Rivlin’s involvement with the trading industry, as he has told lawyers who have deposed him during the last two years, goes back ten years, to when he began to hear stories of secret trading in instruments issued by European banks. He hooked up with Richard Copaken, a partner at Covington & Burling who was also intrigued by accounts of secret trading that could generate huge profits. The two began parallel investigations.

The secret trading scenario is certainly plausible. Say a bank wanted to reward a major depositor. The bank could sell the depositor a regular bank instrument — a letter of credit, say, or a medium-term note or a bank debenture — at a discount from its face value. The major depositor could then turn around and resell the letter of credit or the note or the bank debenture at a lesser discount, realizing a profit. Every successive resale of the instrument, until its final sale for face value, would generate profits.

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