The new legislation, called the Stop Trading on Congressional Knowledge Act, was passed in the Senate by a margin of 96 to 3. It now goes to the House for what is an almost certain passage there. The president then gets to sign a bill that says that people should not do something they know not to do.

Insider trading is one of the most widely covered subjects about Wall St. That means that no one who follows the subject in the media could be in the dark. This has been particularly true since Galleon Group hedge fund founder Raj Rajaratnam went to jail and former Goldman Sachs director and past head of McKinsey & Co. Rajat K. Gupta was charged due to evidence each used information he should not have used to try to make money in the stock market.

Some experts argue that insider trading laws are open to wide interpretations. The head of one of the largest hedge funds, Steven A. Cohen of SAC Capital Advisors, recently said that insider trading has to be examined on a case-by-case basis. He knows it if he sees it, but has no objective means of measurement. That argument is spurious. Cohen has been around Wall St. long enough to know when he is even close to the white line.

Congress members and their staffs know better, too. They receive mounds of information about decisions and data that could affect the values of public companies. The rule, even if it is not put down in law for them to follow, is that if you can make money that people without the information cannot, it is illegal and unethical. And it is also one of the roots of the national confidence in the federal legislative institutions.

All of that is worth saying, again.

Douglas A. McIntyre

In the letter, D o D claims

Grant of the Lightsquared waiver would create a new interference environment and it is incumbent upon the FCC to deal with the resulting interference issues before any interference occurs

Harbinger Capital, the largest shareholder, and Philip Falcone, its head, are likely to be sued over securities fraud by the government.

At this point, it appears Lightsquared is unlikely to survive

Kodak has not been able to sell or license its patent portfolio at any reasonable price. So, the new option appears to be to test the value of the intellectual property within the legal system. Kodak would not be at the brink of bankruptcy if management had been able to reach reasonable terms to off load its patented technology. Perhaps the patent pool was offered to Apple and HTC in the past.

Kodak announced that

A complaint filed with the U.S. International Trade Commission (ITC) specifically claims that certain of Apple’s iPhones, iPads, and iPods, and certain of HTC’s smartphones and tablets infringe Kodak patents that relate to technology for transmitting images. Kodak also alleges that certain of HTC’s smartphones infringe a patent that covers technology related to a method for previewing images which is already the subject of pending actions against Apple. Separately, Kodak filed suits today against Apple and HTC in U.S. District Court for the Western District of New York alleging the same infringement.

Kodak’s share were up 50% after the morning reorganization announcement and closed at $.60. The market is much less impress with the suits. Shares are only higher by 5% in the aftermarket to $.63

Douglas A. McIntyre

The new Preliminary Semiannual Uniform Crime Report demonstrates that compared with the first quarter of 2010:

The occurrence of all four offense types in the violent crime category decreased — murder was down 5.7 percent; rape dropped 5.1 percent, robbery fell 7.7 percent, and aggravated assault declined 5.9 percent. And it didn’t matter what region of the country you lived in — decreases in each category were seen in the Northeast, Midwest, South, and West.

In other words, crime has gone into hiding everywhere.

None of the theories about why the drop has continued is entirely persuasive. One notion is that law enforcement has become more effective in a world in which criminals often can be tracked electronically. Another is that the demographic changes in the U.S. are so profound that the younger people most likely to participate in criminal activity make up a smaller part of the population.

Along with the report, the FBI offers suggestions for how the data should and should not be used. The two sets of rules contradict one another. Local law enforcement budgets can be set based on the data, but any analysis of local crime trends should not be. It is impossible to divide the two, but the FBI says otherwise.

First the FBI says its data should be used:

To provide law enforcement with data that can help with budget formulation, planning, resource allocation, assessment of police operations, etc., to help address crime problems at various levels.

But budgets are, by their nature, local. Somehow, the bureau says they are only local to a certain extent. FBI data should not be used:

To compile rankings of individual jurisdictions and institutions of higher learning and/or to evaluate the effectiveness of individual law enforcement agencies

Either the information should be used to determine local crime patterns and needs or it should not.

The FBI wants to avoid its data being used to show where crime is still high and where it is not. The data are entirely local, though, and that makes the FBI’s suggestions unrealistic.

Douglas A. McIntyre

The National Transportation Safety Board, usually referred to as the NTSB in public, is announcing a major safety recommendation related to “driver distractions caused by driver use of personal electronic devices.”   The NTSB Fact Sheet notes, “The NTSB has called on the 50 states and the District of Columbia to ban the nonemergency use of PEDs (other than those designed to support the driving task) for all drivers.”

Frankly, the new recommended ban has little chance of success in the current form, even if parts of this should proceed.  A call to ban all electronic devices in vehicles regardless of how they are used (except in cases of emergencies or integrated into the transportation needs) will not garner much public support as it is somewhat like stretching the limits of drunk driving blood levels all the way out to a new attempt of prohibition.

Still, this NTSB recommendation may be the start of a larger move to keep cellphones from being abused by drivers in many locations where no regulations exist.  Drivers who text often cross 50 feet to 50 yards of pavement in a shorter period of time than it takes to type in “lol” or even “driving.”  By the way, calling your friends to gossip about things or to see what is up for the night or weekend are not exactly ‘emergencies’ under this plan.

There could also be rules for teenagers that are different from adults.  Many cities already have curfews for minors and technically minors are not allowed the same liberties and rights as adults who have a bit more life experience under their belts.

You can expect an outright assault from the phone makers and headset makers, the wireless carriers, the tower operators, and even the communication infrastructure equipment to fight this recommendation if it were to gather any momentum. Also, keep in mind that the NTSB has zero power to enforce or even to propose any such bill to move into law.  All it can do is to make recommendations for safety regarding transportation activities.

Logitech International SA (NASDAQ: LOGI) is one headset maker that would severely if there was a nationwide ban on holding your cellphone but still allowed drivers to use cellphones if they have wireless or wired headsets for their mobile phones.  Verizon Communications Inc. (NYSE: VZ), AT&T Inc. (NYSE: T), and Sprint Nextel Corporation (NYSE: S) would all fight a total ban on cellphone use under any circumstances other than emergency use.

American Tower Corporation (NYSE: AMT) and Crown Castle International Corporation (NYSE: CCI) have spent billions of dollars putting in cellphone towers around the nation, including the highways, to make it so that drivers can stay connected on their cellphones whether those drivers need to or not.

The market does not consider this “recommendation” a serious threat. Not yet.  Frankly, for someone who does support a ban of texting and in-hand use of cellphones while driving, today’s recommendation by the NTSB is a disappointment.  The proposal is too broad and sweeping for the public to support it. If this seemed to be a true threat then these stocks would have traded lower by a significant amount.  Just do not be surprised when some legislator in Washington D.C. decides to take this cause up next year.

The NTSB pre-conference fact sheet is here.

JON C. OGG

The ITC bulletin noted that it has “made affirmative determinations in its five-year (sunset) reviews concerning Crystalline Silicon Photovoltaic Cells and Modules from China.  The USITC vote noted “Preliminary phase antidumping and countervailing duty investigations: Crystalline Silicon Photovoltaic Cells and Modules from China, Inv. Nos. 701-TA-481 and 731-TA-1190 (Preliminary)” today as the ITC sees threat or injury to U.S. solar firms from Chinese companies.

Seven US solar PV makers jointly filed the claim, but only the US unit of Germany’s SolarWorld was identified. Top US solar makers First Solar Inc. (NASDAQ: FSLR) and SunPower Corp. (NASDAQ: SPWRA) are not among the companies that signed on and no specific Chinese makers were identified in the complaint.

Leading makers like Trina Solar Ltd. (NYSE: TSL), JA Solar Holdings Co. Ltd. (NASDAQ: JASO), and LDK Solar Inc. (NYSE: LDK) are surely among the targets.  As far as LDK Solar is concerned, we have noted that this company is mathematically bankrupt without a guarantee from China.

Today’s news is not a registered victory as the outcome (and damage awards) are not yet known, but it is an indication that the U.S. solar players may get some margin stabilization ahead.

JON C. OGG

There was speculation over whether or not Corzine would testify in front of a Congressional hearing next week.  He had previously only been “invited” to attend the hearing.  Now Corzine has to appear because of a subpoena.  Customers, investors and creditors are not likely to learn anything new about the demise of MF Global nor how Corzine pushed the limits off the cliff in betting the firm’s assets. It seems crazy that the trades that blew up the firm were leveraged bets on Italian sovereign debt, but the potential theft of customer funds is where this really becomes lunacy.

Corzine has already lawyered-up for civil suit protection and we’d put the odds that he will “Plead the Fifth” at 99.9%.  After all, it would be in his best interest unless he can somehow claim that this whole implosion was just a misunderstanding.  The odds of that ‘unless’ factor: zero.

Investors need to know and understand one thing about the ramifications if the “Where are the customer funds?” question is not answered and if the customers are not made whole here.  Customer funds are supposed to sacred as “Seg Funds” and are not supposed to be commingled to support a firm’s trading or operating expenses.

With the manner in which these repos were handled and with the math not adding up (is it $600 million missing, or is it $1.2 billion?), the ramifications of tomorrow are awful. They are bloody awful.  Imagine if this happened at a “too big to fail” institution and millions of customers are suddenly told “we do not know where you client funds are and you cannot close out or hedge any of your positions.”

A report from Managed Futures Today outlines the segregation process about segregated funds of futures trading accounts and Futures Clearing Merchants.  Even in the REFCO bankruptcy, customers were treated better than they have been in this MF Global implosion.  That report noted, “In 2005, Refco Inc. and 23 of its unregulated subsidiaries filed for Chapter 11 bankruptcy protection. However, Refco’s regulated subsidiaries (where customers’ futures trading and managed futures accounts resided) were unaffected and customers were able to continue trading and managing their accounts.”

Frankly, if it turns out that the customer funds are truly at risk then the regulators need to be responsible here.  Criminal filings also better come if the customer funds are missing, because it will be no different from robbery.  The fact that customers not only couldn’t access their funds but also could not hedge or close positions is a tragedy already.  If those funds and positions are allowed to be held by the trustees and bankruptcy attorneys, it could be years before this gets sorted out.  Who really wins in bankruptcy?  The lawyers, of course.

Imagine what can happen if a firm can just magically declare bankruptcy and then says that its customer segregated funds accounts do not add up.  It would be a license to steal and the millions and millions of dollars (actually billions and billions) would be large enough that many managers who are supposed to have a fiduciary duty might be willing to risk prison.

This all sounds pretty extreme, but the problem is that each new case can set a legal precedent as the new basis for future case law.  Ask your self this one simple question… What if your customer funds are not really safe and protected?

JON C. OGG

It may seem odd, but the AMR bankruptcy is likely a boom for the likes of United Continental Holdings, Inc. (NYSE: UAL) and US Airways Group, Inc. (NYSE: LCC), which are up 6% and 10% respectively.  Southwest Airlines Co. (NYSE: LUV) is up 0nly 1 penny at $7.88 and Delta Air Lines Inc. (NYSE: DAL) is up 3.6% at $7.70.  Even JetBlue Airways Corporation (NASDAQ: JBLU) is catching a 5.7% pop higher.

All those bankruptcy rumors now turned out to be true.  AMR has noted that it has $4.1 billion cash in the bank and also that it will honor all tickets and reservations for American and American Eagle Flights.

The market is telling you that shareholders will be left with nothing here.  AMR’s stock is down 85% at $0.2311 and the new 52-week trading range is $0.80 to $8.89.

Gerard Arpey has also announced his decision to retire as Chairman and Chief Executive Officer.  I wonder what his parachute has considering that this wipes out shareholders.

This move will allow other airlines to have a stronger negotiating position, it will also allow for potentially higher ticket prices, and more nickel-and-dime fees.  If this wasn’t true you wouldn’t have the peers up as much as 10%.

Early this morning in the pre-market AMR’s stock was down about 60%.  For it to slide further is a sing of doom heading the way of AMR.  A bankruptcy stock down 60% indicated at least some chance of there being assets left over.  A drop of almost 86% is a sign of a death sentence.

JON C. OGG

CNBC’s Herb Greenberg has helped break open a story that goes beyond just “weird.”  In a world where investors just assume the worst, this is a case where Wall Street is making its vote now and will wait for facts later.

Director Joseph Silveira, the director which killed himself, had reportedly recused himself from the current accounting investigation due to his status as a walnut grower and that would have posed a conflict of interest.

Where this gets interesting is that the company has maintained, according to Bloomberg, that there is no connection between Silveira’s death and the accounting probe.  Is that true?  Perhaps, but frankly we will not endorse any such notion but we will also avoid jumping to the worst conclusion without the facts being public either.

There are a few obvious observations that come to mind.  First and foremost, investors are obviously assuming that the worst case of the accounting probe is likely.  Second, that Pringles deal is probably going to be assumed as having moved from delayed to “questionable” as the entire market cap of Diamond Foods is now only $655 million  Third, we don’t want to use the “restatement” word, but how can that not come up as a serious concern at this point?  Even worse, “irregularities” could become the biggest concern.

Now, for the hope… There is nothing wrong at all with hope, but hope without action is generally not a good strategy when it comes to finances.  The hope would be that Mr. Silveira’s suicide is not related to any such issues around the walnut payments probe and that this will pass without restatements and without irregularities coming into the equation.  That is the hope.

Again, Wall Street asks questions after taking action and the verdict so far is a clear one.  Diamond Foods hit a new 52-week low of $29.16 earlier this morning versus a prior high of $96.13.  Shares are down 15% at $29.73 after almost the first hour of trading.

JON C. OGG

Jefferies has taken more aggressive steps to thwart the negative news flow than other firms have, but so far it seems that all “facts” are being taken as fiction.  Management has now released detailed data yet again outlining its exposure to weak spots in Europe to try to thwart the efforts of a short selling group.  This starts out “We are writing so that every one of our key constituencies receive the facts and reality directly from us, instead of being misled by half-truths, false rumors and lies being disseminated with malice by a group whose interests are absolutely opposed to yours and ours…”  The firm tries to address every concern out there in that letter.

Jefferies is buying their own paper when and where it can: “As an aside, we note that we repurchased $50 million of our 2012 bonds in the past few weeks and over time, as part of our announced 20 million share-buyback program, about 5 million shares of Jefferies common stock in the open market.”

Regulators make brokers, traders, fiduciaries, and managers record and store instant messages, phone calls, and instant messengers for a reason and that reason is presumably not to just keep these firms buying up more and more data space in storage farms.  If everything that Jefferies is putting out is true, shouldn’t Jefferies be out suing the malicious group(s) AND demanding that regulators conduct an instant crackdown by skimming every instant message, email, and phone call that revolves around every short sale in Jefferies?

Short selling in general is not a bad thing.  Still, it is one aspect of the market that many investors consider a dirty trick or a shell game, but it has many positive effects as far as the overall market is concerned.  The problem is when short sellers attack and then get to become activists against a company.  Disseminate bad information to keep pushing a bet against a company is one thing, but if it is proven to be false and malicious it crosses the line.  At some point, the definition of freedom of speech becomes no different from yelling “Fire!” in a crowded theater.

Jefferies was down 2% and more a while ago and shares are currently down 0.2% at $10.14.  The stock hit a low of $9.60 earlier today and the 52-week trading range is $9.50 to $27.12.

It seems unreasonable that any of the large trading houses would demand that clients who want to hold Jefferies shares make the designation that their shares cannot be borrowed and also demand that the Jefferies shares not be held in “Street Name” as most shares are.  That might act as a buffer to prevent short selling a bit more, and perhaps Jefferies could try to make it more expensive to borrow the stock.  We were told by one trader that the cost is 275 basis points for a borrow, which is no barrier to shorting the stock if someone with deep pockets believes that an implosion or close to it is further heading toward Jefferies.

Jefferies was above $16.00 in August and shares were again under $10.00 earlier today.  We will ask this pointed question, but it is assuming that Jefferies is not selectively eliminating all of the bad things that it is being accused of… If regulators cannot prevent an unwarranted ‘run on the bank’ in the midst of this regulatory climate, what good does it do to just step in with red flags after the fact?

JON C. OGG