Managing Risk... and Conflicting Interests

With each passing day it’s always exciting to see what new examples of banking unscrupulousness happen to pop up. Today, there’s one from Omer Rosen, a former employee in Citigroup’s corporate derivatives unit. In a recent piece for the Boston Review, he gives the skinny on how technically his job was to help clients manage risk… however, in reality, he spent the bulk of his time figuring out how to profit on his clients’ inferior information.

From the Boston Review:

“Our clients were non-financial corporations, the Deltas and Verizons of the world, which relied on us for advice and education. Our directive was ‘to help companies decrease and manage their risks.’ Often we did just that. And often we advised clients to execute trades solely because they presented opportunities for us to profit. In either case, whenever possible we used our superior knowledge to manipulate the pricing of the trade in our favor.

“I never heard this arrangement described as a conflict of interest. I learned to think we were simply smarter than the client. For unsophisticated clients, being smarter meant quoting padded rates. For the rest, a bit of “legerdemath” was required. Most brazenly, we taught clients phony math that involved settling Treasury-rate locks by referencing Treasury yields rather than prices.

“If a client requested verification of our pricing, we volunteered to fax a time-stamped printout of market data from when the trade was executed. One person talked to the client on the phone while another stood by the computer and repeatedly hit print. The printouts were sorted, and the one showing the most profitable rate for the bank was faxed to the client, regardless of which rate was actually transacted. If a rate for the client’s specific trade was not on the printout, we might create rigged conversion spreadsheets for them to use in conjunction with the printout.”

Without a doubt, you’ve already heard of creative accounting… consider this an example of creative use of the “print screen” key. If you didn’t find that little nugget of insight hard enough to swallow, you can read a few more of his tricks of the trade in his original post on Legerdemath in the Boston Review.


Rocky Vega,
The Daily Reckoning