4 ms·

The Cartel: How BP Got Insider Tips Through a Secret Chat Room

45 points by randomname2 12y ago

jacquesm 12y ago
Those are some very serious accusations. This has the ring to it of the first of a series of domino stones falling over.
- justincormack 12y ago
  Not the first, this is the middle of the series, there have already been fines.
  - randomname2 12y ago
    See also: http://www.wsj.com/articles/three-senior-traders-fired-amid-global-forex-probe-1413312358 http://www.wsj.com/articles/three-senior-traders-fired-amid-... (Oct. 14, 2014) http://www.fca.org.uk/news/fca-fines-five-banks-for-fx-failings http://www.fca.org.uk/news/fca-fines-five-banks-for-fx-faili... (Nov. 12, 2014) So the conventional wisdom was that this cartel involved almost exclusively bankers at the largest global banks including JPM, Goldman, Deutsche, Barclays, RBS, HSBC, and UBS. This new article finally links banks with the other two facets of this FX-rigging "triangle" cartel: private sector companies that have no direct banking operations yet who have intimate prop trading exposure, as well as central banks themselves.
orf 12y ago
I think it's a bit ridiculous to expect traders not to use/trade inside information like this, it's obviously going to happen.
- jacquesm 12y ago
  That's very explicitly forbidden. It may be obvious to you but it's on par with saying that bank robberies are going to happen. That doesn't make it any more legal. Messing with the market at this level will have very serious repercussions.
  - orf 12y ago
    That's implying robbing a bank is as easy as sharing information. It may be forbidden but the monetary gain is huge, and how hard is it to transfer information anonymously?
    - modfodder 12y ago
      If you have the right information and the right access (much like the men in the article), it is easy to rob a bank.
      - eru 12y ago
        The hard part in a physical bank robbery is to avoid getting caught.
  - spinlock 12y ago
    The difference is people go to jail for robbing banks. This is a serious crime and sound markets are hugely valuable but I start to agree that we should throw out the laws if they aren't being enforced. It would make the markets more efficient by distributing insider information more democratically.
  - new299 12y ago
    A number of economists have argued that insider trading is a good thing (as it efficiently adds information to the market) and should not be illegal: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/26/insider-trading-makes-us-richer-better-informed-and-could-prevent-corporate-scandals-legalize-it/ http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/26/i...
    - dllthomas 12y ago
      This doesn't seem to have been insider trading, though. It seems to have been people letting others know about orders they're about to make on behalf of clients. I don't know of any economists who say that sort of breach of fiduciary duty should be legal - it's nothing but handing over someone else's money.
- randomname2 12y ago
  Well it's criminal but in line with expectations: after all when given a carte blanche to do anything they want, humans will do just that, even if it means trample every regulation known to man. Especially when there's a huge perceived leeway of sneaking between legal cracks, with coopted or outright purchased politicians and regulators.
FesterCluck 12y ago
With the ease with which information is shared these days, there will be no stop to this. The only solution is to put all traders on a level playing field. Stop computerized millisecond trading, and gains will need to be processed either randomly or with more lead time each day.
- Mikeb85 12y ago
  > Stop computerized millisecond trading This has absolutely nothing to do with insider trading...
  - dllthomas 12y ago
    And neither HFT nor insider trading have anything to do with this issue...
- deleted 12y ago
  [deleted]
- simonh 12y ago
  This is about giving tips via a chat room about trades to be made minutes or hours later. Millisecond trading is completely irrelevant.
  - justincormack 12y ago
    Indeed computers do not disclose your confidential information, well hopefully not.
dllthomas 12y ago
Um, various comment sections and article verbiage aside, is "insider trading" the issue here? It seems like this was currency markets, which I'm not hugely familiar with... but I know that with regard to commodities there's not really such a thing as "insider trading" in a legal sense and I'd weakly expect the situation with currencies to be similar. If you read about what was actually shared, though, "tips about forthcoming trades, details of confidential client business and discussions of stop-losses", it sounds like there may have been some serious breeches of fiduciary duty on the part of the people providing the information.
- dopamean 12y ago
  I'm not sure there is such a thing as insider trading outside of equity markets. Having said that, I'm sure there is some way that similar actions could be spun as price manipulation or something of the sort.
- justincormack 12y ago
  confidentiality, conflict of interest, systemic risk not insider trading: http://www.fca.org.uk/news/fca-fines-five-banks-for-fx-failings http://www.fca.org.uk/news/fca-fines-five-banks-for-fx-faili...
- randomname2 12y ago
  Actually yes, BP has absolutely been acting like a collusive, insider trading hedge fund if these accusations are proven. The similarities to Enron are uncanny. As per the article, BP is denying everything, and so the article is very careful in phrasing BP's involvement: "While there’s no evidence that any BP traders were members of the Cartel, Usher participated in at least one chat room with White, according to a person who has examined conversations that included both men. It couldn’t be determined from the messages reviewed by Bloomberg News who sent the information to BP or whether BP employees acted on any of the tips." Except they did: "Traders at BP haven’t been accused of any wrongdoing. Last year, within hours of regulators announcing probes, the chats between BP and the banks were shut down, people with knowledge of the matter said. Soon after, a compliance officer was placed on the desk for the first time, one of them said." Not exactly what one would do if one was "innocent". Interesting tidbit on how the Bank of England may have been involved in all this rigging, FX market manipulation and criminal abuse of other market participants: "[Usher] joined JPMorgan as head of spot foreign exchange in 2010, where he became a member of the now-defunct Bank of England’s Chief Dealers Sub Group, a collection of about a dozen currency traders and central bank officials who met at restaurants and bank offices to discuss industry developments." Which is why the Bank of England itself may have had to scapegoat its own sacrificial lamb to avoid any further connection to this criminal cartel: Chief FX dealer for the Bank of England, Martin Mallett, on November 12 "was dismissed by the Bank of England yesterday for “serious misconduct relating to failure to adhere to the Bank’s internal policies,” according to a statement by the central bank today."

45 points by randomname2 12y ago

Those are some very serious accusations. This has the ring to it of the first of a series of domino stones falling over.

justincormack 12y ago
Not the first, this is the middle of the series, there have already been fines.
- randomname2 12y ago
  See also: http://www.wsj.com/articles/three-senior-traders-fired-amid-global-forex-probe-1413312358 http://www.wsj.com/articles/three-senior-traders-fired-amid-... (Oct. 14, 2014) http://www.fca.org.uk/news/fca-fines-five-banks-for-fx-failings http://www.fca.org.uk/news/fca-fines-five-banks-for-fx-faili... (Nov. 12, 2014) So the conventional wisdom was that this cartel involved almost exclusively bankers at the largest global banks including JPM, Goldman, Deutsche, Barclays, RBS, HSBC, and UBS. This new article finally links banks with the other two facets of this FX-rigging "triangle" cartel: private sector companies that have no direct banking operations yet who have intimate prop trading exposure, as well as central banks themselves.

orf 12y ago

I think it's a bit ridiculous to expect traders not to use/trade inside information like this, it's obviously going to happen.

jacquesm 12y ago
That's very explicitly forbidden. It may be obvious to you but it's on par with saying that bank robberies are going to happen. That doesn't make it any more legal. Messing with the market at this level will have very serious repercussions.
- orf 12y ago
  That's implying robbing a bank is as easy as sharing information. It may be forbidden but the monetary gain is huge, and how hard is it to transfer information anonymously?
  - modfodder 12y ago
    If you have the right information and the right access (much like the men in the article), it is easy to rob a bank.
    - eru 12y ago
      The hard part in a physical bank robbery is to avoid getting caught.
- spinlock 12y ago
  The difference is people go to jail for robbing banks. This is a serious crime and sound markets are hugely valuable but I start to agree that we should throw out the laws if they aren't being enforced. It would make the markets more efficient by distributing insider information more democratically.
- new299 12y ago
  A number of economists have argued that insider trading is a good thing (as it efficiently adds information to the market) and should not be illegal: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/26/insider-trading-makes-us-richer-better-informed-and-could-prevent-corporate-scandals-legalize-it/ http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/26/i...
  - dllthomas 12y ago
    This doesn't seem to have been insider trading, though. It seems to have been people letting others know about orders they're about to make on behalf of clients. I don't know of any economists who say that sort of breach of fiduciary duty should be legal - it's nothing but handing over someone else's money.
randomname2 12y ago
Well it's criminal but in line with expectations: after all when given a carte blanche to do anything they want, humans will do just that, even if it means trample every regulation known to man. Especially when there's a huge perceived leeway of sneaking between legal cracks, with coopted or outright purchased politicians and regulators.

FesterCluck 12y ago

With the ease with which information is shared these days, there will be no stop to this. The only solution is to put all traders on a level playing field. Stop computerized millisecond trading, and gains will need to be processed either randomly or with more lead time each day.

Mikeb85 12y ago
> Stop computerized millisecond trading This has absolutely nothing to do with insider trading...
- dllthomas 12y ago
  And neither HFT nor insider trading have anything to do with this issue...
deleted 12y ago
[deleted]
simonh 12y ago
This is about giving tips via a chat room about trades to be made minutes or hours later. Millisecond trading is completely irrelevant.
- justincormack 12y ago
  Indeed computers do not disclose your confidential information, well hopefully not.

dllthomas 12y ago

Um, various comment sections and article verbiage aside, is "insider trading" the issue here? It seems like this was currency markets, which I'm not hugely familiar with... but I know that with regard to commodities there's not really such a thing as "insider trading" in a legal sense and I'd weakly expect the situation with currencies to be similar. If you read about what was actually shared, though, "tips about forthcoming trades, details of confidential client business and discussions of stop-losses", it sounds like there may have been some serious breeches of fiduciary duty on the part of the people providing the information.

dopamean 12y ago
I'm not sure there is such a thing as insider trading outside of equity markets. Having said that, I'm sure there is some way that similar actions could be spun as price manipulation or something of the sort.
justincormack 12y ago
confidentiality, conflict of interest, systemic risk not insider trading: http://www.fca.org.uk/news/fca-fines-five-banks-for-fx-failings http://www.fca.org.uk/news/fca-fines-five-banks-for-fx-faili...
randomname2 12y ago
Actually yes, BP has absolutely been acting like a collusive, insider trading hedge fund if these accusations are proven. The similarities to Enron are uncanny. As per the article, BP is denying everything, and so the article is very careful in phrasing BP's involvement: "While there’s no evidence that any BP traders were members of the Cartel, Usher participated in at least one chat room with White, according to a person who has examined conversations that included both men. It couldn’t be determined from the messages reviewed by Bloomberg News who sent the information to BP or whether BP employees acted on any of the tips." Except they did: "Traders at BP haven’t been accused of any wrongdoing. Last year, within hours of regulators announcing probes, the chats between BP and the banks were shut down, people with knowledge of the matter said. Soon after, a compliance officer was placed on the desk for the first time, one of them said." Not exactly what one would do if one was "innocent". Interesting tidbit on how the Bank of England may have been involved in all this rigging, FX market manipulation and criminal abuse of other market participants: "[Usher] joined JPMorgan as head of spot foreign exchange in 2010, where he became a member of the now-defunct Bank of England’s Chief Dealers Sub Group, a collection of about a dozen currency traders and central bank officials who met at restaurants and bank offices to discuss industry developments." Which is why the Bank of England itself may have had to scapegoat its own sacrificial lamb to avoid any further connection to this criminal cartel: Chief FX dealer for the Bank of England, Martin Mallett, on November 12 "was dismissed by the Bank of England yesterday for “serious misconduct relating to failure to adhere to the Bank’s internal policies,” according to a statement by the central bank today."