In a huge victory for 1st Amendment rights, one day after Vietnamese communists sentenced five political dissidents to 16 years in prison, the United States Supreme Court has overturned a decades-old U.S.-government ban on political speech by corporations. [continue…]
Not Guilty! Congratulations to Ralph Cioffi and Matthew Tannin on their acquittal, Tuesday, on securities fraud charges. Responding, in June 2008, to pontification by the SEC on the arrests of Cioffi and Tannin (see video flashback, below)…
…I pretty much nailed the eventual outcome of these specious, politically motivated indictments in legal and market terms:
Apart from the eventual finding of guilt or innocence, the more I consider the FBI’s and SEC’s conduct in the arrests, the more I see it as a political show calculated not to enforce the law, but rather to satisfy the blood lust of investors and borrowers who should themselves be spanked for thinking they should be entitled to high returns (or sub-prime mortgages) without running high risks.
Ultimately, the prosecution of this case — which seems based almost entirely on e-mail traffic — will harm the markets more than help them by discouraging (a) expressions of optimism when times are tough and (b) candid give and take within firms. These, together, are essential to the functioning of financial markets. What would we think of a bank president who runs around Wall Street yelling at the top of his lungs that his bank’s cash balance is only a fraction of what it owes depositors?
We can thank this kind of prosecutorial overkill for banks’ current reluctance to make meaningful loans and for the reluctance of market players of various stripes to do what market players are supposed to do: take risks and speak optimistically about the future.
Congratulations, as well, to the Manhattan jury that so ably sniffed out this sham prosecution. Just imagine the outcome had Jeff Skilling been granted a change of venue to Manhattan. We can only hope that the U.S. Supreme Court will follow suit and unravel the absurdity of so-called “honest services fraud” by exonerating Mr. Skilling.
When a prominent Houston attorney advocates exonerating a convicted Enron executive you have to believe — as I have long argued — that something is seriously wrong with the conviction. In his excellent post, The Reeling Prosecution in the Skilling Case, Houston Attorney Tom Kirkendall explains why the U.S. Supreme Court should (and likely will) let Jeff Skilling out of jail when it hears his case.
For those with short attention spans, the bottom line is that Jeff Skilling was convicted and sent to jail for 24 years (a sentence recently set aside by the 5th Circuit Court of Appeals in a weirdly self-contradictory opinion) because a Houston jury, poisoned by months of anti-Skilling and anti-Enron propaganda, decided that Skilling exercised bad business judgment as Enron’s CEO during the company’s death spiral. The jury’s theory, doubtless buttressed by years of education and experience running companies in the complex energy derivatives markets, was apparently that any business executive dumb enough or nice enough to try to rescue the jobs and retirement plans of thousands of employees from a perfect market storm had damn-well better save the company or get ready for the guillotine.
Skilling’s conviction and draconian sentence should shock the consciences of anyone who has thoroughly studied the case. Readers with the stomach for detail will find compelling evidence of Skilling’s innocence (and the prosecution’s guilt) in his 209-page Petition for Writ of Certiorari.
One prong of Skilling’s defense is that “honest services wire fraud,” codified at 8 U.S.C. § 1346, is chaotic nonsense that fosters politically-motivated witch hunts any time a big company’s stock plunges in value for whatever reason. Kirkendall notes: [continue…]
With Wall Street agog over the DOJ’s biggest insider-trading sting ever and fully seven years since the Enron scandal broke, Jeff Skilling is back in the news. The U.S. Supreme Court has agreed to hear Skilling’s appeal of his convictions in the Enron case for so-called “honest services fraud” and insider trading. Needless to say, justice in these United States can take an excruciatingly long time to develop.
The Supreme Court’s grant of certiorari in Skilling v. United States should be good news for Americans accused of white collar fraud in the current wave of anti-Wall Street hysteria. It is a sign that justice may at long last get its day in court, even in politically-charged cases like Skilling’s which grew out of the collapse of Enron. I have consistently argued — see Jeff Skilling Is Innocent — that Skilling’s convictions were themselves a fraud, riddled with prosecutorial misconduct and jury bias and founded on a specious legal theory, “honest services fraud,” that criminalizes optimism essential to economic growth.
Here, for the record, are the questions to be heard by the Supreme Court:
1. Whether the federal “honest services” fraud statute, 18 U.S.C. § 1346, requires the government to prove that the defendant’s conduct was intended to achieve “private gain” rather than to advance the employer’s interests, and, if not, whether § 1346 is unconstitutionally vague.
2. When a presumption of jury prejudice arises because of the widespread community impact of the defendant’s alleged conduct and massive, inflammatory pretrial publicity, whether the government may rebut the presumption of prejudice, and, if so, whether the government must prove beyond a reasonable doubt that no juror was actually prejudiced.
Not every economic catastrophe is caused by a crime. Markets naturally move up and down in cycles. Prosecutors and politicians should have the courage to make this clear to investors who too often expect someone else to pay every time the market turns against them.
As this story from Chinese markets shows, financial derivatives are often not what they seem. If you plan to use derivatives to hedge risks, don’t forget the counterparty risks inherent in the derivatives themselves.
Highlighting once again the risks of doing business with state-owned Chinese companies, banks and the derivatives market took another hit on September 7 when the Chinese government encouraged state-owned airlines and shippers, including China Eastern Airlines Corp., Air China Ltd. and China Ocean Shipping (Group) Co., to legally challenge their fuel derivatives contracts with foreign banks.
The contracts were used by these companies to hedge against what they expected to be a steep rise in fuel prices. When the prices fell — as they sometimes do in a market — the companies ended up losing millions. The losses are premised on the assumption that the companies are legally bound by the derivative contracts. This assumption should have been questioned back in March 2009 when, according to China Daily, China’s State-owned Assets Supervision and Administration Commission (SASAC) “tightened the rules” governing State-owned enterprises’ (SOEs) use of derivatives under Chinese law. Those who did not question then are certainly doing so now.
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Earlier this year, I shared misgivings of other commentators that Mary Schapiro’s tenure at FINRA rendered her too conflicted to Chair the SEC. Judge Rakoff’s scathing September 14 order in SEC v. Bank of America adds weight to the argument. Judge Rakoff rejected the SEC’s settlement, ordering the parties to prepare for trial on February 1. [continue…]
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Who ruined your retirement portfolio? In his September 10, 2009 New York Times’ column, Accountants Misled Us Into Crisis , Floyd Norris points the finger at standard-setting accountants at the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).
Norris appears convinced that if the FASB and IASB had written the “right” accounting standards the “right” way (especially to require banks to report their assets at “fair” value), banks could not have become so weak as to threaten the financial system. If only reality were that simple. Four factors argue against Norris’ view. [continue…]
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Some have asked for my views on the Honduran so-called “coup” in which the former Honduran President, Manuel Zelaya, was removed from office upon the order of the Honduran Supreme Court. Having read the relevant documents in the original Spanish, I agree with Miguel Estrada that the removal was both legal and necessary.
For reasons set forth in more detail in Estrada’s Los Angeles Times op-ed (July 10), in the Corte’s Comunicado Especial (linked to the picture below), and in the documents supporting it, those who are full informed have every reason to applaud la Corte Suprema de Justicia Hondureña for legally and properly sending a would-be Hugo Chavez packing.
Like me (and unlike Barack Obama) Estrada speaks Spanish, actually works as an attorney and has read the Honduran Constitution and other official documents by which the Honduran Supreme Court legally ordered the removal of then-President Zelaya. Americans (and Europeans) who think they know que pasa in Honduras would do well to read what Estrada has to say. [continue…]
Ever get frustrated with attorneys who fuss over precise contract wording? They do it for good reason: In negotiating and drafting agreements, millions can be won or lost by the placement of commas or parentheses. Chartbrook v. Persimmon Homes, decided July 1, 2009 by the British House of Lords,* vividly illustrates the principle that a cup or two of annoying front-end fuss can avert shipping containers full of it down the road. [continue…]
From the War on Terror to the War on Wall Street, due process violations by government agencies are proliferating like nuclear weapons. Facilitated by widespread ignorance among Americans — general public, financial professions, and the federal judiciary — the pattern of abuse threatens not only American markets but the very foundations of American life.
In April 2009, the staff of the Securities and Exchange Commission took another bite out of due process by issuing without public notice or input a “Staff Accounting Bulletin” or “SAB” for the first time since December of 2007. [continue…]
