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To: scion who wrote (4)5/28/2011 2:53:33 PM
From: scion
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Litigation Release No. 21981 / May 26, 2011

Securities and Exchange Commission v. Donald L. Johnson, Defendant, and Dalila Lopez, Relief Defendant, Civil Action No. 11-CV-3618 (VM) (S.D.N.Y.)


The Securities and Exchange Commission filed a civil injunctive action today in the United States District Court for the Southern District of New York charging Donald L. Johnson, a former managing director of The NASDAQ Stock Market, with multiple instances of insider trading.

According to the SEC’s complaint, Johnson held various positions at the NASD and NASDAQ for 20 years, until his retirement from NASDAQ in September 2009. From at least January 2000 to October 2006, Johnson worked in NASDAQ’s Corporate Client Group (CCG). He then transferred to the Market Intelligence Desk, a specialized department within the CCG that provides issuers with general market updates, overviews of their company’s sector, and commentary regarding the factors influencing day-to-day trading activity in their stocks.

The SEC alleges that, through his positions in the CCG and Market Intelligence Desk, Johnson had frequent and significant interactions with senior executives of NASDAQ-listed issuers, including CEOs, CFOs, and investor relations officers at his assigned companies. In those interactions, company executives routinely shared confidential information with Johnson regarding impending public announcements that could affect the price of their stocks. The executives who shared nonpublic information with Johnson did so based on the understanding that it would be kept confidential and that Johnson could not use the information for his personal benefit.

According to the SEC’s complaint, Johnson unlawfully traded in advance of nine announcements of material nonpublic information involving NASDAQ-listed companies from August 2006 to July 2009. Johnson took advantage of both favorable and unfavorable information that was entrusted to him in confidence by NASDAQ and its listed companies, shorting stocks on several occasions and establishing long positions in other instances. The complaint also states that Johnson often placed the trades directly from his work computer through an online brokerage account in his wife’s name. The SEC alleges that Johnson reaped illicit profits in excess of $755,000 from his illegal trading.

The SEC’s complaint charges Johnson with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest and a monetary penalty. Johnson’s wife Dalila Lopez is named as a relief defendant in the SEC’s complaint for the purpose of recovering illicit profits in her possession.

Johnson also has been charged in a parallel criminal action announced by the U.S. Department of Justice today.

The SEC acknowledges the assistance of the Fraud Section of the U.S. Justice Department’s Criminal Division and the U.S. Postal Inspection Service. The SEC brought its enforcement action in coordination with these other members of the Financial Fraud Enforcement Task Force. The SEC also acknowledges FINRA and NASDAQ for their assistance in this investigation.

SEC Complaint in this matter

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From: scion5/29/2011 7:08:51 PM
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Convicted Fugitive Financier Caught

The Marshals Service finds Rufus Paul Harris in Utah.


U.S. marshals have caught fugitive financier Rufus Paul Harris at a home in Provo, UT, after a national manhunt that lasted five days.

A Marshals Service task force arrested Harris without incident in Utah, Deputy Marshal Jim Joyner said. The booking information from the Washington County Sheriff's Office shows that the arrest came just after 10 p.m. Utah time, minutes after the start of Sunday in Kennesaw.

William Kehl is credited as the arresting officer.

Harris, 43, formerly of Adairsville, is the co-founder and former CEO of Kennesaw-based Conversion Solutions Holdings Corp. He was convicted in U.S. District Court late last week of eight counts of securities fraud, wire fraud, conspiracy and false certification of a financial statement and could be sent to prison for effectively the rest of his life and be fined nearly $3 million when he’s sentenced Aug. 18.

Also being sentenced that day will be Conversion Solutions Holdings’ co-founder and former chief operating officer, Benjamin Stanley, 48, of Kennesaw, who was convicted of securities fraud, wire fraud and conspiracy, and the former chief financial officer, Darryl Horton, 50, of Okemos, MI, who pleaded guilty to conspiracy while the jury was deliberating.

Harris also faces possible bail-jumping charges after he fled a motel Monday evening during the two-week trial and never returned to court.

“I am happy to announce that this defendant was arrested without incident less than a week after he fled,” U.S. Attorney Sally Quillian Yates said in a statement today. “The defendant was able to travel nearly 2,000 miles, but that was not far enough for the talented and hard working deputies of the United States Marshals Service and the other federal and local law enforcement agencies that assisted.”

Joyner said prompt notice that Harris fled helped the interstate investigation, coordinated by Lead Deputy Lorena McCaigue. Marshals Service offices in Oklahoma, where Harris most recently lived, and Utah worked with the Atlanta office to follow Harris’ trail.

Yates said Harris “will now find that his problems have gone from bad to worse.”

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From: scion5/30/2011 9:50:12 AM
   of 10367
The Trouble With E-Mail

May 29, 2011, 5:30 pm

Among Internet users with secrets, including bankers, lawyers, hackers and people who visit porn sites or confide in friends — so that would be all of us — there’s a widespread apprehension that the Web is no longer a safe place to spill them.

You can see that wariness in e-mail, which for years has been considered a spontaneous and freewheeling form, better known for gaffes and rants than anxiety and circumspection. As recently as 2008, Will Schwalbe and David Shipley described e-mailers as inveterate hotheads in their manual “Send.”

“On e-mail, people aren’t quite themselves,” they wrote. “They are angrier, less sympathetic, less aware, more easily wounded, even more gossipy and duplicitous.”

Oh, how times have changed. The idea that e-mail is chiefly a conduit for anger and lies seems almost quaint. After too may careers ruined and personal lives upended by online indiscretions, it should now be crystal clear that there are some things one must never, ever commit to e-mail.

And that’s why some bankers developed “LDL.” “LDL” — which means “let’s discuss live” — is an acronym that surfaced during the S.E.C.’s investigation of Goldman Sachs for its role in the nation’s financial shame spiral. How do the pros use it? Goldman’s Jonathan Egol is the first known master. When a trader named Fabrice Tourre described a mortgage investment in e-mail as “a way to distribute junk that nobody was dumb enough to take first time around,” Egol shot back: “LDL.”

See how that works? Wanna talk about junky mortgages? Let’s get off the %#^ Internet.

It works with other topics, too. Problems at home? LDL. State secrets about Egypt? LDL. How much you paid for your house? LDL.

“LDL” and its equivalents — tonal inversions of the carefree LOLs of e-mail past — are the most succinct ways Internet-users now express the desire to ditch the Web and seek analog pastures. And as much as the banker chat that was revealed in e-mail seems galling, it’s the rare Web-user who’d willingly submit his own e-mail archive to prosecutorial scrutiny. LDL, for those who have the option, is an extremely good idea. Nearly everyone needs some form of communication that’s not searchable, archivable, forwardable, discoverable and permanent. Of course, the longing for more in-person exchange is also part of the broader nostalgia a time before the Internet, when copyright and privacy seemed enforceable, and traditional business models obtained.

These grander sentiments were on theatrical display scale last week at eG8, the Internet-themed prelude to the G8 conference in France. Both conferences, like other jetset global conferences, are the very definition of LDL, existing solely to facilitate actual, physical elbow-rubbing among human beings like Jimmy Wales, Rupert Murdoch and Mark Zuckerberg.

At eG8, McKinsey submitted eye-popping research that showed that Internet-related consumption and expenditure in the G8 nations is now bigger than agriculture or energy. As if freshly aware of this economic monster, scores of high-profile global lawmakers, including Nicolas Sarkozy, the president of France, then spoke of the Internet as wilderness that they intended to colonize with official government overseers.

But it’s not just French rhetoricians, using the language of the 19th century, to whom the Internet of today seems dangerously anarchic. Bloggers and others now chronicle their breaks from the Internet, periods of withdrawal from electronic communication. They also tighten privacy settings; they close Facebook pages. Their e-mails, texts and IMs become more pro forma and less expressive.

It’s been a year since the arrest of Bradley Manning, the army intelligence analyst who yanked thousands of documents off the government’s Secret Internet Protocol Router Network, or SIPRNet. Manning passed those documents on to WikiLeaks using Tor Hidden Services, a secure network that protects users from surveillance and traffic analysis. WikiLeaks started to publish them. And then Manning described his feat in an online chat with a hacker named Adrian Lamo, who turned him in.

To many observers, the lesson of WikiLeaks was not about Turkey or Saudi Arabia or national security. It’s that no one’s online communication — not the government’s Secret Internet Protocol, not Bradley Manning’s hacker chatroom — is secure. WikiLeaks has become a kind of Ruby Ridge for some Web users: an event that crystallized the perception that the Internet is embattled and that spies are everywhere.

Suddenly it seems, as they used to say in Tintin comics, these walls have ears.

I see how this happened, but I can’t help but remember the day I became It was 1993, and I’d clearly lucked into a good address — highly memorable with all those 7s and 3s. (That same year, President Clinton became

With e-mail, my inhibitions about traditional conversation fell away: there was no blushing or lisping or stuttering on e-mail. If traditionalists who disdained typing or excelled at office banter felt left out by electronic communication, millions of other personalities were brought to life by it. In the early 1990s there were some 15 million e-mail accounts worldwide. By the end of 1999 there were 569 million. Today there are more than 3 billion.

E-mail, then, c’est nous. But we can’t say no one warned us. We’ve all seen too many crises, personal and public, not to know that e-mail is not a place for secrets.

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To: scion who wrote (8)5/30/2011 9:50:51 AM
From: scion
   of 10367
LDL: “Let’s Discuss Live”

Posted By Barry Ritholtz On May 24, 2011 @ 7:59 pm In Analysts,Legal,Web/Tech | 14 Comments

“LDL” is my new favorite acronym.

Call it Wall Street prosecution arcana: To avoid putting into email any damaging info — especially about insider trading — some of the recent expert networks thought they might avoid prosecutions by using the acronym “LDL.” It is strewn throughout their emails, and informs the reciever that they are getting close to sensitive information that should best be discussed without a paper trail. Hence, LDL — “Let’s Discuss Live.”

It is the Wall Street equivalent of the teenage POS — “Parents Over Shoulder” — only in this case, it was more accurate to say “Prosecutors Over Shoulder” !

Dealbook [1] used this example on April 28, 2010:
[ ]

“Even at a disadvantage, not all clients were easy to convince. Goldman e-mails show how the bank backed up its sales team as they sought to unload bets they thought might one day go sour.

In one exchange, a Goldman employee refers to a mortgage investment as “as a way to distribute junk that nobody was dumb enough to take first time around.” The response of Jonathon Egol, a colleague of Mr. Tourre’s who designed some of the mortgage trades, was “LDL,” or “let’s discuss live,” effectively moving the discussion off record.”

How is it possible that in 2010, otherwise intelligent people still fail to understand that they are creating a permanent email trail? Did they actually think no one would know what that meant? The next time I hear anyone say “Goldman Sachs is the smartest shop on the street,” in my mind I will be hearing “He’s the smartest kid on the short bus.”

All I can say is thank goodness for stupidity. It makes prosecution so much easier!

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To: scion who wrote (7)5/30/2011 9:53:35 AM
From: scion
   of 10367
Fugitive businessman caught in Utah

By Erin Alberty
The Salt Lake Tribune
First published May 29 2011 02:43PM
Updated 6 hours ago

A business executive who fled Atlanta while on trial in a high-profile securities fraud case was arrested Saturday night in southern Utah.

The eight-day, nationwide manhunt for Rufus Paul Harris ended after federal agents learned he was staying with the family of a former business associate in Bloomington Hills, near St. George.

"The business associate was out of town at the time," said Michael Wingert, spokesman for the U.S. Marshals. "The family members didn’t know anything about [the criminal case], so he showed up and they just let him stay there."

Marshals found Harris hiding in a utility closet, Wingert said.


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From: scion5/30/2011 6:07:29 PM
   of 10367
Reporting Computer, Internet-Related, or Intellectual Property Crime

Internet-related crime, like any other crime, should be reported to appropriate law enforcement investigative authorities at the local, state, federal, or international levels, depending on the scope of the crime. Citizens who are aware of federal crimes should report them to local offices of federal law enforcement.

Reporting Computer Hacking, Fraud and Other Internet-Related Crime

The primary federal law enforcement agencies that investigate domestic crime on the Internet include: the Federal Bureau of Investigation (FBI), the United States Secret Service, the United States Immigration and Customs Enforcement (ICE) , the United States Postal Inspection Service, and the Bureau of Alcohol, Tobacco and Firearms (ATF) . Each of these agencies has offices conveniently located in every state to which crimes may be reported. Contact information regarding these local offices may be found in local telephone directories. In general, federal crime may be reported to the local office of an appropriate law enforcement agency by a telephone call and by requesting the "Duty Complaint Agent."

Each law enforcement agency also has a headquarters (HQ) in Washington, D.C., which has agents who specialize in particular areas. For example, the FBI and the U.S. Secret Service both have headquarters-based specialists in computer intrusion (i.e., computer hacker) cases.

To determine some of the federal investigative law enforcement agencies that may be appropriate for reporting certain kinds of crime, please refer to the following table:

Type of Crime - Appropriate federal investigative law enforcement agencies

Computer intrusion (i.e. hacking)

* FBI local office:
* U.S. Secret Service:
* Internet Crime Complaint Center:

Password trafficking

* FBI local office:
* U.S. Secret Service:
* Internet Crime Complaint Center:

Counterfeiting of currency

* U.S. Secret Service:

Child Pornography or Exploitation

* FBI local office:
* if imported, U.S. Immigration and Customs Enforcement:
* Internet Crime Complaint Center:

Child Exploitation and Internet Fraud matters that have a mail nexus

* U.S. Postal Inspection Service:
* Internet Crime Complaint Center:

Internet fraud and SPAM

* FBI local office:
* U.S. Secret Service (Financial Crimes Division):
* Federal Trade Commission:
* if securities fraud or investment-related SPAM e-mails,
Securities and Exchange Commission: (online complaint:
* The Internet Crime Complaint Center:

Internet harassment

* FBI local office:

Internet bomb threats
* FBI local office:
* ATF local office:

Trafficking in explosive or incendiary devices or firearms over the Internet
* FBI local office:
* ATF local office:

Other Cybercrime Reporting Resources

* The Internet Crime Complaint Center (IC3):

The Internet Crime Complaint Center (IC3) is a partnership between the Federal Bureau of Investigation (FBI) and the National White Collar Crime Center (NW3C). IC3's mission is to serve as a vehicle to receive, develop, and refer criminal complaints regarding the rapidly expanding arena of cyber crime. The IC3 gives the victims of cyber crime a convenient and easy-to-use reporting mechanism that alerts authorities of suspected criminal or civil violations. For law enforcement and regulatory agencies at the federal, state, and local level, IC3 provides a central referral mechanism for complaints involving Internet related crimes.

* Department of Homeland Security's National Infrastructure Coordinating Center: (202) 282-9201 (report incidents relating to national security and infrastructure issues)

* U.S. Computer Emergency Readiness Team (U.S. CERT) (online reporting for technicians):

* National Association of Attorney General's Computer Crime Point of Contact List (all state-related)

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From: scion5/31/2011 12:47:27 PM
   of 10367
Libya's Goldman Dalliance Ends in Losses, Acrimony

MAY 31, 2011

In early 2008, Libya's sovereign-wealth fund controlled by Col. Moammar Gadhafi gave $1.3 billion to Goldman Sachs Group to sink into a currency bet and other complicated trades. The investments lost 98% of their value, internal Goldman documents show.

What happened next may be one of the most peculiar footnotes to the global financial crisis. In an effort to make up for the losses, Goldman offered Libya the chance to become one of its biggest shareholders, according to documents and people familiar with the matter.

Negotiations between Goldman and the Libyan Investment Authority stretched on for months during the summer of 2009. Eventually, the talks fell apart, and nothing more was done about the lost money.

An examination of the strange episode casts light on a period of several years when Goldman and other Western banks scrambled to do business with the oil-rich nation, now an international pariah because of its attacks on civilians during its current conflict. This account of Goldman's dealings with Libya is based on interviews with close to a dozen people who were involved in the matter, and on Libyan Investment Authority and Goldman documents.

Libya was furious at Goldman over the nearly total loss of the $1.3 billion it invested in nine equity trades and one currency transaction, people involved in the matter say. A confrontation in Tripoli between a top fund executive and two Goldman officials left the bankers so rattled that they made a panicked phone call to their bosses, these people say. Goldman arranged for a security guard to protect them before they left Libya the next day, they say.

Discussions inside Goldman about how to salvage the fractured relationship included Lloyd C. Blankfein, the company's chairman and chief executive, David A. Viniar, its finance chief, and Michael Sherwood, Goldman's top executive in Europe, according to documents reviewed by The Wall Street Journal and people involved in the negotiations. All three executives declined to comment.

Goldman offered the fund an opportunity to invest $3.7 billion in the securities firm. Between May and July of 2009, Goldman executives made three proposals that would have given Libya preferred shares or unsecured debt in Goldman, according to documents prepared by Goldman for the fund. Each proposal promised a stream of payments that would eventually offset the losses.

At the time, U.S. banks were under pressure from the U.S. government about their capital levels, among other things. In September 2008, Warren Buffett's Berkshire Hathaway Inc. had made a deal to invest $5 billion in Goldman, giving Berkshire a stream of cash and potential ownership of roughly 10% of Goldman. By May 2009, the Federal Reserve had told Goldman it had passed its "stress test," meaning that the firm wouldn't be required to raise additional capital. Goldman repaid Berkshire this April.

Efforts to reach Libyan officials for comment were unsuccessful. No one answered the phone at the sovereign-wealth fund's headquarters in Tripoli, and its website and email aren't working. In February, the United Nations, U.S. and European Union imposed new sanctions on Col. Gadhafi, family members and most of Libya's state-owned companies and assets.

In 2004, the U.S. government had lifted an earlier set of sanctions that had prohibited American companies from doing business with or investing in Libya, after Col. Gadhafi pledged to abandon weapons of mass destruction and paid reparations to families of the airline bombing over Lockerbie, Scotland. That opened the door for dozens of U.S. and European banks, hedge funds and other investment firms to pile into the North African nation.

The Libyan Investment Authority set up shop on the 22nd floor of what was then Tripoli's tallest building and launched in June 2007 with about $40 billion in assets. Libya approached 25 financial institutions, offering each of them a chance to manage at least $150 million, recalls a person familiar with the fund's plans.

Soon it was spreading chunks of the money to firms around the world. In addition to Goldman, those institutions included Société Générale SA, HSBC Holdings PLC, Carlyle Group, J.P. Morgan Chase & Co., Och-Ziff Capital Management Group and Lehman Brothers Holdings Inc., according to internal fund records reviewed by the Journal. HSBC, Carlyle, J.P. Morgan and Och-Ziff declined to comment. Société Générale said it "complies with all applicable rules and regulations" in its dealings with "many sovereign-wealth funds."

"The country made a conscious decision to join the major leagues," says Edwin Truman, a senior fellow at the Peterson Institute for International Economics and former assistant Treasury secretary. Until then, the investment fund's money was held in Libya's central bank, earning ho-hum returns on high-quality bonds.

Goldman seized the opportunity. In May 2007, several Goldman partners met with the Libyans at Goldman's London office. Mustafa Zarti, then the fund's deputy chairman, and Hatem el-Gheriani, its chief investment officer, invited the Goldman partners to see the fund's Libyan headquarters for themselves. Mr. Zarti was a close associate of one of Col. Gadhafi's sons, Saif al-Islam Gadhafi, and reported to a longtime friend of the Libyan ruler.

When they arrived in Tripoli that July, the Goldman partners got a warm greeting from senior fund officials and a cadre of inexperienced employees who hoped to make the fund one of the largest of its kind in the world. Goldman's team included its head of fixed-income sales in Europe and its executive in charge of clients in northern Africa.

To the Libyans, though, the main attraction was Driss Ben-Brahim, Goldman's Arabic-speaking emerging-markets trading chief, who ran one of its most profitable trading desks and was rumored to be among its highest-paid employees.

"We were in awe of Driss," one former Libyan Investment Authority executive recalls. "He was like a rock star…while we were making peanuts. We felt honored by his presence."

Goldman subsequently offered the Libyans the opportunity to invest $350 million in two funds run by Goldman's asset-management unit, according to people involved in the transactions. Access to the funds usually is offered only to the firm's best clients, along with Goldman partners. The Libyans accepted.

Youssef Kabbaj, the Goldman executive in charge of North Africa, became a frequent presence at the Libyan Investment Authority as the investment bank worked to expand the relationship. He worked with the fund's management on investment ideas and encouraged younger employees to deepen their financial knowledge by attending Goldman training sessions, these people said.

Goldman soon carved out a new business with the Libyans, in options—investments that give buyers the right to purchase stocks, currencies or other assets on a future date at stipulated prices. Between January and June 2008, the Libyan fund paid $1.3 billion for options on a basket of currencies and on six stocks: Citigroup Inc., Italian bank UniCredit SpA, Spanish bank Banco Santander, German insurance giant Allianz, French energy company Électricité de France and Italian energy company Eni SpA. The fund stood to reap gains if prices of the underlying stocks or currencies rose above the stipulated levels.

But that fall, the credit crisis hit with a vengeance as Lehman Brothers failed and banks all over the world faced financial crises. The $1.3 billion of option investments were hit especially hard. The underlying securities plunged in value and all of the trades lost money, according to an internal Goldman memo reviewed by the Journal. The memo said the investments were worth just $25.1 million as of February 2010—a decline of 98%.

Officials at the sovereign-wealth fund accused Goldman of misrepresenting the investment deals and making trades without proper authorization, according to people familiar with the situation. In July 2008, Mr. Zarti, the fund's deputy chairman, summoned Mr. Kabbaj, Goldman's North Africa chief, to a meeting with the fund's legal and compliance staff, according to Libyan Investment Authority emails reviewed by the Journal.

One person who attended the meeting says Mr. Zarti was "like a raging bull," cursing and threatening Mr. Kabbaj and another Goldman employee. Goldman arranged for security to protect the employees until they left Libya the next day, according to people familiar with the matter.

Mr. Zarti declined to comment about his work at the investment fund or his relationship with Col. Gadhafi. He quit in February and now is in Austria. Mr. Kabbaj and emerging-markets trading chief Mr. Ben-Brahim left Goldman later in 2008 to join hedge-fund firm GLG Partners Inc. and were not part of later negotiations.

Following the showdown in Tripoli, the fund demanded restitution and issued vague threats of legal action. After an internal investigation, Goldman disputed Libya's claims about the trades, citing recorded phone calls, documents signed by Libyan officials and money-transfer records, according to people involved in the dispute. Still, Goldman executives wanted to make amends because of Goldman's business ties to Libya and worries among some officials that the mess might become public, potentially damaging its reputation with other sovereign-wealth funds, according to people involved in the discussions.

Over the ensuing two years, Goldman made six different proposals designed to generate returns sufficient to offset the nearly $1.3 billion in losses.

In May 2009, Goldman proposed that Libya get $5 billion in preferred Goldman shares in return for pumping $3.7 billion into the company, according to fund and Goldman documents. Goldman offered to pay the Libyan Investment Authority between 4% and 9.25% on the shares annually for more than 40 years, which would amount to billions of dollars more.

Libyan officials prodded Goldman to recoup their losses faster. They also worried about whether it was wise to invest in Goldman given the collapse of Lehman and the resulting panic that swept global financial markets, the fund documents indicate.

After four all-day meetings in July 2009, the two sides agreed to a rejiggered deal that would make back Libya losses in 10 years. Such a deal, which also could have left the fund with a Goldman stake, would have needed to be run past the Federal Reserve. That left both Goldman and fund officials worried about its viability.

Goldman changed its mind a week later, having second thoughts about the terms, according to a person familiar with the situation.

That August, Goldman proposed some other options to Libya, including investing in other U.S. financial firms and in a "special-purpose vehicle" tied to credit-default swaps, a form of insurance against losses on loans and bonds.

The Libyan Investment Authority decided that those options were too risky. Fund officials said they wanted to put the $3.7 billion into high-quality bonds. So Goldman devised another special-purpose vehicle in the Cayman Islands that would own $5 billion of corporate debt, according to a Goldman document prepared for the fund.

The deal would pay Libya an annual return of 6% for 20 years, while also promising a $50 million payment to be made to an outside fund adviser run by the son-in-law of the head of Libya's state-owned oil company. Officials from Goldman and the sovereign-wealth fund met about the deal in June 2010, but it was never completed.

As of last June, the Libyan Investment Authority had assets of about $53 billion, according to a document reviewed by the Journal. This year, U.S. officials froze about $37 billion in Libyan assets, including some funds still managed by Goldman.

Write to Margaret Coker at and Liz Rappaport at

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To: scion who wrote (11)5/31/2011 12:50:58 PM
From: scion
   of 10367
Hackers Broaden Their Attacks

Lockheed and PBS Join the Roster of Recent Victims as Motives Expand; 'Almost Anyone Is a Target'

MAY 31, 2011

Hacking incidents at defense contractor Lockheed Martin Corp. and broadcaster PBS that surfaced over the past few days show how widespread corporate breaches have become and underline how any organization can become a victim.

Over the weekend, the website for the PBS show "NewsHour" was altered by hackers to include a fake article claiming that rapper Tupac Shakur, who was murdered 15 years ago, was alive in New Zealand. The hackers also posted login information that stations and other entities use to access PBS sites.

The incident followed a recent breach at Lockheed, which said Saturday evening that it had detected a "significant and tenacious attack" against its computer networks on May 21. The company said it stopped the attack before data could be stolen.

The attacks are the latest in a mushrooming of breaches world-wide. While hackers once generally had targeted companies that stored financial data or had classified government information, culprits today are expanding their sights to other corporate secrets or seeking information that can lead to valuable data down the line. Amateur hackers also are becoming increasingly brazen.

In recent months, hackers stole data from EMC Corp.'s RSA security unit, email marketer Epsilon Data Management LLC, two of South Korea's largest banks and Sony Corp., where the breach temporarily hobbled its online PlayStation Network.

"Almost anyone is a target," said Alex Stamos, chief technology officer at security firm iSEC Partners. Professional hackers now "have good tools and good technique and know how to string them together," he said. Hackers also are getting better at identifying the soft spots in corporate defenses, he said.

So-called hactivists, who take revenge on companies for perceived slights, also have moved from simply knocking websites offline to stealing data. "There are enough people out there who aren't worried about the consequences that they are willing to wage a sustained campaign against a global company," Mr. Stamos said.

Corporate executives said they no longer can take a passive approach to cybersecurity. Ted Chung chief executive of Hyundai Card/Hyundai Capital Co., an auto finance provider in South Korea that was hacked in April, blamed himself for not paying enough attention to the importance of information-technology security.

"When it comes to big companies or big banks, no CEO is that stupid not to pay attention. But maybe they pay the same attention I did, which is giving encouragement and budget to IT but then saying 'What do I know about programming?' " he said in an interview Monday. "That is the wrong support."

The latest attacks demonstrate a diversity of motives. Those who attacked Hyundai Capital tried to extract ransom for a database they stole. With Epsilon, the hackers made off with email addresses that could be used to send "phishing" emails that trick recipients into disclosing personal information.

At RSA, the perpetrators stole data about security systems that the company sells to its clients. Alone, the data are worthless, security experts said, but they could be used to crack defenses used by other companies.

With PBS, a group identifying itself as LulzSec claimed credit for the fake article on Tupac Shakur, which the group said was retaliation for a documentary, "WikiSecrets," about the publication of classified documents on the WikiLeaks website and the Army intelligence analyst who has been charged with leaking them. "By the way, #WikiSecrets s—," a message to PBS said. While the attack was more akin to graffiti than burglary, it underscored the threats companies now face.

PBS on Monday said it had corrected the false information on its website and was "notifying stations and affected parties to advise them of the situation."

The fake article first appeared late Sunday night on the PBS "NewsHour" news blog, "The Rundown." The group then posted a string of Twitter messages in which it took credit for the breach, beginning with a post that read, "Oh s—, what happened to @PBS?" followed shortly after by the post, "What's wrong with @PBS…? How come their database is seized? Why are passwords cracked? :( ." The group then posted links to pages with the login information for the PBS sites.

Shortly after the story was published, PBS "NewsHour" posted several messages on Twitter stating that the article wasn't produced by PBS and that the site had been hacked.

Separately, Lockheed said Saturday evening that the company's information-security team detected its attack "almost immediately and took aggressive actions to protect all systems and data."

"Our systems remain secure; no customer, program or employee personal data has been compromised," the company said. Lockheed said it was conducting an investigation and that it "has continued to keep the appropriate U.S. government agencies informed of our actions."

White House Press Secretary Jay Carney told reporters Sunday that President Barack Obama had been briefed on Lockheed attack and that the damage was understood as "fairly minimal."

Still, that attack is likely to ripple throughout the defense industry. Lockheed supplies some of the most sophisticated weaponry to the U.S. military and is a major provider of information technology to the federal government. The company, based in Bethesda, Md., also is a top international supplier of military and security hardware, employing around 126,000 people world-wide.

Speculation around the Lockheed attack centered on whether hackers may have breached the system by exploiting a vulnerability in SecurID electronic keys made by RSA. In a memo to employees on Sunday, Lockheed Chief Information Officer Sondra Barbour said the company "took swift and deliberate actions" to step up security, including shutting down a virtual private network, resetting user passwords and upgrading SecurID tokens, among other measures.

In South Korea, prosecutors believe North Korea was behind an attack on a large farm cooperative, which couldn't provide ATM, credit-card and online services for nearly a week after a system at its Seoul headquarters was accessed remotely. How law enforcement tracked the attack to North Korea wasn't disclosed. But authorities said a link was made to the same Internet servers North Korea used in a 2010 denial-of-service attack against South Korean government websites. North Korea called the South's accusation in the latest case "absurd" and "unreasonable."

At Hyundai Capital, a pair of hackers in South Korea gained access to the company's databases and downloaded personal information on 1.7 million customers. After the company contacted police, it agreed to pay part of what hackers sought. Police arrested the hackers after one was recorded by an ATM video camera as the hacker tried to withdraw some of the ransom. The company has since revamped its IT operation and begun an overhaul of its cybersecurity.
—Ian Sherr
contributed to this article.

Write to Ben Worthen at, Russell Adams at and Evan Ramstad at

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To: scion who wrote (13)5/31/2011 12:54:43 PM
From: scion
   of 10367
Cyber Combat: Act of War
Pentagon Sets Stage for U.S. to Respond to Computer Sabotage With Military Force

MAY 31, 2011

WASHINGTON—The Pentagon has concluded that computer sabotage coming from another country can constitute an act of war, a finding that for the first time opens the door for the U.S. to respond using traditional military force.

The Pentagon's first formal cyber strategy, unclassified portions of which are expected to become public next month, represents an early attempt to grapple with a changing world in which a hacker could pose as significant a threat to U.S. nuclear reactors, subways or pipelines as a hostile country's military.

In part, the Pentagon intends its plan as a warning to potential adversaries of the consequences of attacking the U.S. in this way. "If you shut down our power grid, maybe we will put a missile down one of your smokestacks," said a military official.

Recent attacks on the Pentagon's own systems—as well as the sabotaging of Iran's nuclear program via the Stuxnet computer worm—have given new urgency to U.S. efforts to develop a more formalized approach to cyber attacks. A key moment occurred in 2008, when at least one U.S. military computer system was penetrated. This weekend Lockheed Martin, a major military contractor, acknowledged that it had been the victim of an infiltration, while playing down its impact.

The report will also spark a debate over a range of sensitive issues the Pentagon left unaddressed, including whether the U.S. can ever be certain about an attack's origin, and how to define when computer sabotage is serious enough to constitute an act of war. These questions have already been a topic of dispute within the military.

One idea gaining momentum at the Pentagon is the notion of "equivalence." If a cyber attack produces the death, damage, destruction or high-level disruption that a traditional military attack would cause, then it would be a candidate for a "use of force" consideration, which could merit retaliation.

The Pentagon's document runs about 30 pages in its classified version and 12 pages in the unclassified one. It concludes that the Laws of Armed Conflict—derived from various treaties and customs that, over the years, have come to guide the conduct of war and proportionality of response—apply in cyberspace as in traditional warfare, according to three defense officials who have read the document. The document goes on to describe the Defense Department's dependence on information technology and why it must forge partnerships with other nations and private industry to protect infrastructure.

The strategy will also state the importance of synchronizing U.S. cyber-war doctrine with that of its allies, and will set out principles for new security policies. The North Atlantic Treaty Organization took an initial step last year when it decided that, in the event of a cyber attack on an ally, it would convene a group to "consult together" on the attacks, but they wouldn't be required to help each other respond. The group hasn't yet met to confer on a cyber incident.

Pentagon officials believe the most-sophisticated computer attacks require the resources of a government. For instance, the weapons used in a major technological assault, such as taking down a power grid, would likely have been developed with state support, Pentagon officials say.

The move to formalize the Pentagon's thinking was borne of the military's realization the U.S. has been slow to build up defenses against these kinds of attacks, even as civilian and military infrastructure has grown more dependent on the Internet. The military established a new command last year, headed by the director of the National Security Agency, to consolidate military network security and attack efforts.

The Pentagon itself was rattled by the 2008 attack, a breach significant enough that the Chairman of the Joint Chiefs briefed then-President George W. Bush. At the time, Pentagon officials said they believed the attack originated in Russia, although didn't say whether they believed the attacks were connected to the government. Russia has denied involvement.

The Rules of Armed Conflict that guide traditional wars are derived from a series of international treaties, such as the Geneva Conventions, as well as practices that the U.S. and other nations consider customary international law. But cyber warfare isn't covered by existing treaties. So military officials say they want to seek a consensus among allies about how to proceed.

"Act of war" is a political phrase, not a legal term, said Charles Dunlap, a retired Air Force Major General and professor at Duke University law school. Gen. Dunlap argues cyber attacks that have a violent effect are the legal equivalent of armed attacks, or what the military calls a "use of force."

"A cyber attack is governed by basically the same rules as any other kind of attack if the effects of it are essentially the same," Gen. Dunlap said Monday. The U.S. would need to show that the cyber weapon used had an effect that was the equivalent of a conventional attack.

James Lewis, a computer-security specialist at the Center for Strategic and International Studies who has advised the Obama administration, said Pentagon officials are currently figuring out what kind of cyber attack would constitute a use of force. Many military planners believe the trigger for retaliation should be the amount of damage—actual or attempted—caused by the attack.

For instance, if computer sabotage shut down as much commerce as would a naval blockade, it could be considered an act of war that justifies retaliation, Mr. Lewis said. Gauges would include "death, damage, destruction or a high level of disruption" he said.

Culpability, military planners argue in internal Pentagon debates, depends on the degree to which the attack, or the weapons themselves, can be linked to a foreign government. That's a tricky prospect at the best of times.

The brief 2008 war between Russia and Georgia included a cyber attack that disrupted the websites of Georgian government agencies and financial institutions. The damage wasn't permanent but did disrupt communication early in the war.

A subsequent NATO study said it was too hard to apply the laws of armed conflict to that cyber attack because both the perpetrator and impact were unclear. At the time, Georgia blamed its neighbor, Russia, which denied any involvement.

Much also remains unknown about one of the best-known cyber weapons, the Stuxnet computer virus that sabotaged some of Iran's nuclear centrifuges. While some experts suspect it was an Israeli attack, because of coding characteristics, possibly with American assistance, that hasn't been proven. Iran was the location of only 60% of the infections, according to a study by the computer security firm Symantec. Other locations included Indonesia, India, Pakistan and the U.S.

Officials from Israel and the U.S. have declined to comment on the allegations.

Defense officials refuse to discuss potential cyber adversaries, although military and intelligence officials say they have identified previous attacks originating in Russia and China. A 2009 government-sponsored report from the U.S.-China Economic and Security Review Commission said that China's People's Liberation Army has its own computer warriors, the equivalent of the American National Security Agency.

That's why military planners believe the best way to deter major attacks is to hold countries that build cyber weapons responsible for their use. A parallel, outside experts say, is the George W. Bush administration's policy of holding foreign governments accountable for harboring terrorist organizations, a policy that led to the U.S. military campaign to oust the Taliban from power in Afghanistan.

Write to Siobhan Gorman at

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To: scion who wrote (14)5/31/2011 4:33:36 PM
From: Winfastorlose
   of 10367
Great board. Here's an item of interest:

The Federal Budget (as explained by Ben Cohen of Ben and Jerry's Ice Cream)

This visual demonstration (approx. 3 minutes long and using Oreos) gives the viewer an accurate perspective of how foolishly our government allocates the money it spends.

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