Dirty Little Secrets

The GoDaddies of tax-havens :

When we asked Nancy and Stephen about whether they are responsible for monitoring shady clients, they told us they wouldn’t necessarily know if their clients were acting outside the law. “We don’t get involved at all. We just serve as the registered agent,” said Stephen. Stephen did say, however, that if for some reason their client was acting suspiciously, he would cut ties immediately.

• • •

Blast from the past :

Today, he says, “Panama is essentially an extension of the U.S. economy.” It harkens back to the early 20th century, when canal workers were paid in American dollars. In the roaring, free-market friendly 1920s, Panama adopted U.S.-style corporate laws. Some U.S. ships, seeking to avoid Prohibition restrictions against serving alcohol onboard, registered in Panama instead. Franklin D. Roosevelt’s administration was alarmed to find out that, as the U.S. worked to dig itself out of the Great Depression, wealthy Americans were using Panama as a tax haven.


Jurgen Mossack’s family landed here in the 1960s. During World War II, his father had served in the Nazi Party’s Waffen-SS, according to U.S. Army intelligence files obtained by the ICIJ. Once in Panama, the elder Mossack offered to spy on communists in Cuba for the CIA.

→ Fusion

Inside Job

A story on Raj Rajaratnam’s inside job and an unsuspected collateral damage:

In my many conversations with Das, I had failed to explain to her what insider trading was, how she ended up a millionaire on paper, and what her employer did in her name. Her sole source of aggrievement was the sum of Rs 8.5 lakh she believed Kumar owed her. Now, I heard her voice on the crackling line fill with hope. “Will he give me the two years’ pay he promised?” she asked. “If he does, that will be very good.” But, after a pause, she added, “If he does not, my life will continue.”

→ Caravan Magazine

Art: An Alternative Asset Wealth Managers Can Do Without

“Making money is art,” Andy Warhol once wrote :

Another reason for advisers’ hesitance is the unique due diligence skillset that art fund investments require. Investors must evaluate the fund’s financial structure and its investment potential. Wealth managers can readily grasp the finance projections, but few are equipped to gauge the fund manager’s art market expertise, proposed acquisition market or strategy for buying and selling profitably, Beard notes.

→ Institutional Investors

Liquidity : Never There When You Need It

Markets are dominated by a few large investors, creating problems of concentration. Similar portfolios and strategies exacerbate risk and the problems of illiquidity if a large number of participants or very large holders wish to exit positions at the same times.

Investors are frequently market following trading the momentum, buying when prices go up and selling when they fall. They are users rather than providers of liquidity. Their buying creates the illusion of active trading when markets are rising but suck liquidity out when prices fall.

→ EconoMonitor

Black Box Trading : Why They All “Blow-Up”

While in Greenwich Ct. one afternoon I will never forget a conversation I had with a leading quantitative portfolio manager. He said to me that despite its obvious attributes “Black Box” trading was very tricky. The algorithms may work for a while [even a very long while] and then, inexplicably, they’ll just completely “BLOW-UP”. To him the most important component to quantitative trading was not the creation of a good model. To him, amazingly, that was a challenge but not especially difficult. The real challenge, for him, was to “sniff out” the degrading model prior to its inevitable “BLOW-UP”. And I quote his humble, resolute observation “because, you know, eventually they ALL blow-up“…as most did in August 2007.

→ Global Slant

Inside The Biggest-Ever Hedge-Fund Scandal

Hint : S.A.C.

The tactics echoed the approach the F.B.I. had used to dismantle the New York Mob. The plan was to arrest low-level soldiers, threaten them with lengthy jail terms, and then flip them, gathering information that could lead to arrests farther up the criminal hierarchy.
Over time, agents produced an organizational chart with names and faces, just as they had with La Cosa Nostra.
At the top of the pyramid was Steven Cohen.

It took me quite some time to read this gigantic piece, but as always, The New Yorker delivered a brilliant investigation. Here is another one from Vanity Fair.

→ The New Yorker