Seeking Alpha

Market Shadows'  Instablog

Market Shadows
Send Message
Market Shadows: Group of writers and investors: Paul Price, Lee Adler, and Ilene.
My company:
Market Shadows & Cycle Editing
My blog:
Market Shadows
  • Hildebrand Affair - Bad All Around 7 comments
    Jan 6, 2012 7:59 PM

    Following up on Bruce Krasting's Kashya Hildebrand Speaks – Sinks Hubby? 

    Hildebrand Affair - Bad All Around

    CRONY CENTRAL BANKING

    By Ilene 

    Recall: Philipp Hildebrand, chief of the Swiss National Bank, denied wrongdoing on Thursday and claimed he had no intention of resigning over the trades. According to Mr. Hildebrand, his former currency trader wife wasn't aware of the Swiss central bank's plans. (SNB chief denies wrongdoing over dollar deals) As Frank Jordans reported,

    ...Philipp Hildebrand said had acted according to the central bank's internal rules in the U.S. dollar swaps, which came as he was spearheading efforts to lower the value of the Swiss franc.

    "I am not aware of having committed any legal error," Hildebrand told reporters at the SNB's headquarters in Zurich. "But I understand that the public is also asking moral questions."

    [...]

    Hildebrand said he understood that the dollar deals totaling more than $2 million — some of which he said were conducted by his wife — could be misinterpreted and damage his reputation. But he insisted that he would stay on as president as long as he had the support of the SNB's board and Swiss authorities

    [...] 

    Hildebrand told reporters Thursday that his wife wasn't aware that the central bank would two days later increase the liquidity of the franc, thereby lifting the value of the dollar.

    Full article: SNB chief denies wrongdoing over dollar deals  | ajc.com.

    Hildebrand insisted he did nothing wrong, but understands why his actions could be "misinterpreted." Apparently, the correct interpretation is that Hildebrand's wife knew nothing, and there should be no presumption otherwise.

    The real take home message is a repeat - laws and rules of ethics only apply to some people.

    Like who? The Sarasin bank's IT support employee for one. In discovering the trades, he violated Hildebrand's right to secretly conduct currency trades from his private account  broke the laws of Switzerland. The people he gave the information to may have also broken the law. Hildebrand didn't let the travesty go unnoticed, and he "lashed out" at those who leaked details of his and/or his wife's trades. The employee who stole the information has been fired, and Hildebrand is consulting his attorneys about pursuing additional legal action. According to the NY Times:

    While expressing regrets, Mr. Hildebrand portrayed the accusation of insider trading as the work of his enemies on the Swiss political right... “The personal attacks against me have reached the point where I had to defend myself,” Mr. Hildebrand said.

    An information technology worker at Bank Sarasin faces a criminal investigation for allegedly giving the information to the Swiss People’s Party, whose most visible leader, Christoph Blocher, has been a bitter critic of Mr. Hildebrand...

    Bank Sarasin said Tuesday that it had fired the employee, who had turned himself in to the police in Zurich. The charges carry a maximum sentence of three years in prison.

    Exposure to criminal charges should have a chilling effect on anyone who has any thoughts of revealing insider trades from private bank accounts in the future. No worries, because according to the WSJ, "In his first public remarks since the affair broke in late December, Mr. Hildebrand disclosed proposals to increase transparency in financial transactions by top SNB officials."  Good idea. Conflict between laws protecting privacy and laws against insider trading could be largely eliminated by real transparency.

    More details from the WSJ (Swiss Banker Says He Won't Resign, Official Denies Advance Knowledge of Wife's Dollar Trade):

    Mr. Hildebrand said he only learned of the purchase the day after it was made, but on Thursday said he wasn't "totally surprised," because Ms. Hildebrand had "talked about how low the dollar is and that we should buy more dollars....What I blame myself for is not either reversing the transaction or not telling her not to discuss this."... ["not telling her not to discuss this"??]

    Meanwhile Thursday, Zurich's state prosecutor said it has opened a criminal investigation into a former Bank Sarasin & Cie AG employee who is alleged to have passed on Hildebrand family currency-transaction details to the Swiss People's Party, which has been highly critical of the central banker. The leak, which would be a breach of Swiss banking regulations, paved the way for the controversy last December.

    While the SNB acts independently of government, its president is elected by the government's Cabinet members. The seven-member Cabinet can remove Mr. Hildebrand if requested to by the central bank's supervisory council. In "Swiss right presses central bank chief to resign," Frank Jordans reported,

    Lawmaker Christoph Blocher has demanded a parliamentary inquiry into the whole affair.

    The billionaire businessman, who first brought leaked statements of Hildebrand's dollar deals to the attention of the government, said he expected further questionable transactions to surface in a probe.

    [...] 

    Without naming Blocher, Hildebrand told reporters Thursday that those now engaged in "attacks on me as an individual" were harming the interests of Switzerland...

    Zurich prosecutors said Friday they have opened an investigation into a possible breach of banking secrecy by a former Sarasin employee.

    The bank said Friday it was also seeking a criminal probe against those who encouraged the unnamed employee and received copies of Hildebrand's confidential documents. (Swiss right presses central bank chief to resign)

    These events bring up many questions regarding not only the actions of Mr. Hildebrand and insider trading laws, but also regarding an individual's right to privacy and the public's interest in not discouraging bank employees from revealing private information when it involves potentially illegal activity. Bruce kindly answered my questions on the latter (answers italicized).

    1) How far should a right of (bank account) privacy extend to protect public figures from exposure of questionable transactions? ZERO. 

    More generally, how should the right of privacy be balanced against the public’s right to know of illegal and/or unethical activity? I think there should be full disclosure of financial transactions for elected officials and non elected ones in important positions.

    2) What are the details of Sarasin bank’s employee finding the trades? He was an IT guy. Not a senior person.

    Did he break the law, break only bank regulations, or did he discover the trades through his normal activities? Totally, totally broke the laws of Switzerland. He turned himself into the police. 

    Would there be a criminal probe into the employee’s conduct if he went straight to the police? Yes. He broke the laws of Switzerland (by getting the information in the first place).

    3) What is the basis of the criminal probe directed at "those who encouraged the unnamed employee" to give them confidential documents? 

    This is the question of the hour. Which way was it?

    a) An IT guys sees something. He understands what it is and makes a copy of it. Later (through an intermediary), he contacts Blocher who, in turn, takes it to Calmy Rey.

    b) Blocher hires an intermediary and instructs him to get records of Hildebrand's accounts. So an IT guy regularly reviews the account looking for dirt. Bingo! one day he finds it.

    I think it was a, the crime would be b.

     

    [Picture credit: William Banzai]

Back To Market Shadows' Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (7)
Track new comments
  • untrusting investor
    , contributor
    Comments (9933) | Send Message
     
    Such is why all politicians, important regulators, and senior government officials should have all investments in "blind trusts" managed by others. If they are not willing to do so, then they should not be in such positions.
    7 Jan 2012, 12:31 AM Reply Like
  • Market Shadows
    , contributor
    Comments (126) | Send Message
     
    Author’s reply » I agree.
    7 Jan 2012, 01:32 PM Reply Like
  • Stilldazed
    , contributor
    Comments (2113) | Send Message
     
    I am assuming that when you copy/pasted to your blog that the formats weren't completely compatible.
    7 Jan 2012, 12:54 AM Reply Like
  • Market Shadows
    , contributor
    Comments (126) | Send Message
     
    Author’s reply » Yep, had to change a few things, do you see a big problem I missed?
    7 Jan 2012, 01:32 PM Reply Like
  • Stilldazed
    , contributor
    Comments (2113) | Send Message
     
    Q&A for 1 and 2 are mixed together.
    7 Jan 2012, 01:51 PM Reply Like
  • Market Shadows
    , contributor
    Comments (126) | Send Message
     
    Author’s reply » Initially, the questions were in black and the answers were in red so it was easy to see. But basically questions 1 and 2 had more than one part, and now that there's no red to make it clear, it's not. Is this better or is it still confusing? http://bit.ly/xdr4Xx
    7 Jan 2012, 01:59 PM Reply Like
  • Stilldazed
    , contributor
    Comments (2113) | Send Message
     
    Your link worked and yes, the answers were not mixed with the questions as they are on this page. I am not trying to be a pain, just trying to help for your next post. In question 1 the word "activity?" is in the middle of the italicized answer. In question 2 "police?" is in the middle of the parenthetical part of the italicized answer.
    7 Jan 2012, 02:11 PM Reply Like
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.