Trust Is a Vulnerability: Bank of America Fudged Stock Numbers
At the recent Blockstack Berlin event, legendary cypherpunk Nick Szabo called trust, i.e. centralization, a “vulnerability.” Now, in the latest “Exhibit A” of that dynamic in the traditional finance world, powerhouse Bank of America has admitted to meticulously “misleading clients” over the span of five years regarding how it facilitated stock trades. The episode highlights how centralized entities that can’t be audited in real-time can abuse their power.
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BofA Caught Red-Handed
New York Attorney General Eric Schneiderman has announced that Bank of America (BofA) will pay $42 million USD in fines for violating New York state’s securities laws by misleading its institutional clients.
Lasting from 2008 to 2013, BofA’s scheme invovled setting up secret deals with market makers to artificially route stock trades to the bank.
“Bank of America Merrill Lynch doctored paperwork on 16 million orders to fool institutional clients into thinking stock trades were taking place in-house when they were not, according to New York’s Attorney General.”
Accordingly, in a new press release, Attorney General Scheiderman announced that BofA’s Merrill Lynch was using new tech to exploit its customers, not service them:
“As Wall Street firms offer increasingly complex electronic trading services, they cannot use new technology to exploit their clients in service of their business relationships with large industry players, like Bank of America Merrill Lynch did here.”
As we’ve seen time and time again during and since the 2008 financial crisis, Big Banks only flex for their profit margins — regardless if said flexing involves illegal behavior or if it ends up hurting clients. It’s a reality that highlights the promise of the decentralized revolution that blockchain tech and cryptocurrencies can conceivably bring about.
Szabo’s Comments at Blockstack
Nick Szabo was a headliner at the recent Blockstack Berlin event, and his talk on trust dealt precisely with the shortcomings of decentralization that BofA’s defraudment illustrates.
Szabo called trust a “vulnerability,” and called for software — a la Bitcoin — that minimizes said “vulnerability between users.”
— John Light (@lightcoin) March 2, 2018
Looking at the BofA through such a lens, then, one could say that centralized institutions maximize the possibility of abuse, whereas decentralized systems like Bitcoin mitigate that threat almost totally.
What’s your take? Are you surprised that BofA was caught fudging its trades? Sound off in the comments below.
Images via PYMNTS, syracuse.com