What times are these when supposedly uber-competent government agencies lose control of, well, mission-critical stuff like laptops, emails, and deadly viruses? What’s next?
The SEC OIG says hundreds of laptops are unaccounted for. The good news is that OIG has disclosed they’re missing. Bad news? While the IRS and EPA “lose” only emails, the SEC loses entire laptops. More good news: These laptops almost certainly don’t carry Ebola. More bad news: SEC laptops should contain lots of really sensitive information about ongoing investigations and the people involved, most of whom will never be accused — let alone found guilty of or liable for — any wrongdoing. Kind of like securities law Ebola. Not to mention the possibility of lots of inside information, possibly including the identity of SEC whistleblowers.
Business executives everywhere can breath a sigh of relief this morning after the U.S. Supreme Court (“SCOTUS”) yesterday struck down former Enron CEO Jeff Skilling’s convictions for so-called “honest services fraud”. While the SCOTUS decision temporarily leaves intact Skilling’s other convictions, they are now on life-support. Continue reading →
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 sentence are shocking. Compelling evidence of Skilling’s innocence (and the prosecution’s guilt) is provided by 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 reading →
Great news just in from Wachovia: It’s “fair value” rose by an astonishing 750 percent overnight, to $15.1 billion from $2.16 billion. That’s right. Yesterday at this time, Wachovia was supposedly worth only $2.16 billion — in the eyes of government regulators who were trying to force it into an arranged marriage with Citigroup. Turns out that the regulators were wrong. The market had other ideas.
Congress take note: regulators can get it wrong on both ends — high and low. Lucky for Wachovia’s shareholders — and the financial markets — Wachovia’s board didn’t listen. Best to let the market do its work and get out of the way.
Speaking of which, what about U.S. GAAP’s “fair value” accounting regime? How much was Wachovia really worth 24 hours ago? Either U.S. GAAP was lying then or it’s lying now. What’s the point of having companies report assets at “fair value” when fair value is so context-dependent and fluctuates by 750% in a matter of hours? Fair value makes sense in some contexts, particularly in highly liquid markets. In others, it is likely to be materially misleading.
The U.S. Department of Justice took another ethical black eye yesterday, this time from the 2nd Circuit Court of Appeals in Manhattan. The court held — in a widely watched KPMG tax fraud case — that DOJ attorneys illegally interfered with the defendants’ access to legal counsel which is protected under the 6th Amendment to the United States Constitution.
At its launch in October 2005, the DOJ touted the case — against thirteen KPMG partners and employees — as “the largest criminal tax case ever filed.” Perhaps they should have christened it “The Titanic.” In the related press conference, U.S. Attorney Michael J. Garcia proclaimed with requisite gravitas: Continue reading →
Before he died, in 1960, Earl Long managed to serve three times as Governor of Louisiana and — despite widely acknowledged corruption — not a day in prison. In the context of today’s plague of litigation and over-zealous white collar prosecution, some might find helpful this advice of Governor Long:
Don’t write anything you can phone. Don’t phone anything you can talk. Don’t talk anything you can whisper. Don’t whisper anything you can smile. Don’t smile anything you can nod. Don’t nod anything you can wink.
A June 26 NPR report confirms suspicions I first expressed on June 20 that the Bear Stearns indictments distort facts, casting them in the most unfavorable light possible. I’ve reached the point in reading indictments that I disbelieve 90 percent of what they contain. A disturbing percentage of prosecutors are either blantant liars (maybe trained by Worldcom accountants?) or they go off half-cocked, substantially lacking essential context.
Who to blame? Mothers, professors, law schools? Hard to say, but one thing’s sure: they have a huge credibility problem. Continue reading →
I have to disagree with WSJ Lawblogger Dan Slater’s takeaway from the Bear Stearns indictments. Dan wrote, late Friday afternoon:
Yesterday, as we broke down the Bear Stearns fund-manager indictment, one thing stood out to us as clear, and poignant (presuming for the sake of this post that the allegations in the indictment are true): It seemed Matthew Tannin was vexed inside by competing voices. . .
The NYT reported today that Tannin was known within his group as a worrier. Again, presuming the government’s allegations to be true, perhaps Tannin should have trusted, and acted upon, his worries, his instincts. Instead, the indictment alleges, he didn’t.
These two paragraphs don’t seem to go together. I agree that the material in the indictment suggests Tannin was “vexed inside by competing voices” or some such thing. But this, to me, does not translate to “Tannin didn’t trust his instincts.” In fact, I read just the opposite in the indictment: Tannin did trust his instincts and he trusted the people he worked with, especially Ralph Cioffi. And that trust was what got him into trouble. Continue reading →
The indictment of Bear Stearns fund managers Ralph Cioffi and Matthew Tannin makes depressing reading. It seems damning to the defendants. But readers should understand that indictments are supposed to be damning. Prosecutors go as far as they can to cast the facts — which in this kind of case can be highly complex and ambiguous — in the manner most unfavorable to the accused. If the cases go to trial, we’ll get a much more balanced account of events.
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. Continue reading →