Bear Stearns prosecutors protest too much

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

D.C. Circuit to rule in Free Enterprise Fund v. PCAOB: SOX & PCAOB endangered?

The securities law blogosphere has been bubbling with speculation — since the April 15 oral arguments in Free Enterprise Fund, et al. v. PCAOB — over how the D.C. Circuit Court might rule in the case. It is possible that the PCAOB and SOX could disappear in a cloud of appellate ink before summer’s end. Some observers, including the Washington Legal Foundation, believe it’s high time: Continue reading

Einhorn Solution: SEC won’t save you from next Bear Stearns

The Bear Stearns collapse, like Enron and Worldcom before it, has prompted loud cries for more and better market regulation: Higher quality accounting standards! Better internal controls! More rigorous enforcement! But haven’t we been getting all this in an ever-rising spiral since 1934? The headline below captures the spirit of the times — New York Times, July 4, 1934, to be precise.

Joe Kennedy to calm markets

Next year will mark the 75th anniversary of the founding of the U.S. Securities and Exchange Commission. It was created as a political response to the market crash of 1929. Like politicians today, those back then had to be seen as “doing something” to “protect” investors. They thought they had the answer — more regulation. Or at least they wanted voters to believe this was the answer. Continue reading

Lessons from Bear Stearns indictments? Don’t trust anybody or anything.

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

Bear Stearns arrests: SEC’s interests ahead of investors?

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

Criminalizing Financial Optimism at Bear Stearns

Cioffi & TanninFortune Magazine, today, features “Crime and Delusion on Wall Street,” in which Colin Barr reports the FBI’s arrest of Ralph Cioffi and Matthew Tannin (pic right), former hedge fund traders at Bear Stearns.

Turns out that the FBI thinks Cioffi and Tannin misled investors by cheerleading for their funds when cheerleading was — in the FBI’s mind — inappropriate. Perhaps we need to examine a bit more carefully the point at which optimism — in an industry that depends entirely on market perception — becomes a criminal act. Continue reading

Crimes against the Constitution: Walther, Perry & Texas CPS

In today’s San Angelo Standard-Times, I argue that Judge Barbara Walther and Texas CPS jeopardized the rule of law in their round up and 60-day forced detention of 460+ FLDS children and adults back in April.

As the Texas “investigation” of the FLDS drags on, I suggest that Texas train its investigative guns in a more fruitful direction: against Walther, CPS investigator Angie Voss, Eldorado Sheriff David Doran and Texas Governor Rick Perry. Each acted in this case with cavalier disregard for the laws of Texas and the Constitution of the United States. Continue reading

Mexico’s new presumption of innocence: good news or bad?

Mexican President Felipe Calderón (pictured below) yesterday inked major constitutional reforms designed to enhance Mexico’s ability to combat organized crime and drug trafficking. The reforms mandate — for the first time in Mexico’s history — that courts must initially presume defendants’ innocence, criminal trials must be public, and judges must explain the reasoning for their decisions to defendants. Continue reading

David Safavian exonerated: another political prosecution bites the dust

What a difference two years and appellate review make! Today, the D.C. Circuit Court Appeals exonerated David Safavian, former General Services Administration Chief of Staff, overturning all of his June 2006Abramoff convictions for making false statements and obstruction of justice in connection with the Abramoff scandal.

The convictions were reversed, in part, because the trial judge inexplicably allowed prosecutors to fabricate a non-existent duty of “full disclosure” which the jury then applied to convict Safavian. In other words, prosecutors just made up the law on the spot to produce their desired outcome and the judge went along with the scam. Prosecutors have a penchant for this kind of thing, as I have pointed out in connection with Jeff Skilling’s appeal. Given the stakes involved, it’s a mystery why trial judges don’t do a better job of punishing them for it.

Almost exactly two years ago, on June 21, 2006, in goofy cloak-and-dagger reportage (including the above pic of Abramoff) prematurely headlined “Safavian Lied in Abramhoff Scandal,” Washington Post reporter Jeffrey H. Birnbaum crowed: Continue reading