Prosecutors tried to stitch together separate strands in the insider-trading case against former McKinsey & Co. CEO Rajat Gupta, Facebook (META)’s market makers may have lost $100 million due to Nasdaq glitches, and more in today’s Wall Street roundup.
U.S. v. Gupta: It was wiretap day at U.S. vs. Gupta, as prosecutors played FBI recordings of Raj Rajaratnam in an attempt to show that the Galleon Group manager had been tipped to purchase Goldman Sachs (GS) stock before Warren Buffett announced a $5 billion investment in the bank. Mr. Rajaratnam told a trader he’d heard that “something good might happen at Goldman.”
A month later, the now-imprisoned hedge fund manager was recorded telling Galleon portfolio manager David Lau that he’d heard from “somebody on the board of Goldman” that the company was lagging earnings estimates.
Defense played an FBI wiretap of its own.
Later in the day, prosecutors tried to demonstrate the close bond between Mr. Gupta and Mr. Rajaratnam. “Raj is one of the most outstanding hedge fund managers and a very close friend,” Mr. Gupta wrote in a Feb. 2007 e-mail admitted into evidence.
Costly glitch: There was always something strange about news reports that Nasdaq would set up a $13 million fund to handle claims from market participants who lost money when a bug in the exchange’s trading software and delayed Facebook’s market debut and the delivery of by-and-sell confirmations on the stock. Now Reuters is reporting that four of the top market makers in Facebook—Knight Capital, Citadel Securities, UBS and Citi’s Automated Trading Desk—probably lost more than $100 million from Nasdaq’s technical problems.
Facebook’s underwriters lent Facebook shares to short-sellers as the stock price plummeted. Conflict of interest? Morgan Stanley (MS) didn’t lend shares, according to the Wall Street Journal, although IPO managers often do.
Was that an oversight? The risk committee on JPMorgan’s board of directors is comprised of a museum head, the grandson of a billionaire and the CEO of a company that makes work boots. The only committee member with banking experience left the industry more than 25 years ago, Bloomberg reports.
BofA wins: Freddie Mac forced Bank of America to buy back $330 million in mortgages the firm sold to the government-sponsored entity, after used computer programs—as opposed to human appraisers—to value properties. It may not be a bad thing for BofA, according to a Credit Suisse analyst, because the bonds from which the loans are being repurchased, at face value, no less, are trading at high premiums.
They’re thinking about it: The SEC is apparently still weighing an enforcement action against Lehman Bros., despite a recently uncovered memo indicating that the nearly four-year-old investigation was coming to a close. The memo was written by an underling and is months old, Dealbook reports.
From the desk of Dick Fuld: Speaking of Lehman, this wins the prize of the best piece of alternate reality in the Jenner document dump: “So it is an enormous tribute to the strength and growth of our franchise that Warren Buffett, the world’s most respected investor, has decided to invest $3.5 billion in our Firm through Berkshire Hathaway.” (H/t ValueWalk.)
Another helping: Bankia SA, the oft-distressed lender, is expected to ask Spain for more than the 14 billion euros needed to meet government mandates.
Crystal ball: What would a Grexit mean for the U.S. economy?