Remarkable Wall Street scandals

Rajat Gupta Conviction

Former Goldman Sachs (GS) board member Rajat Gupta was sentenced on Oct. 22 to two years in jail and ordered to pay a fine of $5 million. He was found guilty of leaking Goldman secrets to Galleon Group hedge-fund manager Raj Rajaratnam.

While U.S. District Judge Jed Rakoff acknowledged the crime was a "terrible breach of trust," he commended Gupta's "extraordinary devotion to people in need."

He is currently free on a $10 million bond while he appeals his conviction.

BATS Global Markets' Failed IPO

On March 23, exchange operator BATS Global Markets went public -- but the IPO quickly went downhill. Due to a software bug (which also affected other stocks, such as Apple (AAPL), shares originally priced at $16 plunged and traded briefly for less than a penny. BATS took the unusual step of pulling the public offering and halted trading on its stock completely.

"Although our affected market has reopened, in the wake of today's technical issues, which affected the trading of certain stocks, including that of BATS, we believe withdrawing the I.P.O. is the appropriate action to take for our company and our shareholders," Joe Ratterman, the company's chief executive, said in a statement at the time.

Despite the embarrassing debut, BATS is still operating today (although still not public).

Greg Smith and the Muppets

On March 14, Greg Smith resigned from Goldman Sachs (GS) with a scathing op-ed letter in The New York Times. After working for Goldman for 12 years, he expressed a moral dilemma, stating: "I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work."

While few seemed to think the letter revealed anything new, one juicy detail stood out: Smith claimed that Goldman refers to some clients as "muppets." There was much debate about whether this was true or false -- or if it even really mattered -- but it did precipitate an internal investigation, which came to be known as "the muppet hunt." The Financial Times reported on Oct. 10 that the investigation did not uncover any substantive evidence to back up Smith's claims.

Smith subsequently published a book this October, Why I Left Goldman Sachs, to tepid reviews.

JPMorgan and the London Whale

JPMorgan (JPM) CEO Jamie Dimon announced on May 11 that the company had suffered a $2 billion trading loss. The bad trades were blamed on Bruno Iksil, also known as the London Whale, and two other traders based out of London. As the days went by and more details were revealed, the estimated losses rose to over $5.8 billion, and top executives, such as Chief Investment Officer Ina R. Drew, resigned.

Dimon held on to his position, despite stating: "We made a mistake. I am absolutely responsible. The buck stops with me."

Facebook IPO Debacle

The popularity of social networking site Facebook (FB) led to extraordinary hype surrounding its IPO on May 18. Listed on the Nasdaq with an opening price of $38 per share, it had more than a few hiccups. Trading was delayed for 30 minutes, and there were problems with order processing -- the stock closed nearly flat on its first day. However, the company did set the record for largest IPO ever, raising more than $16 billion.

Much of the blame for the poor performance of Facebook's IPO fell on the Nasdaq, the underwriters and Facebook itself. Facebook's stock is slowly recovering from it's all-time low of $17.55 on Sept. 4.

Allen Stanford Sentencing

Allen Stanford, a former Texas tycoon and one of the wealthiest men in the U.S., was convicted in March of perpetrating a ponzi scheme relating to the now defunct Stanford Financial Group. The fraud bilked $7 billion from investors, which was then used to fund new businesses and Stanford's lavish lifestyle (including, but not limited to, private jets, luxury cars, a yacht moored off the coast of Antigua and a faux castle in Florida).

During Stanford's sentencing, on June 14, victims of the fraud were hoping for an apology from Stanford. However, they didn't get it. "I am and will always be at peace with the way I conducted myself in business," he said.

He is currently serving out his 110-year prison sentence in Florida.

Russell Wasendorf Sr. Fraud

Peregrine Financial CEO Russell Wasendorf Sr. confessed to massive fraud in a letter to his son and business partner Russell Wasendorf Jr., Peregrine's president and chief operating officer, in July. Shortly thereafter, police found Wasendorf Sr. unconscious in his car outside of the Peregrine offices in Cedar Falls, Iowa, in an apparent suicide attempt. He was taken to the hospital and later arrested. In September, he pleaded guilty to mail fraud and embezzlement.

What follows is an excerpt of Wasendorf's statement, according to the complaint: "I have committed fraud ... I am very remorseful that my greatest transgressions have been to my fellow man. Through a scheme of using false bank statements I have been able to embezzle millions of dollars from customer accounts at Peregrine Financial Group, Inc. The forgeries started nearly twenty years ago and have gone undetected until now."

He is currently in jail awaiting sentencing.

Libor Manipulation

Over the summer, reports emerged that the London Interbank Offered Rate, a key interest rate better known as Libor, was being manipulated by a group of banks. Libor is important because it's the rate at which banks expect to borrow from each other, and in many cases it's used a base rate upon which consumers are able to borrow money -- Libor plus some stated amount is regularly seen.

Barclays (BCS) CEO Bob Diamond and COO Jerry del Missier resigned in the wake of the scandal, and the company ended up paying $450 million to settle a suit with the U.K.'s Financial Services Authority. Numerous other banks subsequently came under scrutiny, including Deutsche Bank (DB), JPMorgan Chase, Citigroup (C), Royal Bank of Scotland (RBS) and Credit Suisse (CS).

"This dwarfs by orders of magnitude any financial scams in the history of markets," said Andrew Lo, a professor of finance at the Massachusetts Institute of Technology.

Knight Capital Mini Flash Crash

On Aug. 1, due to a computer glitch, trading firm Knight Capital (KCG) lost approximately $440 million and its stock plunged 73%. In a little less than an hour, the system executed a series of large trades that were supposed to take place over a period of days, in turn straining the system and affecting numerous stocks.

The trading glitch was especially embarrassing for Knight's chief executive, Thomas Joyce, who was an outspoken critic of Facebook's IPO debacle.

Insider Trading Allegations at SAC Capital

SAC Capital, owned by Steven A. Cohen, has landed in hot water recently. Mathew Martoma, former hedge fund manager for SAC Capital, was arrested by FBI agents on Nov. 21 and charged in what is said to be a very large insider trading investigation. He was accused of using inside information to trade two drug stocks -- Wyeth LLC and Elan Corp. (ELN) -- illegally making more than $276 million for his fund. According to Reuters, Martoma is the seventh former SAC Capital employee to be charged or implicated by federal authorities for insider trading.

Most recently SAC Capital came under investigation for possible insider trading of Weight Watchers (WTW) shares.