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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Monday, July 9, 2012

Goldman Sachs and Spreading the Risk

Goldman Sachs's hunt for sub-prime mortgages for securitization resulted in homeowners' being foreclosed upon when the housing bubble burst.  Many citizens lost their pension funds and their savings (401ks) because of the financial crisis. The banks' search to offload risk onto others via securitization has finally arrived back home at the banks' employees.  Few of those who lost their pensions because of the fraud committed by the banks are going to shed one tear for the bank employees' loses.  Risk has just come full circle.

The perception "that there might be something wrong with the company" is a bit more than perception!

Wall Street Employees Lose $2 Billion in 401(k) Bet on Own Firms
By Michael J. Moore - SFGate
. . . .

Shares Fall

Shares of the largest banks dropped in 2011 as trading plummeted late in the year and the firms faced concern that the European debt crisis would hurt U.S. investment banks. Bank of America responded by announcing plans to cut 30,000 jobs, Goldman Sachs reduced discretionary pay by more than 26 percent, and Morgan Stanley capped cash bonuses at $125,000.

Goldman Sachs shares fell 46 percent, and the value of the bank’s stock held in 401(k) accounts fell to $61 million from $104 million. Citigroup shares dropped 44 percent, and those of JPMorgan, the largest U.S. bank by assets, decreased 22 percent.

While JPMorgan didn’t provide a figure in the fund’s annual report, the total value of the bank’s stock held in employees’ 401(k) plans fell more than $500 million last year. The plans bought more of the stock than they sold during 2011, according to the report. Employees received about $51 million in dividends from the shares.

Citigroup, the third-largest U.S. bank, also didn’t specify a 2011 loss tied to its own shares. The value of its stock held in employee retirement plans, accounting for purchases and sales as well as paper losses, dropped $317 million during the year, according to an annual filing. That leaves Citigroup stock held in the plans down about $1.1 billion from the price at which they Swere purchased, according to the filing.

Stock Bonuses

Employees typically hold the shares as long-term investments, and the losses aren’t realized unless the stock is sold. Still, financial workers are receiving more of their pay in stock. Bank of America paid traders and investment bankers who earned between $100,000 and $1 million for 2011 at least 80 percent of their bonus in company shares, people familiar with the matter said earlier this year.

Read the entire article here


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