How The Biggest Banks Get Away With Fraud

hi welcome to another episode of cold fusion where i cover anything in science technology business or history on this channel we've seen plenty of cases of scams and frauds but what if the very same financial institutions who we trust with our money end up committing some of the biggest frauds of all time it's not fun to think about but it's almost a fact of life now now don't get me wrong not all banks are bad but some of the largest financial institutions are no stranger to deceit in this episode we'll take a look at some of the biggest frauds ever committed by banks and then will end on an exclusive story for rob bestian a licensed stockbroker of over 8 years who has agreed to publicly blow the whistle here on cold fusion rob used to work at one of the biggest banks in the united states but has since left let's begin you are watching pearl fusion tv [Music] up first we have the wells fargo fake account scandal wells fargo the third largest bank in the united states ruined their reputation in one big catastrophe it all started when wells fargo executives wanted their staff to meet aggressive sales targets in their financial products business these products were things like mortgages or credit cards employees who met these targets were eligible for promotions and bonuses while employees who did not meet these sales targets faced relentless pressure and even termination success by retail banks was measured in part by the average number of products held by a customer so to appear more successful wells fargo employees then created millions of savings and checkings accounts for customers without their knowledge or approval why because they wanted to sell multiple products to the same customers for example a customer with a checking account might also be given a credit card that they didn't ask for to achieve the sales goals set forth by the company bank branch staff resorted to inappropriate activities they started using their own contact information on forms to prevent customers from discovering the scam employees were accused of creating fraudulent checkings and savings accounts by moving money out of existing accounts into the new ones this was made possible by setting the customer's pin numbers to zero zero zero zero now the bankers had full control of the client's accounts without them knowing as early as 2011 the wall street journal smelt a rat and ran a story of the illegal practices but nobody really cared another article in 2013 was published by the los angeles times this time it focused on the intense pressure on bank managers and individual bankers to produce ever increasing sales and even mathematically impossible quotas but still nobody cared eventually many of the bank's customers noticed something strange they questioned fees on accounts that they didn't ask for or didn't even realize they owned the influx of complaints finally drew the attention of regulatory agencies the fraud started to gain wider attention in 2016 when a group of government regulatory agencies fined the bank a combined 185 million so that's my question about wells fargo how far up the line did this go this generation of executives that either could have known or should have known and in some cases we talked to people and they said look they were told they were told that there were suspicious numbers on the platform here and they decided not to do anything about it i mean someone told us 42 debit accounts by a single banker in southern california nobody said as a manager hey that looks a little bit fishy maybe i should look into that perhaps this is made up wells fargo subsequently dealt with civil and criminal lawsuits and paid out over 2.7 billion dollars john stumpf wells fargo chief executive at the height of the scandal was forced to resign when all was said and done the bank had created over 3.5 million fraudulent accounts but wells fargo traded its hard-earned reputation for short-term profits and harmed untold numbers of customers along the way i had 15 accounts at once it was just very frustrating and these are accounts i never opened interest rates are an important part of any economy but what if the interest rate of corporate loans student loans mortgages and more were all controlled by a single mechanism a mechanism that was fraudulently being altered the london interbank offered rate otherwise known as libor rate is exactly that the libor scandal was probably the biggest financial crime that you've never heard of one way of judging how healthy they were was by how much interest they were paying to borrow cash which would also affect the cost of mortgages and loans the way libor worked was that each bank had to estimate how much interest they'd have to pay to borrow cash then the rates from all the banks were averaged that's the libor rate in total libor itself underpins 350 trillion dollars of value based in derivatives by manipulating the libor the traders in question were inherently causing a cascade of mispriced financial assets throughout the entire global financial system the libor is supposed to be the total assessment of health of the financial system because if the banks feel confident about the state of things they report a low interest number and if the member banks feel a low degree of confidence and see risk in the financial system they report a higher interest rate number the huge flaw in this approach was that the estimates that the bank gave on interest rates was being used to determine the actual libor interest rate none of the banks actually had to borrow and lend at the same rate mentioned in libel the banks merely had to tell the regulators that they would do so in practice they would be borrowing and lending at completely different rates they could then profit on the difference between what they reported and what they actually traded with banks realized that they could form a cartel and rig the libor rate in their favor they got together and consistently fudged their numbers they were providing inflated or deflated interest rates to regulators for years unfortunately the fraud also impacted corporations and individuals who had loans based on the libor for the banks there was a lot of money to be made in the first quarter of 2009 citigroup had interest rate swaps of a notional value of 14.2 trillion and bank of america 49.7 trillion these are huge numbers and just a small change in the libor rate can make them piles of cash for example a one percent interest rate change that happens instantaneously could see billions in profit and there was much affected in the real world one example is home mortgages homeowners in the united states filed a class action lawsuit in october 2012. the lawsuit was against 12 of the largest banks that were fudging the numbers in the libor rate and this made mortgage repayments more expensive than they should have been deutsche bank was one of the biggest participants in the fraud they were fined 1.74 billion dollars anz bank in australia barclays bank in the uk and the royal bank of scotland were some of the other banks involved the fines offered were nothing compared to the money that they made [Music] gold and silver market rigging by jp morgan in 1974 the futures market began trading in the gold and silver markets futures contracts are basically an agreement for two parties to trade an asset at an agreed date and price in this case both parties are trading gold and silver as time went on more and more futures contracts were created at will essentially increasing the virtual supply of gold and silver when in reality no new metal was ever mined in fact the prices and the amount of gold and silver traded have very little to do with the underlying supply of metals as you could imagine this system was ripe for abuse by 2018 more imaginary gold and silver was traded in a few days than was actually mined in an entire year in 2018 only 34 tons of registered gold stocks were delivered through futures contracts and yet 260 000 tons of gold was traded on the comex which is more gold than has ever been mined in history and 86 times the annual gold mining supply [Music] between 2008 and 2016 jp morgan engaged in a practice that manipulated the price of gold and silver what they were doing was something called spoofing this manipulative practice is designed to create the illusion of demand or a lack thereof the goal of spoofing is to move market prices in a way that financially benefits the banks for a very long time this idea was labeled as a conspiracy theory to summon the financial industry in an interview with cnbc aired in april 2013 financial whistleblower andrew mcguire described how mysterious traders allegedly working for jp morgan waited till most of the major markets closed and then used a separate market known as the comex to trade virtual silver anonymously they used algorithms to bounce in and out of the futures market in the blink of an eye 400 contracts a second the thing is each contract represents 5 000 troy ounces of silver in one instance maguire described unusual market movements that saw the sale of 45 000 contracts with a profit of eighty thousand dollars per contract totaling a profit of 3.6 billion dollars for the mystery seller these kind of strange market movements weren't that unusual the difference between the digital gold traded on the futures market versus the actual amount of physical gold that actually exists has now become so vast that now there are hundreds of claims of ownership on every single ounce of gold in other words for every ounce of gold exchanged in the futures market each trader thinks that they have a claim to that gold and could take physical delivery of the metal if needed but the thing is hundreds more traders also think the same thing let's just hope everyone doesn't want their physical gold at once in 2019 jp morgan was accused of being quote a criminal enterprise by a federal prosecutor for the rigging of the gold and silver market in september of 2020 the department of justice issued a 920 million dollar fine for the rigging in reality they could be potentially earning trillions so ultimately these fines are just the cost of doing business and the practice still continues to this day um you know they've been spoofing the market for the better part of eight years and silver uh gold platinum palladium i mean all of the precious metals uh this is a pretty big deal i mean there's always talk and listen i've been covering gold for almost eight years now and there's always talk of people saying oh there's some sort of manipulation going in the market you probably hear that in every market um but now that this actually comes up it really kind of makes you think twice like wow i mean this is this is interesting i mean this is they're claiming racketeering charges these are high claims for the second half of this video we're going to take a deep dive into the next scandal which is still ongoing today one of the biggest frauds of all possibly in the hundreds of billions of dollars is the etn scandal this one is notable because it's still ongoing this has flown under the radar of the general public and was brought to my attention by rob bestian a broker of eight years he's looked pretty deeply into the situation with these products and believes that this is one of the largest financial frauds of all time after launching a complaint to the sec he's agreed to talk to me about what's happening but before we look into it we need to set the groundwork it all begins with a class of products called an exchange traded note or etn etns have proven extremely risky transferring all the risk and losses to buyers while the banks make a profit as you'll see some analysts have claimed that they literally serve no economic purpose banks such as ubs group and citigroup and notoriously credit suites have all taken part so what are atns [Music] according to the sec etns are unsecured debt obligations this means that they aren't backed by any underlying asset and etn is basically a figment of imagination by wall street financial engineers the point of them is to mimic the performance of an underlying index such as oil or foreign currencies but it's not backed by them they are in practice iou's from a bank which promises to deliver the returns of an index in return for a fee leveraged etns can offer multiples of the performance of an index inverse etns are based on the opposite performance [Music] when the price of an etn goes down banks make money so naturally what does the price do over an extended period of time it goes down the long term value of an etn is engineered to go to zero credit suisse even said so for example the reverse vix etn which mirrors the reverse price action of an index that measures the volatility in the stock market states that quote the long-term expected value of your etn is zero if you hold on to your etn as a long-term investment it is likely that you will lose all or a substantial portion of your investment end quote the only issue is that this was buried in page 197 of their prospectus far from a place where the casual buyer would be aware in short the issuers which are the big banks want the price of these etns to drop as quickly as possible then they mark to mark up the gains on their balance sheet we'll have rob who'll give us his rundown on the fraud that he's uncovered a link to his full video will be in the description below hi my name is rob bashian over the next few minutes i would like to go over two major parts of my whisper complaints first i will explain the mechanics and mathematics of how leveraged and inverse exchange strategy products operate second i will discuss the extreme use of reverse splits i've constructed a narrative or game to demonstrate the basic yet counterintuitive mathematics of the fraud in this narrative there are three participants two players and the house the players win based on opposite outcomes of the flip of a coin both players will start with a thousand dollars and the house will collect the losses and pay out the winnings the house's balance will only increase if there is a net loss by both players upon first observation one might think this is a binary outcome with an equal probability of profit and loss just as a coin flip is binary one winner and one loser let's play 10 rounds and see just how wrong that assumption is as you can see from this table the house took 60 percent of the pot without ever taking financial risk investing any of their own funds or adding economic value player 1 won 60 percent of the time and still lost 29 and player 2 suffered a devastating loss this is exactly the way leverage and inverse etns and their pairs work they are mathematically and i repeat mathematically guaranteed to go down 100 of the time and the more time that goes by the more dramatic the decline these products were designed and constructed this way on purpose to enrich the issuers the distributors the brokers and advisors that peddled this so why would people in their right mind buy something that the price is guaranteed to go to zero well as it turns out it's possible that they don't know that the value is going down at all through some financial trickery banks can avoid suspicion by manipulating the price of these products so how does this work well through a neat trick called a reverse split an issuer of an etn can reduce the number of shares to increase the price for example in a ten to one reverse split there are one tenth the number of shares but the price of each share has increased ten times in the end the net asset value stays the same but the price looks 10 times higher to an uneducated outsider reverse splits falsely caused the etn price to be higher than it otherwise would have been and this allows issuers to create additional notes at a higher price the higher the starting price the more money the banks make remember the issuing financial institutions are constantly creating more notes and selling them to market reverse splits allow them to issue notes at a higher price certainly few investors would purchase a security which was priced at twenty dollars eighteen months ago and now trades it under one an etn called the tvx started at a price of two billion in december of 2010 but by december of 2019 its price was 51.29 so it's actually down 99.99992 in the example of tvx over the course of seven years 2012-2019 25 million notes were converted to one let me repeat 25 million to one making the etm price 25 million times larger than it should have been so where did that 2 billion go out of the hands of investors and into the pockets of the banks ugas another etn which mimics the performance of the natural gas sector does the same as the product continued to decay the banks would continue to carry out reverse splits at the expense of unsuspecting investors these were all part of my original complaint and sense had been delisted but no fines to the issuers coincidence probably under this logic if enron had just done large enough reverse splits and issued more stock at a higher manipulated price it would still be a 60 security and in great financial health the other thing you have to keep in mind too is that unlike an etf these exchange-traded notes don't have a board um so there really isn't this oversight um you know uh you know committee to sort of uh look over those things so uh these exchange traded notes they're like hey look why don't we just do the same kind of thing and put it out there and see what happens but then they get they get left um without anyone really you know to to account for it and it's uh it's a problem these are not exchange traded funds these are notes and and it's you know everyone's in 2018 a credit suisse reverse vix etn exploded hurting investors but leaving the bank unscathed paul gambles co-founder of financial advisory firm mbmg group called it quote an accident waiting to happen and he stated that the products served no economic purpose the product was blamed for causing a negative feedback loop of market selling the banks lost no money but the holders of the etn did the bank actually booked profits for the loss of value of the fund to make things worse these financial products are passed through distributors and sellers to unknowing unsophisticated investors a move which most would call predatory behaviour in his professional career rob has seen similar things go on after much controversy credit suisse de-listed their u-gas etn in july of 2020 on looking at this to test out his theory rob decided to mirror what the banks were doing he consistently made significant profits in the markets and this is one of the number one red flags in trading the same flag that alerted investigators to jump onto bernie madoff let's pull up some etn pair charts and see if my game analysis plays out in real life by mimicking what the issuers do legally it's possible to generate returns well in excess of 40 a year every year this in my opinion is the nail in the coffin of any defense of these products by regulators or by the issuers when the world learns of the fraud and can follow along in real time the opportunity to exploit the public which is fraud does goes away i can guarantee i'm not the only one that knows how these products operate they were designed this way on purpose and i'm willing to bet there are powerful hedge funds shorting the out of these products and making billions it's important to remember etns are considered debt on the issuer's balance sheet as the price of the etns decrease their profit from issuing the security increases with further investigation it was found that these products weren't tracking their underlying indexes properly in march 2020 many of these products were collapsing in dramatic fashion both leveraged etn anti-etfs which i had predicted months before in my sec filings remember these should have inverse performance intraday meaning if one was down 10 its inverse pair should be up ten percent this did not happen another failure at the expense of purchasers and with measurable direct benefit to the issuers as they marked to market these products with huge multi-billion dollar daily gains is this fair or is this fraud most of the etns i listed in my initial whistleblower complaints and all etns from credit suisse have now been delisted but not before many of the issuers made many tens of billions are they going to quietly escape into the night without criticism keeping tens of billions of investors money that's up to you and me the sec recently fined some of these parties for these products which was part of my initial complaint as well as a large point of my discussion with the sec on the phone in march of 2020. to rob the whole scheme of leveraged and inverse etns appears to be a giant fraud rob has submitted two whistleblower complaints to the sec the last of which was in the 2nd of january 2020. these complaints usually progress slowly and take years to play out harry markopoulos who uncovered the bernie madoff ponzi scheme was ignored and not believed for years but once bernie's fraud fell apart everyone was willing to listen but not before so in summary knowing that the banks are cheating and rigging their way at the expense of others isn't anything new but seeing the extent that some institutions go to is staggering from creating fake accounts to rigging the gold and silver markets to the rigging of interest rates and creating fake financial instruments it really makes you wonder and we didn't even touch on the derivative bets that went wrong that made the housing crisis in america turn into a global financial issue or the 2019 rigging of the currency exchange market that involved 11 banks and so much more it's clear that there's plenty of corruption out there but hopefully justice can be served over time the hope of this episode is that at a minimum it raises questions to those that have a responsibility to keep our financial system running with honesty keep investors protected and at a minimum dive deeper is it likely that any regulators are going to admit dropping the ball and not adequately protecting investors it's important we ask these and more tough questions and bring this to broader attention so if anyone out there is watching that is a regulator or at least has some sway take a look into the etn issue regarding the etn fraud and related products rob is in the process of submitting a third whistleblower complaint to the sec he's going to provide a mathematical proof or white paper describing the mathematics behind the fraud and how he's able to generate such large profits essentially only by mimicking the issuers of the product he'll be making this information public shortly if you want to know more details about the fraud i'll leave a link to rob's video below for me personally although i can't 100 be sure i do think it looks suspicious if rob's claim of making returns in excess of 40 per year is indeed true there are some huge questions that should be raised with regulators okay so that's about it from me thanks for watching the whole way through my name is dagogo and you've been watching cold fusion and i'll see you again soon for the next episode cheers guys have a good one cold fusion it's me thinking [Music] you

Channel: ColdFusion

Views: 1,928,187

Keywords: Coldfusion, TV, Dagogo, Altraide, Technology, Apple, Google, Samsung, Facebook, Tesla

Id: FSh8eusFYL4

Length: 25min 15sec (1515 seconds)

Published: Mon Sep 06 2021

Reddit Comments

[u/whateverMan223]

coldfusion is the shit

[u/According-Reveal6367]

The baking business is one of the few jobs in the world where you can legally steal and get away with it with a slap on the wrist if at all. Deutsche Bank and there friends stole 15 billion euros over 10 years from taxpayers. They didn't even had to get away with it because they wrote the law and our politicians signed it unchecked. Then they figured that they have to change something, talked to deutsche Bank again and they made a new bill that soundet different but left the same gates open to keep that scam running.

[u/Tapps74]

Banks & large businesses make their money by playing in the margins, that grey area that is not quite illegal but ethically devoid. They celebrate a product that takes advantage of loopholes it is a culture of looking for that edge or advantage. Inevitably some cross the line in their pursuits.

When Labour came to power (early 2000) they said that part of the problem in the U.K. is that the tax laws were 1000’s of pages long, often contradictory & leave a lot of room for avoidance. They pledged to reduce this to just 100 pages & then Starbucks, Apple, Amazon etc would be paying their fair share. 8 years in office, the tax laws did not reduce a page & in fact increased in volume.

It’s all “hyper-normalisation” (see Adam Curtis 2016 Documentary) We look to our law makers to govern these sectors, where the truth is, these sectors govern our lawmakers.

[u/JudyAndExecutioner]

Inverse ETF/etn is supposed to go to zero eventually. Like you're not supposed to hold them. They're meant for risk management mostly.

Here's a good article which explains some of the behaviour of leveraged ETFs https://www.investopedia.com/articles/financial-advisors/082515/why-leveraged-etfs-are-not-longterm-bet.asp

That the etn and inverse etn don't normally have opposite moves comes down to how much the fees are, so Dagogo or whatever his name is kind of dropped the ball here I think, but the guest does a good job explaining the problem with the faked interest and reverse splits and the nature of unbacked securities.

There's just about 2 things I think you can count on when it comes to the American financial system imo: if SPY doesn't go up, we're all fucked, and everything is fraud.