The modern private equity industry got its start in 1979 when, for the first time, a large, publicly traded company was taken private in a leveraged buyout. For the next 30 plus years, the industry escaped regulatory oversight by the Securities and Exchange Commission (SEC) by adopting complex and opaque organizational structures designed for that purpose. That changed with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in the wake of the recent financial crisis. Since 2012 most mid-size and large private equity funds have been required to disclose their activities to the SEC. Last week reports of what the SEC found began to leak out. Staff at the SEC has reviewed about 400 private equity funds. What did they learn? According to Bloomberg, the SEC found that in about half the cases, general partners of the PE funds have collected fees and expenses from companies owned by the funds without telling the pension plans and other fund investors about the fees. In a civil case filed last month against one PE firm, the SEC charged that the firm collected more than $3 million in fees that it used for its own office and other expenses – money that should have been disclosed and shared with investors in the PE fund. Some 200 PE firms were found to have engaged in such abusive behaviors. More on Forbes [...]

Odds are, you’ve heard of Bernard Madoff. The once-storied investment manager enjoyed an illustrious career on Wall Street, even serving as the chairman of the NASDAQ stock exchange at one point, before his arrest in December 2008 for operating the largest Ponzi scheme in history. Madoff’s victims collectively lost nearly $20 billion, and Madoff is currently serving a 150-year prison term with an expected release date of 2139. While Madoff is undeniably the modern-day face of the Ponzi scheme, many are unaware that the carnage inflicted by his scheme was hardly a one-time event. Unfortunately, the reality is that, while Madoff’s scheme ushered the term “Ponzi scheme” into the mainstream vocabulary (The Associated Press crowned 2009 as “The Year of the Ponzi Scheme”), the true toll of Ponzi schemes is much greater. More in Forbes [...]

SAC Capital Advisors has agreed to plead guilty to insider trading violations and pay a record $1.2 billion penalty, becoming the first large Wall Street firm in a generation to confess to criminal conduct. The move caps a decade-long investigation that turned a once mighty hedge fund into a symbol of financial wrongdoing. The guilty plea and fine paid by SAC, which is owned by the billionaire investor Steven A. Cohen, are part of a broader plea deal that federal prosecutors in Manhattan announced on Monday. It also will impose a five-year probation on the fund and require SAC to terminate its business of managing money for outside investors, though the firm will probably continue to manage Mr. Cohen’s fortune. More in the New York Times [...]

The government’s legal pursuit of JPMorgan Chase & Co. has struck some on Wall Street as unfair. CEO Jamie Dimon recently reached a tentative deal with the Justice Department to put an end to some of the embattled financial firm’s legal troubles, a settlement worth $13 billion in fines and consumer relief; it’s the biggest settlement ever announced involving a single company. In fact, this was a just outcome, and it should be a new model for holding financial institutions accountable in probes related to bad mortgages and the 2008 financial crisis. JPMorgan Chase is accused of selling mortgage securities that it knew were faulty, although it inherited many of the alleged abuses in its 2008 acquisitions of Washington Mutual and Bear Stearns. JPMorgan Chase’s supporters argue that it only purchased the two banks under duress, when pressed by government officials to do so in an effort to prop up the banking system in the early days of the credit crisis. That’s not entirely true, however. JPMorgan Chase had sought to purchase Washington Mutual several months before the crisis struck. Plus, even after paying the government settlement, JPMorgan Chase will come out way ahead on the deal. Washington Mutual had a $40 billion market capitalization when JPMorgan Chase purchased it for $1.9 billion, and its mortgage business’s performance has outpaced expectations ever since. No one will pity Dimon and his shareholders the $750 million Washington Mutual earned the bank last quarter. More in the Boston Globe [...]

A startling report in today’s Washington Post, the newspaper says more than a thousand of the nation’s non-profits have each acknowledged losses of a quarter million dollars or more, because of theft, investment fraud, embezzlement or other unauthorized use of funds. The report is based on tax filings by the non-profits during the past five years. Each non-profit disclosed the problem by checking a box on the tax form indicating what’s called a significant diversion of funds. For more about all this, we’re joined from Washington by Joe Stevens, he’s an investigative reporter for the Post and the co-author of today’s piece. So your article says just the ten largest losses you’ve identified add up to more than five hundred million dollars, give us some examples. More on PBS NewsHour [...]

Which of these statements is true: Jamie Dimon’s company has agreed to pay the largest regulatory settlement ever by a single firm. Jamie Dimon is the best bank chief executive in the world. Jamie Dimon can walk on water. If your answer was all three, then you can join the ranks of Wall Street analysts and financial pundits who claim that Dimon is the best possible chief executive of the best bank in the country even after it has paid tens of billions of dollars in fines and legal expenses on investigations into more than a dozen of its businesses. More in USA Today [...]