Todd Christie, Grasso, Greenberg And AIG

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[Policing Wall Street: Comment]

The problem with most reporters is that they never print the whole truth- just certain parts of the truth.

Charles Gasparino wrote the book “King of the Club,” which describes the implosion of the New York Stock Exchange. The NYSE had been run as the fiefdom of “Duke” Dick Grasso.  Grasso protected those, who kowtowed to him, and sought to destroy those, who would not bow in obeisance.

In his book Gasparino provides important information about a very possibly illegal act. And this possible illegal act involves three of the then most important players on Wall Street: Dick Grasso, then Chairman of the New York Stock Exchange; Maurice “Hank” Greenberg, then Chairman of AIG, the insurance colossus that was bailed out by the American government; and Todd Christie, the brother of current New Jersey Governor Chris Christie rumored presidential prospect.

Todd was a managing director at Goldman Sachs and was the specialist for AIG at the NYSE and was Co-President of Goldman’s specialist unit.

The most important section of the book for our purposes is the section, which discusses Greenberg calling Grasso and demanding that Grasso speak to Todd so that Todd would support the price of AIG. Greenberg always complained that Todd was not supporting the price of AIG, which is in fact illegal.

At one point Greenberg demanded the AIG trading sheets of Todd- an illegal act. Grasso did not give Greenberg the AIG trading sheets of Todd, but Grasso had the AIG trading sheets delivered to him so that he could inspect the trades. This was outside the purview of Grasso. Only the Legal and Regulatory Division of the NYSE can examine trading sheets- not even Grasso could.

As Grasso knew stock specialists at the NYSE are not supposed to support the price of a stock except to maintain price stability.

Grasso had extraordinary influence over all facets of the NYSE- especially the regulatory aspect.  Bowing to Greenberg’s entreaties about the price of AIG Grasso would frequently go over to Todd and ask Todd “to do the right thing” about the stock price of AIG. Of course if Todd did not do the right thing, Grasso could always ask Edward Kwalwasser, Executive Vice President of the NYSE, to investigate Christie’s trading in AIG. And it was Grasso, who was responsible for hiring Kwalwasser to be in charge of regulation at the NYSE.  And just as Grasso had Kwalwasser hired, Grasso could have Kwalwasser fired- if he wished.

One reason for Grasso’s attention to Greenberg’s complaints about AIG was that Greenberg was a member of the Board of the New York Stock Exchange- the same board that voted a $190 million pay package for Grasso.

Gasparino recounts that AIG wanted to buy an insurance company in a deal- not for cash, but by paying for the company with the stock of AIG.  But this could only be accomplished with the price of AIG above a certain amount.

One day Greenberg left a message for Grasso’s secretary, SooJee Lee. Lee told one of Grasso’s assistants to transcribe the following message and to give the message to Grasso: “Hank Greenberg is not looking for AIG to go under $76.50 or the deal won’t go through.”

The deal went through.  So the price of the stock had been supported, not only by Todd, the specialist in AIG, but also by Goldman Sachs which had its proprietary trading unit support the stock of AIG. But the question is: Were Todd Christie’s efforts to support the price of AIG illegal?

And the answer to that question is a resounding, yes.

How do we know this was illegal? Simple. We have a disciplinary decision, dated December 16, 2004, from the American Stock Exchange, IN THE MATTER OF ALFRED MERENDINO, RONALD MENELLO AND GHM, INC.

This disciplinary decision involved the price manipulation, artificial support of the prices of several stocks, which were Amex-listed subsidiaries of Thermo Electron, a NYSE listed stock. We will only quote a brief section of the disciplinary decision and conflate the decisions for two stocks, whose stock price was supported, Thermo BioAnalysis (TBA) and Thermo Fibertek (TFT), into one paragraph.

GHM and Menello violated …. Section 10b of the Securities Exchange Act and Rule 10b-5 of the Securities Exchange Act in that they effected purchases and sales in TBA (and TFT) for GHM’s proprietary account during the period between …. which were (i) excessive given the market for said security, (ii) were not reasonably calculated to contribute to the maintenance of price continuity with reasonable depth and to the minimizing of the effects of temporary disparity between supply and demand, and (iii) manipulated the price of TBA (and TFT) during the period … 

Thus when Todd Christie succumbed to the combined entreaties of Dick Grasso and Hank Greenberg and supported the price of AIG he also violated Section 10b of the Securities Exchange Act and Rule 10b-5 of the Securities Exchange Act.

And what is the penalty for this violation of the Securities Exchange Act?  That is determined by Section 32. Section 32 states that anyone, who violates the provisions of the Securities Exchange Act can be fined not more than $5,000,000 or imprisoned not more than 20 years.

There are two additional points, which cannot be overlooked. The first is that Goldman Sachs knew that the price of AIG was overpriced because Goldman had been supporting the price of AIG.

But the more important point is that this price support by Goldman of AIG helped AIG to maintain its AAA rating and sell enormous amounts of credit default swaps- and almost bring down the American financial system.

And it was Goldman, which purchased $20 billion of AIG’s credit default swaps. And it was the American people, who made good on AIG’s credit default swaps that were sold to Goldman.

Manfredonia, a former trader, was tossed from Wall Street after he became a whistleblower.

"Speaking Truth To Empower."

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