louis. good afternoon welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for thursday august second two thousand and twelve the dark night. along with. thirty one members of the one family. looks interesting but that's actually not the one i'm talking about we're talking about dark pools of liquidity traded by robot computer algorithm a process gone a riot knight capital yesterday threatening the firm's stability reportedly and prosecute four hundred forty million dollars in losses the company says add this to the litany of problems recently with broker dealers and markets delivering blows to confidence in the u.s.

financial system we'll hear from a former fraudster and the commodity customer coalition founders about how to restore the broken faith speaking of said fraudster do you remember this. it's crazy every day very big big big bucks going crazy these crazy days sail crazy getting this prices are. what's really insane is crazy eddie was home to one of the largest securities fraud uncovered during the nineteen eighties the criminal c.f.o. who helped mastermind it said he did it for fun and for profit and if he hadn't been caught he'd still be doing it today so what does this mean bigger picture about what's going on now on wall street after bad and arguably criminal actions that firms that helped cause the financial crisis have gone largely unpunished we'll talk to the former praise yetis c.f.o. sam antara about it plus the e.c.v. disappoints today as mario draghi fails to deliver a whatever it takes plan so is this back to crisis as usual and how is the private

sector dealing well one company seems to be hoping sex not only sells but also. james people back in a strange ailing real estate market will show you let's get to today's capital account. knight capital is a broker dealer it is a provider of liquidity in global markets specializing in high frequency trading and it is just the latest firm to have major trouble according to the firm a computer glitch resulted in the company's sending numerous erroneous orders yesterday and after all was said and done it causes stock price to lose sixty six percent in two days causing four hundred forty million dollars in losses according

to the company it threatens the stability of the firm reportedly now the co-founders of the commodity customer coalition who have been fighting for m.f. global customers to get their money back and are now involved in clean up after p.s. g.'s bankruptcy two there in washington here's what they told me their eyes are on for knight capital which recently acquired the futures division of pens and financial and we're looking at maybe another commodity brokerage in trouble or you're about to go into bankruptcy after we've had to insolvency shortfalls in nine months so again their concern comes back to customer money which of course they're they have their eyes on and i do want to say this wasn't fraud or theft of customer money it doesn't seem in knight capital like we saw in m.f. global or peregrine this looks like it could get to some issues with high frequency trading which is a conversation for another day but is this when you combine it with other things

just another failure in the list of recent ones that are causing people to lose faith crops rightfully so in financial markets and firms. i mean it's tough after the flash crash m.f. global p f g all j.p. morgan shenanigans i mean how do you trust the financial system and i mean that's what we're really in d.c. to you know to try to help and help shore up investor confidence working on getting our interim what are the facilities plan which gives come out of the customers with a former town insurance we're working on getting special prosecutors. appointed to to actually prosecute some of the fraud that have been committed and tightening up regulations in a smarter way where where there are simpler easier stand and more in forcible rather than just getting more pieces of legislation like dodd frank which just make things more complicated and create more and more loopholes for these guys to. get through so there are some efforts being made by those gentlemen but let's attack

this from a slightly different angle now not from those trying to fix the problems but those who've made a living exploiting them remember this it's a crazy any christmas in august oh you know love playing crazy he's going to take you a blizzard of bucks and still not just the comeback just players who are the stereo speakers turntables receivers they need to do everything on the ozone shield no. actually it was not christmas in august it was a giant fraud one of the largest securities fraud and covered during the one thousand nine hundred eighty s. look here's the wanted poster for crazy eddie and it really became a symbol for corporate fraud in the days before enron and bertie made off it's still inspiring modern metaphor look here's ben bernanke he is crazy benny now crazy eddie for its part engaged in various forms of fraud from the very beginning to the firm's implosion they went public in between defrauding investors they

cooked the books there was massive inventory fraud to inflate profits and the value of the stock eddie enlisted family to help them mastermind the fraud he paid his cousin sam to learn accounting so he could eventually work at the company's auditing firm before becoming the c.f.o. of the firm which is where he went on to so what's really changed between then and now and what are the big lessons we still haven't learned today not even after the financial crisis to help us answer that is sammy antara himself convicted felon and former c.f.o. for crazy at ease so no one come to capital account i'm so happy you're on the show today. thank you for having me on absolutely it is my pleasure because you know what you did that may have happened in the eighty's but it still seems like there are a lot of lessons to glean from it today as i'm sitting here years after the financial crisis where crimes one punished and in the wake of several failures of firms where

it appears they just reached in to customer segregated funds in took money to either pay for large offices or to help make margin calls for some trades that were going wrong so looking back a little bit for two thousand and five when you started your website you said on your website that given a lot of the changes that were going on you predicted there would be a massive financial fraud that would really shake the financial system within the next five years and hey that happened we have the financial crisis so i guess i'm curious since the financial crisis what you think the state of fraud is in terms of the opportunity for it in the financial system and how it's being addressed i'm happy to report this retarded member of the criminal underworld that fraud is good for them sometimes even for it is getting easier the fraud says of reach the top one percent of american society and guess what democrats and republicans alike are doing their best to make sure that even easier is that right ok so it was

a lab arrayed in what ways do you think fraud is becoming even easier. we recently passed something called the jobs act it was approved by president obama and the proved by the majorities of both democrats and republicans in congress the jobs act in the guise of improving the economy peels away and requirements for internal controls for public companies peels away out of various levels of oversight by the government peels away at the requirements for what it's and it's going to make it easier any time you take away a regulatory requirement anytime you take away a level of oversight any time you take away checks and balances the criminals are going to walk through the door because when the door is open criminals walk right through it and i know when the jobs act was passed and signed into law it was billed as kind of the first bipartisan effort we've seen in a long time and i was talking to many people the go ahead go ahead it's tough it's a fraud made easy it's the frost may jobs in the act right and i might even i might

be i might even go back into my life i'm crying because of the jobs act because it just makes fraud too easy to easy to easy to resist so let's talk about what to make it to resist what would make it not so easy or would make it more difficult to resist because as you mentioned the jobs act that flew through congress that the president signed it everybody was saying this is bipartisan effort except for people like yourself and some guests we had on our show that were going what the heck this is totally opening the door to massive fraud is a bad idea so what really needs to change that we have the jobs act what about criminal prosecutions is this a deterrent and jail time because that's something that we often come back to when we're in the wake of the financial crisis where there really wasn't any executives that served jail time for possible fraud well let's work backwards to deterrence jail time is not really a major deterrent bernie made plenty of people carted off to jail while he was committing his crime another criminal going to prison does not make

a current criminal or uncorked criminal following god does not make this not stopping the crimes in poor. aggress now jail time is necessary because you want to you want to make people countable you want to hold people responsible put in a bit so that jail time has very little deterrent effect but what about i mean if i was a trader and suddenly i saw people around me getting busted for these frauds that that were not getting investigated and prosecuted before i think that would make me question what i was doing and be a little concerned maybe stop what i was doing everything that's wrong. people commits crime simply because they couldn't because the opportunity exists most criminals do not consider the consequences of their acts as far as jail time is concerned you know there's an old saying that the prisons of filled with criminals who never planned on being there and we take precautions against getting caught but the fact is the opportunity is made with helps us commit the crimes if the door is open if there's no law on the door we're going to walk through if there's no

internal controls if there's no effective oversight if there's nobody watching over us then we're going to commit of various crimes because everybody lives with sin in ten days and every day given the right set of circumstances most people going to commit crimes right ok so then let's let's go back to some of those things you're talking about internal controls and audits and and some of these things that stop fraud before it ever gets sent to the point of prosecution where are we with let's just pick one auditing because this is something we saw with p.f.g. and m.s.g. it p.f.g. you had this c.e.o. committing fraud according to his suicide note for twenty years so either he was getting that by the auditor or the auditor was complicit in the fraud and then with m.f. global which had a large accounting firm as its independent auditor p.w. see again they were signing off on on its financial statements seven months before the firm went under even though it had reportedly deteriorating risk ours deteriorating control so so what is the deal with these authors are they complicit

are they dumb do we have to have expectations of a little bit of a little bit of everything but let's start with the word award at the word order in the itself is a fraudulent term it's meant to convey the sense of integrity to financial reports but these are not really what is the limited compliance review of generally accepted accounting principles which may or may not catch bookkeeping hours they're not designed to fly in fraud and people have this misunderstand with the term what it means they should not even call it what it what it says. you call it compliance reviews because that's what they really are so when these accounting firms are not catching what it's because their work is not designed to start with these accounting firms are not catching fraud that's because their work is wouldn't work is not designed to catch fraud it's only limited reviews to catch maybe bookkeeping i was material booking i was so order to support themselves and not a deterrent to its world we need stronger what it's we need we need better educated

accountants we need more sophisticated people on the order committees i mean it's not just one specific problem there's a multitude of problems that are coming into play to making fraud easy ok so when we get back from a break we want to talk about what more of those are ok so we have number one which is we need smarter accountants and people that are better trained for this stuff we know that jail time is important possibly to punish crimes but maybe you're saying not a deterrent so when we get back from the break we're going to talk about many more aspects of this we'll have more with sam and former white collar criminal himself and also still ahead spain has suffered a housing bust and seven in ten twenty somethings haven't left mom and dad places at all we'll give you our two cents on a new ad aiming to combat that trend first your closing market never.

mind of american power continues. things that are. might actually be time revolution. and it turns out that a popular drink or starbucks has a surprising him radio. what drives the world the fear mongering used by politicians who makes decisions to break through that sort of to be made who can you trust no one who is you know who with the global machinery to see where we had a state controlled capitalism is called. when nobody dares to ask we do our t.

question morning. is the state run english speaking russian channel it's kind of like. russia today has an extremely confrontational stance when it comes to us. welcome back before the break we were talking fraud and why we haven't seen a lot of it investigated and prosecuted defer crimes leading up to the financial

crisis and in the wake of it now before the break we talked auditors and we also talked about jail time now let's talk about regulators first is this idea that you are safe as an investor or as a person putting your money in the bank because it is a regulated firm let's hear what james could tell us of the commodity customer coalition says about that. in a sense the regulators are almost a smoke and mirror facade much like some of these ponzi schemes that they fail to catch people feel safe on their own or regulate invest in a regulated entity but a lot of times i think it's a false sense of security i mean these regulators clearly have proven that they can catch these frauds and i think people do bias due diligence on these regulated enemies so now i really want to get the opinion of sam antara because he is a convicted felon himself former c.f.o. for crazy eddie a massive fraud of the one nine hundred eighty s. so let's bring you back in here mr antara i'm curious what the heck you think is going on with regulation because you said that accountants need to be smarter but i

mean what are you make for regulators that is if they were so smart they would be on wall street where they could make a lot more money so i mean is that one of the issues with regulators. whereas accounting gives us a false sense of security by calling the work that they do or it's the same thing happens with regulators the regulators are undermanned in the under resourced take the securities and exchange commission for instance there are only four thousand people including maintenance workers at the securities and exchange commission there are thirty five to thirty eight thousand cops in new york and white collar crime and financial regulation requires a large enormous amount of resources it is much much tougher to investigate the regular blue collar blue collar crime crimes of violence and the regulators just simply don't have the manpower to effectively police the capital markets of the united states so therefore the gentleman that's built with broken earlier is

correct there is a false sense of security that's given to the investors but if fact that they're regulators presence and there's also that is what it does present. ok so let's we have regulators and auditors i guess what i'm most concerned is in these situations where you have customers that have their money in segregated funds where it's getting tapped into where that's never supposed to happen or where you have too big to fail firms that would need bailouts if they did enough wrong doing to where they were going to go under it under the weight of massive fraud so i guess my biggest concern is how do you think we get to where there aren't frauds in these areas where you just are never supposed to have customers at risk or depositors or taxpayers. well part of the problem is you know prosecuting these people for forces that these criminal cases are very hard to develop we have a system of justice is based upon the presumption of innocence and most these cases a built upon circumstantial evidence that doesn't pass muster in the criminal court so most of these people not concerned about ever going to prison were every even if

even if there was an investigation they ever actually being criminal charges as far as again going back to the regulator is they just don't have the manpower to affectively police the forms that that they're looking at it's just not doesn't exist ok so what about personal responsibility one thing that we've talked about on this show before is called law backs where your capital is on the line if you screw up and your firm is going to go under would that be a deterrent would you have to get it he knew that the but the f.c.c. has brought in very very small amount of quote clawback cases right now most of the time right now most of the time it's the firms indemnify the deep pocketed firms in the demo flying the individuals and paying for their mistakes what the insurance companies indemnifying the firms and paying for the firms mistakes we have what's called the socialization of of bad behavior bad behaviors become socialized the

consequences of bad behavior has become social laws that the individual doesn't have responsibility for their bad behavior so it sounds like so far the only thing we've talked about that's actually a realistic solution is something like law backs which would instill personal responsibility for bad behavior where it would really hurt right. personal lawyer ability my mill is your house your car. ok so the so we've we've hit on something finally so there is something that that we can say it would be a plan going forward i'm curious looking back obviously a lot has changed with the regulatory system and with laws in the wake of crazy because after enron we had sarbanes oxley which is a massive overhaul some of that has been undone by the jobs act some of that i'm not convinced regulators even want to use or prosecutors even want to use because there could be a lot of accounting fraud that that from what i understand could have been prosecuted under sarbanes oxley which has not so my question to you how close are

we to a situation where a crazy eddie could occur again. it's occurring right now it's occurring all over the place for arms with impunity manipulate numbers and the f.c.c. does nothing except all we caught you fix your numbers and walk away give you an example of one company please dear one oh wow all right groupon groupon groupon groupon was reporting revenues that was in violation of generally accepted accounting principles its order thing for him i believe was ernst and young the big four accounting firm and they said that it wasn't compliance but it wasn't till accounting professors at cats from penn state university and anthony kept the nation villanova university read the documents the public documents they don't have access to the books and records their own have access to management they don't have access to the company premises they just read the company's books and records and they find their groupon was overstating its revenues violating accounting rules on

revenues and they bring their information to the f.c.c. the f.c.c. goes ok. groupon go fix it this is a big four accounting from what's going on here now going back to my day in my day i had to fool what it is i had to lie to what it is in order to defraud my investors today you don't have to like what it is you don't have to pull them in many ways they're complicit with management they were in bed with management they had this incestuous relationship with management that makes crime easy was just one example we grew up on i give you dozens of examples so you're saying it's actually easier to commit the kind of fraud that you committed now then it was in the eighty's. in my pay day i knew what it is was stupid i knew what it is were incompetent but i always thought that if they saw something wrong they would do the right thing today you don't have to worry about them seeing something wrong because they're going to do the wrong thing they've they've gone from being enablers they've gone to being people that are duped to actually coconspirators in many

cases in spirit is the financial statement manipulation when i shame and it's going on more and more often than mantle i really appreciate you coming on the show and bringing us that perspective former white collar criminal former criminal crazy thanks so much thank you. wrap up with a little loose change before we go because we didn't talk about the e.c.b. today we did yesterday but today they came out they disappointed after mario draghi said he supported the euro and vowed to save it he really didn't pull out any punches today blooding stops so let's talk about europe and what they're doing in

the wake of a really bad situation will spain has suffered a housing bust we know and the country also has seven in ten twenty somethings who haven't left their parents place now to combat this spain's biggest real estate website idea listed dot com came out with a new ad targeting those with a failure to launch from their parents place take a look at this so the twenty second ad features couples and threesomes naked in cars and looks of surprise basically this site is trying to shame people into i guess getting their own blaze saying look i'm betting that will be if you get caught making it and your car you know sex sells but i think i know is that more powerful as a shame tactic i don't think this works i mean this was like anyone and everyone in europe has sex in their car yes if you're if you're at the age of eighteen for sure and then a lot of people afterwards i don't especially the mediterranean countries i don't really get how this is. really i mean this looks kind of sexy. like

a bad that actually looks kind of shouldn't be how should the house of this is how i'm going to lose this is going here's like give our get away from me get into the guy's face you know as the girl is coming to but the guy was like whatever i'm the man get away yeah totally totally off our i don't need a place i have enough. going and everything i need right here i got my free conclusion or whatever and just got my little two to a six and yeah no worries many of them are all right let's move on to one more story because this man needs a lot more this australian businessman named clive palmer has a plan for his vacation resort storing one of the. yeah he began to live. so according to sunshine coast daily and as rumor has it palmer is planning to clone

a dinosaur from d.n.a. so he can set it free in a drastic park style area of the resort he's in discussion with people who cloned dolly the sheep to make this happen and this is just an example of billionaires gone bad you can't allow them to destroy the world with dinosaurs i mean come on this is like absurd here's the thing i was the scope and you producer just being who's fantastic by the way. for a while and we and we saw a cover of one of his latest trends journal and it has jesus whipping the money changers out of the temple so we kind of. took past the present the future which it all together and you have jesus right. we're going down through the bay and we're going blind. so you think that this could be a compelling way to go after the banker is by actually having dinosaurs to breathe fire dinosaurs are you going to bring it back. to the future you know i mean when

we talk about the source of time and space maybe one of the benefits of these monitors is that there's stuart of the first time. continuum so much with their lower interest rates struggle schemes they're driven is products that they've created this time war we've got dinosaurs coming in the past jesus grabbing one of the raptors and then whipping the crap in a blunt funny jamie diamond well it raising well and it's the excess of too much money on someone's and that's even allowing that kind of pre-historic in a way to kind of adds another layer on to this i suppose what i was going to be blown fun blowing fun this is just looks like. they can fifty's and cheney well they're probably doing that anyway with some of it but they've gotten but that's all we. will leave it there thanks so much for watching and don't forget to come back tomorrow and in the meantime you can follow me on twitter at more and list or give us feedback on the show and you missed at youtube dot com slash capital account watch as. eight stay on hulu at hulu dot com slash capital das

account and from everyone here at the show thank you so much for watching come back tomorrow and have a great night. wealthy british style. time to rise on. markets why not. find out what's really happening to the global economy with mike stronger for a no holds barred look at the global financial headlines tune into cars a report on our g. more news today violence is once again flared up. these are the images the world

has been seeing from the streets of canada. giant corporations to rule the day. and. age.