Tops & bottoms of 2007

Futures, Feb 2008 by Collins, Daniel P, McMahon, Chris

Rogues Gallery

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While there are plenty of rogues and blame to go around related to the subprime crisis and credit crunch, we reserve this designation for the three major securities ratings agencies:

* Moody's

* Standard and Poor's

* Fitch

Wikipedia defines "investment grade" as bonds that are judged as likely enough to meet payment obligations that banks are allowed to invest in them. Investopedia defines "subprime" as a classification of borrowers with a tarnished or limited credit history. Subprime loans carry more credit risk.

It is not the act of creating investment vehicles from bundles of subprime loans that is disturbing, as many of the products we write about are highly volatile. Rather, it is that somehow many of these products were given a stamp of "investment grade" by these ratings agencies, who were paid by the issuers of these products, allowing them to be portrayed as safe investments along the lines of, say, U.S. Treasuries.

THE DOG POUND

* Santo Maggio, former president of Refco Capital Markets, pleaded guilty to two counts of securities fraud, one count of conspiracy and one count of wire fraud in late December. He faces a maximum sentence of 65 years and must return $23 million.

* Refco outside counsel Joseph Collins of Mayer Brown LLP was indicted on 11 counts of fraud and other charges related to Refco's round trip loans, which led to the company's destruction. Separately, the SEC also accused Collins of failure to disclose hundreds of millions in debt prior to Refco's IPO.

* Still awaiting trial on conspiracy, fraud and other charges are former CEO Phillip Bennett, former CFO Robert Trosten, and former President Tone Grant.