Crime Pays If You Are Rich

Capitalism originated in plunder, the primitive accumulation of wealth, its origin lay in the evolution of class of mercantile bankers who hired mercenaries to expand their markets. As Arrighi points out in the Long Twentieth Century, the transition from Catholic Feudalism to capitalism was the creation of free trade private navies with marines in the service of merchant capital who created the bourse; the modern stock exchange.

Today capitalism still engages in economic criminal activities which are socially sanctioned. It is called tax avoidance. Where the law or regulations are silent, or allow for a wide interpretation of what is allowed or not, the speculator, the CEO the venture capitalist, etc.etc. will take advantage to get around the law or regulation. Until they are caught or bankrupt the company. Then new laws are created by the state to level the playing field, and the whole process comes full circle.

The one thing criminal capitalists can count on is being welcomed back to the old boys club with open arms by their ruling class chums. Heck they are proud of their reputation as the black sheep. And their class applauds their valiant efforts.

Of the more than 1,200 wealthy individuals that have appeared on Forbes's annual list of the 400 richest Americans over the past quarter century at least 13 have been convicted of serious crimes or jailed.

They include some well-known names: Wall Street's, Ivan Boesky and Michael Milkin from the Gordon Gecko junk bond era, the silver-speculating Hunt brothers, media diva Martha Stewart and the late Leona Hemsley, the hotelier.

SEE


A Day in the Life of Corporate Criminals

It's the company you keep

Agribusiness Bad Boys

Criminal Capitalism-West-Jet

Money Laundering Canadian Style

India Is Now A Capitalist State

Too Greedy

White Collar Crime Reporter 1

Criminal Capitalism The Story of 2006

Hedge Funds, Junk Bonds, Ponzi Schemes

Bring Out Your Dead

Money Laundering Canadian Style

Criminal Capitalism Redux

Credit Card Fraud

Golden Parachutes

1666 The Creation Of The World

Dirty Laundry Business as Usual

Calgary Fraud Funds Dubai Boom

Casino Capitalism

Are Income Trusts Money Laundering

Unproductive Capital

More Criminal Capitalists

Income Trust Fraud

Criminal Capitalism: Office Romance

Yeltsin's Legacy

Contracting Out Is A Crime



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Outing BP

A scandal occurred this spring when the British CEO of BP, British Petroleum, the British petrol giant which branded itself as green; Beyond Petroleum 'its a start', Lord Browne was outed for being gay, and supposedly lying about it in court.

The reality is that his resignation had less to do with covering up his homosexuality then covering for BP. Which had not gone Beyond Petroleum as a result of Lord Browne's corporate decisions but had become a Bad Player in the oil business.

British Petroleum used the cover of a post-Hurricane Katrina refinery bill in Congress for a sneak attack on legal protections against supertankers in Puget Sound. Reps. Jay Inslee and Dave Reichert thwarted it.

You will remember that BP had faced a number of oil field scandals prior to the outing of Lord Browne by his Canadian lover and rent boy; Jeff Chevalier.

A long list of misfortunes has battered this venerable company, including an explosion at its Texas City, Texas, refinery that killed 15 workers and injured scores more, and protracted outages at other refineries. There was also an Alaskan oil spill resulting from a corroded pipeline, along with 2005 hurricane damage to its big Gulf of Mexico Thunder Horse production platform, which delayed that facility's production start-up.

As if that weren't enough, the company's longtime CEO Lord John Brown stepped down abruptly this spring amid allegations about his private life. And more recently, BP was pressured by Russian authorities to sell much of its stake in a big natural gas field to state-run gas company OAO Gazprom.

Lord Browne the ultimate company man was still that despite his lovers outing of him. The reality was that his corporate maneuvering of BP in the oil business had been less an economic success than a failure in protecting the environment and workers.


As they say here is the rest of the story.

Blackmail, Sex & Corporate Secrets

While much has been written in Britain about the seedier side of the scandal, the critical role that BP and its executives played in it has been largely overlooked. Company officials, for instance, reportedly encouraged the C.E.O. to out himself on one of the BBC’s most popular radio shows, a plan that fizzled when Browne lost his nerve in the studio. Before that, BP leaders were secretly enlisted to serve on the board of Chevalier’s company, which was underwritten by Browne. And in the end, the disclosure of corporate secrets was as much a concern to Browne as the revelation of his homosexuality. The threat that internal BP matters might be leaked led Browne to lie in a court statement, which in turn led to his humiliating resignation and public shaming. Among the secrets Browne wanted to protect: He was considering relocating BP overseas—a potential economic ­disaster that would have been a huge blow to Britain’s corporate psyche—and he placed a dollar value on the heads of his workers in the event that they were injured or killed in an accident. In one memo, company executives gamed out different disaster scenarios for BP, comparing them to the outcomes in The Three Little Pigs.

Now the company is trying to right ­itself under a new C.E.O., Tony Hayward, who has taken over amid a growing outcry over BP’s shoddy environmental and safety record, which Browne managed to keep as secret as his private life.
Throughout the 1990s, he made a series of acquisitions that won him enormous praise in Britain and heralded the consolidation of the major oil companies. It seemed novel then that British ­Petroleum grew not by increasing its oil exploration and development but by taking over American oil companies such as Standard Oil of Ohio and Amoco. The BP-Amoco merger was the largest of its kind and launched the company into the big leagues overnight. When Exxon bought Mobil the next year, Browne quickly retaliated by purchasing Atlantic Richfield for $32 billion.

Browne was also, like any great C.E.O., a P.R. genius. In 1997, to the horror of many of his oil-industry peers, Browne admitted in a speech that he ­believed global warming was real. He then hired a San Francisco firm to ­rebrand British Petroleum and come up with a new corporate slogan. The old BP logo was replaced with a green-and-yellow sunburst, and ads suggested that BP now stood for . . . Beyond Petroleum. It was a masterstroke: BP had only $100 million invested in solar power at the time of the renaming, compared with at least $10 billion invested in conventional energy. But thanks to BP’s green logo and green C.E.O., its reputation as a green company flourished.

Browne was not quite so popular in the U.S., where experience on the ground is more important than a taste for fine art. “They pounded their chests a lot, but they didn’t know how to run refineries,” a former Amoco employee says of the BP executives. Because refineries are among the most intricate and dangerous workplaces on the planet, the old-timers feared that the BP ­executives’ ignorance would compromise safety, especially as BP cut jobs and budgets to reduce redundancy and raise profits for shareholders. (Similar allegations would later take center stage in the Texas refinery explosion lawsuits.) Other executives were skeptical of the hierarchical management structure at BP; they particularly complained about the handpicked “turtles” (named after the mutant ninja variety), who served as interns to Browne and were supposedly fast-tracked to replace other executives. There was also something known internally as the promise: a written business plan that could be used against employees who didn’t meet their projected goals. “They would use it to cut your throat if you failed,” a former engineer explains. Gradually, the company’s culture became less about innovation than intimidation. Fearful of losing their jobs, few spoke up about deteriorating conditions at some of the refineries. Behind Browne’s back, employees nicknamed him the “elf,” an acronym for “evil little fucker.”

Browne had his critics outside the oil industry too. The company was accused of committing human rights violations while building a pipeline in Colombia, and concerns were expressed about North Sea pollution. Greenpeace selected Browne for its Best Impression of an Environmentalist award. Matt Simmons, whose Houston-based Simmons & Co. is one of the largest investment-banking businesses serving the energy sector, was deeply skeptical of Browne’s 1999 prediction that, because of a worldwide market glut, oil prices would never reach $40 a barrel. “There was a vision of unreality in John Browne’s business plan,” Simmons says. “That generally works until you slip up.”

No one would dispute that Texas City, Texas, is a very long way from St. James’s Square. It is a rough-and-tumble blue-collar town on the Gulf Coast, where people know all too well that refinery work is often life threatening but just as often the only work available. On March 23, 2005, something went very wrong at BP’s Texas City refinery, the third largest in the U.S. An aging tank used to separate gas and fluid overflowed, filling the air with flammable vapor. A driver unwittingly left his truck running, igniting a fireball that by the end of the day had killed 15 people and injured more than 200. Not surprisingly, the blast led to the launch of hundreds of multimillion-dollar lawsuits and several investigations, including one by a commission that former secretary of state James Baker headed. A probe by the U.S. Chemical Safety and Hazard Investigation Board specifically blamed BP’s closed culture for the explosion. In 2006, the U.S. Occupational Safety and Health Administration fined the company $21.3 million, the largest penalty of its kind ever issued.

That wasn’t all that would befall BP. The next several months brought a cascade of problems, almost all blamed on lax oversight and poor management. In March, 200,000 gallons of crude leaked out of a BP pipeline at Prudhoe Bay, Alaska, forcing the company to partially shut down a major field. The pipe, it turned out, hadn’t been cleaned in years. In April, the U.S. Department of Labor fined BP for unsafe operations in an Ohio refinery. Also during this time, the company was unable to capitalize on its Thunder Horse offshore oil platform—the world’s largest—which was damaged during Hurricane Dennis in 2005. And in June, the government charged some of BP’s traders in Houston with trying to manipulate the price of propane in the Midwest and Northeast.

All these incidents inevitably prompted this question: How could a company that was supposed to be a model of corporate citizenship have gone so wrong? The answer that emerged was simple, and the weakness of Browne’s highly praised policy of acquiring big companies and instituting massive cost cuts was suddenly, fatally exposed. Instead of putting excess cash into maintenance and safety, the executives in London had ordered the company to “bank the savings.” But as plaintiffs’ attorneys have alleged, a rubber band can be stretched only so far before it breaks. BP led the industry in refinery deaths from 1995 to 2005. For 10 years, there was a fire a week at the Texas City plant, and many were afraid to work there, fearing that disaster was imminent. As an employee explained in a survey, “No one here in management cares. . . . We have been very lucky so far with this.” At the same time, the arrogance of BP executives was easily recognizable. One memo, prepared for a meeting held before the Texas City explosion, insisted on cost cuts, a familiar refrain at the plant: “Which bit of 25 percent don’t you understand??? We are going to be wasting our time on Monday unless you come prepared to commit to a 25 percent cut.”

In the end, Browne lied less to save his image than to save the image of his company. It’s notable, for instance, that there was no talk of resignation when word first emerged that the press had its hands on Chevalier’s story. Only after Browne learned that the corporate secrets could leak did he finally decide to step down.

Browne’s early departure will not prevent continued legal battles for BP, but it is perhaps as close to a sacrificial act of love as Browne is capable of, and it has allowed the company to start fresh. Though Browne also resigned from the board of Goldman Sachs, he still works for Apax Partners, a global private equity firm, and goes to his office when it suits him.

And as usual in the corporate world despite his fall from grace Lord Browne has landed on his feet.

FORMER BP boss Lord Browne has walked away with a pension worth just over £1million a year.The disgraced peer tops the list of 100 leading execs who look forward to pensions of £200,000 a year or more.

The former chief executive of BP PLC Lord Browne of Madingley has resigned as non-executive chairman of the advisory board of private equity firm Apax Partners to join energy and power private equity specialists Riverstone Holdings LLC.

His appointment at Riverstone Holdings, which specialises in the energy sector, comes almost four months after he quit oil giant BP when it emerged he lied to the High Court during a battle to block stories about his private life.

Lord Browne takes on the post of managing director and managing partner of Riverstone’s European business and will be based in London, where the group is soon to open an office.

Tags:

BP, Kyoto, environmentalism, homosexual, scandal, Lord Browne, John Browne,

Beyond Petroleum, British Petroleum, oil, Jeff Chevalier,

Lotto Flashback

I read this headline and thought I was having a flashback.

Fired Lotto Corp. boss given controversial payout

The former president and CEO of British Columbia Lottery Corp. has been awarded more than $600,000 in direct severance, months after he was fired over an Ombudsman's report that raised concerns about policing retailers selling tickets.

The bulk of Vic Poleschuk's severance is a $412,500 payout in salary over 18 months that he is entitled to under the terms of his 1999 employment contract.

But the agreement also includes a $144,375 performance bonus equal to 35 per cent of his base salary over 18 months.

And there are other items, including $19,800 in car allowance for Mr. Poleschuk, who spent 22 years with the company, including nine years in the top job, before the board decided in June that he was not the leader to deal with the fallout from the Ombudsman's report.

In Canada crime pays. At least White Collar crime, anyway.Of course it helps when the criminal is the guy in charge of the governments gambling addiction.




See

CEO

Corporate Crime

White Collar Crime

Criminal Capitalism

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Big Tobacco

While I defend a persons choice to smoke, I recognize it is a health problem and an addiction, and that the corporate cartels behind it are of course making a killing off of killing.

But so are the corporations that make weapons and weapons systems.And funny thing like Big Tobacco they use bribery, illegal trading practices, smuggling etc.



"Diamond (reference services, Louisiana State U.) describes the world (literally) of US Big Tobacco and Nicotiana tobacum from 1990 to 2004 as it expanded into new world markets in Asia, Eastern Europe and Russia, often with the assistance of the US government, and kept the more mature US market puffing along. The topics for his annotated bibliography include economic aspects such as advertising and marketing (including philanthropy and sponsorship of arts and sporting events), distribution channels (including duty-free, illegal trade, and the market of prisons and jails), and political aspects (such as the various relationships of the industry with politicians, lobbyists, litigators and the State of California). Topics of the statistical tables include cash receipts, exports and advertising expenditures (page numbers would be recommended in this section) and other appendices include company profiles, court cases and tobacco websites."



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No Justice In Canada

There is no justice in Canada when it comes to war crimes or white collar crimes.

No charges to be laid in friendly-fire death of Canadian soldier

Bre-X case an "embarrassment" for Canadian law, says expert

Judge sets aside Mulroney ruling on $470000

Also See:

Friendly Fire

Scandal in the Alberta Stock Exchange

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Contracting Out Is A Crime

Once again the attempt by the Liberals to Reinvent government, the mantra of the neo-con revolution of the nineties, ends up costing Canadians millions. Whether it was the P3 Boondoggle with the Firearms registry, the RCMP pension fund fraud or this case where the Department of National Defense was bilked for millions. It all has to do with contracting out and outsourcing IT functions of the State.

Ex-federal employee guilty of huge fraud

A former defence bureaucrat, who led a jet-set lifestyle, pleaded guilty today to two charges in a phoney contract billing scheme that bilked $146-million out of the federal government before it was stopped.

Paul Champagne, who had been an $80,000-a-year contract manager with the department, pleaded guilty to one count of fraud and one count of breach of trust in an Ottawa courtroom.

He was fired from his job in 2003 after billing irregularities were revealed involving a contract with U.S. computer giant Hewlett-Packard.

After a lengthy RCMP investigation, Champagne, 49, was charged with seven fraud-related crimes. After he pleaded guilty today to two charges, the Crown dropped the remaining five counts.

He will be sentenced in January.

In the late 1990s, the Defence Department issued a series of contracts to Hewlett-Packard (Canada) Inc., eventually paying $159 million for computer maintenance services. The government later discovered it got little or nothing for its money.

The Public Works Department red-flagged the contracts over the four years prior to Champagne's dismissal, but did nothing. A scathing report in 2003 found that managers at the federal government's tendering department failed to appreciate the significance of at least three audits that warned something was terribly wrong with the computer contracts.

After the scandal became public, Hewlett-Packard said it was told by the department to pay a group of subcontractors and their work was deemed secret.

In May 2004, the computer giant repaid $145 million to the federal government, and said its employees did nothing wrong.

Two Ottawa businessmen, Peter Mellon and Ignatius Manso, were also charged, but the Crown said Monday only one case remains to be resolved. A spokesman for the RCMP couldn't say what the status of the cases might be.

Over 10 years, starting in 1993, five contracts worth a total of $250 million were signed with the Compaq Computer Corp., Digital Equipment and Hewlett-Packard, which eventually bought Compaq.

Audits conducted by Public Works in 1999 and 2000 raised concerns about three of the contracts, but in 2001 a further review found unauthorized billing and "evidence of contractual funding appropriated for other purposes."

After Champagne was fired, National Defence did its own internal review of contracts and discovered problems with two dozen other projects. Today, the Defence Department did not respond to requests for comment about what safeguards have been put in place to prevent a repeat of the fiasco.

At the time of his arrest Champagne was a multimillionaire, who insisted his wealth and homes in exclusive districts of Ottawa, Florida and the Turks and Caicos were the results of shrewd investment in high-tech stocks during the tech boom of the late 1990s.

SEE:

Defense Lobbyist Now Minister

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Canada
government
P3's
contracting out'
privatization
DND
computers
technology
fraud
Crime
RCMP

And Justice For All

Shareholders rights upheld in Lord Blacks trial which has conservatives all in a tizzy. Since they favored the aristocratic pretensions of robber baron Black rather than the rights of the 'little guy and gal'.

For Prince, 58, Black's fate was sealed in a 2002 shareholders' meeting.

As prosecutors played the recording, and she heard angry investors lambasting Black about why he and other high-ranking Hollinger executives were receiving millions in non-compete payments, Prince decided she would do everything she could to convict him of fraud.

In fact, if it were up to her, Black would also be going down on an additional fraud count. Had that happened, she said, it might have shown the pattern of criminal activity jurors needed to convict the fallen media baron of the most serious charge of all – racketeering.

Despite efforts to avoid media during the trial, jurors overheard in an elevator one day that some Canadian media had called them a "blue collar" jury and critiqued their appearance. "When we were deadlocked, one of the jurors, she's a teacher, gave us a pep talk," said Prince. "She said, 'They're calling us country bumpkins. They think we're too stupid to figure out this case.' And it brought us all together. We were going back in there with a unanimous verdict," she said.

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Comeuppance

The irony here is that Lord Black of Crossharbour left Canada to buy his Lordship from the Mother Country, because he thought we were too liberal for his pro-American conservative values.

Say it loud: Lord Black is too proud

Now that democracy of the common man; America, has given the Lord his comeuppance.

Conrad Black found guilty of obstruction and could face decades in prison

Just like his Her0 that other Crime Lord from Chicago.




Also See:

Conrad Black

Criminal Capitalism: Black Lord Dodges Tax Man

Criminal Capitalism: Black & Radler,Thick as Thieves

Criminal Capitalism: Lord Black Fugitive

Criminal Capitalism: Black gets his comeuppance

Criminal Capitalism: Hollinger's Black Eye

Criminal Capitalism: Black Out


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A Captain of Industry

I see my post here has caused some comments from the rightwhingnuts. It is amazing to see the folks who line up behind Lord Black of Cumuppance Harbour, a would be aristocrat and ruthless tyrant over his press empire. Folks like Sun writer and right wing bon vivant Peter Worthington who have been bemoaning his trial as class war.

They all praise Lord Black for being a hard working Captain of Industry. Except they seem to over look that he sunk his ship, leaving the women and children (shareholders, the little people, etc.) to fend for themselves as he and his wife made off like bandits.

Those on the right love their aristocrats. So much so that they create their own little family compacts. Damn shame about the end of feudalism.

Also See:


Conrad Black

Criminal Capitalism

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Why Not?

‘You can’t convict Lord Black for being rich’ Why not. He got his ill gotten wealth like all other wealthy folks from theft or inheritance, which is just theft from long ago. And his hero is that other Chicagoan famous for being wealthy through crime; Al Capone

Also See:


Conrad Black

Criminal Capitalism

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Lord Black No Robin Hood

Black accused of stealing, 'plain and simple'

From the little people; shareholders. Those whom Lady Black dismisses with the aplomb of Marie Antoinette.

The prosecution painted Conrad Black and his co-accused as fraudsters who systematically committed theft from Hollinger International shareholders.

The accused took a "slice of their company's profits" and "created a phony paper trail to make their actions appear legitimate

"We are here because five men systematically stole over US$60 million from the shareholders of Hollinger International."

"Conrad Black was paying himself not to compete with himself. It's ridiculous."

Also See:


Conrad Black

Criminal Capitalism

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Dirty Laundry Business as Usual

You could say Casino Capitalism is criminal capitalism or rather all capitalism is criminal......

The Financial Times has named Capitalism’s Achilles Heel (Wiley, 2005) by Raymond W. Baker as one of the best business books of the year.

“Books that deal with the darker side of business can disturb and entertain in equal measure. In Capitalism's Achilles Heel (Wiley Pounds 16.99), Raymond Baker reveals the methods by which corrupt governments and crooked executives - as well as terrorists - move money through the global financial system. The book even includes a ‘Dirty Money User Guide’ - alas more appealing to aspiring fraudsters than reforming policymakers.”

For over forty years in more than sixty countries, Raymond Baker has witnessed the free-market system operating illicitly and corruptly, with devastating consequences for scores of fragile nations. Now, in Capitalism’s Achilles Heel, Baker—the internationally respected authority on money laundering, corruption, and development issues—takes you on a fascinating journey that winds its way across the global free-market system and reveals how dirty money, poverty, and inequality are inextricably intertwined.

You’ll discover how little illicit transactions lead to massive illegalities used by drug kingpins, racketeers, terrorist masterminds, and multinational corporations. You’ll learn how staggering global income disparities are worsened by the illegalities that have come to permeate international capitalism. And you’ll see how distorted philosophical underpinnings appear to justify flaws in the practice of capitalism.

Selling the biggest lie of them all – Capitalism

Review: Gangster Capitalism – The United States and the Global rise of Organized Crime by Michael Woodiwiss

The spirit of graft and lawlessness is the American Spirit.
– Lincoln Steffens, The Shame of the Cities, 1902

‘Gangster Capitalism’ documents the lie in all its sordid details from the days of the ‘Robber Barons’ through to the ‘War on Terror’ and all the stops in-between, the ‘War on Communism’, the ‘War on Drugs’. Between them, they are responsible for an assault of unparalleled brutality that is global in scope and a lie that has been so successfully sold, it has dragged much of the planet into going along with it.

From the United Nations to so-called independent states, all have been bribed, blackmailed, threatened or finally invaded/occupied into participating in the various ‘wars’ the US is waging, ultimately to the benefit of capital. That all of it has been done in the name of ‘morality’, mostly of a Christian flavour, is perhaps what makes it all so sordid, so disgusting and hypocritical.

There is a direct relationship between the extermination of ‘inferior’ peoples and the crimes of the Gangster Capitalists, from the owners of the plantations, to those who built the railroads that opened up the interior of America, to those who built the stockyards of Chicago, the auto plants of Detroit that consumed the immigrants in their millions and co-opted them into swallowing the ‘American Dream’.

‘Gangster Capitalism’ does one heck of a job in documenting the process, indeed it is relentless in its exposure and all the while revealing the underlying motivations; power and control by the few over the many. Underpinning the process has been the use of a twisted Christian ‘morality’ that in reality justified a system of exploitation that is unparalleled in history. And, Woodiwiss emphasises the role that race plays in the process, something that cannot be stated too strongly if we are to understand why US capitalism has been so successful at persuading so many to go along with the lie.

Gangster Capitalism: The United States and the Global Rise of Organized Crime

The title of Michael Woodiwiss's book plays on the term "gangster capitalism." It asks the question: Are there gangsters who are capitalists? Yes, indeed, is Woodiwiss's answer. But it also raises the more important question: Are capitalists gangsters? His answer is a resounding affirmative.

The Enron Stage of Capitalism

In much simplified terms, the thesis is that the pursuit of profit has gone too far. Specifically that we have now entered a new, and worse, stage of capitalism where elements of the public good (by which the book means healthcare, water, power and others) are being privatised and sold to corporations who care more about profit than the welfare of the population. The two really damming parts of the thesis are that (1) the privatisation is often occurring under coercion - threats from the US military machine, and (2) the rich nations set the rules to favour the rich (consider which organisations have international power, and which nations control them). The bottom line is that the rich corporations have found a new way to exploit the poor (even in the 'overdeveloped' world the poor are exploited - their standard of living is allowed to increase slowly, but the majority of the gains go to the few). The pursuit of profit has become so all encompassing that little else matters (particularly not morality).

We Can No Longer Afford Vulture Capitalism

Morality and the Market in Victorian Britain

See:

Casino Capitalism

Are Income Trusts Money Laundering

Calgary Fraud Funds Dubai Boom

The New Market States

Criminal Capitalism Redux

Unproductive Capital

CEO

Stock Options

Corporate Crime

White Collar Crime

Criminal Capitalism

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Casino Capitalism

Betting in the marketplace....

Bank of Canada Governor David Dodge also repeated a concern over a sharp reduction in the pricing of risk in financial markets, singling out the carry trade as a possible source of trouble.

The carry trade is a popular strategy that involves borrowing money in low interest rate currencies like the yen and then reinvesting in riskier emerging markets.

"One-way bets are always dangerous things," he said in response to a question about such trades.

....like betting on natural gas....

Bank of Montreal, Canada's fourth-biggest lender, said last week it will post a pretax loss of as much as C$450 million ($406 million) from trading in natural gas contracts. The bank plans to fire trader David Lee and Bob Moore, an executive managing director, over the losses, the National Post newspaper said today. The men are staying with the bank until the firm can unwind its trading positions, the paper said, citing unidentified people.

BMO said the losses are primarily from natural gas trading, while Desjardins Securities analyst Michael Goldberg expects more losses in the future.

“The commodity trading losses were the result of decisions that did not adequately recognize the vulnerability of the portfolio to changes in market volatility,” Bill Downe, President and Chief Executive Officer of BMO Financial Group, said in a statement.

Mr. Goldberg interpreted this statement as “faulty trading algorithms were based on garbage in, and they generated garbage out,” he told clients in a note.

This is the same bank that laid off staff knowing full well it was losing money based on a bad bet.

BMO More ATM's Less People

Banks Profit From Job Cuts

Fool me once....fool me twice.....ah heck fool me thrice

U.S. hedge fund faces billions in losses on natural gas bet

Monday, September 18, 2006 | 7:08 PM ET

Amaranth Advisors, a big U.S. hedge fund, has told its investors to brace for huge losses as a result of its costly bet that natural gas prices — now at a two-year low — would rise.

Some reports said the fund's losses could amount to $4 billion US.

"We anticipate our year-to-date losses might be in excess of 35 per cent as we near completion of the disposition of our natural gas exposure," the hedge fund said in a letter to investors obtained by several media organizations.

Amaranth traders apparently placed hugely leveraged bets that natural gas prices would rise.

A Hedge Fund’s Loss Rattles Nerves - New York Times

Enormous losses at one of the nation’s largest hedge funds resurrected worries yesterday that major bets by these secretive, unregulated investment partnerships could create widespread financial disruptions.

Alan Zale for The New York Times

Amaranth Advisors’ trading floor in Greenwich, Conn. The hedge fund said that it had lost more than $3 billion in the downturn in natural gas.

The hedge fund, Amaranth Advisors, based in Greenwich, Conn., made an estimated $1 billion on rising energy prices last year. Yesterday, the fund told its investors that it had lost more than $3 billion in the recent downturn in natural gas and that it was working with its lenders and selling its holdings “to protect our investors.”

Amaranth’s investors include pension funds, endowments and large financial firms like banks, insurance companies and brokerage firms. The Institutional Fund of Hedge Funds at Morgan Stanley was an investor in Amaranth; as of June 30, it had a stake valued at $124 million. The turnabout in the fortunes of the $9.25 billion fund reflects the decline in energy prices recently; natural gas prices fell 12 percent just last week.

The scale of Amaranth’s losses — and how quickly they appear to have mounted — was the talk of Wall Street yesterday, as was speculation on how much the bet was leveraged, or made on borrowed money. Still, there were no signs of ripples on the financial markets as a result.

Amaranth’s woes are largely the result of a decline in natural gas prices that began in December, well before the spring months of March or April, when they typically fall off. Amaranth’s biggest stake was a combination bet on the spread between natural gas futures prices for March 2007 and those for April 2007. Amaranth had often bet that the spread on that so-called shoulder month — when natural gas inventories stop being drawn down and begin to rise — would increase.

But instead the spread collapsed. In the last six weeks, for example, the spread between the two futures contracts ranged from $2.50 at the end of July to around 75 cents yesterday.

Traders briefed on Amaranth’s problems, including one person who examined the fund’s books yesterday, said that the losses might be considerably larger than the firm estimated. Over the weekend, according to one person briefed on the situation, Goldman Sachs examined the fund’s positions.

Amaranth is not the first hedge fund to experience problems in energy markets. MotherRock Energy Fund, a $400 million portfolio, shut down last month after losing money on its bets that natural gas prices would fall. Summer heat sent prices soaring and the fund lost 24.6 percent in June and 25.5 percent in July, according to one investor.

The natural gas market is exceptionally volatile, making it an ideal playground for hedge funds that thrive on wide price movements in securities. Natural gas prices are subject to more severe swings than oil, in part because gas cannot be stored easily.

Amaranth Advisors LLC was an American multistrategy hedge fund managing US$9 billion in assets. In September 2006, it collapsed after losing roughly US$6 billion in a single week on natural gas futures. The failure was the largest hedge fund collapse in history.

Amaranth’s energy desk was run by a Canadian trader named Brian Hunter who placed "spread trades" in the natural gas market. Hunter had made enormous profits for the company by placing bullish bets on natural gas prices in 2005, the year Hurricane Katrina had severely impacted natural gas refining and production. Hoping for a repeat performance, Amaranth wagered with an 8:1 leverage that the difference between the March and April futures price of natural gas for 2007 and 2008 would widen.

Natural Gas: Amaranth Advisors & Centaurus Energy

And although the loser in this, Brian Hunter is doing much better than the Amaranth investors. He’s still has the couple hundred million he made before he nuked Amaranth and being quite cheeky, he’s actually shopping around a new fund!

Econbrowser: Amaranth hedge fund losses

Of course, if anybody ever audited Amaranth's holdings, they would have seen what was going on immediately, and indeed NYMEX apparently inferred from the volumes that something was wrong and warned Amaranth to reduce its positions. But the way the hedge fund game is often played, foolishly credulous investors never get to see the books and base their decision simply on the fund's track record and slick sales pitch. I have to join Big Picture and Motley Fool in blaming the folks who supplied Amaranth with capital, rather than the managers themselves. Anyone who tells himself that 35% annual returns with no risk are there to be obtained by some unseen hedge-fund magic is soon to be parted from his wealth.

When you hold a significant portion of the outstanding contracts, you have the potential to move markets in a big way when you liquidate, making your swan song all the more dramatic when it comes. This is what happened to Long Term Capital Management, and it seems likely that a significant part of the September volatility in the graphs above is directly due to Amaranth.

I have often argued that as long as speculators make a profit, their actions tend to be stabilizing, as they have helped direct resources to where they are most needed. But by that metric, we got $6 billion worth of destabilization out of Amaranth last month. And when I hear a story like this, my first instinct is that there could well be a lot more of this going on. Amaranth's staggering losses leave me more open to the claim that a significant part of the general commodity price increases we have seen in recent years might be the result of actions by speculators who are destined to earn spectacular losses.

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