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........back to Tuco Trading, the little brokerage in Chicago that had not even registered with the authorities. The completely obscure and eminently illegal, tiny little brokerage whose clientele consisted largely of heavyweight traders from places like Iran and Saudi Arabia, Russia, Pakistan, and Venezuela.
Many of Tuco’s clients resided overseas–Moscow, Dubai, China, and Ukraine. Some in locales even more exotic: Cozumel and Azerbaijan, Dagestan and Ras al Khaimah. Of course, there were some Americans, too. But these Americans were among the most powerful financial criminals in the nation. Most of them were tied to the Mob.
We have seen that in 2008, the year of the financial crisis, another obscure brokerage, Penson Financial, became, literally overnight, the largest brokerage in the world by volume, most of which was manipulative short selling targeting the big banks and other companies critical to the stability of the American financial system.
The strange trading that went through Penson was evidence enough there was an attack on the U.S. financial markets in 2008. But was it merely a criminal attack, or an act of financial terrorism? Was the attack coordinated? Or was it individual traders acting on their own?
Ultimately, it might be impossible to answer these questions. Motivations are difficult to discern. But we know (from earlier chapters of this series) that Penson Financial was built with considerable help from people who had ties to jihadi terrorist groups, organized crime, and foreign governments that are hostile to the United States. We know also that an overwhelming number of Penson’s key clients had similar relationships.
And as of early 2008, Penson’s most important client was none other than Tuco Trading–that weird, little brokerage in Chicago. Indeed, Tuco was more than a client. Penson did not merely clear all of Tuco’s trades. As we will see, Penson dealt directly with many of the interesting people who had accounts at Tuco. Indeed, Penson made Tuco—a tiny brokerage that had, for good reason, chosen not to register with the authorities–an integral part of its overall operation.
And a thoroughly peculiar operation it was.
As I mentioned, Tuco was trading for more than 100 accounts. Just two of those accounts alone generated more than 20 percent of the volume (most of it short selling of financial stocks) that had suddenly made Penson Financial the largest brokerage on the planet in the month before the 2008 collapse of Bear Stearns.
The short selling of financial stocks transacted by Penson was as much as five times the short selling of financial stocks by Wall Street’s top five brokerages. Put another way, those two accounts at Tuco Trading transacted short selling volume exceeding that of the somewhat more famous Goldman Sachs.
Tuco was shut down on March 9, 2008 by an “Emergency Order” of the SEC, and the case was taken over by Tuco’s court-appointed bankruptcy receiver, who immediately noticed the large volumes from those two accounts, one of which (the receiver noted with urgency) contained more than 2,000 secret subaccounts located in China.
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