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April 30, 2005
Keys for writing good briefs
A big part of my law practice is writing briefs, so lawyers often ask my advice on how to write a good brief. I always pass along three key rules:
1. Read the court's rules for brief writing and then follow them.2. Tell a good story in your brief.
3. Don't use footnotes.
If you violate rules 1 and 3, then this is what could happen.
Hat tip to Appellate Law and Practice blog for the link.
Posted by Tom at 7:54 AM | Comments (0) | TrackBack (0)
Eric Andell pleads guilty to federal theft charge
In a surprising development, Houstonian Eric Andell, a former deputy undersecretary under fellow Houstonian Rod Paige at the Education Department, a former Harris County district and appellate court judge, and probably the most popular Democrat in local political circles, pleaded guilty to charging the federal government about $9,000 for personal travel in which he conducted personal business and worked as a visiting judge while still employed in Washington. He faces up to one year in prison and has agreed to reimburse the federal government for the improper charges. Mr. Andell will be sentenced July 29 in Washington.
Posted by Tom at 4:58 AM | Comments (2) | TrackBack (0)
April 29, 2005
This does not appear to be going well
Former Tyco International CEO, Dennis Kozlowski, is on trial for a second time in New York City for allegedly looting Tyco. Mr. Kozlowski's first trial, in which he did not testify, ended in a hung jury.
In the second trial, Mr. Kozlowski has decided to testify. According to this NY Times article, the following is a part of the cross-examination of Mr. Kozlowski about conversations he had with a now-deceased former director whom Mr. Kozlowski said approved a $25 million bonus that was missing from his 1999 tax returns:
"You did not notice $25 million was missing from your W-2?" asked [prosecutor] Ms. [Ann] Donnelly in an incredulous manner."That is absolutely correct," Mr. Kozlowski replied. "I did not."
Posted by Tom at 6:20 AM | Comments (0) | TrackBack (0)
Drilling Fort Worth
Don't miss this interesting Wall Street Journal ($) article on the extraction of natural gas from the Barnett Shale formation, which contains 27 trillion cubic feet of natural gas (enough to supply all gas-heated homes in the U.S. for more than five years) and happens to be located directly underneath Fort Worth.
Drillers hide the unsightly drilling equipment from homeowners by using horizontal drilling techniques, which drill straight down before gradually bending and running parallel to the surface. So, often a well that is drilling a productive zone under a piece of propery is located over a mile away from the property. The article reports that there are now over 90 rigs drilling natural gas wells around the Fort Worth metropolitan area.
Posted by Tom at 5:42 AM | Comments (1) | TrackBack (0)
It continues to get worse for AIG
Following on this progression of damaging public disclosures over the past several months, American International Group Inc. announced yesterday, as this NY Times article reports, that the company has decided to delay for a third time the publication of its annual report. The cause for the delay is that AIG management and nervous PriceWaterhouseCoopers LLP auditors continue to wrangle over the financial implications of accounting errors that now are expected to reduce AIG's net worth by over $2.5 billion, which is about 3% of the company's net worth. That's about a billion more in losses than previously predicted.
As one would expect, there appears to be a fair amount of disagreement over what accounting issues should be acknowledged in the annual report between AIG and its longtime auditor PricewaterhouseCoopers, which is already girding for the inevitable lawsuits from AIG investors over its failure to uncover the improper accounting and the company's allegedly defective internal controls. Since the Sarbanes-Oxley legislation was passed in 2002, auditors and management are required to sign off on the adequacy of a company's internal controls, the lack of which at least partly contributed to the accounting scandals that led to the demise of Enron Corp. and WorldCom Inc.
Although the incessantly bad public disclosures are troubling for AIG long term, the market appears to have stabilized for the time being with regard to AIG's stock price. Although AIG's stock price has fallen almost 30% since February 14 (it opened at $72 on that date), the price has been meandering around $51 since mid-April. The price was was down $.71 in yesterday's trading.
Meanwhile, the Lord of Regulation is moving on to another scene in his vast landscape of business corruption as several financial institutions confirmed that they have received letters from the Lord's office in connection with an investigation into mortgage-lending practices. The Lord's civil-rights division is in the early stages of an investigation into possible discriminatory practices in determining interest rates and fees charged on mortgage loans, which was prompted by recent public disclosures showing that certain minorities are more likely than are whites to be given high-cost sub-prime loans. Lenders say that the difference in interest rates reflects underwriting factors, such as income and credit records.
Posted by Tom at 4:56 AM | Comments (0) | TrackBack (0)
April 28, 2005
Spork flicks
Recently, my wife pulled me to the new Farrelly Brothers' (Dumb and Dumber, Kingpin and There's Something About Mary) movie, Fever Pitch, which billed itself as a chick flick disguised as a sports movie. Or, as ESPN's Bill Simmons explains in this absolutely hilarious article on the movie, a "Spork Flick."
Mr. Simmons recently attended Fever Pitch with his father because the film was billed as a funny spork flick, but he realized after enduring the movie that it was really just a straightforward chick flick:
Here's the plot for "Fever Pitch" in one sentence: Guy loves the Red Sox, meets Drew Barrymore, tries to love them both, nearly loses her because of the Sox, decides to give up his season tickets next to the Red Sox dugout because he loves her, she stops him just in time, and they get back together and end up making out on the field after the first Red Sox championship in 86 years. The end.
Mr. Simmons goes on compare the movie with other chick flicks (don't miss his analysis of My Best Friend's Wedding), and then reveals that the key to success of a chick flick is hitting on the top ten generic themes of chick flicks, a couple of which are the following:
4. If you're dating someone who is passionate about something, he will absolutely give that up for you because all men change once they fall in love. Especially if you have a nice apartment.5. You can have only three friends: A smart friend who's pretty in a quirky way, a calculating beauty who's morally corrupt and an overweight girl who doesn't say much. You can only hang out with these people all at once. If there's anyone in your life who doesn't fit one of those three categories, get rid of them.
Trust me on this one -- read the entire article. Hat tip to Craig Newmark for the link.
Posted by Tom at 6:47 AM | Comments (0) | TrackBack (0)
KPMG's tax shelter purge
These days, it seems as if a new interesting revelation from one of the big U.S. accounting firms occurs every few hours or so.
This CBS Marketwatch snippet reports this morning that KPMG LLP fired Richard Smith, a senior executive who had headed its tax-services division as it promoted questionable tax shelters over the past decade, and also canned two partners -- David Brockway of Washington, D.C. and Michael Burke of Los Angeles -- who had sat on the firm's 15-member board. As these previous posts over the past year reflect, KPMG is enduring some serious heat in various governmental investigations of its involvement in the tax shelter sales effort.
Until the tax shelter probes, Mr. Smith had been a rising star at KPMG. He became a partner at KPMG in 1995 and was named the chief of the firm's tax-services unit in 2002. However, as the tax shelter probes came to light in February, 2004, KPMG had said Mr. Smith was being reassigned to take on the dreaded "different practice responsibilities."
Such purges usually indicate that indictments in such cases are on their way. Stay tuned.
Posted by Tom at 5:10 AM | Comments (0) | TrackBack (0)
April 27, 2005
The Stros best hit-by-pitch man
I'm as much of a baseball stathead as the next guy, but I must admit that it never occurred to me to compile the creative statistics that are featured on this imaginative new blog -- Plunk Biggio.
The blog is "dedicated to Craig Biggio and his (probably unintentional) Quest to break the all time major league career record for getting hit by pitches."
Hat tip to the always alert Charles Kuffner for the link.
Posted by Tom at 7:14 PM | Comments (2) | TrackBack (0)
Is Andersen a winner?
Although such matters are notoriously unpredictable, the SCOTUS blog -- the premier U.S. Supreme Court blog -- reports that observors of the oral argument earlier today on Arthur Andersen's appeal to the Supreme Court of its witness tampering conviction unanimously reported that the Justices appeared to favor Andersen's side of the argument strongly. In particular, Justice Scalia expressed incredulity at the government's position:
"You want criminal liability to attach to that?" Justice Scalia asked, referring to Andersen in-house lawyer Nancy Temple's email. "You want somebody to go to jail?"
Here is the Washington Post report on the argument.
Posted by Tom at 5:47 PM | Comments (2) | TrackBack (0)
AIG is sounding more like Enron all the time
As noted earlier here and here, there are several characteristics of the structure of American International Group Inc. that are similar to the structure of Enron Corp. In particular, both companies' business is largely dependent on its customers' trust and, as Enron showed us in dramatic fashion, once that trust is lost, a company structured in such a manner can literally collapse in a very short period of time.
On face value, this report from yesterday regarding the Lord of Regulation's investigation into whether AIG wrongly pocketed tens of millions of dollars in insurance premiums that should have gone to the New York state workers' compensation fund is probably not any more damaging to the public's trust in AIG's finances than any of the dozens of other revelations that have occurred in regard to AIG and Berkshire Hathaway in connection with that investigation over the past couple of months.
However, in what can only be described as an astounding revelation in this morning's Wall Street Journal ($) article, AIG's general counsel in 1992, E. Michael Joye, informed AIG's senior management -- including former CEO Maurice "Hank" Greenberg -- that the company's accounting treatment with regard to the insurance premiums was illegal. Even more interestingly, Mr. Joye resigned from AIG (or was forced out) later that same year over problems relating to accounting issues.
To top it all off, according to the WSJ article, Mr. Joye provided to the Lord of Regulation a copy of his memo to AIG management about the insurance accounting issue, and then AIG waived its attorney-client privilege regarding Mr. Joye's memo and the accounting issue to allow Mr. Spitzer's office to proceed with its investigation into the issue. AIG's board is allowing this highly unusual level of cooperation with the Lord of Regulation because of its realization that the Lord has the board over a barrel: if the AIG board were to assert such basic rights as the attorney-client privilege, then the Lord of Regulation would almost surely issue an indictment that would have a potentially cataclysmic effect on AIG's various insurance licenses.
On the other hand, if AIG's senior management forced Mr. Joye out because of his calling out of questionable or illegal accounting practices, then that would reflect a serious defect in AIG's internal controls in that an advocate of adhering to legal requirements was canned rather than rewarded. Inasmuch as a similar defect in internal controls allowed Enron's Andrew Fastow to profit wildly from Enron's apecial purpose entities while serving as Enron's CFO, this latest revelation about AIG sure is starting to sound familiar, isn't it?
By the way, the WSJ's ($) article on AIG's ultra-exclusive New York area golf club -- Morefar -- makes it sound as if getting an invitation to play Augusta National is easy in comparison to getting one to play Morefar.
Posted by Tom at 12:15 PM | Comments (4) | TrackBack (0)
Deloitte pays $50 million in SEC settlement over Adelphia audit
It appears to be settlement week for big accounting firms as Deloitte & Touche joined KPMG and Arthur Andersen in settling a troubling litigation matter.
Deloitte & Touche LLP announced yesterday that it will pay a $50 million fine to settle Securities and Exchange Commission civil charges that it failed to prevent massive fraud at bankrupt cable company Adelphia Communications Corp.
And, just to add insult to injury, the SEC took issue with with Deloitte's press release regarding the settlement, in which Deloitte blamed Adelphia by saying the company and some executives "deliberately misled" Deloitte's auditors. Under terms of its settlement agreement with the SEC, Deloitte was required neither to admit nor deny the SEC's charges. Inasmuch as the Deloitte statement at least implied that Deloitte was denying liability, the SEC took the unusual step of forcing Deloitte to rescind the public statement (WSJ $). It's bad enough blowing the audits, but blowing the press release on the settlement really gets the SEC's blood boiling:
"Deloitte's characterization of the case is simply wrong. Deloitte was not deceived," said Mark K. Schonfeld, director of the SEC's Northeast Regional Office. "They didn't just miss red flags, they pulled the flag over their head and then claimed they couldn't see."
The SEC's Litigation Release over the settlement explains the problems with Deloitte's audit of Adelphia:
The Commission's complaint against Deloitte alleges that, during Deloitte's audit of Adelphia's financial statements for the year ended December 31, 2000, Deloitte failed to implement audit procedures designed to detect the illegal acts at Adelphia and failed to implement audit procedures designed to identify material related party transactions or related party transactions otherwise requiring disclosure. Among other things, Adelphia understated its subsidiary debt by $1.6 billion, overstated equity by at least $368 million, improperly netted related party receivables and payables between Adelphia and related parties, and failed to disclose the extent of related party transactions.
Here is the SEC Complaint and related administrative order in the Deloitte/Adelphia case.
Finally, in what amounts to a settlement of a "slip and fall" case for an auditing firm these days, Deloitte agreed to pay $375,000 in a separate matter to settle SEC charges that it failed to uncover accounting fraud in its 1998 audit of the sports retailer, Just for Feet, which ended up filing bankruptcy shortly thereafter. As a part of that settlement, a couple of Deloitte partners on that audit agreed to bans of at least a year in practicing as an auditor before the SEC. Here is the SEC order instituting administrative proceedings in that matter.
Posted by Tom at 5:08 AM | Comments (0) | TrackBack (0)
Nebraska v. OU
The University of Nebraska's storied football program has fallen on hard times recently, and it seems like forever since the Huskers were even competitive in a football game against their arch-rival, Oklahoma. And the program hasn't fared very well in the courtroom, either.
Following on the incident reported in this post from last fall, this CBS Sportsline article reports jury selection in Cleveland County, Oklahoma District Court for the former Nebraska offensive lineman who is charged with aggravated assault for ramming a University of Oklahoma's spirit squad member into the brick wall that surrounds OU's Owen Field prior to the most recent Nebraska v. OU football game last November. The Nebraska lineman faces up to five years in the slammer if convicted on the charge.
Given the home court advantage, the prosecution is favored. ;^)
Posted by Tom at 4:42 AM | Comments (3) | TrackBack (0)
April 26, 2005
Are you ready to rumble, Mr. Spitzer?
This Washington Post article reports on the trial that is cranking up this week in New York City as New York AG ("Attorney General" or "Aspiring Governor," take your pick) Eliot Spitzer's prepares to prosecute former Bank of America securities broker Theodore C. Sihpol III in connection with an alleged crime uncovered during Mr. Spitzer's wide-ranging investigation of the financial services industry over the past three years. Here is a sampling of posts regarding the Lord of Regulation's investigations over the past year and a half.
While more than a dozen brokerage firms and fund companies have rolled over and paid $3 billion in fines, restitution and promised fee reductions (i.e., ransom) to settle Mr. Spitzer's investigations, Mr. Sihpol has refused to give in to Mr. Spitzer's public relations machine. Mr. Sihpol contends that the trades that are at the heart of the criminal case against him were not illegal and that Mr. Sihpol did not have criminal intent to commit larceny, fraud and alteration of business records.
The case revolves around whether the 37 year old Mr. Sihpol knew his clients were breaking the law by putting in same-day orders after 4 p.m. In his usual public relations blitz on such cases, Mr. Spitzer has compared the the trades to betting on a horse race after it was over because the late trades allowed Mr. Sihpol's clients to profit from news announced after the markets closed. However, the Securities and Exchange Commission regulation in place at the time of the trades did not use the words "4 p.m." Rather, the reg simply stated that all mutual fund orders placed after a fund has computed its daily price must get the next day's price. Inasmuch as many funds do not calculate their daily price until nearly 5:30 p.m., Mr. Siphol contends that the trades were in compliance with the regulation. In fact, an SEC survey done shortly after the scandal broke found that a quarter of brokerage firms had helped clients trade after the 4 p.m. close. New SEC rules proposed after Mr. Spitzer's investigations into trading abuses state specifically that the trades must be placed before 4 p.m.
The risk of loss is so high that it is understandable that companies and individuals under Mr. Spitzer's relentless public relations campaigns roll over and settle without so much as a whimper. Nevertheless, it is refreshing when an individual stands up and requires Mr. Spitzer actually to prove what he enjoys preaching about on television talk shows. Here's hoping that the jury is not swayed by Mr. Spitzer's glitz and examines carefully whether Mr. Spitzer's criminalization of merely questionable business transactions is an appropriate form of business regulation.
Posted by Tom at 6:22 AM | Comments (0) | TrackBack (0)
AIG's Enronesque experience continues
As noted in this previous post, the reason that Enron crashed was that its business model required that its customers rely on the company's financial integrity and not necessarily on the company's net worth. Accordingly, when Enron's financial integrity came into question over a slew of questionable transactions with some equity funds run by Enron's CFO, Andrew Fastow, Enron melted faster than an ice cream cone in a Texas summer.
Unfortunately for American International Group Inc., its business model is built upon the same sense of trust, and this latest public revelation is not going to help the company maintain that trust. Here is a sampling of earlier posts on AIG's developing problems, including the questionable transactions between AIG and Berkshire Hathaway.
The report referred to in the NY Times article was prepared by two outside law firms -- Simpson Thacher & Bartlett and Paul, Weiss, Rifkind, Wharton & Garrison -- who are working for AIG's board. According to the Times article, the report raises serious questions about the integrity of AIG's financial-reporting systems. The report contends that recently retired AIG chairman and CEO Maurice R. "Hank" Greenberg and fired CFO Howard I. Smith controlled critical aspects of the company's financial reporting without appropriste financial and accounting controls in place to oversee that control. The report's conclusions sound remarkably similar to those contained in the Powers Report, which was the similar report that the Enron board commissioned when Enron's questionable transactions with Mr. Fastow's partnerships came to light.
Is AIG is headed for an Enronesque meltdown? My sense is that markets that have been seared by Enron, WorldCom and other big business meltdowns of the past five years will probably not flee AIG's nest without more damaging revelations. AIG reported net income of over $11 billion on revenue of about $98.5 billion in 2004, so the accounting problems identified to date probably will not deplete shareholders' equity by more than about 2%, which would leave the company's net worth above $80 billion.
But as we saw with Enron, a company's net worth will not always sustain investor trust in the face of damaging information regarding the integrity of the company's financial statements. AIG faces precisely the same problem, and it is not clear by any means that it can succeed where Enron failed.
Posted by Tom at 5:02 AM | Comments (0) | TrackBack (0)
Andersen finally settles with WorldCom
The last defendant standing in the WorldCom securities fraud litigation stood down on Monday as Arthur Andersen announced that it had settled with the WorldCom class for $65 million. The settlement occurred at the beginning of the fifth week of what amounted to an auditing malpractice case against Andersen.
The settlement was apparently reached after Andersen disclosed its limited financial resources to the WorldCom plaintiffs, which should not have been any surprise to the plaintiffs. After having been convicted of witness tampering in a dubious government prosecution in connection with the Enron scandal, Andersen collapsed as a going concern and is now merely a liquidating trust for its former partners. Andersen is still contending with similar civil litigation in connection with its audits of Qwest Communications International Inc., Global Crossing Ltd., and the Big Kahuna, Enron.
As noted in these previous posts over the past year, Andersen was the last of more than two dozen defendants who agreed to pay a total of $6 billion to settle securities fraud claims in connection with WorldCom's collapse into bankruptcy in 2002. That total amount is a record recovery in a securities class action in the United States, but that record is probably short-lived. The aggregate settlements in the similar class action in the Enron case projects to lap the WorldCom record by several billion.
Posted by Tom at 4:30 AM | Comments (0) | TrackBack (0)
April 25, 2005
Sightseeing using Google satellite maps
Take a spin sightseeing throught the United States on this interesting page that links to Google satellite images of various American attractions.
That's Houston's Reliant Park in the picture on the left. As one would expect, the satellite images of Alaska, Colorado and California attactions are particularly spectacular.
By the way, in case you haven't used it yet, the related Google map website is the best mapping website available on the Web.
Posted by Tom at 7:55 AM | Comments (0) | TrackBack (0)
Helpful hints on pleading securities fraud
On the heels of the U.S. Supreme Court's decision last week in Dura Pharmaceuticals v. Broudo in which the Court rejected the price inflation theory of causation in securities fraud cases, the Fifth Circuit Court of Appeals issued its decision in Plotkin v. IP Axess late last week in which Judge Edith Jones lays out with specificity the precise pleading requirements for both the representations and scienter elements of a securities fraud claim. This is an excellent opinion to read before either preparing a fraud or securities fraud complaint or in preparing a motion to dismiss a complaint for not adequately pleading fraud or securities fraud. Hat tip to the Appellate Law & Practice blog for the link to this helpful opinion.
Posted by Tom at 7:00 AM | Comments (0) | TrackBack (0)
Big news from San Antonio
San Antonio-based Valero Energy Corporation announced early today that it would acquire refiner Premcor Inc. for $6.9 billion in cash and stock plus the assumption of about $1.8 billion of debt, which will the San Antonio company the largest refiner of crude oil in North America.
The deal -- which is subject to regulatory approval in the already heavily consolidated refining industry -- would give Valero total refining capacity of 3.3 million barrels a day, making Valero's refining capacity more than that of Exxon Mobil Corp. in North America. The deal gives Premcor shareholders an initial premium of about 20% based on the recent 30-day trading range of Premcor's stock price.
Valero has been on an refinery acquisition initiative for almost a decade. Beginning in 1997 when it owned only one refinery, Valero has made seven acquisitions and, if the Premcor deal is approved, will have 19 refineries. Valero already became the largest independent refiner in North America in 2001 when it bought Ultramar Diamond Shamrock Corp. for $4.03 billion plus the assumption of $2.1 billion in debt, and the 5,000 retail gasoline outlets involved in that acquisition gave Valero a large retail presence. The Premcor purchase would give Valero four additional U.S. refineries and bring its annual revenue to about $70 billion.
The deal highlights a startling turnaround that has occurred in the refining industry over the past several years. Since the big shakeout in the oil and gas industry that occurred in the mid-1980's, the refining industry struggled for over a decade. Investment in new refineries slowed to a trickle for a combination of reasons, including overcapacity, inadequate return on investment, oppressive environmental regulations and local political opposition to new and more efficient facilities. As a result, most people do not realize that the last new plant to be built in the U.S. was in 1976, that the number of refineries in the U.S. has declined to 150 at present from 325 in 1981, or that refining capacity for crude oil has declined from about 18.5 million barrels a day to about 17 million barrels per day over the past five years.
Accordingly, while worldwide demand for gasoline has been rising dramatically over the past several years and refiners have struggled to keep pace with increasing demand, the refiners' limited capacity and low inventories have resulted in substantially improved margins, which is the difference between the price that the refiners' receive for their product and the price that they pay for crude oil.
Thus, when you hear complaints about high gasoline prices, recognize that the relatively high price of oil is only one component of the problem. Lack of refining capacity is at least as big a reason for the problem, and making it difficult to construct new refineries only ensures continued high gasoline prices.
Posted by Tom at 5:09 AM | Comments (0) | TrackBack (0)
April 24, 2005
Singh wins his second straight Shell Houston Open
Vijay Singh took advantage of long John Daly's hooked drive into the water on the first playoff hole
Although the Houston Open is one of those relatively insignificant golf tournaments that take place in the dreaded "down" period between The Masters and the U.S. Open, the entertaining final round probably garnered its share of television viewers who chose it over meaningless first round NBA playoff games and early season baseball games. Daly shot a 5 under 67 on Sunday, including birdies on the difficult 17th and 18th holes to catch Singh, who misread a 5 foot birdie putt on the 18th hole that would have won him the tournament in regulation. Unfortunately, Daly consumed too much caffeine in chugging Diet Cokes while waiting for Singh to finish his round, so he promptly pull-hooked his 3 metal into the water hazard on the left side of the first playoff hole.
As usual, CBS commentator Gary McCord had the crack of the weekend on Sunday. McCord and the other CBS announcers were discussing "golf demons," those devilish quirks that always seem to torment golfers in the heat of competition. Suddenly, during this "golf demon" discussion, the television screen showed Daly's haggard face as he prepared to take a shot. Without mentioning any of Daly's well-chronicled bouts with alcohol abuse, smoking, multiple wives (the latest of which ended up in prison) and overeating, McCord declared:
"Now there is the Mothership of demons!"
So, the Houston Open ends its three year run at the Jacobsen-Hardy Course at Redstone Golf Club and moves across the street next year to the new Rees Jones Course at Redstone that has been specially designed and constructed to host the tournament. The Houston Golf Association is placing its bets that the new course will reach a stature similar to Champions Golf Club's Cypress Creek Course among the top PGA Tour members, who will then make an effort to come and elevate the Houston Open to the elite level of non-major PGA Tour golf tournaments. As noted earlier here, I'm not convinced that this is a sound strategy, but I hope that I am wrong. The HGA does a great job of running the tournament, Shell is a fine title sponsor, and the tournament is already among the top PGA Tour events in terms of raising money for charity. Consequently, the tournament definitely has some things going for it, and perhaps a great new course will be answer to the problem of being an afterthought on the PGA Tour.
Posted by Tom at 8:25 PM | Comments (0) | TrackBack (0)
April 23, 2005
Upcoming Supreme Court argument in the Arthur Andersen case
On Wednesday of next week, the U.S. Supreme Court will hear arguments over the meaning of the law under which now defunct accounting giant Arthur Andersen was prosecuted and convicted. Previous posts are here, here, here, here, and here about this case, which corporate legal departments and corporate lawyers are following closely.
The main reason that the Andersen appeal is being followed closely is that it began with an e-mail that any in-house counsel could have written -- that is, a reminder to colleagues about the company's document retention policy. "It will be helpful to make sure that we have complied with the policy," wrote Nancy Temple, the in-house lawyer for Andersen in the October 2001 as Enron was spiraling toward bankruptcy. Andersen's policy called for destroying documents when they were "no longer useful" for an audit. The timing of the email eventually led to the criminal prosecution and conviction of Andersen for destroying thousands of Enron-related documents. The prosecution and conviction doomed Andersen as a going concern and a once-proud company that employed almost 30,000 employees in the U.S. Andersen has withered into what is now essentially a self-liquidating litigation defense fund with fewer than 200 employees.
As a result of what happened to Andersen, numerous professional organizations such as the National Association of Criminal Defense Lawyers and the American Institute of Certified Public Accountants have filed amicus curie briefs that urge the Supreme Court to interpret the law under which Andersen was prosecuted narrowly so as not to criminalize routine legal and professional advice. In particular, the NACDL brief asserts that the Andersen lower court decisions place "lawyers at risk of investigation, prosecution, and imprisonment for doing their jobs," and contends that those decisions improperly chill attorneys from lawfully advising their clients not to volunteer information to a grand jury or not to include unnecessary information in responding to the Securities and Exchange Commission.
For its part, the government claims in its brief that Andersen was well aware that an SEC investigation was likely at least a month before Ms. Temple sent her e-mail, noting that the accounting firm had assembled an Enron crisis-response team in September, 2001 as public revelations mounted regarding Enron's questionable accounting.
Nevertheless, the government's prosecution of Andersen was required to place a square peg in a round hole in that its indictment asserted only a form of witness tampering that occurs when one "corruptly persuades" others to destroy documents in order to make them unavailable for an official proceeding. What is often overlooked in the aftermath of the demise of both Enron and Andersen is that no Andersen official has ever been charged criminally or even cited by the SEC for violating securities laws in connection with Andersen's work for Enron.
The narrow issue that is before the Supreme Court is whether U.S. District Judge Melinda Harmon properly instructed the jury in the Andersen trial on the meaning of "corruptly persuades." The dispute is essentially over whether "corruptly" should be given a transitive or intransitive meaning. The Andersen side of the argument embraces the the transitive -- i.e., in order to to prove the crime, the government would have to show that the persuading was done by corrupt or improper means. Under such an interpretation, Ms. Temple's e-mail would not constitute a crime.
On the other hand, during the trial, Judge Harmon adopted the government's jury instruction based on the intransitive meaning -- i.e., that the government merely had to establish that Andersen had some improper intent of impeding an official proceeding regardless of whether Andersen believed its actions were lawful. Judge Harmon ruled that, so long as Andersen's intentions were improper, the government did not have to prove that an official proceeding was under way or even likely in order to prove that Andersen had committed a crime.
Thus, the importance of the Andersen case to in-house counsel and corporate counsel is clear -- if the Supreme Court upholds the 5th Circuit decision, virtually any corporate document retention policy that includes throwing things out would be at risk because making such documents unavailable is at least part of such a policy's purpose. Somewhat surprisingly, the document warehousing industry has not filed an amicus brief with the Supreme Court in support of the government's position. ;^)
However, in a larger sense, the Andersen appeal gives the Supreme Court an opportunity to knock down one of the government's most visible symbols of its dubious policy of regulating business generally -- and auditors in particular -- through criminalization of heretofore normal business practices. One brave U.S. District Judge already this week firmly rejected the government's over-zealous attempt to obtain what would have amounted to a life sentence for former Merrill Lynch head of international investment banking, Daniel Bayly, who was bit player in a relatively small Enron-related deal. Inasmuch as the government's disembowelment of Andersen as a source of productive employment for approximately 30,000 U.S. citizens is equally indefensible, here's hoping that the Supreme Court sends the government a clear message in the Anderson case that misapplying criminal law to regulate business will not be tolerated.
Posted by Tom at 8:21 AM | Comments (1) | TrackBack (1)
Did Skilling violate the Rule?
In what appears to be a questionable ruling, former Enron CEO and COO Jeff Skilling was required to leave the courtroom on Friday morning during the ongoing trial of the Enron Broadband trial.
Normally, at the commencement of most trials, counsel for either or both parties will invoke "the rule," which simply means that fact witnesses cannot listen to the testimony of any other witnesses during the trial. The rule was apparently invoked at the start of the Enron Broadband case.
However, prior to the commencement of the trial, one of Mr. Skilling's lawyers -- Daniel Petrocelli -- had been advised that Mr. Skilling would not be called as a witness during the trial. So, on Friday morning, Mr. Skilling walked into the courtroom gallery to attend the trial, probably in anticipation of the testimony of former president of Enron Broadband Services and close Skilling confidant, Ken Rice, who has copped a plea bargain and began his testimony yesterday afternoon on behalf of the prosecution.
When the prosecution realized that Mr. Skilling was in the courtroom, the prosecutors raised an objection to U.S. District Judge Vanessa Gilmore based on "the rule." Mr. Skilling was asked to leave the courtroom and did so without incident.
If Mr. Skilling had indeed been taken off the witness lists for Broadband trial, then it was more than a minor mistake to exclude him from attending the testimony of Mr. Rice. Inasmuch as Mr. Rice's testimony on behalf of the prosecution is going to be detrimental to, and disputed by, Mr. Skilling in his trial next January, Mr. Skilling is absolutely entitled to be present in the courtroom during that testimony so long as he is not going to be called as a witness during the trial.
If a witness is not telling the truth in his testimony, then often it is much harder to prevaricate in the presence of someone who knows that the witness is lying. Inasmuch as the truth of Mr. Rice's testimony is a key issue in the Broadband trial, the jury in the Broadband trial ought to be allowed to view Mr. Rice's demeanor while testifying in front of his former boss who, if Mr. Rice's testimony is false, would know it.
Posted by Tom at 7:03 AM | Comments (0) | TrackBack (1)
April 22, 2005
Stros 2005 Review: Stros hit the road
After a short but successful 3-1 homestand, the Stros (8-7) hit the road for a weekend series in St. Louis (9-5) and then a series in Pittsburgh (5-11) during the first part of next week before returning home on Friday the 29th to begin a six game homestand against the Cubs(8-8) and the Pirates.
The most recent homestand featured this Stros club's strength, which is solid starting pitching. The Rocket, Brandon Backe, Roy O, and Pettitte all had strong performances, and the only reason the Stros didn't win all four games was that they couldn't muster a run in 12 innings in Clemens' game against the Braves. Oswalt's performance (9 IP, 4 H, 1 R/ER, 0 BB, 8 K's) was particularly masterful as he mowed down the Brew Crew in a little more than two hours with a devastating combination of a 95 mph heater and a 70 mph curve. By the way, the 27 year old Oswalt is well on his way to becoming the best pitcher in Stros history. After 2.97 ERA/21 RSAA (RSAA explained here) and 3.49 ERA/22 RSAA seasons in 2003-04, Oswalt is off to a 3.41 ERA/3 RSAA start in his first 4 starts. He has a 3.12 career ERA, compared to a league average of 4.25 during his career, and a 108 RSAA in 124 games. Roy O already holds the Stros record for career RSAA:
1 Roy Oswalt 108
2 Billy Wagner 99
3 Mike Hampton 76
4 Dave Smith 75
5 Octavio Dotel 67
6 Nolan Ryan 60
7 Wade Miller 56
8 Don Wilson 55
9 Joe Sambito 53
10 Larry Andersen 45
By the way, if you want to miss one of the Stros' games this weekend during the St. Louis series, you may want to make it tonight's game. The Stros trot out fifth starter Brandon "Home Run" Duckworth to the mound against the Cards' power lineup, so this one could get ugly fast.
Posted by Tom at 5:27 AM | Comments (0) | TrackBack (0)
Lay's team heaves a sigh of relief
U.S. District Judge Sim Lake ruled Thursday afternoon that bank-fraud charges against Enron former chairman and CEO Ken Lay would be tried to him without a jury early next year immediately following the multi-defendant conspiracy jury trial against Mr. Lay, which is scheduled to begin in mid-January, 2006. Judge Lake had previously severed the bank-fraud charges against Mr. Lay from the conspiracy and securities fraud case against Mr. Lay and co-defendants Jeff Skilling, Enron's former CEO and COO, and Richard Causey, Enron's former chief accounting officer. The government had been seeking to try Mr. Lay on the bank-fraud charges -- which will not take as long to try as the larger multi-defendant case -- later this summer. Earlier posts on this particular issue relating to Mr. Lay's case can be reviewed here, here, here and here.
Although Judge Lake indicated during the hearing that he preferred to go ahead and get the bank fraud trial out of the way, he decided that such an early trial could cause a flurry of publicity that could negatively affect the jury pool for the trial of the larger conspiracy and securities fraud case that will begin in January.
Meanwhile, Banjo Jones speculates on what Tony Curtis and Mr. Lay talked about at a recent party.
Posted by Tom at 5:05 AM | Comments (0) | TrackBack (0)
April 21, 2005
A masterful performance
Inasmuch as I had to appear at an hearing in federal court early this morning, I stuck around after my hearing to attend the sentencing hearing of former Merrill Lynch executive Daniel Bayly in connection with the Enron Nigerian Barge case, which has been a regular subject on this blog over the past year.
To say the least, I'm glad I stuck around.
In one of the most impressive judicial performances that I have witnessed in my 26 year legal career, U.S. District Judge Ewing Werlein, Jr. (picture above) -- in the face of widespread public and political expectation that anyone who had anything to do with Enron should be punished severely -- rejected the Enron Task Force prosecutors' pleas to punish Mr. Bayly with up to 15 years of prison and sentenced the former Merrill Lynch executive to 30 months in prison, six months of probation, a $295,000 restitution award, and a $250,000 fine. Later in the afternoon, Judge Werlein sentenced former Merrill executive James Brown -- who, unlike Mr. Bayly, also faced conviction on perjury and obstruction of justice charges over the barge deal -- to 46 months of prison and similar financial penalties as the ones assessed to Mr. Bayly.
Inasmuch as Mr. Bayly is the first defendant to be sentenced after being convicted at trial of an Enron-related crime, the far shorter sentence than the punishment that the prosecutors recommended was a bitter blow to the Task Force prosecutors, who did not attempt to hide their displeasure with Judge Werlein's ruling after the hearing.
Clearly in full command of the legal issues and evidence before him, Judge Werlein carefully stated his findings and conclusions, which included the following:
He categorically rejected the prosecution's controversial $44 million "market loss" theory as being contrary to the U.S. Supreme Court's recent decision in Dura Pharmaceuticals v. Broudo, in which the Court rejected the price inflation theory of causation that the Task Force prosecutors used in calculating the $44 million in market loss.He declined to adopt the jury's $13.7 market loss theory, essentially on the same grounds as he rejected the government's theory.
He ended up calculating market loss at $1.4 million, which was the total profit that Merrill and the Enron-related partnership ultimately made on the Nigerian Barge deal.
He rejected the prosecutors' pleas for an upward adjustment of the sentence under the advisory sentencing guidelines "to make an example out of Mr. Bayly for Wall Street."
He granted a downward adjustment of the sentence under the sentencing guidelines because of Mr. Bayly's exemplary professional and personal record. "I may have never had a defendant before me who had a more glowing and extraordinary record of being a good citizen," noted Judge Werlein.
Although he noted the jury conviction of fraud, Judge Werlein observed that -- in the constellation of of Enron fraudulent conduct that former Enron CFO Andrew Fastow orchestrated -- Mr. Bayly's involvement in the barge transaction was relatively benign and not central to Enron's fraudulent transactions.
He noted that the Enron Task Force had obtained plea bargain sentences for two Enron executives who were central to Enron's more wide-ranging fraudulent conduct -- 10 years for Mr. Fastow and five years for former Enron treasurer Ben Glisan -- and that those sentences were less than the one that the prosecution was recommending for Mr. Bayly, who was a bit player in Enron's fraudulent conduct.
Then, as if to punctuate his rulings, Judge Werlein firmly rejected the prosecution's over-the-top call at the end of the hearing for Mr. Bayly to be taken into custody immediately, and allowed Mr. Bayly to report to prison voluntarily in accordance with a date to be scheduled in the near future by the Bureau of Prisons.
Judge Werlein delivered his rulings in his customary conscientious and professional manner that exuded the careful consideration that this man of extraordinary depth gave to the issues before him. After the hearing, I happened to get on the same elevator as Mr. Bayly and several members of his family. After having lived through a nightmarish prosecution and clearly expecting the worst when they came to court today, Mr. Bayly and each of his family members -- several of whom had tears in their eyes -- were clearly touched by Judge Werlein's courage, grace and fairness in sentencing Mr. Bayly.
Later, as I drove back to my office after the hearing, I reflected on Ewing Werlein, Jr. and the remarkable judicial performance that I had just witnessed.
When I moved to Houston as a young college student over 30 years ago, one of the first Houston families that my family and I met was that of Mr. and Mrs. Ewing Werlein, Jr., who hired a couple of my younger sisters to babysit their daughter and son. I recall my late father observing to me at the time: "Tom, if you want to become a gentleman, Mr. Werlein would be a fine model for you to follow."
Several years later, after finishing law school and becoming a young attorney in Houston, I learned quickly that Ewing Werlein, Jr. -- then a partner at Vinson & Elkins -- was one of the most respected lawyers in the Houston bar and a model for young lawyers.
Over a decade later, Judge Werlein's son, Ken, became an associate pastor at my family's church here in The Woodlands before going on to start his own church in northwest Houston. One of Ken's finest sermons during his time at my family's church was one that he gave on Father's Day in which he lovingly described his father's tender mentoring of his son and daughter.
Finally today, in the face of virtually unprecedented public animus toward anyone or anything having to do with Enron, Judge Werlein has shown judges everywhere the model of what a judge should aspire to be.
That's quite a fine legacy in my book.
Posted by Tom at 1:22 PM | Comments (4) | TrackBack (1)
April 20, 2005
More on sentencing run amok
Following on the heels of this post from last week on the sentencing hearing tomorrow in U.S. District Judge Ewing Werlein's court in regard to two defendants in the Enron-related Nigerian Barge case, developments in another case this past week shine a clearer light on the dubious nature of the government's position that Judge Werlein should toss the barge defendants in prison and throw away the key. Even the Justice Department does not have a license to take contradictory positions in important cases, even if one of those cases is Enron-related.
As noted in last week's post, the Enron Task Force is taking the position that former Merrill Lynch executive Daniel Bayly should receive a more severe sentence based on a bogus theory of "shareholder loss" that has been long rejected in civil securities fraud cases. By way of background, Mr. Bayly was a well-regarded and longtime Merrill Lynch executive who was involved in a transaction in late 1999 in which Merrill bought from Enron an interest in three Nigerian energy-generation barges as a favor for Enron. An Enron partnership bought the barges six months later and then sold them to a third company for a profit. The Enron prosecutors argued that the deal allowed Enron to book illegal profits at the end of 1999 because Enron had orally agreed to buy the barges back from Merrill, and a jury convicted Mr. Bayly and four others of conspiracy and fraud (Enron's in-house accountant - Sheila Kahanek - was acquitted). The prosecutors are now arguing that Judge Werlein should increase Mr. Bayly's sentence by up to 15 years because the alleged fraud caused a near $44 billion shareholder loss.
As noted in this prior post, the prosecution has no legal basis for this alleged loss figure. Under civil securities fraud law, investors sue for a decline in the value of a security only if they can show that the decline was actually caused by the fraud. Thus, if a company puts out news of a transaction that causes a share price to rise, and then discloses that the transaction is a sham that, in turn, causes the share price to decline, investors can recover any loss that resulted directly from the disclosure of the misrepresentation.
Which is precisely the rub in the Enron Nigerian Barge case -- no such loss resulted from the alleged sham deal. As noted in this prior post, Enron sold the barges to Merrill and Merrill sold them to an Enron-related partnership well before Enron collapsed at the end of 2001. Accordingly, any reduction in the price of Enron stock happened well in advance of disclosure of details of the barge transaction, which disclosure did not occur until well after Enron had filed bankruptcy and Enron's share value had already dropped to zero. Consequently, the government simply cannot show that Enron shareholders lost a dime from the disclosure of this particular transaction.
Thus, to get around this rather substantial legal problem, the Enron Task Force prosecutors are taking the position that, because some shareholders bought Enron stock at an inflated price due to losses that were covered up by the barge transaction, those purchases equate to a loss. The prosecutors even got an "expert" to opine during the market loss hearing after the completion of the Nigerian Barge trial that the relatively small barge deal pumped up Enron's price and, presto, the government has its $44 billion market loss figure.
Interestingly, even the Justice Department does not support the Enron prosecutors' dubious views regarding market loss. Earlier this week, the Supreme Court unanimously ruled in Dura Pharmaceuticals v. Broudo that plaintiffs who claim securities fraud must prove a connection between a misrepresentation and an investment's subsequent decline in price. In direct contradiction of the Enron Task Force's position in the Enron Nigerian Barge case, the Justice Department and the Securities and Exchange Commission filed this joint brief in Dura in support of the proof-of-causation position and against the price inflation theory of causation that the Justice Department prosecutors used in asserting "market loss" in the Nigerian Barge trial.
Does simply the fact that a case is related to Enron justify the Justice Department in taking such blatantly contradictory positions? As noted in last week's post, the Justice Department continues seeking maximum sentences against easy targets, such as relatively wealthy business executives who had the misfortune of doing business with the pariah Enron. Apparently, it's going to take wise judges to step in and check the government's zeal. Judge Werlein is capable of doing so, and I hope he does so tomorrow.
Posted by Tom at 8:02 AM | Comments (0) | TrackBack (2)
The grand mismanagement of Citgo
This New York Times article -- entitled The Troubled Oil Company -- reviews the Venezuelan dictator Hugo Chavez's mismanagement of Houston-based oil company Citgo, which is owned by Petroleos de Venezuela, the Venezuelan national oil company. Over the past two years, virtually every high-ranking Citgo executive has resigned, including the refining chief, the chief financial officer, the head auditor, and the marketing director. Here is a previous post on Mr. Chavez's mismanagement of Citgo.
Although the Times article about Citgo and Mr. Chavez is interesting, it's always funny how the Times analyzes a government's mismanagement of a big oil business. As late as 1999, Venezuela was the U.S.'s largest foreign supplier of oil, but then Mr. Chavez took over, began establishing close friendships with anti-business types such as Fidel Castro, and generally started mismanaging the Venezuelan economy. By 2003, Mr. Chavez had cut its exports to the U.S. by 22% and was threatening to cut off oil exports to the U.S. entirely if the U.S. government doesn't stop meddling in Venezuelan affairs.
Now, if the foregoing were occurring in Saudi Arabia, then the Times would be handling it as a major foreign policy story of impending doom. However, when a crackpot socialist and Castro admirer mismanages oil exports, the Times treats it as a typical business story.
Which is exactly the way the story should be handled. Mr. Chavez's management of the Venezuelan economy has been horrific, albeit aided by high oil prices. But U.S. oil imports as a percentage of GDP are relatively small, about $132 billion in 2004 compared with a about a $11 trillion GDP. That's about 1%, folks. Thus, if Mr. Chavez chooses to sell us less oil, hopefully the U.S. government shrugs, we replace Venezuelan oil with oil from the numerous other markets, market prices adjust, and we get on with getting to work.
Besides, if the U.S. government is going to take a hard line with an oil exporter, don't you think that the government should take that stance with the country from which we import the most oil? Oh, and what country is that?
Answer: Canada.
Hat tip to Bryan Caplan for info on the Venezuelan oil imports.
Posted by Tom at 5:56 AM | Comments (0) | TrackBack (0)
KPMG settles with SEC in Xerox audit case
KPMG LLP agreed to pay a record (for an auditing firm, anyway) $22.5 million to settle SEC charges in connection with the firm's audits of Xerox Corp. from 1997 through 2000. KPMG has had its share of legal problems over the past couple of years.
As is typical in such deals, KPMG consented to entry of the order in U.S. district court in New York without admitting or denying the charges. During the four year period involved in the Xerox case, the SEC alleged that Xerox overstated its revenue by $3 billion and its earnings by $1.5 billion in an effort to bolster its stock price. Xerox previously paid a $10 million penalty in 2002, which at the time was a record fine. In addition, six former senior Xerox executives have paid penalties and disgorged profits totaling $22 million, and a civil-fraud lawsuit against five current and former KPMG partners involved in the Xerox audits is continuing.
As part of the settlement, KPMG agreed to take certain remedial actions, including a review process for any change in assignment of an audit partner, establishing whistle-blower channels within KPMG, and the retention of an outside consultant to review its policies and certify to the SEC that the changes are in effect two years from now.
Posted by Tom at 5:36 AM | Comments (0) | TrackBack (0)
U.S. Airways to marry America West?
The airline business is all atwitter today with the news that US Airways, which has been wallowing in a chapter 22 (i.e., it's second chapter 11 case) since September of last year, is considering a merger with America West to form the sixth largest airline and the largest discount airline in the United States. Here are some previous posts over the past year or so on U.S. Air's various travails.
H'mm, let's set the buzz aside and take a look at this deal. Last year, US Airways posted a net loss of over $600 million on revenue of just north of $7 billion. In addition to two chapter 11 cases within two years, it's got all kinds of union problems, operational and customer problems, and competition problems.
Meanwhile, America West narrowly escaped a chapter 11 case in late 2001 by arranging a bailout loan of over $400 million backed by almost an equivalent amount of federal guarantees. That financing allowed the airline to tap more than $600 million in other financing and concessions from manufacturers, vendors, leasing firms and others. Nevertheless, America West posted a net loss last year of almost $90 million on revenue of about $2.35 billion, and ended 2004 with a bit over $400 million in cash.
I don't think this proposed merger has Southwest Airlines quaking in its boots.
Posted by Tom at 5:00 AM | Comments (0) | TrackBack (0)
April 19, 2005
Does Drayton read this blog?
On the heels of this post from a couple of weeks ago, the Stros announced yesterday that they are retiring former centerfielder Jimmy Wynn's number 24.
The ceremony honoring Mr. Wynn will be on Friday, July 8, before the game against the Dodgers.
Posted by Tom at 7:23 AM | Comments (1) | TrackBack (0)
The Lord of Regulation's abuse of power
In this Wall Street Journal ($) op-ed, Chief Executive magazine editor William J. Holstein addresses a common theme of this blog -- namely, the dubious motives and methods behind New York AG ("Attorney General" or "Aspiring Governor," take your pick) Eliot's Spitzer's multiple investigations into alleged business corruption. Here is a sampling of posts over the past year regarding Mr. Spitzer's abuse of power.
Addressing Mr. Spitzer's heavy-handed treatment of former AIG chairman and CEO Maurice Greenberg and his son, Jeff, the former Marsh & McClennan CEO, Mr. Holstein notes the following:
Mr. Spitzer has charged in and discovered a pattern of practices he doesn't like. He is applying a new set of values to reinsurance practices that had been in place for years . . .Reflecting their dismay at the high-handed conduct of King George, the Founding Fathers created a judicial system with a stringent set of procedural safeguards to protect against overzealous or arbitrary prosecution. Yet in the atmosphere that Mr. Spitzer has helped create, the presumption is that CEOs are guilty -- if Eliot Spitzer says they're guilty.
Then Mr. Holstein turns to the specific "charges" that Mr. Spitzer has made publicly to prompt AIG to can Mr. Greenberg:
In dispute in the AIG case are highly complex transactions that may have reduced the company's shareholder equity of $82.9 billion by as much as 2%. It's not yet known if the total losses will reach that level, nor if they were material to AIG as a whole. After Mr. Greenberg's departure, the board ran up the white flag to Attorney General Spitzer and declared the transactions "improper."Were they? One proper way to resolve this would be to create a policy framework with clear rules, which does not currently exist. Another way would have been for the Securities and Exchange Commission to negotiate an earnings restatement with AIG.
But Mr. Spitzer reportedly threatened a criminal indictment, which in effect would have put AIG out of business. Then he went on television to pronounce that the AIG transactions were "wrong" and "illegal," . . . It's not yet clear what the charges are. Nor has Mr. Spitzer heard Mr. Greenberg's side of the story.
So the New York attorney general both charges and convicts in the court of public opinion.
Then, Mr. Holstein bores in on the hypocritical nature of Mr. Spitzer's self-righteous campaign against business executives:
Mr. Spitzer's political ambitions are increasingly clear. He wants to use his record to become governor of New York. Mr. Spitzer's campaign office even paid Google to link a search for "AIG" to a Web site promoting his campaign before it was quickly taken down. In the same television show where he discussed the AIG case, Mr. Spitzer said he was "very close" to presidential hopeful Hillary Clinton and didn't rule out a run for the vice presidency or presidency.Mr. Spitzer has thus created a reasonable doubt about whether he is using the legal process for political gain. An attorney general running for higher office is different than a senator running because it creates a risk that the legal system becomes politicized and is no longer seen as adhering to principles of fair play and due process. . .
Ironically, the cornerstone of Mr. Spitzer's actions has been an attack on conflicts of interest and cozy relationships that had long been tolerated. He is attempting to create a new ethical standard. Yet he has turned a blind eye to his own ethical problem.
The existence of business fraud at companies such as Enron, WorldCom, Tyco and maybe even AIG does not necessarily mean that there is more misconduct in big business than in any other relatively large organization, such as big government. Nevertheless, Mr. Spitzer and other prosecutors are publicizing these instances of business fraud to generalize arbitrarily against those who are easy and popular targets -- i.e., wealthy and apparently greedy businessmen.
That tactic plays well with the mainstream media, which enjoys portraying the morality play of Mr. Spitzer as the defender of noble egalitarianism fighting against the forces of corrupt capitalism. In the wake of such seemingly simple stories, many complex structured finance transactions -- which most prosecutors and journalists do not understand and do not perform the homework necessary to understand -- are unfairly and incorrectly portrayed as complex business frauds despite the fact that such transactions are beneficial to shareholders of the company and have been reviewed and approved by multiple professionals who are experts in such transactions. Moreover, with the inviting prospect of greater political rewards resulting from the favorable publicity, prosecutors such as Mr. Spitzer have dispensed with any notion of prosecutorial discretion in regard to investigating business executives over such transactions.
And for those who would respond -- "So what's the big deal? What's the problem with eroding the rule of law a bit to nail a few greedy business executives?" -- I would remind them of Sir Thomas More's advice to young lawyer Will Roper in the great movie, A Man for All Seasons. After Roper opines that it is acceptable to abuse the rule of law in order to achieve the laudable goal of prosecuting the Devil, Sir Thomas responds:
"Oh? And when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast, Man's laws, not God's! And if you cut them down -- and you're just the man to do it, Roper! -- do you really think you could stand upright in the winds that would blow then?""Yes, I'd give the Devil the benefit of law, for my own safety's sake!"
Folks, even greedy business executives are entitled to the protection of due process in the face of the overwhelming power of government. Not only for their protection, but for ours.
Posted by Tom at 5:20 AM | Comments (3) | TrackBack (0)
April 18, 2005
Has it really been ten years?
Don't miss Banjo Jones reminiscing about the Houston Post, which closed ten years ago today.
When I moved to Houston back in the early 1970's, the Post was Houston's morning paper and the Chronicle was delivered in the afternoon. Then, the Chronicle began to publish multiple editions, including a morning edition. Seemingly before you knew it, the Chron had bought the Post's assets and the Post was no more.
As Banjo notes, Houston lost something quite special when the Post closed, and the newspaper landscape in Houston has never been anywhere near as interesting without it.
Posted by Tom at 12:43 PM | Comments (0) | TrackBack (0)
San Antonio imitates California
One would normally not be all that surprised by reading this following news report coming out of California, but San Antonio?:
'Mad Max' Fan Convoy Ends in ArrestsSAN ANTONIO - Eleven "Mad Max" fans were arrested after alarming motorists as they made their way to a movie marathon in a theatrical convoy in which they surrounded a tanker truck armed with fake machine guns.
As the group was headed to San Antonio from nearby from Boerne on Saturday morning, police received several calls from motorists who reported a "militia" surrounding a tanker truck, a police report states.
Police charged nine people with obstruction of a highway and two others with possession of prohibited knives in addition to obstruction of a highway.
One of the organizers of the convoy, Chris Fenner, said the arrests were unfair. He said he didn't know why anyone would have confused the costumed crew recreating a scene from "Mad Max 2: The Road Warrior" - set in a post-apocalyptic wasteland - with a