SAC Capital Indicted: Bottom Line (07/25)

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July 25 (Bloomberg) -- On today's "Bottom Line," Mark Crumpton provides insight at the trading day's critical hour, with careful analysis of big events for investors. (Source: Bloomberg)

From bloomberg world headquarters, i'm mark crumpton.

This is "bottom line," the intersection of business and economics with a main street perspective.

Tonight federal prosecutors say the insider trading charges filed against the company are without resident in the history of hedge funds.

And a look that's part of the leucovorin washington.

And a new service from ebay that promises speedy delivery.

? to our viewers around the u.s. and those joining us from around the world, welcome.

Olivia sterns tracks today's stock market actions.

Phil mattingly follows president obama's speeches on the economy.

We begin with su keenan.

Good evening.

This is the first time that a multibillion-dollar hedge fund has been indicted by a grand jury.

Significantly, there is not one mention anywhere of the criminal charges filed or a parallel suit of the funds a billionaire founder.

He is not charged.

This is a scathing indictment on the firm that bears his initials.

The indictment is not just a narrated of names and numbers.

It is more broadly an account of a firm with a zero tolerance for low returns, but seemingly tremendous tolerance for questionable conduct.

Sac became over time a magnet for market cheaters.

A magnet for cheaters, he says.

The criminal charges filed include one count of wire fraud and four counts of securities fraud and inside trades in more than 20 companies that took place between 1999 and 2010. indictment also says criminal charges filed that the activities were combing old with assets -- co-mingled with assets.

Sac indictment follows six years of investigation by the government.

They made it clear it is not over yet.

Sac issued a statement rebutting the charges.

What is the firm saying?

They denied the charges.

They say they take a compliance seriously.

The government says that 8 former staffers have entered guilty pleas or are being convicted of insider trading charges.

We have two insider trading trials coming up.

The fbi says sac tolerated insider trading and encouraged it.

Thank you.

We'll have more on the trading charges against sac capital.

Andrew stoltma nn is coming up.

There is a revitalize push to address the economy.

The speech in jacksonville, florida was not just about proposals for economic growth.

He also sharpened his message on the looming budget and the debt ceiling.

Phil, good evening.

Good evening.

It was day 2 of president obama's effort to bring they coming back to the forefront.

It brought a sharp and issue.

The raising of the debt ceiling.

These issues paralyze washington and they remain far apart from the white house.

Republicans are threatening to hold up on the spending bills unless they defund obama's health care law.

They want the cuts to the debt ceiling to increase.

Both of those are nonstarters for the white house.

Something obama reiterated today.

Shutting down the government just because i'm for keeping it open is not an economic plan.

Threatening you and not pay the bills when we have racked up those bills, that is not an economic plan.

That is being a deadbeat.

Those are sharp words.

It is matched by the elevated rhetoric by republicans on their side.

This is the second day of what president obama says will be a series of speeches on the economy.

They will focus on the speeches and from obama's aides is that a want the middle-class to get a a focus and rebuild the middle class.

But they are also doing is that they are setting the stage right now for these fall fights.

We have the recess in august for five weeks or everyone will be out of town and they will come back and debate spending bills and whether to keep the government open.

The bigger picture issue is that they are positioning and that is what aides are trying to to set him out on the states to do so.

What are republicans saying behind the scenes about these two fights that are coming up in the fall?

Republicans are very clear up front.

They will stick together in a unified message.

They want cuts.

They're thinking of defunding obamacare to move forward.

The biggest issue is finding a solution that works are both sides.

There is a gulf between them right now.

I think we are a long way off.

Phil joining us from washington.

Thank you.

Let see how wall street finished today's session.

Stocks rose and treasuries reversed earlier the clients.

There was speculation that the fed may reverse its stimulus measures.

The dollar fell.

Let's look at the numbers.

S&p 500 index was up a quarter of a percent at 1690. the dow don't industrial average was up about a 10th of a percent at 15, 555. the nasdaq and next up nearly three quarters of a percent at 3605. let's get to the stories behind the numbers.

Olivia sterns is standing by.

Good evening.

Earnings continue to pour in.

The big reason you saw the nasdaq outperformed today was that it is facebook.

Facebook shares surging 30% today.

It is a record rally.

Facebook shares back up at $34 per share.

10% off the ipo price at $38. results show mark zuckerberg's big that -- bet on mobile seems to be paying off.

It is set to overtake sales from advertising on desktop and cedars -- desktop computers.

It has zuckerberg read $.8 billion payday.

Starbucks, the world's largest coffee shop operator topped estimates.

25% increase in profits.

We did see a down day for zynga shares falling in after hours.

The maker of arm bill -- the maker of "farmville." finally, these ishares are of up more than 4% today.

-- vis a shares are up more than 4% today.

Nearly half of s&p 500 companies have posted results.

74% have be to.

57% has been on estimates.

A similar trend to what we saw last quarter.

Companies are eking out a profit.

Olivia sterns, thank you.

Amazon, the world's largest online begin the reports a surprise loss in the second quarter.

Jon erlichman reports from los angeles.

When it comes to amazon results, it is never a story about fails.

It is always about profit elite.

On the revenue side, this is a company that continues to gain momentum.

When you think of the second quarterback in 2010, the company generated millions of dollars.

Obviously this business has grown because of the motor that amazon has built.

Offering more to each customer.

Things like free movies if you are a user of amazon prime service.

This costs a lot of money and squeezes the margin.

You saw that in the quarter.

It is not unusual.

Amazon's hope long-term is that the spending it is doing will keep you spending and will have you biting things that will result in bigger profit margins -- buying things that will result in bigger profit margins.

It was tied to a lot of physical things like merchandise and candles and electronics.

There was a sizable -- kindles and electronics.

There was a sizable chunk linked to media.

That is where jeff bezos is trying to put the company in the long term.

Jon erlichman reporting.

Coming up, the justice department is continuing its crackdown on a ledge it insider trading.

Latest firms in the cross hairs.

Sac capital.

That story when we return.

? day 2 of testimony.

They focused on the infamous e- mail where he brags to his girlfriend about an investment deal that cost billions of investment losses.

He called himself fabulous.

Su keenan has been following the trial.

She joins us with details.

It was an unusual day.

There were e-mails and love notes to a goldman sachs saleswoman who was his former girlfriend.

I'll use by a governor lawyer trying to show that the former goldman sachs trader out several fraud claims i like to investors.

He tried to use -- they're trying to show proof he intentionally committed fraud.

They asked him about referring to this little passage.

More and more leverage in the system.

The whole building is about to collapse any time now.

The only potential survivor is that fabulous fab standing in the middle of all of these complex traits.

-- trades.

When questioned, he said it was a silly, romantic e-mail i sent to my girlfriend and a moment of market stress.

They asked about references to monstrosity.

He said he did not want to create monstrosity was that one of the e-mails contained a cause a sexual reference.

He was embarrassed on the stand about that.

Some felt that the sec lawyer may have gone too far.

They felt sorry for the guy.

How did they react to all of this?

There is heavy jargon being used.

It is somewhat refreshing that many can see this young man who is very charming and has an adorable french accent.

He is clearly knowledgeable of the deals.

He has corrected the sec when saying he does not understand how the deal is structured.

Su keenan, thank you.

I'm joined by a lawyer, andrew stoltmann.


Thank you.

Let's get back to the sac capital story of the day.

Sac engaged in a pattern of insider trading that the government says went unchecked for over a decade.

It is some of the strongest language i have heard prosecutors use in the last 10 to 15 years.

They seem to have it out for stephen coehn and his -- cohen and his firm.

It does not look like they will get a criminal indictment.

The next best thing is indicting sac.

That will cause sac to close down.

For prosecutors, that is a feather in their cap.

Allegations going back to 1999. that is a long term of systemic fraud.

You mentioned stephen cohen . he is not named as a defendant.

He enabled and promoted the insider trading schemes by ignoring indications that trading recommendations were based on inside information . from a legal standpoint, what is the difference?

Well, the big difference is that they really are focusing their guns.

They are focusing on the environment at sac, the lack of compliance, the lack of internal control.

I think they have set the compliance infrastructure sac as the ultimate fall guy.

They will be able to do that . there have been six employees at sac that have been criminally charged.

Two more that and going on trial sometime in november.

For a 1000 person corporate, six people pleading guilty to one of the most serious crimes a person can engage in is incredible.

Preet says the government is not trying to force sac to close, but -- any and all assets end up doing that?

And what does this mean for third-party investors?

I think sac is functionally dead because of the agreements they have with their trading partners.

To the extent there was a criminal indictment, that gives them certain rights for obligation.

Pneumatic what -- what trading partner wants to be associated with a company under criminal indictment?

It will be hard for sac to continue.

In terms of public money, other investors, i think he is done.

The reputation damage is crippled for the firm?

This firm and if you think about it, the last few months have been horrible for hedge funds in general.

You have a hedge fund in the news for that fabulous fab trial.

Number of hedge funds and sac and the news virtually every day.

Our bloomberg view columnist wrote the following today -- the justice department will need to clearly explain once and for all how it justifies giving deferred prosecution are nonprosecution agreements to large and financial institutions come up but not sac capital, especially when it could not find a criminal case to bring against its owner.

Why give agreements to j.p. morgan chase and deutsche bank, but not sac capital?

Great question.

I have had a problem with those deferments for a long time.

It seems the department of justice plays favorites and they decide who does or doesn't get that.

It is stunning.

As things are frequently abused.

It calls for second-guessing.

And a lot of head scratching.

Great question.

Stephen cohen achieved -- shouldn't the returns have raised red flags?

Were they too good to be true?

That was the initial thing that set prosecutors.

That is what set them off.

They had something like 100 different trades shortly before good or bad news was released.

That was consistently happening.

That is a major red flag.

That caused prosecutors to focus in on them like a laser beam.

The big problem is that he almost spoke to the bear with respect to prosecutors.

When you are under investigation, what you do not do is buy an expensive painting or a home in the hamptons.

We do not do it.

There is a certain level of arrogance he has had that did not help him in the investigation.

Andrew stoltmann joining us tonight.

Always good to talk to you.

Thank you.

Any time.

Coming up, what is the cost of getting appointment?

I will have that story next.

? white house correspondent julianna goldman looks at what it takes.

The fun assignments come with a hefty price tag.

President obama has picked fundraisers to serve for ambassadors to italy, spain, and london.

26 of his current nominated ambassadors were major democratic campaign donors.

They gave at least $13.6 million to him and the democratic party and congressional candidates.

That is according to data.

Obama campaign disclosures making records also show that donors turned ambassadors give an average of at least $523 ,000 to democratic candidates.

Caroline kennedy's nomination is different.

She has been a different kind of support or to the president.

Her early endorsement when she announced alongside her uncle, the late senator ted kennedy, that came at a critical time in his residency and helped him secure the democratic nomination back in 2008. take a look.

Obama's finance chairman last year.

He is ready to be considered the most procedures position -- most prestigious position.

1.2 million dollars for the reelection of pain.

Her italy, obama has topped a washington lawyer -- four italy, obama has -- for italy, obama has tapped a washington lawyer, john phillips.

Ambassadors often, with an also need to have deep pockets.

They make a salary of thousands of dollars.

But the parties and dinners they throw really add up.

Some ambassadors end up paying -- welcome back to the second half-hour of "bottom line" on bloomberg television.

Thank you for staying with us.

We hit the bottom of the hour on this thursday, july 25, 2013. the s&p 500 was up a little more of a quarter at 6090. the dow jones rising at 15,555. the nasdaq was up nearly recorders of a percent at 3605. let's get a check of some of the other top stories we are following.

Here is olivia sterns.

80 people are dead and 31 are in critical condition after a train derailed in spain was a dramatic video shows the train fighting off the rails and smashing into concrete walls and investigators are looking at whether the accident was caused by speeding.

It is the country's worst train disaster in more than four years.

Attorney general eric holder says the justice department will ask a federal court in san antonio to have advanced approval for voting changes.

Holder called the voting rights act the cornerstone of modern civil rights law.

And halliburton pled guilty to destroying evidence in connection with the deepwater horizon disaster in the golf of mexico.

The government said halliburton admitted to criminal conduct and will pay the maximum statutory fine.

That is a look at the top stories at this hour.

Thank you.

List take a look at the top stories in asia.

A long-running political scandal.

Good day.

Good evening.

We could be reaching the end of this case.

It is one of the most high- profile downfalls of his senior official.

He could be the third member to be prosecuted over the last 20 years.

The latest is on thursday at about noon in asia.


bo was formally charged with corruption and abuse of power and using his influence and his position in government that position and government -- and his position in government to embezzle public money.

The timetable is that rings are unstable.

Under chinese law, a court will likely deliver a judgment and a verdict within a month.

Keep in mind this is china.

It is a high profile case.

Do not be surprised if this is fast tracked.

Leaders want to put this behind them ahead of the annual central committee meeting were they usually come up with major economic shifts.

If he does get in, keep in mind that his wife was given a suspended sentence on whether he gets that sentence, we do not know.

That means i guess life in prison essentially here.

The chinese government has ordered more than 1000 companies to cut back on access production capacity.

What is behind that decision?

That is right.

This is coming out overnight.

It is about addressing what we have seen in the chinese department.

Billions of dollars invested in sectors like steel and cement and paper making.

Keep in mind, there is a slowdown.

There are too many assets doing too little things.

1400 factories across 19 different industries -- and mentioned some of the sectors must be idle by september before being eliminated.

That is the deadline given by the chinese government.

David joining us from hong kong.

Thank you.

If they has become much more than an auction house.

It is finding new and faster ways to meet customers demand in a crowded e-commerce marketplace step it's a latest venture is ebay now.

It is a service the expanded this week.

It promises to deliver purchases in under an hour.

We track two different active just to find out how they do it.

-- two different packages to find out how they do it.

Need something and need it now?

If you live in the big apple and seven cisco, a change could be answering your call.

Charged portable bluetooth speaker.

They are shopping on ebay now.

The newest addition to the online marketplace.

It is an experiment and instant delivery.

Using a mobile app, customers in san francisco and san jose and new york purchase products from nearby retailers and the ebay ballet delivers the goods within an hour.

It is predominately fixed price.

Think about ebay local.

That takes a connection of buyer and seller to the next level.

Ebay is expanding the now service for mobile to the desktop.

Working professionals like the service was that half of our usage between 10:00 and 5:00, we have made the retailers more prominent.

They go right in and shop in the store.

The now experience, the company hopes to expand its shopping base.

Their dream is to basically be a competitor to amazon.

Be a place where you can buy it.

It is focused on all things and the need for convenience and immediacy.

The immediacy is a new trend and e-commerce.

Barnes & noble and amazon offers select same day slavery -- same- day delivery.

The infrastructure challenges are immense.

This is a hard business to be in.

My guess is that they view this as to be on one of the trends and bring to customers -- we can build a business that is profitable for ebay and retailers.

They plan to launch in dallas and chicago.

Jon erlichman, bloomberg, los angeles.

This is "bottom line" on bloomberg tv and streaming live on, your tablet, your phone, and now any windows phone.

Coming up, the ship of tomorrow's nab.

We got an exclusive look at the combat ship.

? the u.s. is staking its future on a combat ship.

The $34 billion program is facing heat.

There is a new gao report out and a congressional hearing.

We got an exquisite look at some of the features of the new ship and some of its problems.

Smaller and sleeker and faster.

The program is meant to be the future combatant ship for the u.s. navy.

General dynamics.

The independence.

419 feet long.

As greater stability and travel up to 40 knots.

The things the ship can do with its engineering and configuration is something i have never seen on any other ship.

This is a focused mission ship.

It has many capabilities, but does one thing at a time.

The the command center has quadruples permission packages.

That surface warfare with small vessels.

It takes 96 hours to swap the equipment out.

It will address a lot of mission needs that the navy has that are currently not handled efficiently.

Crewmembers -- how it moves cargo and prevents fires and monitors movements.

The new technology comes a smaller crew was one officer on the ship performs the duties of 10 on older combat ships.

Fewer people also means spacious living quarters.

Sailors even have a private toilet in their room.

The reduce labor force on board could mean overworked crews may not be up to keep up with major maintenance.

It operates close to shore makes that unlikely.

I do not need a team of 20 engineers to fix things on board the ship because those things are fixed by people offshore.

The independence has a missile system and canon and caliber machine guns that can destroy swarms of small boats.

It has more than 11,000 square feet of flight deck.

Its hangar can support a helicopter and drones.

Well armed, yes.

Critics warn the armor is too light to survive a major hit.

We have to be vigilant and smart.

That includes understanding it survivability.

Bender there is the ever- changing price tag.

In 2005, it's projected costs for millions of dollars per ship.

Now that figure is up to a hundred $28 million.

In abc's the price falling into line eventually.

Over time and with exposure and with the ship getting -- over time the price would fall into line eventually.

Overtime with exposure, and with the the ship getting -- for the next block of ships, keeping production to a minimum while testing is done.

At the hearing before the house armed services committee, the secretary of the navy warned if reduction of the ship slows down, costs will go up.

The design problems have been addressed.

Back to you.

That was megan hughes reporting.

Coming up, more on america's defense spending.

Contractors reported earnings this week.

How will this affect their bottom line?

? welcome back.

This is "bottom line" on bloomberg tv and streaming on, your tablet, and your phone.

There were warnings that sequestration and pentagon cuts would hurt defense companies.

So far they are doing ok.

They are all up this year after reporting blowout earnings this week.

We have a first offense analyst from washington.

Thank you for your time.

Why are not the defense contractors feeling the pain of sequestration?

They are not feeling the pain is because they have got huge backlogs.

The fence money is appropriated.

-- defense money is appropriated . they still have quite a pipeline . they probably will not feel it for a year or two at the most.

Talk to us about that pipeline.

What does it look like?

Lockheed is the largest defense contractor in the world.

$80 billion pipeline.

That is almost twice their annual revenues.

All of the top five companies , thereby blends exceed their annual revenues usually by about 150% or more.

They have a lot more to be spent.

Next year, is that when the same -- is that when the sequestration will have a full force?

You'll see more of an impact in 2014. some of the pipeline will obviously get exhausted.

Also because you have the double impact.

Some of that money -- and we will probably another sequester in 2014. there is a double impact.

It could take as much as $30 billion out of total defense spending in fiscal 2014. bloomberg analysts were talking about these various subjects.

They discussed how contractors could see cuts across maintenance programs.

What might that look like?

We always think of the big procurement program like f-35's or one of the ships that you just showed.

The bigger cuts come to operations and maintenance accounts.

That is the day to day running of the military.

A lot of the training and maintenance and upgrades into systems.

Some of that is procurement money.

That is where the bigger cuts were felt.

We should mention that earlier this month the defense secretary, chuck, he submitted a letter to the senate armed services committee.

That led into detail of how his department would respond to fiscal your 2014 cuts that were mandated to the budget control act of 2011. how is the going to navigate this?

He basically said we are going to prepare for this.

We do have a plan.

The pentagon was trying to which the congress to undo the sequester.

Now the secretary of defense hagel has said here are the plans.

I think you still try to pressure congress.

He listed some pretty dire consequences about standing down and the training for the army and looking at freezing promotions.

He is still trying to rusher congress to do something.

He is saying he has a plan and the consequences are dire for the military if you guys do not fix this.

What does this mean for the contractors and their bottom line and how they will heap spending below tight budget caps?

If the military is forced into another sequester, the contractors are going to begin to feel more pain in 2014. those that provide services that goes to the procurement programs, a lot of that is prior money that is in those pipelines.

But they will feel some of the pain.

The operation and maintenance dollars will get cut.

20 seconds left.

What are the prospects for avoiding sequestration in 2014? if i was a betting man, i would not bet heavily on avoiding it.

No one likes it.

A solution does not seem to be on the horizon.

Bloomberg defense analyst joining us from washington.

Thank you for your time.

Thank you.

Coming up, summer brings to tile and what is nicknamed the corpse flower.

We explain in hot shots.

? that is a look at the future markets.

Welcome back.

This is "bottom line" on bloomberg television and streaming on, your phone, and a tablet.

In washington, a focus on overhauling the u.s. tax system was absent lawmakers face a deadline to make recommendations to the senate finance committee on which tax breaks should remain.

Senator baucus requested comments and asked colleagues to assume a clean slate stripped of all tax reductions is dubbed the committee will not make recommendations in the house -- they prepare to rewrite the tax code.

Let's go to olivia sterns with the business news preview.

Here on wall street, earnings will continue to roll in tomorrow.

Nearly half of s&p 500 companies have posted results.

74% have beaten profits.

57% have beaten on sales estimates.

Tomorrow the earnings, we will be watching those.

Kkr releases earnings before the bell.

And mining will be out with their earnings.

On the economic front, the university of michigan consumer confidence numbers are crucial.

That will be out.

Olivia sterns, thank you.

It is time for hot shots, a look at some of most compelling images of the day.

It is not everyday that tourists lined line up to smell something foul.

In brussels, a plant known as the corpse flower is in bloom.

It is said to smell like rotting fish.

If you are yearning for a with him at your window to do so is about to close.

It only stays in bloom for about three days.

This year is the third time the flower has bloom since 2008. it measures about eight feet.

This text has been automatically generated. It may not be 100% accurate.


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