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. but we've. heard enough members to do one frame that. 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 pasta get 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 when a big big big box during crazy these crazy do you say no one is going to be surprise you start. saying. 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 crazy eddie's c.f.o. sam antara about it plus the e.c.v. disappoint today as mario draghi failed to deliver a whatever it takes plan so is this back to

a crisis as usual and always the private sector dealing well one company's seems to be hoping sex not only sells but also shames people back into stains ailing real estate market we'll 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 caused a 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 group which was in trouble here about to go into bankruptcy after we've had two songs with shortfalls in nine months so again the 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 prompts rightfully so in financial markets and firms. i mean it's tough after the flash crash m.f. global p f g hall 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 now shore up investor confidence working on getting our interim what is the facility plan which will give commodity customers a former county insurance we're working on getting special prosecutors. appointed to to actually prosecute some of the fraud that have been committed and tighten up regulations in a smarter way where where there are simpler easier in our stand and more in forcible rather than just getting more pieces of legislation like dot 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 have made a living exploiting them remember this it's a crazy any christmas in august oh you know blowout plague crazy is going to save you a blizzard of bucks and still not just come back just players portable stereos the speakers turntables receivers they need to do everything on the ocean 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 in the value

of the stock and he enlisted family to help the 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 as a retired member of the criminal underworld that fraud is good for business 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 so elaborate 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 for the easier any time you take away the regulatory requirement any time 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'd seen in a long time and i was talking to many people the go ahead go ahead it's tough it's a fraud 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 road to easy to easy to easy to resist so let's talk about what maisie 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 guest we had on our show that we're going what the heck this is totally opening the door to massive fraud is a bad idea so what really needs to change so 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 and. aggress now jail time is necessary because you want to you want to make people countable you want to hold people responsible but in a bit so the 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 anything that's wrong. people commit crimes 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 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 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 controls so so what is the deal with these authors are they complicit

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

accountants we need more sophisticated people on the audit committee i mean it's not just one specific problem there's a multitude of problems that are coming into play that 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 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 numbers.

former. shorter. and in the beginning. a brother. in ukraine. craving for my school.

mission free we're going to take three years for charges free. range free. three stooges free. food free board video for your media projects and free video don carty dot com. 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 this 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 him 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 and 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 and is much much tougher to investigate than 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 built the broken earlier is correct there is a false sense of security that's given to the investors but it's fact that they're regulators presence and there's also that is what it is pressing. 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 be 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 frauds is 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 there 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 firms 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 dell he did it he knew that the but the f.c.c. has brought in a 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 them applying 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 mil 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 can i give you an example of one company please do on. how you are either here or 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 ed katz from penn state university and anthony kept the nation building the university read the documents the public documents they don't have access to the books and records they're on 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 have this incestuous relationship with management that makes crime easy why is just one example who 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 don't have to worry about them seeing something wrong this is going to do the wrong thing they've they've gone from being unable or 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 family and our i really appreciate you coming on this show and bringing

us that perspective former white collar criminal former criminal crazy thanks so much thank you. all right let's 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 plotting 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 idealistic 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. i guess getting their own blaze saying look i'm betting that will be if you get caught making out who is in 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 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 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 to years like get away from me get into the guy's

face you know as the girl is coming to but the guys like whatever i'm the man get away totally totally. i don't need a place i have enough. going and everything right here i go my free conclusion or whatever and just come a little to. no words 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 if he gets. cut loose. 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 energy 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 is the scope and you producer just being who's fantastic by the way with a little while and we and we saw a cover of this 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 in 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 status or stuff you're 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 the money changers is that the start of the first time. continued so much with the lower interest rates struggle schemes the derivatives 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 corps up in a blow for the 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'm going to be blown fun is just looks like looks like the cues taken fifty six 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 at list or give us feedback on the show and you missed that you tube dot com slash capital account. watch as an aids day on hulu at hulu dot com slash capital dash account and from everyone here at the show thank you so much for watching come back tomorrow and have a great night. download

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