The Justice Dept. has targeted another veteran of one of the nation's largest hedge funds with insider trading. Portfolio manager Michael Steinberg, a senior member of hedge fund firm SAC Capital Advisors, was arrested at his New York City home early Friday by FBI agents on charges that he used inside information to generate $1.4 million in profits for SAC Capital, the $15 billion hedge fund founded by billionaire Steven Cohen.
A five-count indictment says Steinberg, 41, used the information trading shares of Dell and computer chip maker Nvidia. He pleaded not guilty at a Friday federal court hearing and was released on $3 million bail.
Steinberg is the latest current or former SAC Capital employee to be charged or implicated with insider trading. On March 15, two SAC affiliates agreed to pay $616 million to the government to settle civil charges of insider trading, a record settlement involving insider trading. SAC neither admitted nor denied wrongdoing.
Steinberg's arrest had been expected after former SAC analyst Jon Horvath, pleaded guilty last year to using illegally obtained information trading Dell shares. Horvath has been cooperating with the government and had implicated Steinberg.
In a related civil complaint against Steinberg, the Securities and Exchange Commission said the information allowed him to generate $6.4 million in profits and avoided losses for Cohen's hedge fund.
The FBI says its five-year insider trading probe has resulted in over 70 arrests so far.
"Mr. Steinberg was at the center of an elite criminal club, where cheating and corruption were rewarded," said George Venizelos, head of the FBI's New York office. "Research was nothing more than well-timed tips from an extensive network of well-sourced analysts."
U. S. Attorney Preet Bharara said Steinberg "was another Wall Street insider who fed off a corrupt grapevine of proprietary and confidential information cultivated by other professionals who made their own rules to make money. With lightning speed in at least one case, Mr. Steinberg seized on the opportunity to cash in and tried to keep his crime quiet, as charged in the indictment."
But Steinberg's attorney, Barry Berke, said Steinberg did nothing wrong and that his client's trades were based on detailed analysis along with other information he properly obtained. "Caught in the crossfire of aggressive investigations of others, there is no basis for even the slightest blemish on his spotless reputation," Berke said in a statement.
SAC Capital spokesman Jonathan Gasthalter said: "Mike has conducted himself professionally and ethically during his long tenure at the firm. We believe him to be a man of integrity."
Still, Friday's arrest, followed by January's arrest of another former hedge fund manage, heightened speculation that the government is taking a hard look at Cohen's practices. In the January case, a criminal complaint repeatedly referenced as a "Hedge Fund Owner."
Cohen has yet to be charged. SAC has said Cohen and the company are cooperating with the inquiry and "are confident that they have acted appropriately." Contributing: The Associated Press
SAC Capital Advisors was founded by Steven A. Cohen in 1992 in Stamford, Connecticut. Although the initial outlay in the fund was a mere 20 million dollars, which was actually a combination of Mr. Cohen’s own money and some of his early investors’ capital, the fund today is worth around a towering 16 billion dollars.
The fund has overall averaged a return of 30% gross over the last two decades, noticeably outperforming the S&P 500 by 22% since its inception. Moreover, in the crisis of 2008 it lost 27.56% thereby outperforming the S&P 500 by more than 1000 beeps, that being the only significant loss faced by the fund in its history
Mr. Cohen was born in 1956 to a dress manufacturing father and a piano teacher mother, both of whom apparently had no connection to or interest in the trading of markets. Instead, it was Mr. Cohen’s penchant for the game of poker that he used to play so fondly in his high school days, which he credits for his astute risk taking and his superior quantitative trading traits.
In 1978, Mr. Cohen earned an economics degree from Wharton Business School of University of Pennsylvania. Following his instinct for calculating odds in cards, the very first job he got after his college was as a junior proprietary trader in the options arbitrage department of Gruntal & Co. Quickly, he climbed the trading ladder to manage 75 million dollars’ worth of a portfolio and a team of six traders to boot. In a short span, by 1984, Mr. Cohen had created his own trading group at the company.
Mr. Cohen stayed loyally with Gruntal & Company to sharpen his trading skills, until he launched his own hedge fund with the rather palpable acronym of SAC. Unlike his singular and consistent career, Mr. Cohen had never held on to any position for a long time while heading the trading team at Gruntal, instead trading in and out frequently as he deemed fit. Similarly, SAC Capital followed an active trading strategy at the start, aggressively trading stocks not long after buying them, but now that strategy has evolved into a multi-strategy investment philosophy that focuses on research and risk management.
Within the current investment scope, many strategies are followed by SAC Capital, some of these being fundamental in nature and others concentrating on technicals of long/short equity portfolios; further expansion has occurred to include global quantitative, fixed income and credit, and global macro strategies, also taking advantage of the convertible bond and, more recently, emerging markets.
Accordingly, the fund is very diverse and has over 1800 positions in different sectors, majority of these positions being in large cap stocks (about half) while the remaining are divided into midcap (35% to 40%) and small cap (10% to 15%).
By virtue of its size and spread across many positions and markets, SAC Capital is today one of the major traders on the Wall Street accounting for about 1% of the total shares traded at NASDAQ and close to 3% at New York Stock Exchange every day, easily trading up to 20 million shares a day. This translates to the fund being one of the ten biggest customers of Wall Street paying 150 million dollars every year in fees and commissions to the brokers.
Indeed, these gargantuan commissions and fees have led to accusations that they play a vital role in SAC Capital’s trading superiority by allowing them to access information before anyone else does. It is apparent that Mr. Cohen got his rapport with the brokers by buying the secondary offerings from the brokers and helping them earn huge commissions, but that these commissions place SAC Capital in a position to garner a lot of primary information unavailable to their peers is at best a conjecture. The firm indeed acknowledges that it tries to take advantage of the information flow from its extensive sell-side relationships, but only to the extent it is public information.
Because of this intimate relationship with Wall Street brokers, Mr. Cohen has had his fair share of controversies about insider trading, which includes a lawsuit from his ex-wife and a probe into his trades by Securities and Exchange Commission. All these allegations, though, have amounted to naught, and only ex-employees of the fund have actually been charged and arrested by SEC for insider trading (with the exception of a technology analyst that was arrested in January 2012).
To be fair, SAC Capital employs and “graduates” so many traders that it cannot be blamed for producing some bad apples. The fund has 40 portfolios and each portfolio is run by up to 15 people, comprising of traders and analysts executing different strategies. The primary strategy followed by most of the portfolios in the fund is long-short equity. Overall, about 800 people are employed by SAC Capital Advisors, 118 are portfolio managers 158 are research analysts and 35 are in trade execution. The managers are given the discretion to invest between $300m to $500m staying in the risk guidelines defined by the fund. Mr. Cohen guides his large team by putting intensive focus on reading the tape and studying the trends to see how money is flowing in and out of the stocks, and his traders are trained to cut the losses by closing positions in the stocks losing value.
Mr. Cohen’s aptitude for trading overall, whether cutting losses or taking profits, has so far shone through allegations of insider trading and earned him the nickname of “the king of hedge funds” for his superior returns. In the final analysis, “Stevie” (as he has been nicknamed on Wall Street, or dubbed as a “Billion Dollar a Year Man” by Wall Street Journal) continues to profit from following good old tape-reading trading strategies that hark back to his poker playing days.
QUOTES
“Hedge funds are bigger than they used to be. Their positions are bigger. I worry that if everyone were to sell, could we get out?”
“I was fascinated when I found out that these numbers were prices and they were changing every day.”
“You could see volume coming into a stock and get the sense that it was going higher.”
“But everything I do today has its roots in those early tape-reading experiences.”
The SEC said Friday it has reached a settlement on insider trading charges with CR Intrinsic, an affiliate of billionaire Steve Cohen‘s hedge fund firm.
At just over $600 million it marks the agency’s largest ever insider trading settlement. Trader Mathew Martoma, who still faces criminal charges, has been accused of getting tipped off on clinical trial results for an Alzheimer’s drug from Elan Pharmaceuticals and reaping a massive windfall for himself and SAC.
Another SAC Capital affiliate, Sigma Capital Management, settled on Friday for a more modest sum, nearly $14 million, related to insider trading purportedly executed by Jon Horvath in Dell and Nvidia stock around the time of earnings reports from those companies.
CR Intrinsic, Sigma Capital and SAC did not admit or deny any of the SEC’s charges in the settlement. Cohen himself has not been charged with any wrongdoing.
“We are happy to put the Elan and Dell matters with the SEC behind us,” SAC said in a statement Friday. “This settlement is a substantial step toward resolving all outstanding regulatory matters and allows the firm to move forward with confidence. We are committed to continuing to maintain a first-rate compliance effort woven into the fabric of the firm.”
CR Intrinsic sold $960 million in securities in pharma companies Elan Corporation and Wyeth after Martoma received a tip from Dr. Sidney Gilman indicating clinical trials into an Alzheimer’s drug would yield a negative result. Martoma and Gilman, who was working on said clinical trials, were matched up by an expert network which SAC and its affiliate hedge funds paid to get information on companies they were following.
Horvath was a portfolio manager with Sigma Capital Management, another hedge fund that forms part of SAC’s network. He was also charged with trading on inside information, in his case related to coming earnings announcements by Dell and Nvidia, reaping more than $5.2 million in profit for Sigma Capital and allowing SAC to avoid losses of more than $1 million. Horvath pled guilty to criminal charges in September 2012.
The SEC said its investigations in both cases are continuing.
In the past several months, there has been a lot of speculation to that effect, but so far, no one other than David Stockman has really come out and committed to an
affirmative answer. And even Stockman didn't specify when such a new bubble in
the U.S. housing market might actually have begun.
But what really sparked our interest in this topic today is the unexpected strength in the number of initial unemployment
insurance claims being filed during the last several weeks, which along with the
strength of the construction industry cited in the latest employment situation report, suggests that the U.S.
housing industry is finally showing signs of robust growth, at least as measured
by rising sale prices for homes.
Unfortunately, the apparently robust growth of housing prices in the last
several months is suggestive of something other than fundamental factors at
work. Fortunately, we developed an early detection method that might be used to confirm if a
bubble is present in the housing market and if so, to identify specifically when
it began. So, we're going to revisit the data once more to see just what might be brewing under the surface
of the U.S. housing sector.
In doing that, we're going to push the envelope with our methods, as we'll be
tapping new sources of data for median new home sale prices and median household
incomes, in which these data items are reported monthly.
Let's get to work. Our first chart reveals the trailing twelve month average
of the median sale prices of new homes sold each month in the United States from
January 1963 through January 2013, as reported by the U.S. Census Bureau. The
first data point spans the 12 months from January 1963 through December 1963,
the second data point spans the 12 months from February 1963 through January
1964, et cetera.
(click to enlarge)
In preparing this chart, we calculated the trailing twelve month average for
median new home sale prices to account for the well-known effect of seasonality in housing sale data.
In looking at the chart, certain things stand out with respect to the
apparently steady long term trends that are otherwise evident in the chart.
Going from left-to-right, the first unusual thing we see is the small upward
bump that begins around December 1986 and ends about four years later, as a new
steady upward trend takes hold. Continuing to the right, we get to the 800-lb
gorilla that represents the inflation and deflation phases of the U.S. housing
bubble in the form of the large lump that appears to begin around December 2003
and appears to end around December 2008. We then see a steady trend resume in
the two years that follow, which is followed by what appears to be a new spike
upward. Could that be a new bubble forming as so many people are speculating just based on house prices alone?
The truth is that you can't really tell from this chart. It may be, or it may
not be. For example, what about that four year long small lump from 1987 through
1990? Isn't that a bubble, if only a small one, too? How come we haven't heard
about any of that in the economic history books?
The reason for that analytical vagueness is that housing prices are not
really a function of time, although they are often treated as if they are.
In reality, housing prices are a very strong function of income. Although other factors can and
do affect them, their prices are primarily determined by the household income of
those who live in them. What's more, housing prices are very linear functions of
income - if you look at housing expenditures by income level, you'll find that it
follows a very straight trajectory.
That linear characteristic also applies over time. Here, for example, we
would expect to see house prices follow a steady upward trend as household
incomes steadily rise over time. If we see deviations from that basic pattern,
that tells us that something other than income is affecting house prices, which
is what makes our analytical methods so effective.
Today, we'll be doing that with Sentier Research's monthly median household income data, for
which we thank Doug Short for converting into nominal (non-inflation
adjusted) form, which saves us the hassle of having to match the different
inflation-adjustment scales used by the U.S. Census Bureau and Sentier
Research.
The downside to using Sentier Research's data is that it only goes back to
January 2000. To get around that limitation, we'll also be presenting the U.S.
Census Bureau's annually-reported median household income data, which goes back
to 1967, and which we'll use as the backdrop for establishing the long-term
trends evident in the U.S. housing market.
As we did with the monthly median new home price data, we'll be calculating
the trailing twelve month average for these figures as well, so they have had
the same adjustment, providing as much as an apples-to-apples basis for drawing
conclusions from what we find. Our initial result is presented below:
(click to enlarge)
In this chart, we're able to determine that there have been two major
long-term steady trends. The first ran from 1970 through 1986, as median new
home sale prices were consistently about four times (4.07X) the value of the
median household income.
This trend ended when the Tax Reform Act of 1986 made it more desirable to
have a large mortgage when the tax deductibility of other kinds of consumer debt
was eliminated. Enacted into law on 22 October 1986, median new home prices
began increasing significantly after November 1986, rising rapidly in 1987
before settling onto a new steady, long-term trajectory with respect to median
household income, in which median new home sale prices averaged about 3.6X the
amount of median household income. It turns out that the dip at the end of the
"small lump bubble" is really the result of the recession that accompanied the
Persian Gulf War following Iraq's invasion of Kuwait in 1990, which depressed
housing prices along with incomes at the time.
That new trend continued through 2000, until the onset of the U.S. Housing
Bubble in December 2001.
Here, after the Dot-Com Stock Market Bubble peaked as a monthly average in
August 2000, large amounts of money began flowing out of the U.S. stock market.
It was slow at first, as the market declined by less than 10% through March
2001, but that quickly changed as the deflation phase of the Dot-Com Bubble
became much more volatile as the U.S. economy went through a period of
recession.
With stock prices swinging by 10%-20% of its peak value in any given month
through October 2001, many stock market investors either took their losses or
pocketed their gains from the Dot-Com Bubble and exited the market. That money
didn't sit around idly, as much of it went into the U.S. housing market instead
during that time, which enjoyed growth despite the recession throughout 2001 as
a result. The recession ended in November 2001, just as interest rate cuts by
the Federal Reserve helped pull mortgage rates to their lowest level in more
than a generation. November 2001 marks the true launching point for the U.S.
Housing Bubble.
Afterward, housing prices began skyrocketing month after month as the U.S.
Federal Reserve compensated for both the recession and the 11 September 2001
terrorist attacks by holding interest rates at levels far lower than economic
conditions would warrant for a sustained period of time. Our next chart focuses more closely
on the U.S. housing bubble years:
(click to enlarge)
U.S. housing prices continued their rapid ascent through September 2005,
before beginning to decelerate on their upward trajectory as the U.S. housing
bubble neared its peak, as the Fed's series of quarter point interest rate
increases finally boosted them to levels that actual economic conditions
warranted. The peak came on March 2007, after which median new home sale prices
held level through October 2007. The deflation phase of the U.S. housing bubble
then began in the following months, as the U.S. entered into deep recession.
The trailing twelve month average of median new home sale prices then
bottomed in December 2009 before beginning to recover and rise in 2010. However,
median household income continued to fall for another year, and it was not until
December 2010 that a new steady, upward trend began to form in the U.S. housing
market as median household incomes began to rise once again.
The new period of order in the U.S. housing market saw median new home sale
prices stabilize at roughly 3.34X the value of median household income, which is
fairly consistent with the other long-term periods of relative order in the U.S.
housing market.
That period of order came to an end after July 2012. Beginning in August
2012, something else other than household income has begun affecting the median
sale prices of new homes in the United States. Through January 2013, median new
home sale prices are growing at a rate that is consistent with what we observed
during the initial inflation phase of the U.S. housing bubble following the end
of the U.S. recession in November 2001.
We therefore conclude that the U.S. housing bubble has effectively reignited,
with a new inflation phase having taken hold since July 2012.
The question that remains to be answered is "why?" We'll take that question
on in upcoming posts.
References
Sentier Research. Table 1. Household Income Trends: January 2000 to January
2013 (in January 2013 $$). [Excel Spreadsheet with Nominal Median Household
Incomes courtesy of Doug Short]. Accessed 13 March 2013.
U.S. Census Bureau. Median and Average Sales Prices of New Homes Sold in the
United States. [Excel Spreadsheet]. Accessed 13 March 2013.
U.S. Census Bureau. Income, Poverty, and Health Insurance in the United
States: 2011. Current Population Survey. Annual Social and Economic Supplement
(ASEC). Table H-5. Race and Hispanic Origin of Householder -- Households by
Median and Mean Income. [Excel Spreadsheet]. 12 September 2012. Accessed 13 March
2013.
BEIJING (Caixin Online)
— Chinese mobile game operators like Guangzhou Gude Network Technology Co. had
reason to cheer in 2012, as it and many other industry players enjoyed rapid
growth.
Gude Chairman Xu Yuan called the year a turning point for companies in the
industry. Gude’s role playing game, World Online, had monthly revenue of 18
million yuan ($2.9 million) and average revenue per user of 300 yuan /quotes/zigman/4869230/sampledUSDCNY-0.0215%.
Additionally, a number of mobile game companies, who only a few years ago
seldom saw monthly revenue of 1 million yuan, last year broke the 10 million
mark, Xu said.
Xue Yongfeng, an analyst at industry information provider Analysys
International, said the future for the industry was bright. “The mobile game
market has figured out a clear business model, and the industry chain is quite
complete. Business is ready to boom.”
Xue expected more companies and investors to enter the field in 2013, meaning
“China’s mobile game industry may see a revolutionary change.”
Song Wei, secretary general of Global Mobile Game Confederation, a
Sichuan-based industry association whose members include Angry Bird developer
Rovio Entertainment, Fruit Ninja maker Halfbrick Studios and Gude, predicted
that some popular mobile games will have monthly revenue of more than 100
million yuan.
The Android approach
Mobile games on the Android operation system have posted strong profits, said
Zhu Shunyan, CEO of UCWeb Inc., a mobile internet software provider. “The growth
is astonishing,” Zhu said.
UCWeb said 10 Android-based games have had average monthly revenue of more
than 1 million yuan in 2012, compared to four in late 2011.
Three games operating on the Android system pocketed more than 10 million
yuan every month in 2012.
Gude’s World Online was the first to reach 10 million yuan in monthly
revenue. The game, launched in September 2011, had revenue of 2 million yuan in
its first month, Xu said.
Compared to PC games, the versions for mobile devices require far fewer
resources. The team that developed World Online had only 27 people. By the end
of 2012, Gude employed only 88 people.
Xu attributed his company’s success to a strategy that focused on developing
a more complicated game for the Android system.
“(We) believed the Android system had promising growth potential, while PC
games have cultivated a large number of users who like to play complicated
games,” said Xu.
World Online’s success was repeated by Wangxian, another Android-based mobile
game. On its first day of operation in June, Wangxian had income of more than
100,000 yuan. In September, Wangxian’s revenue reached 10 million yuan.
Next player
Many of the companies who entered the mobile game industry have earned their
first fortune, attracting an increasing number of market players and investors
to the booming market.
Xu said more and more PC game developers and other newcomers have joined the
fray.
Zhu Yanshun, a senior executive of Beijing Ourpalm Co., said traditional PC
game developers, like Shanda Games Ltd. /quotes/zigman/114415/quotes/nls/gameGAME+1.70% and Perfect
World Co. /quotes/zigman/107094/quotes/nls/pwrdPWRD+1.14%, plan to
develop games for mobile devices.
Shenzhen-listed Ourpalm /quotes/zigman/9612293CN:300315+0.62% was one of the
earliest Java mobile game developers in the country. It had revenue of 183
million yuan in 2011 and net profit of 55.7 million yuan.
Ourpalm started develop smart phone games in October 2011, and by the end of
the year games based on the iOS and Android systems generated 530,000 yuan in
revenue for the company, Zhang said.
Internet veterans like Baidu /quotes/zigman/97715/quotes/nls/biduBIDU-1.45%, Qihoo360 /quotes/zigman/4534424/quotes/nls/qihuQIHU+1.08% and UCWeb were
also building platforms offering mobile games, and telecom operators are also
counting on mobile game business.
Gude’s Xu says the company is in talks with smart phone markers Huawei
Technologies Co., ZTE Corporation /quotes/zigman/32341HK:763-1.35%/quotes/zigman/527390/quotes/nls/ztcoyZTCOY+8.70%and Lenovo /quotes/zigman/346332/quotes/nls/lnvgyLNVGY-3.86%/quotes/zigman/21902HK:992-2.77% to install its
game on their handsets and share the revenue.
The booming sector was also attracting capital. Li Juhua, investment manager
of Zhejiang Zheshang Venture Capital Co., said many companies like his planned
to invest in mobile gaming in 2012. His company has found an investment target,
he said.
Research firm Zero2IPO said 30 investments were made in China’s Internet
industry in the first half 2012, including seven in the mobile game business.
Li Mimi, Asia-Pacific manager of Intel Capital, Intel Corp.’s /quotes/zigman/20392/quotes/nls/intcINTC-1.27%global
investment and mergers-and-acquisitions arm, expected both the number and value
of investments to rise in 2013, and added that Intel was seeking an investment
target.
Bright future
Wang Feng, the chief executive of Web-based game developer linekong.com, said
the rise of smart phone games would change Internet gaming.
Traditional platform providers like the telecom operators and Tencent /quotes/zigman/43868HK:700-0.58%/quotes/zigman/529099/quotes/nls/tcehyTCEHY-1.01% would face
stronger competition from newcomers like Baidu and UCWeb.
Since launching its mobile game platform in May 2011, UCWeb has been catching
up with Tencent, China Mobile /quotes/zigman/22400HK:941-0.96%/quotes/zigman/263044/quotes/nls/chlCHL-1.43%and China
Telecom /quotes/zigman/313142/quotes/nls/chaCHA-0.36%/quotes/zigman/26108HK:728+0.75%, becoming the
fourth largest mobile phone game operator with market share of 6.2%. In 2012,
game developers earned more than 100 million yuan from their operations on
UCWeb.
Tencent is facing more and more challenges. The head of its wireless game
service, Li Ying, said in late 2012 that the gap between it and its rivals was
narrowing.
Telecom operators are also facing greater challenges. Development of online
payment systems weakened telecom operators’ advantage and created more choice
for game players, Xu said.
A source at China Telecom said that “in the future, telecom operators,
Internet companies and mobile game developers will all provide game platforms
and compete for good games and users. All of them will have to make efforts on
services and marketing,” said a source from China Telecom.
All of the changes mean game developers now have more choice regarding where
to launch their products. Zhu said platforms are luring popular game developers
by offering higher revenue sharing, ranging from 50% to 70%.
However, Zhang said that nether platform operators nor game developers had a
dominant say in the market. The two sides had to work together to win customers.
Meanwhile, the country’s mobile game market was becoming a battlefield for a
large number of small developers. Analysys International said the largest
player, Tencent, now controls about 22% of the mobile game market, followed by
Gude and WiSTONE Entertainment, with 5.7% and 5.3%, respectively.
Due to much lower requirements for capital, talent and time compared to
traditional PC games, there are no exact figures on how many mobile game
developers are operating in the country. Industry insiders say many teams
involve only ten to twenty people, and many have failed.
Zhu estimated that only 30% of mobile game developers were profitable,
“earning from several hundred thousand yuan to millions of yuan.”
However, with Analysys International predicting that China’s smart phone
penetration rate would reach 50% in 2013, the boom looks set to continue. The
company forecast 55% growth of mobile game revenue to 9.6 billion yuan this
year, and says annual growth will remain above 50% until 2015.
Investigators blast the bank for misleading regulators and investors in $6.2-billion 'London Whale' trading fiasco. Federal regulator is criticized for failing to detect the high-risk deals.
WASHINGTON — In a scathing report, Senate investigators said JPMorgan Chase & Co.'s huge trading losses last year were caused by high-risk market bets that bank executives failed to catch despite numerous red flags.
The 307-page, bipartisan report released Thursday said the bank tried to hide the $6.2 billion of losses in the so-called London Whale trades from regulators and the public. The report went on to criticize JPMorgan's federal regulator, the Office of the Comptroller of the Currency, for failing to discover and properly investigate the trades.
The risky bets on complex financial instruments damaged the well-honed image of JPMorgan, the nation's largest bank, and its chief executive, Jamie Dimon.
"We found a trading operation that piled on risk, ignored limits on risk-taking, hid losses, dodged oversight and misinformed the public," said Sen. Carl Levin (D-Mich.), chairman of the Senate's Permanent Subcommittee on Investigations. "There's a lot of evidence that they maybe are too big to manage and too big to regulate too."
Sen. John McCain (R-Ariz.), the top Republican on the subcommittee, also blasted JPMorgan. "It's a shameful demonstration of a federally insured bank taking substantial risks and gambling away billions of dollars on ill-advised trades while regulators were asleep at the switch," McCain said.
The report sets the stage for what could be a contentious hearing Friday with current and former JPMorgan executives. They include Ina Drew, who retired last year as head of the banks' chief investment office, the unit that engaged in the trades.
The findings also add new fuel to the battle over pending regulations covering derivatives and the ability of banks to engage in risky trading for their own profit. And the report will probably become fodder for Wall Street critics who want the government to break up the nation's largest banks.
JPMorgan spokesman Joe Evangelisti said the bank was already aware of many of the problems and had taken "significant steps to remediate these issues and to learn from them."
"While we have repeatedly acknowledged mistakes, our senior management acted in good faith and never had any intent to mislead anyone," he said.
The report said Dimon ordered the bank to stop providing the Office of the Comptroller of the Currency with daily profit and loss data from the firm's investment bank in early 2012 "because he believed it was too much information."
The comptroller's office requested that the bank resume providing the data, which former Chief Financial Officer Douglas Braunstein did after less than a week of withholding it. The report cited a comptroller official as reporting that Dimon "raised his voice in anger" at Braunstein when he found out.
Braunstein will testify at Friday's hearing, but Dimon will not. Dimon could be called to a future hearing, Levin said.
Most of the problems at JPMorgan did not get to the top level of the bank, Levin said.
And although Levin would not say whether JPMorgan's actions violated any laws, he left open the possibility that the report's findings could be forwarded to the Justice Department or other government authorities.
JPMorgan has admitted flawed trading strategies in its synthetic credit portfolio and lapses in its internal oversight and risk management of those investments. In January, the company said its board cut Dimon's 2012 salary in half for the management failures.
Dimon, who testified about the trading losses at two congressional hearings last year, has denied misleading shareholders about the extent of the problems. After April media reports about big trades from the bank's London office, Dimon called the issue "a tempest in a teapot." Less than a month later, he admitted the losses were large — estimated at $2 billion at the time.
Dimon told Congress he believed in April that the losses were not large and that "obviously I was dead wrong."
But the report said that JPMorgan tried to hide the scope of the trading and the losses as they began piling up. The portfolio exceeded five internal risk levels in early 2012. Dimon and other senior JPMorgan executives knew about the problems, but the trading continued, the report said.
"Despite JPMorgan Chase's reputation for careful risk management … the warning signs were clear, but they were disregarded or rationalized," the report said.
Mark Williams, a Boston University finance professor, said JPMorgan's trades were similar to risky bets made before the 2008 financial crisis.
"If they're not being honest with their regulators, who else are they not being honest with?" said Williams, a former Federal Reserve regulator.
The Office of the Comptroller of the Currency said it recognized there were shortcomings in its supervision of JPMorgan and was reviewing the Senate report.
The Senate report said JPMorgan shielded the risky trading from regulators by omitting specific data about the portfolio's growing size, complexity and losses.
"We are very disappointed that the bank misinformed the OCC, which hampered our supervisory efforts," said agency spokesman Bryan Hubbard. In January, the agency and the Federal Reserve ordered JPMorgan to improve its oversight of trading.
A former executive at the Pacific Investment Management Company, the money management giant known as Pimco, has said that he was fired last year after reporting an array of misconduct at the firm to federal law enforcement officials.
In a lawsuit filed on March 5 in California State Court, Jason Williams, 36, a former high-yield bond portfolio manager at Pimco, claimed that senior Pimco executives engaged in a variety of misdeeds, including insider trading and manipulating the ratings and values of certain bond holdings to the detriment of its clients.
Mr. Williams withdrew the lawsuit three days after filing it, and his lawyers and Pimco representatives are engaged in talks related to resolving the dispute, according to two people with direct knowledge of the matter.
A spokesman for Pimco did not immediately return a request for comment.
Philip M. Aidikoff, a lawyer for Mr. Williams, declined to comment. The lawsuit was first reported by Ignites, a mutual-fund industry trade publication owned by The Financial Times.
The wrongful-termination complaint had sought compensation for the damage done to Mr. Williams’s professional reputation. It also sought punitive damages.
From its headquarters in Newport Beach, Calif., Pimco manages about $2 trillion in assets, making it one of the world’s largest money management firms. The firm is perhaps best known for its founder, William H. Gross, and his heir apparent, Mohamed A. El-Erian, both of whom make frequent television appearances prognosticating on the global financial markets.
Mr. Williams, who worked at Pimco from 2000 to 2012, claimed that he had witnessed multiple instances of wrongdoing by the firm’s senior management from late 2008 to early 2009. He reported the actions to compliance officials, and also told his supervisor, Chris Dialnyas, who, according to the Pimco Web site, is a managing director and member of the firm’s investment committee.
But after Mr. Williams lodged his complaints, his pay was reduced and he was subjected to verbal abuse, according to the legal filing. Mr. Williams said that he then reported the conduct to federal agents in the Treasury Department. His complaint suggests that the agents, who worked for the special inspector general for the Treasury Asset Relief Program, opened up an investigation.
He said that in March 2012, three weeks after he informed Pimco’s human resources department that he had taken his complaints to the federal government, the firm fired him. Pimco told him that he was fired for “performance reasons,” the complaint said, but Mr. Williams maintains that he was fired because of his cooperation in an investigation into the activities inside the firm.
A spokesman for the special inspector general, Troy Gravitt, declined to comment.
The lawsuit makes a slew of accusations against Pimco executives. Mr. Williams, who held the title of vice president, said that in December 2008, a senior manager directed him to “arbitrarily elevate” the rating that a Pimco analyst had assigned to a bond in order to place the bond in funds that had a higher rating requirement.
Around that same time, Mr. Williams said, senior Pimco management “attempted unlawful trading on inside information involving stock in El Paso Corporation.”
In another claim, he said that during the financial crisis, senior management directed the transfer of certain illiquid securities that a Pimco hedge fund had “arbitrarily overvalued” to other Pimco funds. The move, according to the complaint, hurt the owners of the funds that were on the receiving end of the transfer.
A financial term for the effect of certain internal or market forces on a company's gross, operating or net margins. If something happens to make a company's costs rise or revenues fall, margins will become compressed, reducing net earnings.
Things that can cause margin pressure include:
1. When a new competitor enters the business and increases its product offering or lowers its costs 2. When commodity costs rise or other costs within the supply chain are rising 3. When increased regulatory controls are imposed on the company or industry 4. When new legislation is introduced that fundamentally changes the markets in which the company competes 5. When internal production problems or delays arise 6. When rising selling, general and administrative expense (SG&A) costs occur without a proportional rise in revenue
BEIJING (Caixin Online)
— Chinese mobile game operators like Guangzhou Gude Network Technology Co. had
reason to cheer in 2012, as it and many other industry players enjoyed rapid
growth.
Gude Chairman Xu Yuan called the year a turning point for companies in the
industry. Gude’s role playing game, World Online, had monthly revenue of 18
million yuan ($2.9 million) and average revenue per user of 300 yuan /quotes/zigman/4869230/sampledUSDCNY+0.03%.
Additionally, a number of mobile game companies, who only a few years ago
seldom saw monthly revenue of 1 million yuan, last year broke the 10 million
mark, Xu said.
Xue Yongfeng, an analyst at industry information provider Analysys
International, said the future for the industry was bright. “The mobile game
market has figured out a clear business model, and the industry chain is quite
complete. Business is ready to boom.”
Xue expected more companies and investors to enter the field in 2013, meaning
“China’s mobile game industry may see a revolutionary change.”
Song Wei, secretary general of Global Mobile Game Confederation, a
Sichuan-based industry association whose members include Angry Bird developer
Rovio Entertainment, Fruit Ninja maker Halfbrick Studios and Gude, predicted
that some popular mobile games will have monthly revenue of more than 100
million yuan.
The Android approach
Mobile games on the Android operation system have posted strong profits, said
Zhu Shunyan, CEO of UCWeb Inc., a mobile internet software provider. “The growth
is astonishing,” Zhu said.
UCWeb said 10 Android-based games have had average monthly revenue of more
than 1 million yuan in 2012, compared to four in late 2011.
Three games operating on the Android system pocketed more than 10 million
yuan every month in 2012.
Gude’s World Online was the first to reach 10 million yuan in monthly
revenue. The game, launched in September 2011, had revenue of 2 million yuan in
its first month, Xu said.
Compared to PC games, the versions for mobile devices require far fewer
resources. The team that developed World Online had only 27 people. By the end
of 2012, Gude employed only 88 people.
Xu attributed his company’s success to a strategy that focused on developing
a more complicated game for the Android system.
In a new book out in April, Google's Eric Schmidt lays out his views for
hot-button topics like anonymity and Twitter but also warns on China. Tom Gara
joins digits. Photo: Getty Images.
“(We) believed the Android system had promising growth potential, while PC
games have cultivated a large number of users who like to play complicated
games,” said Xu.
World Online’s success was repeated by Wangxian, another Android-based mobile
game. On its first day of operation in June, Wangxian had income of more than
100,000 yuan. In September, Wangxian’s revenue reached 10 million yuan.
Next player
Many of the companies who entered the mobile game industry have earned their
first fortune, attracting an increasing number of market players and investors
to the booming market.
Xu said more and more PC game developers and other newcomers have joined the
fray.
Zhu Yanshun, a senior executive of Beijing Ourpalm Co., said traditional PC
game developers, like Shanda Games Ltd. /quotes/zigman/114415/quotes/nls/gameGAME+4.41% and Perfect
World Co. /quotes/zigman/107094/quotes/nls/pwrdPWRD-2.34%, plan to
develop games for mobile devices.
Shenzhen-listed Ourpalm /quotes/zigman/9612293CN:300315-3.83% was one of the
earliest Java mobile game developers in the country. It had revenue of 183
million yuan in 2011 and net profit of 55.7 million yuan.
Ourpalm started develop smart phone games in October 2011, and by the end of
the year games based on the iOS and Android systems generated 530,000 yuan in
revenue for the company, Zhang said.
Internet veterans like Baidu /quotes/zigman/97715/quotes/nls/biduBIDU-1.58%, Qihoo360 /quotes/zigman/4534424/quotes/nls/qihuQIHU-7.55% and UCWeb were
also building platforms offering mobile games, and telecom operators are also
counting on mobile game business.
Gude’s Xu says the company is in talks with smart phone markers Huawei
Technologies Co., ZTE Corporation /quotes/zigman/32341HK:763-0.57%/quotes/zigman/527390/quotes/nls/ztcoyZTCOY+9.36%and Lenovo /quotes/zigman/346332/quotes/nls/lnvgyLNVGY-0.18%/quotes/zigman/21902HK:992-1.05% to install its
game on their handsets and share the revenue.
The booming sector was also attracting capital. Li Juhua, investment manager
of Zhejiang Zheshang Venture Capital Co., said many companies like his planned
to invest in mobile gaming in 2012. His company has found an investment target,
he said.
Research firm Zero2IPO said 30 investments were made in China’s Internet
industry in the first half 2012, including seven in the mobile game business.
Li Mimi, Asia-Pacific manager of Intel Capital, Intel Corp.’s /quotes/zigman/20392/quotes/nls/intcINTC+1.12%global
investment and mergers-and-acquisitions arm, expected both the number and value
of investments to rise in 2013, and added that Intel was seeking an investment
target.
Bright future
Wang Feng, the chief executive of Web-based game developer linekong.com, said
the rise of smart phone games would change Internet gaming.
Traditional platform providers like the telecom operators and Tencent /quotes/zigman/43868HK:700-0.29%/quotes/zigman/529099/quotes/nls/tcehyTCEHY+0.34% would face
stronger competition from newcomers like Baidu and UCWeb.
Since launching its mobile game platform in May 2011, UCWeb has been catching
up with Tencent, China Mobile /quotes/zigman/22400HK:941+0.18%/quotes/zigman/263044/quotes/nls/chlCHL-0.94%and China
Telecom /quotes/zigman/313142/quotes/nls/chaCHA+1.06%/quotes/zigman/26108HK:728-0.49%, becoming the
fourth largest mobile phone game operator with market share of 6.2%. In 2012,
game developers earned more than 100 million yuan from their operations on
UCWeb.
Tencent is facing more and more challenges. The head of its wireless game
service, Li Ying, said in late 2012 that the gap between it and its rivals was
narrowing.
Global Dow
Telecom operators are also facing greater challenges. Development of online
payment systems weakened telecom operators’ advantage and created more choice
for game players, Xu said.
A source at China Telecom said that “in the future, telecom operators,
Internet companies and mobile game developers will all provide game platforms
and compete for good games and users. All of them will have to make efforts on
services and marketing,” said a source from China Telecom.
All of the changes mean game developers now have more choice regarding where
to launch their products. Zhu said platforms are luring popular game developers
by offering higher revenue sharing, ranging from 50% to 70%.
However, Zhang said that nether platform operators nor game developers had a
dominant say in the market. The two sides had to work together to win customers.
Meanwhile, the country’s mobile game market was becoming a battlefield for a
large number of small developers. Analysys International said the largest
player, Tencent, now controls about 22% of the mobile game market, followed by
Gude and WiSTONE Entertainment, with 5.7% and 5.3%, respectively.
Due to much lower requirements for capital, talent and time compared to
traditional PC games, there are no exact figures on how many mobile game
developers are operating in the country. Industry insiders say many teams
involve only ten to twenty people, and many have failed.
Zhu estimated that only 30% of mobile game developers were profitable,
“earning from several hundred thousand yuan to millions of yuan.”
However, with Analysys International predicting that China’s smart phone
penetration rate would reach 50% in 2013, the boom looks set to continue. The
company forecast 55% growth of mobile game revenue to 9.6 billion yuan this
year, and says annual growth will remain above 50% until 2015.
Optimal buy point of a stock as it emerges from a sound and proper basing area or chart pattern (the most common of which include the 'cup with handle,' 'flat base' and 'double bottom') and breaks out into a new high in price. This is the point of least resistance and has shown, through William J. O'Neil's research, to have the greatest chance of moving substantially higher based on its current and historical price and volume activity.
Summary: EU authorities have hit Microsoft with yet another fine, after falling foul of previous antitrust commitments, showing that if you're operating in Europe, you must abide by its rules.
Microsoft is to learn the hard way that "a deal is a deal," at least in the eyes of the European Union, by being forced to swallow a massive fine for breaching earlier promises made with the 27 member state bloc.
The software giant has been fined €561 million ($731m) by European authorities for falling foul of previous antitrust settlement conditions.
The software giant breached a settlement that it signed with the European Commission in 2009, which mandated that it display a "browser choice" screen on all existing and new PCs in the region.
Europe's antitrust and competition chief Joaquin Almunia stressed the importance of maintaining the legally binding commitments.
"In 2009, we closed our investigation about a suspected abuse of dominant position by Microsoft due to the tying of Internet Explorer to Windows by accepting commitments offered by the company."
He added: "Legally binding commitments reached in antitrust decisions play a very important role in our enforcement policy because they allow for rapid solutions to competition problems. Of course, such decisions require strict compliance. A failure to comply is a very serious infringement that must be sanctioned accordingly."
"A failure to comply is a very serious infringement that must be sanctioned accordingly" — European Competition Commissioner Joaquin Almunia
A Microsoft spokesperson in Brussels said in an email to ZDNet that the company takes "full responsibility for the technical error." He added:
"We provided the Commission with a complete and candid assessment of the situation, and we have taken steps to strengthen our software development and other processes to help avoid this mistake — or anything similar — in the future."
Microsoft said it will not appeal the fine.
But the "browser choice" screen was left out of new machines running Windows 7 (Service Pack 1) between February 2011 and July 2012. Microsoft said at the time that it had "fallen short in its responsibility" by failing to dish out the choice screen to some 28 million PCs running Windows in Europe.
Today, the European Commission rounded down that figure to 15 million Windows users.
Admitting to its mistake, and adding that it would "comply immediately" with the European authorities, the software giant knew it would face an all but inevitable fine for failing to include the settlement-assured "browser choice" screen.
Almunia said at the time that Microsoft "should expect sanctions," and that the commission would treat the case "as a matter of priority."
Microsoft could have been forced to pay up to a maximum of 10 percent of its global annual turnover during its infringing years, notably 2012, which would total as much as $7.4 billion.
Contributing factors, such as Microsoft's early admission and immediate steps to counter the issue, led to the considerably lower fine of more than 9 percent of that total.
"In the calculation of the fine the Commission took into account the gravity and duration of the infringement, the need to ensure a deterrent effect of the fine and, as a mitigating circumstance, the fact that Microsoft has cooperated with the Commission and provided information which helped the Commission to investigate the matter efficiently," the Commission said.
Microsoft comes clean, apologizes; "will comply" with EU
In July, the European Commission said it had received complaints that Microsoft was not carrying out its obligation to provide users with a choice of browser. The EU swiftly opened an investigation into the software giant's alleged oversight.
Microsoft came clean in an almost-immediate public statement that it had failed to offer the browser ballot screen since February 2011 because a "technical error" led to the browser choice update not being included in the store-shelf version of Windows 7 (Service Pack 1).
"While we believed when we filed our most recent compliance report in December 2011 that we were distributing the [browser ballot] software to all relevant PCs as required, we learned recently that we've missed serving the [browser ballot] software to the roughly 28 million PCs running Windows 7 SP1," the company said at the time.
A rare move for any company facing heavy financial penalties from a governmental body, Microsoft said in a statement that it "sincerely apologizes for this mistake." In "personal talks" with Microsoft chief executive Steve Ballmer, Almunia said that he had "given [him] assurances that [Microsoft] will comply immediately, regardless of the conclusion of the [antitrust] probe."
Following this, even before the release of the next-generation operating system's launch, Windows 8 had a pre-release update added to include the "browser choice" screen, ready for when buyers installed the software on new or existing PCs.
Executives at the company also saw their overall pay dinged as a result of the debacle.
When Microsoft released its fiscal 2012 report, it showed that as a result of the "browser choice" failing within the company's Windows engineering team, former Windows president Steven Sinofsky — who has since left the company — saw his incentive pay for the year cut.
Breach of previous settlement eclipses earlier fines
In 2009, Microsoft avoided a similar up-to-10-percent fine after the firm settled with European authorities. The software maker was accused of unfairly using its operating system monopoly to increase its browser share by bundling Internet Explorer with Windows.
In avoiding the fine, Microsoft agreed to change its business practices by giving its European users a choice of browser. In doing so, it allowed users the option of using various browsers from rival companies, including its own Internet Explorer.
The browser ballot was to remain in place until 2014, and be incorporated in next-generation versions of Windows, including the six-months-old Windows 8.
Today's fine adds to a long list of fines previously dished out by Europe in the last five years over a series of similar events.
In 2008, the company was fined €899 million ($1.44bn) in penalties for failing to comply with a March 2004 antitrust decision, which originally forced Microsoft to create a Windows XP "N" version for European citizens that removed Windows Media Player from the desktop software to allow for competition.
This alone was the largest fine in EU competition policy history until 2009, when Intel took an even larger fine in a separate antitrust suit.
Eventually, this figure was lowered by the European General Court to €860 million ($1.06bn) after Microsoft appealed the case. However, even with this, Microsoft has now racked up a total of around €2.16 billion ($2.81bn) in total over the past decade.
Mozilla: Lack of "browser choice" hit Firefox downloads
After the news broke that the EU would investigate the software giant, rival browser maker Mozilla said that Microsoft's failure to include a "browser choice" may have lost Mozilla as many as 9 million downloads in total.
According to Mozilla vice-president of business affairs and general counsel Harvey Anderson, "After accounting for the aggregate impact on all the browser vendors, it seems like this technical glitch decreased downloads and diminished the effectiveness of the remedy ordered in the 2009 commitments."
During the period of time in which the "browser choice" screen was not included in the latest version of Windows 7 (Service Pack 1), rival browser maker Mozilla saw a significant and prolonged dip in downloads. Lost downloads by Mozilla as a result of the failure to include the "browser choice" screen in Windows 7's latest update. (Image: Mozilla)During the 2009 settlement with the European Commission, Mozilla's Firefox browser was one of the top browsers on the market, but it still had a significantly lower market share than Internet Explorer as a result of Microsoft bundling the browser with Windows.
And for Mozilla, a non-profit foundation that generates a good proportion of its revenue from bundling Google search services with its browser, continued development is supported by financing revenue-generating deals with partners.
The EU said today that until November 2010, 84 million browsers were downloaded through the "browser choice" screen, stressing its importance.
Mozilla generates around $300 million per year from Google to keep its web search on the Firefox starting screen and as the browser's default search engine. Update at 7:15 a.m. ET: with comment from Microsoft.
Investopedia explains 'Price-Earnings Ratio - P/E Ratio'
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.
The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings.
It is important that investors note an important problem that arises with the P/E measure, and to avoid basing a decision on this measure alone. The denominator (earnings) is based on an accounting measure of earnings that is susceptible to forms of manipulation, making the quality of the P/E only as good as the quality of the underlying earnings number.
Things to Remember
Generally a high P/E ratio means that investors are anticipating higher growth in the future.
The average market P/E ratio is 20-25 times earnings.
The p/e ratio can use estimated earnings to get the forward looking P/E ratio.
Companies that are losing money do not have a P/E ratio.
The bears are piling up on Baidu (NASDAQ: BIDU) .
A whopping 10.6 million shares were sold short as of mid-February according to Nasdaq's latest bi-monthly update. This is nearly twice the number of bearish wagers that were placed on China's leading search engine a year ago. Baidu's short interest hadn't topped 9 million over the past year until now.
The worrywarts appear to be right -- for now.
February wasn't a good month for Baidu. The shares surrendered 16% of their value last month. A poorly received quarterly report early in the month didn't help, and concerns about Qihoo 360 (NYSE: QIHU) gaining ground since rolling out its own search platform last summer continue to linger.
Qihoo 360 reports tomorrow, and it could ding Baidu if it has some encouraging metrics to offer up on its nascent search initiatives.
This doesn't mean that there aren't a lot of things working in Baidu's favor here.
Baidu's claims of Qihoo infringement -- alleging that Qihoo is crawling and copying Baidu's content -- is gaining legal steam in a Beijing court.
The dot-com speedster now claims to be serving up 5 billion search queries a day across search, community, and partner sites.
Groupon's recent failures have soured companies on daily deals sites, but that didn't stop Baidu from rolling out a second group-buying portal last month. Groupon may be shocking the market with its red ink, but at least Baidu's profitability has remained intact as it diversifies its model.
Then we get to Baidu's valuation.
Baidu's stock may be trading 44% below its all-time peak two summers ago, but the Chinese Internet bellwether is still growing at a healthy clip. The end result is that Baidu is now fetching just 17 times this year's projected profitability and less than 14 times next year's target. Google (NASDAQ: GOOG) -- which is not only the company that Qihoo replaced in launching its own search engine, but is also growing at a much slower pace than Baidu -- is trading at higher profit multiples.
This doesn't mean that the bears are wrong. If Qihoo 360 continues to gain market share or if Baidu's growth gets tripped up as a result of company- or country-specific pitfalls, it wouldn't be a surprise to see the bears win again. However, given the growing record number of speculators betting against Baidu, it also wouldn't be a surprise to see the stock rally as the result of a short squeeze the next time that the fallen dot-com darling has something good to say.
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Baidu has slid more than 16% since its fourth-quarter earnings release. Decelerating growth and increased competition from Qihoo 360 have spooked shortsighted investors. In the video below, Fool.com's Alison Southwick and contributor Daniel Sparks take a closer look at Baidu.
Growth may have slowed in some areas, but it's actually speeding up in others. Furthermore, if competition has caused management to suddenly commit to much higher research and development spending rates, investors should actually be thankful; Baidu's much-needed R&D spending still lies substantially lower than Google's as a percentage of revenue.
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compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects. 
