Risk Prison...It Is Time!

Author

Howard Lindzon
March 15, 2008

Not much to add to the Bear Stearns conversation. I can only offer my sympathies to the innocent bystanders at Bear Stearns (there are so many of them truly). There are real good people there, but they are led by liars and thieves right now. A few people have jeopardized 15,500 plus jobs.

Henry sums it up short and sweet ..it’s just insulting to blame anyone but senior management at Bear Stearns. They will try to blame it on their lenders as Henry outlines, but you can’t operate at that level without knowing the game.

I have one Bear Stearns story. They probably saved my hide back in the days of Ace Greenberg (2001) leadership. I owned a broker/dealer through the bubble. I had a small partner who was head of compliance. I had worked next to him for years. There was no reason not to trust him. He was an auditor within the NASD before I met him so he knew the ins and outs. He was to watch my back. Ya right.

Scott Hitoshi Tominaga (CRD #2416724, Registered

Principal, Gilbert, Arizona) submitted a Letter of Acceptance,

Waiver, and Consent in which he was barred from association

with any NASD member in any capacity and ordered to pay

$40,173.92, plus interest, in restitution. Restitution must be paid

before Tominaga requests relief from any statutory

disqualification. Without admitting or denying the allegations,

Tominaga consented to the described sanction and to the entry

of findings that he effected transactions in the accounts of

public customers without their prior knowledge, authorization,

or consent. The finding also stated that Tominaga, on behalf of

his member firm, prepared and filed with NASD false and

misleading FOCUS Reports. NASD also found that Tominaga

failed to respond to an NASD request to appear for an on-the-

record interview. (NASD Case #C3A030020)

Joseph Anthony Watters

Scott was waking up every day a liar and a thief and spending most of his time stealing and expertly covering it up with our first clearing firm (they finally shut him down with an error account above $2 million). The punishment did not fit the crime, but that’s another story.

In 2000, 2001, Scott Tominaga went on a rampage of trading using the error account for losing trades and his personal account for winning trades. Our first clearing firm, who are supposed to catch these things, decided not to. By keeping it a secret from me I am convinced they were a part of the crime. When Scott to me to add us to Bear Stearns as a second clearing firm I wondered why we needed a second clearing firm, but was happy to have Bear Stearns for sure. When I got the call from Bear Stearns a few months later that our error account was at $40,000, let’s just say I was shocked. I am sure they could have called just Scott, but someone at Bear decided to call ALL the partners. That account should be flat every night. It is for customer errors (trade prices etc…). I hated making the call to our main clearing firm because I knew it would be bad. They were obviously hiding it from me too. The numbers had gotten so big.

I was taken, but I take responsibilty for that. He got mostly me thank goodness so the right dummy was hit :) .

I remember calling Ace Greenberg and him taking the call and explaining many things to me. I was very fortunate that we had fraud insurance – a rule in the business – and even luckier to get paid on it (insurance companies are not supposed to pay out :) ). The good people under Ace Greenberg in the clearing department stopped the crime from continuing. I lost my business and made the hardest calls of my life – FIRST to the NASD (shaking in my boots) than to my partners and wife and friends that trusted me. It should not have to happen to anybody.

It used to be when I searched Scott’s name in Google, the fine and barring were right there to see. I recently grew concerned that his barring and fine had lost Google juice. One of our easiest forms of due diligence in the financial business is a simple Google search. Guys like Scott and scumbag investment banking executives who are wrecking lives need to be permanently enshrined at the top of Google in some what when their names are searched. It’s how we stop these crimes in the financial business. I know it’s a problem because Scott works at a hedge fund in Los Angeles. Can you freaking imagine?

Throwing people in prison won’t stop the bleeding, but the stock market is a very important symbol of American freedom and capitalism and we have gone to war over less important things. It is being raped from within. We are rotting at so many levels from currency to infrastructure and now capitalism itself.

I don’t have the answers, but I know it comes down to leadership. Our leadership is failing us and the system has rotted to the point that good leaders would be nuts to take the job. The classic catch-22.

We need a risk prison system and we need it now. The prison I envision for these risk criminals, has running loops of infomercials, e-trade commercials and CNBC with no pictures, just sound …on 11 volume…endlessly looped and blaring in their faces.

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