What role did the government play in setting the price for JP Morgan Chase’s acquisition of Bear Stearns? The big story in today’s Wall Street Journal indicates that regulators may have misled lawmakers on this question.

Treasury Secretary Hank Paulson’s “blueprint” for revamping the financial regulatory system is already coming under fire from powerful agency heads. As early as Friday, even before the details of the plan were widely-known, the plan was lambasted by John Reich, the director of the Office of Thrift Supervision, which oversees the savings and loan industry. Immediately after Paulson’s speech this morning, Commodity Futures Trading Commission big shot Bart Chilton released a colorful and blisteringly critical statement describing the plan as “moving boxes around in Washington DC.”

Paulson’s plan would combine the Securities and Exchange Commission, which regulates equities and debt markets, with the Commodity Futures Trading Commission, which that regulates the exchanges trading commodities and financial futures. The two commissions have very different regulatory approaches, with the SEC favoring direct regulation and a rules-based approach and the CFTC favoring a principles based approach that relies heavily on self-regulation by commodities and futures exchanges. SEC head Chris Cox has been described as being disposed to supporting the plan.

After the jump, we delve into the dirty, metaphor-strewn past of the CFTC commissioner.

1. Too much with the birds. Everyone knows HP is an environment/animal lover, that fact has been shoved down our throats time a-plenty (“Even though his handshake could break all of your fingers, Hank Paulson is a gentle giant who can often be found talking to wood nymphs and catching butterflies” “When you think Hank Paulson, think furry animals, but not in the way you’d think of Lenny and that mouse who met that unfortunate fate” “Hank Paulson loves animals so much that when he engages in bestiality, he doesn’t call it “fucking,” he calls it “making love.”) We get it— Hank + Animals, Birds Especially = A Match Made In Heaven, If Only Because They Often Mistake Him For A Tree And He Just Doesn’t Say Anything. Are birds an integral part of the story? Yes. Paulson has been offered a job as anchor on a new syndicated news services called Bird News Network (BNN), with Laura Bush as a possible co-host. Does that make it okay? No.

2. It contains a painful reminder of that time Paulson SCREWED Jon Corzine. (“Paulson is such an avid birder that he sometimes puts it first on his agenda. For example, he went on a bird-watching expedition in Brazil instead of attending the crucial New York Stock Exchange board meeting during which former head Dick Grasso’s controversial pay package was quietly slipped through. Upon Paulson’s return from the expedition, he loudly led the charge to oust Grasso.” Wonder if Paulson took a similarly-themed journey just before he changed the username and password on JSC’s office computer back in ‘98.)

3. I don’t know, that graphic? And the fact that it’s HAUNTING? How ‘bout that? Yeah, I just have two issues.

A Perch For Hank [NYP]

Remember how the internet exploded yesterday with outrage over that column by Ben Stein indicting Goldman Sachs for being on too many sides of the collateralized mortgage obligation business? Well it turns out that it wasn’t just Charlie Gasparino and a couple of other folks who thought Stein was right about Goldman’s dirty hands—Senate Banking Committee Chairman and Democratic presidential candidate Chris Dodd called on Treasury Secretary Hank Paulson, who ran Goldman before coming to the Treasury, to “address the concerns” raised by Stein’s column.

And he’s not kidding around. “Failure to do so may be cause for a formal investigation,” Dodd said.

Dodd’s full statement after the jump.

Sen Dodd questions on Paulson’s role at Goldman [Reuters]

There were 116 financial restatements in corporate public filings in 1997. Almost ten years later (2006), that number has grown over 15 fold to 1,876. Hank Paulson wants to know why. Paulson has ordered a Treasury study of restatements, their predominant causes, and effect on investors that will be headed by former SEC chairman Arthur Levitt and former SEC chief accountant Donald Nicolaisen.

The main reason restatements are thought to have increased so dramatically in number is because of tougher accounting oversight, and the fact that accounting firms have become increasingly aggressive in the face of so much exposure to litigation. Projected recommendations of the study include reducing the liability of public accountants and diluting the auditing industry so that it isn’t as dominated by the same few firms.

A restatement explosion seems an odd justification for a major deregulatory push. This would assume that companies are not using dodgy accounting tricks to mask true performance and that financial restatements are somehow onerous to companies that misstate financials in the first place. One would think that tougher accounting rigor in audits followed by a spike in restatements is a sign that a lot of violations were going unnoticed, not that accouting firms are creating unnecessary restatements through nit-picking.

Treasury Targets Financial Fixes [Wall Street Journal]

The signs of the approaching summer are everywhere. DealBreaker is hiring summer interns. The recruiting departments at all the Wall Street banks are in a frenzy preparing for their own summer interns. We’re gearing up for our coverage of the follies of those same summer interns. Colleges and business schools are lining up commencement speakers.

The first big entry in this last category is Hank Paulson, who has been grabbed by Dartmouth. Paulson was an English major who graduated from Dartmouth with the class of 1968. Hank will be receiving an honorary degree at the ceremony. The college says it invited Hank because of his financial success and record of public service. We’re sure the fund-raising office had nothing to do with his selection.

Tuck’s ceremony will be graced by the presence of Harold W. “Terry” McGraw III, Chairman, President and CEO of the McGraw-Hill Companies. Do those kids up in Hanover know how to party of what. Terry is an animal, we hear.*

* Yeah. No. Not really. Not at all.

Treasury secretary to be Dartmouth commencement speaker [Boston Globe]

Reuters reports that Hank Paulson “inadvertently failed to disclose” a mutual fund with less than $15,000 in value last year, prior to taking over as Secretary of the Treasury. Brookly McLaughlin, a spokeswoman for the treasury claims that the error was “an oversight.” Let this be a lesson to you all: if you want to distract reporters from various corrupt misdeeds, hire a spokeswoman named “Brookly McLaughlin.” (Why do you think Carney’s got a spokesperson named Manhatta on retainer?)

Treasury’s Paulson omitted small fund holding [Reuters]

Duncan,

I’m starting to get what you’re saying about these damn jabronis. Viva la hybrids!

Best,
H

Dear Hank (or as the boys from the neighborhood call you, The Medicine Man),

How ya doin’?

Over the last 9 or so months, give or take a few sleeping fishes*, you did good. Maybe a little too good, if you catch my drift.

I’ll just get right to it—the boys: Sil, Cue ball Corzine, The Liquidator, me—don’t trust ya. And there’s talk that we’re gonna have to do something about it, this lack of trust. Are you picking up what I’m throwing down?

You, Hank, and your friends over on Broad Street—you’re all suspect. There are just too many ways for you and the Goldsteinowitzes to cheat the financial market. You’re in cahoots and that’s starting to create problems for me and my own. You don’t want to create problems for me and my own, do ya, Hank?

I put some of my boys on the job a few months back—I said “Get some answers so I don’t have to take out no made men.” They asked for some documents shredderfuckshitshredder—sorry, Tourette’s—from the President’s Working Group on Financial Markets—around these parts we’ve got a name for it—the Plunge Protection Team (I won’t get into how that name came about but I can tell you it had nothing to do with the WaPo; and also, that she was a most unsavory woman).

Thanks to a reader with photoshop, here’s a non-reversed image of the Hank Paulson signed twenty dollar bill. (Our own graphics guy stopped answering our emails when we asked some questions about his girlfriend this morning.)

Here’s your first look at the Hank Paulson signed twenty dollar bill.

We just took a look through our own wallets but found nothing but business cards of people we will never call, an IOU from a friend who mysteriously needed to borrow sixty bucks at 2:30 in the morning on Saturday night and the address of a book party for Leveraged Sell Out that we forgot to go to.

Congrats to reader Kevin who has won the contest, and a drink with Bess Levin.

Next contest: another drink with Bess for the person who can send us a photograph of the best illicit use of the Paulson Twenty. We’re thinking things that involve, say, ladies dancing, palms being greased or anything that requires rolling the bill into a tight tube. Email photos to tips@dealbreaker.com.

Speaking of Hank Paulson, has anybody seen the new Paulson twenties yet? Last month we noted that the first bills bearing the new Treasury Secretary’s signatures were rolling off the presses and into circulation. And we announced a contest: the first person sending in a photo of themselves holding up a Paulson twenty wins a drink with DealBreaker’s Bess Levin. (Sadly, it will not be unsupervised. John Carney will tag along as a chaperone.) So get those pictures in asap. Email to tips(at)dealbreaker(dot)com (subject line “Paulson Twenties.”)

So who is the big shot who poinied up nearly $8 million for Hank Paulson’s Upper West Side digs? None other than another Goldman Sachs big, of course. The buyer was Goldman managing director Tony Lauto.

Like everything else that seems to take place in 2006, it’s also still 2003. Haunting that apartment and the sale are the ghosts of Dick Grasso, Eliot Spitzer and the New York Stock Exchange.

Despite a tremendous amount of interest in the old C.E.O.’s uptown-facing apartment, it was easy for Mr. Lauto to introduce himself. There was more, after all, than just Mr. Lauto’s current job at Goldman. His little brother happens to be John Lauto, the C.E.O. of Goldman’s stock specialist, Spear, Leeds & Kellogg, and a member of the New York Stock Exchange’s Director Candidate Recommendation Committee for 2006. Why might that matter? Before joining the Bush administration, Mr. Paulson was a NYSE board member who was loudly critical of former exchange chairman Richard Grasso’s compensation package. Goldman president John Thain was named as the stock exchange’s C.E.O. in December of 2003.

Hank Paulson Sells $8 M. Condo To a Well-Connected Banker [New York Observer via Wall$treetFolly]

Our heads are still aching from drinking one (okay, three or four) too many margaritas in honor of Jeff Skilling, the guy at the helm when Enron hit the iceberg of its financial gambles who yesterday got hit with a sentence of 24-years or life (whichever comes first). So it is comforting this morning to know that it’s not just us tequila-quaffing kids who are skeptical about increasing the risk of criminal liability for American corporate executives.

U.S. Treasury Secretary Henry Paulson said he is considering recommending changes to the 2002 Sarbanes-Oxley corporate governance law because its restrictions have overwhelmed some American companies. While the “net result” of stricter reporting standards for executives has been positive, Sarbanes-Oxley has also contributed to “an atmosphere that has made it more burdensome for companies to operate,” Paulson said in an interview today from Washington.

“We’re going to need to look at how we can address some of these issues,” Paulson said. “This is something we’re giving a lot of thought to.”

Paulson’s comments come as business groups press the Bush administration to loosen the Sarbanes-Oxley restrictions. The U.S. Chamber of Commerce and other groups say the law stifles innovation and puts corporate officials, who must certify the accuracy of their financial results, at risk of prison terms.

“We as a country do as good a job as any nation of shining a light on a problem when a problem occurs,” Paulson said in the interview. “Oftentimes the pendulum will swing too far.”

If he keeps this up, we’re going to start feeling bad about the whole “tree-hugger” thing.


Paulson Says Sarbanes-Oxley Adds to Companies’ Burden [Bloomberg]

Hank Paulson got a pretty sweet leaving package when he stepped down from running Goldman Sachs to take the job as George Bush’s Treasury Secretary. And now his move down to Washington, DC is looking even sweeter. Eight million dollars sweeter.

U.S. Treasury Secretary Henry Paulson, the former chief executive officer of Goldman Sachs Group Inc., sold his 50th floor condominium near Manhattan’s Lincoln Center for almost $8 million, according to public records.

Paulson paid a total of $2.88 million for two apartments he bought and combined on West 67th Street, one in 1996 and the other in 1998. Tax on the re-sale was about $112,000, according to the New York City Register.

U.S. Treasury’s Paulson Sells New York Condo for $8 Million [Bloomberg]

It’s all Goldman Sachs all the time at the Treasury Department these days. Former Goldman CEO Hank Paulson is bringing Goldman senior director Robert Steel on board the good ship Treasury as undersecretary for domestic finance.

Steel started in the equities division at Goldman, and eventually rose to run the group. He was served on the management committee for years with Paulson. He rose close to the pinnacle of power at the firm as vice chairman. We’ve heard that he was one of those who pushed for changes at the NYSE to permit buy and sell orders for the most heavily traded stocks to pair up electronically, eliminating the middlemen of specialists and floor brokers. At the time, he was said to have urged Paulson to combat then NYSE chief Dick Grasso’s resistance to these changes.

Bush to nominate Goldman’s Steel to Treasury post [Reuters]

A transcript of Hank Paulson’s talk with Maria Bartiromo was published in The Wall Street Journal. Looking back on our morning of bourbon bets and liveblogging, we think we did a damn good job of conveying the spirit of Paulson’s words.

But if you absolutely have to know exactly what our Treasury Secretary said, feel free to click the link below.

Transcript of Treasury Secretary Henry Paulson on CNBC [Wall Street Journal]

The main man at Treasury is scheduled to speak to b-schoolers at Columbia today but before that happens, he’s stopping by the New York Stock Exchange where he’ll chat with Maria Bartiromo. While we sit around nursing our hangovers from last night’s Sarbanes-Oxley birthday party, slowly pouring hot coffee on our forearm to scald away the pain, we’ll live blog his words.

Oh. And we’re going to do it hair of the dog drinking game style. Do one shot of bourbon each time Hank mentions China and three shots if he mentions the environment.

10:06. Hank looks so relaxed. Hands folded on his lap, leaning back in his chair. Polka dot tie. OMG! It’s the tie he’s wearing in the official DealBreaker graphic. It’s totally a message to us. Hank (Hearts) DealBreaker.

10:07. Maria wants to know what his priorities are. He’s got four: entitlement reform, energy security, strengthening and supporting trade policy and wage growth and income distribution. Phew. No China, no tree-hugging.

10:08. Oh. Wait. He’s not done. There are international priorities too. China. He means China. He’s totally going to make us do this shot.

10:09. And yes. He’s said it. Only took two minutes. Bourbon goes down in one. Chase it with black coffee. This game was a terrible idea.

[More after the jump.]

We’ve been spending some time trying to clear away the murk and shine some light into the shadows of Jeffrey Epstein’s financial dealings in an effort to provide some, uhm, actual financial reporting related to the sex candal encircling the mysterious money manager. There’s not much that is publicly available but we’re still digging.

What we have discovered, however, is a brief document amending a credit agreement for RELIANT PHARMACEUTICALS, INC. The amendment replaces the administrative agent for the credit. But what caught our eye was the confluence of three DealBreaker subjects all in the same documents.

The signature pages include lines for Morgan Stanley CEO John Mack, who is scheduled to appear before the SEC in connection with allegations of insider trading at Pequot Capital, as well at Jeffrey Epstein, who signs as trustee of the Wexner Children’s Trust II, part of the financial empire of The Limited founding family. And the agent who is being replaced? Goldman Sachs, where alleged insider trading crooks Eugene Plotkin and David Pajcin worked (not to mention the alma mater of that other DealBreaker obsession, Hank Paulson).

Now this is no doubt just a coincidence, and not really a conspiracy to make our heads explode. We should probably just take a deep breath and then post a Venn Diagram illustrating the connections but our diagramist is in meetings off-site.

One additional thought: this is probably the last time you’ll see Epstein’s name coupled with the words “trust” and “children” any time in the near future.

Reliant Consent, waiver and amendment [SEC]

The talk at one of the Independence Day barbeques we attended yesterday was whether or not the mid-year bonus Goldman Sachs said Monday it awarded to Henry Paulson, who left his position as the investment bank’s CEO to become the U.S. Treasury Secretary, was too large. Paulson was awarded a cash bonus of $18.7 million by his former employer.

But it was not the cash bonus that irked our grillmaster source, who is familiar with government ethics rules pertaining to high-level administration officials. What raised at least a yellow-flag was the announcement that certain unvested options were automatically vesting now that Paulson was taking the job at Treasury. In addition, the announcement that Goldman also agreed to buy stakes owned by Mr. Paulson and his wife in private investment funds managed by Goldman might be troublesome.

If these were extraordinary or optional decisions by Goldman, rather than Paulson exercising already baked-in contractual rights, they might be perceived as gifts Paulson by his former firm, which in many ways will now fall under his regulatory purview.

And then, of course, we tuned into SquawkBox this morning just in time to hear Charlie Gasparino tell us that Goldman wasn’t paying Paulson enough.