What was it with Wall Street this summer?
For the finance crowd, the weeks between Memorial Day and Labor Day typically border on comatose. No deals, no capital markets activity, and most of all, no big scandals to send bankers scurrying from their deck chairs in Montauk. In summertime, the gravest decision faced by our financial elite is supposed to be: nine-iron or wedge?
But this summer was different. Every week, it seemed, a new set of Wall Street wrongdoers suffered for their sins, supplying a scandal-hungry public with enough schadenfreude to last through the winter. As workers in more placid industries headed off on vacation, the financial sector’s white-collar lawyers, crisis-PR mavens, and law enforcement liaisons were working overtime just to keep up.
Hollywood types looking for inspiration are in luck: The screenplay pitches write themselves.
Some of Wall Street’s summer wounds were systemic, the product of years of collusion between financiers conspiring to rig things in their favor. The Libor-fixing investigation, begun in 2008, caught our eye in July as Barclays reached a sudden $450 million settlement over claims its traders had helped rig the world’s most important interest rate. Among the victims was Bob Diamond, an American CEO who went abroad in search of respect, but ended his tenure with Fleet Street marching him to the gallows.
Diamond wasn’t the only American to cause a ruckus in Canary Wharf. Ben Lawsky, a baby-faced regulator with a bulldog’s touch, stirred up trouble in the U.K. when he broke ranks with other enforcers to pursue a massive settlement with Standard Chartered, a British bank accused of being a one-stop money laundering shop for the Iranian government. Lawsky, sensing a public that had grown sick of regulatory complaisance, seized his moment ahead of more genteel oversight bodies, securing a $340 million settlement for the state of New York.
Faltering institutions were the story of the summer, but there were, of course, solo acts of villainy. Russell Wasendorf Sr., a fair-haired businessman from the Iowa cornfields, went from nobody to antihero when he confessed — in what turned out be an unsuccessful suicide note — that his brokerage shop, Peregrine Financial Group, was nothing more than an elaborate twenty-year fraud. (He has since, in a plot twist even M. Night Shyamalan would reject as too far-fetched, pleaded not guilty.)
Insider trading proved that it is the eternal fount of Wall Street wrongdoing, present wherever there are hedge fund managers with open phone lines and benchmarks to meet. A global insider trading fishing voyage reeled in a few guppies this summer (a Japanese bank CEO, a baseball Hall-of-Famer, a few minor hedge funders), and one huge catch (former Goldman Sachs board member Rajat Gupta).
When Wall Street wasn’t breaking bad, it was catching bad breaks. Facebook and its underwriters got unlucky in the social network’s first dance with the public markets, as did Knight Capital Group when a piece of rogue software nearly cost the firm its life. The London Whale, a star JPMorgan Chase trader who created a cetacean-sized scandal, cost Jamie Dimon a few solid weeks on the beach and gave Ina Drew and her team an indefinite vacation.
Granted, not every financial villain played the part, and not every would-be scandal materialized. Goldman Sachs had its subprime mortgage fraud case dropped by the SEC, and in a shocking turn of events, made the news mostly for what it did right. Jon Corzine escaped the MF Global collapse intact, and got enough free time to plot his comeback. And even a jury who wanted vengeance for the subprime debacle had to let Citigroup’s Brian Stoker off the hook.
What we learned this summer, in short, is that it’s not always easy to tell the heels from the heroes on Wall Street. Bad-news bankers can recant their entire life philosophies in a half-hour TV spot. Private equity firms can cut thousands of Main Street jobs one day, then help the government save jobs the next. And regulators, whose job it is to keep this rotating cast of characters honest, can be just as negligent as the perps they go after.
At times this summer, it seemed like the financial sector’s act must have been scripted — a three-month long Hitchcock production that showed Wall Street venality in all its forms. How else would you get names like Rich Ricci? Details like a fraudster’s SpongeBob fixation? Quotes like “Done ... for you big boy?”
Maybe it’s something in the water. Or maybe it’s just the way our financial sector lives now.
Either way, when the history books are written, the Summer of Scandal will likely look pretty heavy on perfidy and pretty short on prudence, even by Wall Street standards. For investors and clients, that was a bad thing. But for voyeurs, it's reason enough to put down the golf clubs, check out our cinematic mock-ups of this summer's blockbuster bad behavior, and enjoy the show.