Karl Marx Dies A Second Death As EU Moves To Cap Banker Bonuses

"Shadow banking", literally
"Shadow banking", literally
François Vidal


PARIS - Game over for the last of the European Marxists.

Europe is getting ready to cap the size of bonuses for bankers. New rules would prevent bankers in European Union countries from receiving bonuses higher than their annual salary. This world first would put an end to the practice that allows these “workers” to receive up to 50% of the wealth they contributed to create – right under the nose of the “capitalist” bank shareholders.

So unless the only holdout – the UK – somehow manages to derail the vote, come next year, huge bonuses will be a thing of the past. It was a question of public safety – these bonuses sometimes reached unjustifiable heights, which can sometimes be very tempting for traders, inciting them to take inconsiderate risks. Case in point the subprime crisis, the Libor scandal or rogue traders Kerviel and Adoboli.

This reform makes the European Bank like the financial world’s star pupil, the one who now offers the best security guarantee. The regulation process has been chaotic since 2008, but the goal has finally been attained. In the last five years, the risks of the Old Continent’s banking system have been significantly reduced. Prudential rules have been strengthened, monitoring has increased, the most speculative activities have been limited and now bonuses will be capped. This is a revolution, which bankers have not fully understood yet, but that certainly gives European taxpayers the feeling that they are better protected from finance’s depravation.

The problem is this is a false sense of security. For one simple reason – the field of action of this measure is too narrow. Two major actors in finance are largely able to bypass it. First, the American banks. The Basel III accord still doesn’t apply to them and they continue to grant generous bonuses. This year, Wall Street bonuses will cross the $20 billion bar. Enough to maintain the culture of greed at his highest level, while undermining European competitors.

Second, there is “shadow banking,” and more specifically the Wild West that is hedge funds. It’s an expanding market where everything goes and where bonuses are in the hundreds of millions, sometimes even billions of dollars. As long as these black zones exist, global finance isn’t done with systemic risks. The only good news is that the next financial crisis probably won’t start in Europe.

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Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money but the simplest of errors exposed the scam and limited the damage to investors.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.

Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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