Levine on Wall Street: BioHawks and Unicorns

If you need a step-by-step manual of how not to insider trade, consider the BioHawks.

Don't invest with BioHawks Investment Group

I'm more sympathetic to accused (and actual) insider traders than a lot of people, but my patience has its limits. At the least you have to not be an idiot. This Securities and Exchange Commission complaint against Brian Jorgenson, who worked in treasury at Microsoft, and his buddy Sean Stokke, is just a catalog of dumb. They set up a joint brokerage account in their own names, though at least Jorgenson had the good sense to say that his employer was not Microsoft but "BioHawks," their imaginary hedge fund. Then they traded short-dated out-of-the-money call options -- the most suspicious thing you can trade! -- in Barnes & Noble in the week before Microsoft announced a big investment in Barnes & Noble. Then like two months later "they bought and used disposable cell phones, also known as 'burner phones,' to conceal the timing and nature of their communications with each other," which would have been a great idea if they'd had it before doing all their insider trading. You know what Jorgenson did do before insider trading? Like, hours before insider trading? He "accessed Microsoft's online employee handbook, which, among other things, details the company's insider trading policy." Super. So he knew he wasn't supposed to insider trade. So why did he? "I told myself, 'Members of Congress can do it.'" So he did too.

Abusive mortgage servicers can outsource their penalties

Ocwen Financial Corporation yesterday settled abusive-servicing charges with the Consumer Financial Protection Bureau and a bunch of state attorneys general. The settlement requires Ocwen to pay $127.3 million to foreclosed borrowers, and to provide $2 billion of consumer relief mainly in the form of principal reduction. "But wait," you say, "Ocwen is just a servicer, owns essentially no mortgages, and will provide this principal reduction entirely out of the pockets of innocent investors whose mortgages it services." Well, sure. Though Ocwen says the reductions "are designed to be sustainable for homeowners and also provide positive net present value outcomes for mortgage loan investors" by avoiding even more value-destructive foreclosure, and, again, sure, why not. But the other thing is that the people at Ocwen doing the abuses don't have $2 billion. If anyone's going to pay for them, it's going to be an innocent institutional investor: The innocent investors who own the loans, or the other innocent investors who own Ocwen shares. Both sets of investors have some incentives to demand that Ocwen do a good job but it's not entirely clear why the burden should be entirely on the shareholders and not at all on the mortgage investors. Why not stick them with the bill for their agent's misdeeds?

Jefferies will pay employees using money

As opposed to stock. This is a differentiator for scrappy upstart Jefferies, in a world where bigger investment banks are moving in the direction of deferring more compensation and linking it more to future performance. Though obviously the real rebel move would be to pay employees using bitcoins.

Deutsche Bank did boring naughty stuff

Finra fined Deutsche Bank Securities, Inc., a U.S. broker-dealer subsidiary of Deutsche Bank, $6.5 million for an assortment of record-keeping violations and if you can follow the consent order through to the end you are a better man than I. I will choose to be filled with a vague feeling of warmth and safety, knowing that dedicated financial regulators are taking the time to sift through Deutsche Bank's books to make sure that they're right. And now nobody else has to, which is a plus.

Europe is no longer AAA

Standard & Poor's cut its rating of the European Union to AA+ today. This does not seem like a particularly momentous market event; "the EU has no debt or deficit to speak of and its budget is a stand-alone entity financed by 28 countries, making it one of the most stable institutions and most reliable borrowers in the world." If you're S&P I guess you need to do some internal bookkeeping every now and then about your various publicity-stunt statement ratings, to make sure they're at least plausibly consistent. The U.S. was downgraded to AA+ two years ago and it's spent the last two years almost never having sovereign debt crises, while the EU has had rather more. So I guess this belated downgrade makes a kind of sense if you don't think too hard about it.

" Two researchers send a text message using vodka "

Oh sure. The uses of this seem limited but it apparently "the clogged London sewer system" is one promising example of a place "where robots could have been deployed below ground and have relayed their findings via the molecular communication system." So, look out for sewer robots communicating via vodka.


Here is First Round Capital's holiday video. It features unicorns. You should watch it.

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    Matthew S Levine at mlevine51@bloomberg.net

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