How The Biggest Banks Get Away With Fraud
ColdFusionKey Moments
Banks engage in massive fraud through fake accounts, LIBOR rigging, market manipulation, and ETNs, enriching themselves at investor expense.
Key Insights
Wells Fargo created millions of fake customer accounts to meet aggressive sales targets, leading to significant fines and executive resignations.
The LIBOR scandal involved major banks colluding to manipulate benchmark interest rates, impacting trillions in financial assets and causing losses for borrowers.
JPMorgan Chase engaged in 'spoofing' in gold and silver markets, creating artificial demand to manipulate prices and profit, resulting in heavy fines.
ETNs (Exchange Traded Notes) are unsecured debt products with a mathematical design to lose value over time, profiting the issuing banks.
Reverse splits are used by ETN issuers to artificially inflate share prices, disguise losses, and allow for the creation of more notes at higher prices.
Whistleblower Rob Bezdjian believes ETNs are a major ongoing fraud, highlighting their engineered decline and the banks' profit from investor losses.
WELLS FARGO'S CULTURE OF DECEIT
Wells Fargo faced a major scandal when executives pushed for aggressive sales targets in financial products. To achieve these, employees created millions of fake savings and checking accounts for customers without their consent. This was achieved by using internal contact details and even moving funds from existing accounts, effectively giving bankers control. Despite early warnings from journalists, the fraud continued, leading to massive fines and the resignation of the CEO.
THE GLOBAL MANIPULATION OF THE LIBOR RATE
The London Interbank Offered Rate (LIBOR) scandal revealed how major banks colluded to manipulate global interest rates. Banks were supposed to estimate their borrowing costs, which formed the LIBOR rate, underpinning trillions in financial derivatives. Instead, they formed cartels to ‘fudge’ these numbers, reporting inflated or deflated rates to profit from the difference between their reported and actual trading rates. This manipulation led to higher mortgage and loan payments for individuals and corporations.
JP MORGAN'S GOLD AND SILVER MARKET RIGGING
JP Morgan was accused of manipulating the gold and silver markets between 2008 and 2016 through a practice called 'spoofing'. This involved creating a false appearance of demand or supply using algorithms to move market prices for their benefit. Despite being labeled a conspiracy theory, a federal prosecutor called JP Morgan a 'criminal enterprise' for this rigging. The bank was eventually fined $920 million, a sum considered small compared to potential profits earned.
THE MATHEMATICAL FRAUD OF EXCHANGE TRADED NOTES (ETNS)
Exchange Traded Notes (ETNs) are unsecured debt obligations issued by banks. Unlike ETFs, they are not backed by assets and are essentially IOUs promising to mimic index performance. Crucially, ETNs are designed to mathematically decrease in value over time, with issuers like Credit Suisse explicitly stating their long-term value is zero. Banks profit as the ETN price declines, essentially profiting from investor losses.
THE ROLE OF REVERSE SPLITS IN ETN FRAUD
To disguise the inherent decline of ETNs and avoid suspicion, issuers employ a financial trick called a 'reverse split'. This process reduces the number of shares while proportionally increasing the price per share, making the ETN appear more valuable. This manipulation allows banks to issue more notes at a higher perceived price, transferring billions in value from investors directly to the banks' balance sheets.
WHISTLEBLOWER ACCUSATIONS AND ONGOING CONCERNS
Rob Bezdjian, a former stockbroker, brought attention to the ETN scandal, filing whistleblower complaints with the SEC. He argues these products serve no economic purpose and are mathematically designed to enrich issuers at the expense of investors. His analysis suggests mimicking the issuers' actions can yield significant annual profits, a claim that challenges regulators and issuers' defenses. The delisting of many ETNs, including those from Credit Suisse, without significant fines raises further questions about oversight and accountability.
THE BROADER IMPLICATIONS OF BANKING FRAUD
The widespread nature of these fraudulent practices, from fake accounts and interest rate rigging to market manipulation and the creation of inherently flawed financial instruments like ETNs, highlights a systemic issue within the financial industry. The relatively small fines imposed on banks pale in comparison to the massive profits generated, suggesting these penalties are merely a 'cost of doing business'. The video urges greater scrutiny and calls for regulators to address these ongoing issues.
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Common Questions
Wells Fargo employees created millions of unauthorized customer accounts to meet aggressive sales targets, leading to fines, lawsuits, and reputational damage.
Topics
Mentioned in this video
A licensed stockbroker and whistleblower who brought attention to the ETN scandal.
An interest rate benchmark that was manipulated by banks, affecting trillions of dollars in financial products and loans.
A UK bank involved in the LIBOR rigging scandal.
A commodities market where JP Morgan allegedly engaged in spoofing practices for gold and silver trading.
Financial advisory firm co-founded by Paul Gambles.
A bank involved in the LIBOR rigging scandal.
Unsecured debt obligations issued by banks that are engineered to lose value over time, transferring risk to buyers while banks profit.
An ETN example that started with a price of 2 billion and fell to 51.29 over nine years due to its design and reverse splits.
An ETN that mimics the performance of the natural gas sector, which was delisted after its value decayed due to reverse splits and investor losses.
The investigator who uncovered Bernie Madoff's Ponzi scheme.
Co-founder of MBMG Group, who called the Credit Suisse ETN an 'accident waiting to happen' and stated it served no economic purpose.
A financial whistleblower who described alleged spoofing practices by traders working for JP Morgan.
Published an article in 2013 focusing on the intense pressure and impossible sales quotas faced by Wells Fargo bankers.
Former Chief Executive of Wells Fargo who resigned amidst the fake account scandal.
One of the banks that has taken part in issuing ETNs.
An ETN that mirrors the reverse price action of a stock market volatility index, designed to eventually be worth zero.
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