March 2024 - cypherpunks - lists.cpunks.org

Wall Street Mega Banks Have Created a Circular Firing Squad with Credit Derivatives and Capital Relief Trades – with the Fed’s Blessing
by Gunnar Larson 07 Mar '24

07 Mar '24

https://wallstreetonparade.com/2024/03/wall-street-mega-banks-have-created-… By Pam Martens and Russ Martens: March 6, 2024 ~ On June 11, 2015, the Office of Financial Research (OFR) released a sobering report on how banks were reducing their requirements to hold adequate capital against potential losses by engaging in non-transparent “capital relief trades” with potentially questionable counterparties. The OFR researchers summarized the problem as follows: “Capital relief transactions may have benefits to banks. But, even if real risk transfer is involved, these transactions can pose financial stability concerns by increasing interconnectedness, transforming credit risk into counterparty risk, and obscuring capital adequacy to investors and counterparties. And while bank supervisors have extensive data about banks, they may have less information about the nonbanks who are selling credit risk to those banks and ultimately bearing the risk of loss.” The Office of Financial Research was created under the Dodd-Frank financial reform legislation of 2010 to make sure that Wall Street mega banks could never again ravage the economy and financial system of the United States — as they did in 2008 – by engaging in reckless derivative trades and toxic bets. OFR describes its mission as follows: “Our job is to shine a light in the dark corners of the financial system to see where risks are going, assess how much of a threat they might pose, and provide policymakers with financial analysis, information, and evaluation of policy tools to mitigate them.” Buried in the June 2015 OFR report was a bombshell. When JPMorgan Chase was initiating hundreds of billions of dollars in risky derivative trades in London in 2012, using deposits from its federally-insured bank in the U.S., it was attempting to engage in tricked-up capital relief trades. The insanity of this gamesmanship resulted in $6.2 billion in losses at the bank; an investigation by the FBI; embarrassing Senate hearings; a scathing 300-page report by the U.S. Senate’s Permanent Subcommittee on Investigations; charges of engaging in “unsafe and unsound” banking practices by the Office of the Comptroller of the Currency; and the payment of $920 million in fines to its regulators. Credit derivatives are frequently used in capital relief trades. In an effort to curb the trillions of dollars in credit derivatives that the Wall Street mega banks are using for non-transparent purposes with non-transparent counterparties, on July 27 of last year the FDIC, the Office of the Comptroller of the Currency (OCC), and the Federal Reserve released a proposal to require higher capital levels at banks with $100 billion or more in assets; (only 37 banks would be impacted). Community banks will not be impacted at all by the new proposals according to the federal regulators. On September 12, 2023, the banking cartel made its anger and intention to push back known in a 7-page letter. The cartel demanded that the three federal agencies turn over all “evidence and analyses the agencies relied on” in making the proposal. One of the signatories to the letter was the Bank Policy Institute (BPI), whose Board of Directors consists of the CEOs of the biggest banks. BPI is Chaired by none other than Jamie Dimon, Chairman and CEO of the notorious London Whale bank, JPMorgan Chase. BPI next launched an ad campaign that grossly distorted what the increase in capital would do, claiming that it would harm working families. (The mega banks that will be most impacted are the same mega banks that blew up the U.S. economy in 2008; put millions of Americans out of work; left millions of working families in foreclosure; got a secret $29 trillion bailout from the Federal Reserve; and then used big chunks of that bailout money to lavish million-dollar bonuses on bank executives.) Sixteen days after the big bank cartel had posted its September 12, 2023 letter attacking the newly proposed increase in capital rules, the Federal Reserve issued a suspiciously timed announcement of how banks could game the newly-proposed capital rules, with the Fed’s blessing, through the use of a specific style of capital relief trade. The Fed wrote as follows: “In some synthetic securitizations, a Board-regulated institution transfers the risk of a reference portfolio of on-balance sheet exposures to a special purpose vehicle using a guarantee or credit derivative. The special purpose vehicle issues credit-linked notes to investors, and the Board-regulated institution takes the cash proceeds of the notes as collateral supporting the special purpose vehicle’s performance on the guarantee or credit derivative. “Under the Board’s capital rule, a Board-regulated institution can recognize the credit risk mitigation of the collateral on the reference portfolio under the rules for synthetic securitizations provided that the requirements in section 41 or 141, as applicable (12 CFR 217.41, .141), are met and that the transactions satisfy the definition of ‘synthetic securitization’ (12 CFR 217.2, ‘synthetic securitization’).” All you need to know about the above two paragraphs is that the words “synthetic” and “special purpose vehicle” and “credit derivatives” played a central role in crashing Wall Street and the U.S. economy in 2008. The Federal Reserve has apparently learned nothing from the worst financial crash since the Great Depression. For the most hair-raising part of this story, let us back up to September 29, 2022 – almost exactly one year before the Fed gave its blessing to capital relief trades using credit derivatives. On that date the OFR issued a report that concluded: “When Choosing Counterparties, Banks Tend to Pick Riskier Ones.” The report was authored by Dasol Kim, a Research Principal at OFR, and Andrew Ellul, a Visiting Fellow at OFR and Professor of Finance at Indiana University’s Kelley School of Business. In a blog post, they summarized their findings as follows: “In a recent working paper analyzing who banks chose as counterparties in the over-the-counter (OTC) derivatives market, the authors found that banks are more likely to choose riskier nonbank counterparties that are already heavily connected and exposed to other banks, which leads to an even more densely connected network. Furthermore, banks do not hedge these exposures, but rather increase them by selling rather than purchasing credit derivative swaps against these counterparties. Finally, the authors found that common counterparty exposures are correlated with systemic risk measures despite greater regulatory oversight following the 2008 financial crisis.” (Italic emphasis added.) The only common-sense way to think of this is that Wall Street has once again created a circular firing squad with the U.S. banking system and U.S. economy as collateral damage. For an idea of what can happen when a mega bank sells credit default swaps, consider how Howie Hubler, a star bond trader at Morgan Stanley, lost $9 billion. Hubler was one of those who made early derivative bets that the lowest-rated subprime bonds would fail during the 2007-2008 financial crisis using credit default swaps. He bought protection by purchasing credit default swaps on subprime debt. But because Hubler had to pay out premiums on these credit default swaps until the price collapse arrived, he sold $16 billion in credit default swaps on higher-rated debt, obviously to collect the premiums to offset what he was paying out while he waited. When the $16 billion turned out to be toxic as well, Morgan Stanley lost at least $9 billion. According to a government audit of the Fed’s secret loans to the Wall Street mega banks and their trading subsidiaries from December 2007 through early July 2010, Morgan Stanley was the second largest recipient (after Citigroup) of the Fed’s secret bailout loans. Morgan Stanley received a total of $2.04 trillion in cumulative loans from the Fed; Citigroup received $2.5 trillion in cumulative loans from the Fed. Federal regulators were caught napping in the lead up to the 2008 financial collapse. They are clearly still napping. According to the most recent trading and derivatives report from the Office of the Comptroller of the Currency for the third quarter of 2023, just four commercial banks (JPMorgan Chase, Citigroup’s Citibank, Goldman Sachs Bank USA and Bank of America) hold 94 percent of all credit derivatives held at 4,600 commercial banks. If you want the quintessential definition of concentrated risk, this is it.

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Wells Fargo Accused Of Enabling Ex-Texas Atty's Fraud
by Gunnar Larson 07 Mar '24

07 Mar '24

Wells Fargo Accused Of Enabling Ex-Texas Atty's Fraud <https://www.law360.com/banking/articles/1810204?nl_pk=feb6bbba-7878-4d39-be…> By Lauren Berg Victims of a former San Antonio lawyer's multimillion-dollar fraud scheme claim his theft was enabled by Wells Fargo willfully turning a blind eye to the lawyer's misuse of trust accounts holding client funds, according to a lawsuit in Texas federal court that alleges the bank profited from this scheme. Complaint attached | Read full article » <https://www.law360.com/banking/articles/1810204?nl_pk=feb6bbba-7878-4d39-be…> | Save to favorites » <https://www.law360.com/banking/articles/1810204?nl_pk=feb6bbba-7878-4d39-be…>

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Gibson Dunn AI Leader On Weathering The AI Policy Blizzard
by Gunnar Larson 07 Mar '24

07 Mar '24

Gibson Dunn AI Leader On Weathering The AI Policy Blizzard <https://www.law360.com/delaware/articles/1803686?nl_pk=8f2e5a76-bb66-462b-a…> By Hannah Albarazi Like a mountaineer leading a team through a snowstorm, Gibson Dunn & Crutcher LLP's artificial intelligence co-chair Cassandra L. Gaedt-Sheckter is guiding companies developing and using artificial intelligence through a blizzard of new laws and regulations coming online in Europe and the U.S., saying that assessing AI risks is the North Star to mitigating them. Read full article » <https://www.law360.com/delaware/articles/1803686?nl_pk=8f2e5a76-bb66-462b-a…> | Save to favorites » <https://www.law360.com/delaware/articles/1803686?nl_pk=8f2e5a76-bb66-462b-a…>

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Splunk Investors Get Final OK For $30M Deal, $7.5M Atty Fees
by Gunnar Larson 07 Mar '24

07 Mar '24

Splunk Investors Get Final OK For $30M Deal, $7.5M Atty Fees <https://www.law360.com/capitalmarkets/articles/1809853?nl_pk=abe82add-2a33-…> By Sydney Price A California federal judge has granted final approval to a $30 million settlement, including $7.5 million in fees for class counsel, to resolve a securities class action accusing software company Splunk of lying about strategies it used to meet cash flow goals. Order attached | Read full article » <https://www.law360.com/capitalmarkets/articles/1809853?nl_pk=abe82add-2a33-…> | Save to favorites » <https://www.law360.com/capitalmarkets/articles/1809853?nl_pk=abe82add-2a33-…>

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Judges Unsure On Atty Sanctions In Robinhood Spam Suit
by Gunnar Larson 07 Mar '24

07 Mar '24

Judges Unsure On Atty Sanctions In Robinhood Spam Suit <https://www.law360.com/capitalmarkets/articles/1810194?nl_pk=abe82add-2a33-…> By Greg Lamm Class counsel sanctioned $750,000 for helping instigate a spam text suit against Robinhood Financial likely engaged in "shenanigans," a Washington appeals judge said Tuesday, though a colleague on the bench questioned whether those sanctions should stick if Robinhood was nevertheless liable in the case. 2 documents attached | Read full article » <https://www.law360.com/capitalmarkets/articles/1810194?nl_pk=abe82add-2a33-…> | Save to favorites » <https://www.law360.com/capitalmarkets/articles/1810194?nl_pk=abe82add-2a33-…>

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Meta Tells Chancery It Didn't 'Utterly Fail' To Stop Exploitation
by Gunnar Larson 06 Mar '24

06 Mar '24

Meta Tells Chancery It Didn't 'Utterly Fail' To Stop Exploitation <https://www.law360.com/delaware/articles/1773531?nl_pk=8f2e5a76-bb66-462b-a…> By Leslie A. Pappas Shareholders accusing Meta's leaders of "utterly failing" to eliminate pedophilia, human trafficking and child sexual exploitation on its social media platforms didn't ask enough about the company's efforts and haven't shown any "corporate trauma," an attorney for Meta's board told Delaware's Court of Chancery on Tuesday. Read full article » <https://www.law360.com/delaware/articles/1773531?nl_pk=8f2e5a76-bb66-462b-a…> | Save to favorites » <https://www.law360.com/delaware/articles/1773531?nl_pk=8f2e5a76-bb66-462b-a…>

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Your Freedom of Information Law ("FOIL") Request FOIL-2023-095358-021587 - Robinhood BitLicense Records Appeal - NY-DFS
by Gunnar Larson 06 Mar '24

06 Mar '24

FTX is not the biggest fraud in the history of the United States of America. Gunnar ---------- Forwarded message ---------- From: Gunnar Larson <g(a)xny.io> To: "Mazza, Stephanie (DFS)" <Stephanie.Mazza(a)dfs.ny.gov> Cc: "Reader, Shaun" <sreader(a)curtis.com>, letitia.james(a)ag.ny.gov, "Harris, Adrienne A (DFS)" <Adrienne.Harris(a)dfs.ny.gov>, Recordsaccessofficer(a)dfs.ny.gov, cypherpunks(a)cpunks.org Bcc: Date: Tue, 27 Feb 2024 06:43:23 -0500 Subject: Re: Your Freedom of Information Law ("FOIL") Request FOIL-2023-095358-021587 - Robinhood BitLicense Records Appeal - NY-DFS Ms. Mazza: The five day deadline has passed. This is very important particular to xNY.io - Bank.org's concern of a crypto RICO derrived out of the BitLicense. Ms. Mazza, when can xNY.io - Bank.org expect a response on the Robinhood records? NY-DFS' records response to Coinbase was extremely helpful. Have a great day. Thank you, Gunnar -- Gunnar Larson xNY.io | Bank.org MSc - Digital Currency MBA - Entrepreneurship and Innovation (ip) G(a)xNY.io +1-917-580-8053 New York, New York 10001 On Wed, Feb 21, 2024, 2:21 PM Gunnar Larson <g(a)xny.io> wrote: > In accordance with Public Officers Law § 89(4), xNY.io - Bank.org elects > to appeal this determination to withhold the Robinhood BitLicense Records. > > Turn this matter as we will, any side whatsoever appears to require > obstruction of justice. > > We further demand NY-DFS send xNY.io - Bank.org an update on the > aforementioned appeal within five (5) business days. > > Reserving all rights, xNY.io - Bank.org is seeking relevant relief in > California on Robinhood. > > Warm regards, > > Gunnar > > ---- > > SENT VIA EMAIL > Email: G(a)xny.io > February 21, 2024 > Mr. Gunnar Larson > xNY.io – Bank.org > 406 West 25th Street > New York, NY 10001 > Re: Freedom of Information Law (“FOIL”) Tracking No. 2023-095358 > Dear Mr. Larson, > I write in response to the FOIL request that you submitted to the New York > State Department of Financial Services > (“Department”), which has been assigned the above-referenced tracking > number and reads as follows: > Dear Madam or Sir: On August 2, 2022 the Superintendent of Financial > Services Adrienne A. Harris > announced that Robinhood Crypto, LLC (“RHC”) would pay a $30 million > penalty to New York State > for significant failures in the areas of bank secrecy act/anti-money > laundering (“BSA/AML”) > obligations and cybersecurity that resulted in violations of the > Department’s Virtual Currency > Regulation (23 NYCRR Part 200), Money Transmitter Regulation (3 NYCRR Part > 417), Transaction > Monitoring Regulation (23 NYCRR Part 504), and Cybersecurity Regulation > (23 NYCRR Part 500). > xNY.io - Bank.org would like to > 1. receive any and all records related to NY-DFS' investigation of > Robinhood Crypto. Including (but > not limited to) records concerning the bespoke Supervisory Agreement > Robinhood Crypto has with > the Department of Financial Services mentioned here: > https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202208021 > . > 2. In addition, xNY.io - Bank.org seeks any and all records concerning New > York's approach to > Robinhood Crypto and Goldman Sachs compliance programs mandated by the > United States > Department of Justice, Criminal Division, Fraud Section and Money > Laundering and Asset > Recovery Section mentioned here: > https://drive.google.com/file/d/1Yx88RMoeLyyfbNK0RtPl4r- > m8N21_1Sp/view?usp=drivesdk. > 3. Finally, xNY.io - Bank.org seeks records concerning New York's > regulatory approval of > Robinhood Crypto engaging a fine of $30M to implement heightened controls > and additional > procedures and policies relating to electronic surveillance and > investigation, due diligence on > transactions or clients and the use of third-party intermediaries across > business units; and enhancing > anti-corruption training for all management and relevant employees. > To the extent the request is reasonably described, the Department > construes the request as seeking the records, > correspondence, and work product exchanged between Robinhood and the > Department in accordance with the Department’s > August 1, 2022 Consent Order (“responsive records”). > The records that you seek relate to an ongoing Department investigation. > Accordingly, your request is denied > pursuant to Public Officers Law § 87(2)(e)(i) (the “law enforcement > exemption”), which excepts from disclosure records > that are compiled for law enforcement purposes and that, if disclosed, > would interfere with law enforcement investigations. > The purpose behind the law enforcement exemption is to protect an agency’s > investigative process from being compromised > by revealing the scope and nature of an agency's investigation before an > investigation is complete. See Matter of Pittari v. > Pirro, 258 A.D.2d 202 (2d Dep’t 1999). It also bears noting that the law > enforcement exemption applies to both civil and > criminal investigatory files. See Madeiros v. Dep’t of Educ., 30 N.Y.3d 67 > (2017). In this instance, releasing the requested > records would interfere with the Department’s investigative process. Thus, > the Department is not disclosing the records that > you request pursuant to Public Officers Law § 87(2)(e)(i). > Moreover, in addition to withholding the responsive records pursuant to > Public Officers Law § 87(2)(e)(i), the > Department also is withholding the responsive records pursuant to Public > Officers Law § 87(2)(a), which specifically > exempts from disclosure records exempted by a state or federal statute. > The applicable statutory provision is N.Y. Banking > Law (“Banking Law”) § 36(10), which states, in pertinent part, that > reports of examinations and investigations and > correspondence and memoranda concerning or arising out of such > examinations and investigations are confidential and shall > not be made public. The statute fosters open communication between the > Department and its regulated institutions, a > necessity for effective regulation of financial institutions, by ensuring > that records transmitted to the Department in > connection with its supervision of a financial institution are protected > from disclosure. > The responsive records that were transmitted between Robinhood and the > Department in connection with the > Department’s supervision of Robinhood as a licensed money transmitter > pursuant to New York Banking Law, constitute > correspondence and reports concerning and arising out of an investigation > and are, therefore, required to be kept confidential > and exempt from disclosure under Banking Law § 36(10). The expectation > that records transmitted to the Department will > remain confidential is essential to encouraging candor and open > communications between the Department, its regulated > entities, and the entities undergoing regulatory review that submit such > records. Release of such sensitive records, albeit > responsive records, may have a chilling effect on the willingness of > regulated entities to share information and cooperate > with supervisors to resolve issues, and thus confidentiality is critical > to the Department’s ability to perform its regulatory > mandate and purpose. Accordingly, the exemption set forth in Public > Officers Law § 87(2)(a) via Banking Law § 36(10) > covers the responsive records. > In accordance with Public Officers Law § 89(4), you may appeal this > determination to withhold the records within > 30 days by sending an email to FOIL.Appeals(a)dfs.ny.gov. > Very truly yours, > Stephanie Mazza > Associate Attorney > ---------- Forwarded message --------- > From: <Stephanie.Mazza(a)dfs.ny.gov> > Date: Wed, Feb 21, 2024, 1:26 PM > Subject: Your Freedom of Information Law ("FOIL") Request > FOIL-2023-095358-021587 > To: <G(a)xny.io> > > > Dear Mr. Larson: > > Attached please find the Department's determination regarding the > aforementioned FOIL request. Because your request has been answered, your > request is now closed. > > Tracking Number:FOIL-2023-095358-021587 >

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Secure key from bound entanglement
by pro2rat＠yahoo.com.au 06 Mar '24

06 Mar '24

Description We characterize the set of shared quantum states which contain a cryptographically private key. This allows us to recast the theory of privacy as a paradigm closely related to that used in entanglement manipulation. It is shown that one can distill an arbitrarily secure key from bound entangled states. There are also states that have less distillable private keys than the entanglement cost of the state. In general, the amount of distillable key is bounded from above by the relative entropy of entanglement. Relationships between distillability and distinguishability are found for a class of states which have Bell states correlated to separable hiding states. We also describe a technique for finding states exhibiting irreversibility in entanglement distillation. FROM https://scholar.google.co.uk/citations?view_op=view_citation&hl=en&user=ZsQ…

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Coinbase Asks Judge To Ignore SEC Win Over 'Empty Chair'
by Gunnar Larson 06 Mar '24

06 Mar '24

Coinbase Asks Judge To Ignore SEC Win Over 'Empty Chair' <https://www.law360.com/fintech/articles/1810306?nl_pk=d2b3e7ef-ab62-4a62-80…> By Aislinn Keely Coinbase on Tuesday told the New York federal judge who's refereeing a U.S. Securities and Exchange Commission enforcement action brought against the cryptocurrency exchange to disregard a default judgment in another SEC case that found certain crypto trades on public exchanges to be securities transactions. 3 documents attached | Read full article » <https://www.law360.com/fintech/articles/1810306?nl_pk=d2b3e7ef-ab62-4a62-80…> | Save to favorites » <https://www.law360.com/fintech/articles/1810306?nl_pk=d2b3e7ef-ab62-4a62-80…>

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CryptoQueen's Brother Avoids More Prison For OneCoin Fraud
by Gunnar Larson 06 Mar '24

06 Mar '24

CryptoQueen's Brother Avoids More Prison For OneCoin Fraud <https://www.law360.com/newyork/articles/1810143?nl_pk=ac5a3855-e47c-4403-be…> By Pete Brush A Manhattan federal judge on Tuesday allowed the younger brother of fugitive OneCoin founder Ruja Ignatova to avoid additional prison time for his role in the $4 billion, global cryptocurrency scam, after he testified for the feds at a high-profile trial. 1 document attached | Read full article » <https://www.law360.com/newyork/articles/1810143?nl_pk=ac5a3855-e47c-4403-be…> | Save to favorites » <https://www.law360.com/newyork/articles/1810143?nl_pk=ac5a3855-e47c-4403-be…>

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