal street and into private apartments. to find them, our investigator connects with this woman. she's like a bag hustler and makes commissions by grabbing people off the streets. we are led upstairs into an apartment on mull bberry street. they cover every floor. wall to wall, even sinks and

bathtubs. we're told to keep quiet while sifting through the bags. and after the buy, we're held until spotters make sure the coast is clear. they show us photos of bags on cell phones and ipads so they can quickly shut them down. we're told to choose a bag and wait for it to be delivered, the delivery guy also getting a cut of the business. >> good, good imitation. looks like original. >> reporter: it's all hush-hush to avoid police. and you can sense panic when undercover officers walk in to check a place out. >> quickly! >> reporter: and we're not alone. customers lining up to buy the fake goods, handing over cash to the illegal ring instead of the real designer. >> they only sell it like in barney's. it's like 1500. i refuse to buy the real thing. >> i think most of the people buying the stuff know the deal, they just want a cheap bag. >> cheap bags, big business. more than 500 million fake bags

and wallets worth half a billion on the streets were confiscated last year. and the number continues to grow. that's why luxury brands are spending big bucks to try to stop it. >> there may be an initial causative effect on this, but long term it has a very negative impact on the bottom line of the company. >> fantastic report. this is a huge business that's costing publicly traded companies money and investors money. >> absolutely. >> you have a lot of bags here. i'm supposed to tell which one is real, correct? >> we're going to have a quick quiz. you have to tell me if these are fake or real. >> i've never had a gucci bag, so i don't know. it doesn't feel weighty enough, so i would say it's fake. >> the other way we can tell on this one, it does say gucci on the outside made in italy. if you look on the inside, sue, check out this tag, gucc. >> they forgot the i. >> they forgot the i. let's go over here.

>> the prada. >> you can lift it up. >> the prada looks real, except i think it says -- it says made in milano. is it real or fake? >> fake. >> you got me on that one. we have a market that's barely negative. that does it for "power lunch," right, ty? >> that is correct. "street signs" begins right now. it is the indictment that is rocking the street. the feds charge one of the world's biggest hedge funds with insider trading. the latest on that developing story and the potential fallout for your money, ahead. what a day for facebook. one analyst calls their quarter, quote, stunning. does that mean you need to buy the stock right now? plus, what one homebuilding ceo says that has everyone spooked out about housing. and if you had just one restaurant to buy, which one