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July 31, 2005

The psychology of light rail

Tory Gattis (Houston Strategies) recently authored this insightful post that explores the vexing question of why many people passionately support light rail in the face of the overwhelming economic arguments against it? Tory concludes that it has something to do with an unexpressed human psychological need to be liked -- sort of like, "Here, check out and play with my light rail toy, and you will probably think better of me."

Tory is clearly on to something in that there appears to be an element of a civic inferiority complex underlying some folks' support for light rail. However, Tory's point still does not explain why people who need mass transit the most -- i.e., folks who cannot afford the cost of buying and maintaining a car -- support light rail, which certainly does not improve their mobility and, by drawing resources away from mobility projects that would, probably harms it.

My sense is that that question lies somewhere between the human demand for entitlement and lack of viable choices. As previously noted on this blog, the true economic benefit of light rail is highly concentrated in only a few interest groups -- political representatives of minority communities who tout the political accomplishment of shiny toy rail lines while ignoring their constituents need for more effective mass transit, environmental groups that are striving for political influence, construction-related firms that feed at the trough of light rail projects, and private real estate developers who enrich themselves through the increase in their property values along the rail line. Inasmuch as none of these reasons for mass transit appeal to the part of the electorate who actually need mass transit, this amalgamation of interest groups continues to disguise their true interests behind amorphus claims that the uneconomic rail lines reduce traffic congestion (they do not), curb air pollution (they do not), or improve the quality of life (at least debatable). The literature on all this is public and volumnious -- check out demographia.com, cascadepolicy.org, and americandreamcoalition.org.

So, how do these interest groups get away with this? The costs of such systems are widely dispersed among the local population of an area such as Houston, so the many who stand to lose will lose only a little while the few who stand to gain will gain a lot. As a result, these small interest groups recognize that it is usually not worth the relatively small cost per taxpayer for most citizens who do not use mass transit to spend any substantial amount of time or money lobbying or simply taking the time to vote against an uneconomic rail system.

Meanwhile, the light rail interest groups garner support for light rail from the part of the electorate that actually needs mass transit by simultaneously limiting the mass transit choices and threatening that part of the electorate with loss of the governmental funds for mass transit if they fail to support light rail. Thus, a referendum on mass transit issues is never promoted with choices between alternatives such as a light rail system, one one hand, and a cheaper and more effective bus-based system system, on the other. It's simply an "all or nothing" choice, and folks who need mass transit will understandably vote in favor of getting their share of public transportation funds even if it does not improve their mobility one iota. Indeed, given the cost of light rail systems, one wonders how those citizens who actually need mass transit would vote if the alternative were a light rail system, on one hand, and a new Toyota Prius for each such citizen, on the other? Frankly, the cost of the latter alternative would likely be cheaper than most any light rail plan.

So, at the end of the day, where does that leave us? Is it wrong that people who need mass transit vote in favor of something that does not really address their needs? No, it does not, but it troubles me when they are misled in doing so. As Anne Linehan and Kevin Whited (blogHouston.net) have repeatedly pointed out, a part of Metro's pitch for its light rail plan was that light rail would enhance Metro's bus system and service. Inasmuch as that representation has turned out to be patently false, it seems reasonable that our public officials should at least be required to point out publicly that Metro's most utilized and efficient mass transit system -- i.e., the bus system -- will likely continue to erode as Metro continues to invest heavily in light rail.

In the meantime, it would also be nice if public officials would admit publicly that the usual economic justifications for light rail are also dubious. If mass transit users and other citizens want to allow Houston's public officials to continue to throw money at a light rail system in the face of the economic truth about such a system, then I can live with that result despite my compassion for those citizens who are not being provided the mass transit that they need. But at least let's require truth in advertising in connection with having citizens vote on such matters. A similar sentiment is shared in this interesting Owen Courr�ges post (Lone Star Times) in which he takes the Chronicle to task for suggesting that Metro's political opposition -- rather than Metro itself -- is misleading the public about Metro's expanded light rail plan.

Finally, Tory points out that we should take some comfort in the fact that Houston's light rail plan is at least not as big an economic boondoggle as similar plans proposed for Seattle and Denver. Similarly, a couple of commentators to Tony's post chime in that the marginal cost of the light rail system to Houston area citizens is relatively small for a civic asset that will impress citizens and visitors alike for many years to come. That latter point may have some validity, but let's make sure that we are talking about the correct marginal cost.

A big difference between the light rail system and the publicly-funded stadiums that Houston has built over the past several years are that the stadiums have tenants who pay the vast majority of the cost of maintaining the facilities. In comparison, Metro's light rail system does not come close to generating enough revenue to pay its ongoing costs, as was brought home by Metro's recent announcement of desultory operating results coupled with the expenditure of $104 million more on the three-year-old rail line to fix problems caused by construction errors and add more rail cars. In that regard, even the $1.5 million that Harris County spends annually to mothball the Astrodome pales in comparison to underwriting the ongoing cost of the light rail system. The bottom line is that light rail systems eat voraciously, and any analysis of the true marginal cost of such a system to citizens has to take into consideration the high cost of feeding that appetite.

Posted by Tom at 12:45 PM | Comments (4) | TrackBack (1)

Daniel Yergin comments on energy prices

Daniel Yergin -- energy economist and author of the 1992 Pulitzer Prize winner, The Prize: The Epic Quest for Oil, Money, and Power -- writes this sensible Washington Post op-ed in which he reminds us that the current relatively high prices of energy do not mean that the end of the oil age is right around the corner:

Prices around $60 a barrel, driven by high demand growth, are fueling the fear of imminent shortage -- that the world is going to begin running out of oil in five or 10 years. This shortage, it is argued, will be amplified by the substantial and growing demand from two giants: China and India.

Yet this fear is not borne out by the fundamentals of supply. Our new, field-by-field analysis of production capacity, . . . is quite at odds with the current view and leads to a strikingly different conclusion: There will be a large, unprecedented buildup of oil supply in the next few years. Between 2004 and 2010, capacity to produce oil (not actual production) could grow by 16 million barrels a day -- from 85 million barrels per day to 101 million barrels a day -- a 20 percent increase. Such growth over the next few years would relieve the current pressure on supply and demand.

Read the entire op-ed, and then recall Exxon/Mobil CEO Lee Raymond's observation during a Wall Street Journal interview earlier this year regarding Chevron's bet of continued high energy prices that underlies the high price it is paying for Unocal:

WSJ: What do you think of ChevronTexaco's decision to acquire Unocal?

Mr. Raymond: I can never remember an industry consolidating at high prices. But I can remember an industry consolidating at low prices.

WSJ: Some people think prices will keep going up.

Mr. Raymond: Maybe. I'll bet they'll be lower at some point.

Posted by Tom at 9:43 AM | Comments (0) | TrackBack (0)

More Spitzer mischief

When one door for a misguided investigation closes for Aspiring Governor Eliot Spitzer, he just opens another one. Although misdirected, no one can say that Mr. Spitzer is not persistent.

On Thursday, U.S. District Judge Sidney Stein of the Southern District of New York denied Mr. Spitzer's request for more information from the Office of the Comptroller of the Currency as a deadline approaches for Mr. Spitzer to respond to the OCC's recent lawsuit against him. The OCC is seeking an injunction against the Lord of Regulation from using his subpoena power to obtain nonpublic credit score and loan information from national banks that are involved in the sub-prime mortgage market.

Meanwhile, in public filings made on Friday, Moody's Corporation disclosed that Mr. Spitzer's office had issued subpoenas in May seeking documents and other information about the ratings of certain mortgage-backed securities and credit enhancement evaluations that the company conducted between 2000 and 2003, and also requested information more recently related to Moody's ratings of the financial strength and subordinated debt of reinsurance companies going back to 1999. Guess which other Spitzer investigation that latter request relates to?

Although one can only speculate as to Mr. Spitzer's purpose in all of this, my bet is that he is developing a theory that American International Group, Inc., Berkshire Hathaway's General Reinsurance Corp. and other reinsurance companies misled Moody's and the other rating agencies -- who then turned around and misled the investing public -- regarding the true financial nature of the finite risk insurance transactions that have been the focus of Mr. Spitzer's witch hunt of AIG and Maurice "Hank" Greenberg.

Given the large number of Mr. Spitzer's witch hunts of various business interests these days, Moody's and the other rating agencies will probably soon begin issuing ratings on the quality of his various investigations. Then, Mr. Spitzer could investigate the rating agencies' ratings of his investigations. The loop would be complete.

Posted by Tom at 5:00 AM | Comments (0) | TrackBack (0)

July 30, 2005

Lakewood and Houston's other big churches

This Church Report article -- The 50 Most Influential Churches -- examines the fifty largest churches in the United States based on a survey that was sent to 2,000 church leaders with the goal of ranking the nation’s fastest growing churches and churches with more than 2,000 weekend attendance.

Houston is well-represented on the list, with Lakewood Church ranking fifth (are there really four churches that are larger than one that holds its services in a renovated basketball arena?), Fellowship of The Woodlands at no. 17, Second Baptist Church at no. 33, and Windsor Village United Methodist at no. 43. The common thread through all of these mega-churches is that each of them is closely associated with a charismatic leader, and that is certainly true of the Houston contingent -- Joel Osteen at Lakewood, Kerry Shook at Fellowship, Ed Young at Second Baptist, and Kirbyjon Caldwell at Windsor Village.

Lakewood Church made news waves throughout the country last week when it held the grand opening of its new renovated facility, which the Houston Rockets' NBA basketball team used to use as their arena. From 1975 until Lakewood took over, the arena was known first as "The Summit" and then "Compaq Center" for 30 or so years before the Rockets moved the new Toyota Center downtown a couple of years ago.

Despite the rather obvious difficulty of reconciling the essential Christian tenets of sacrificial atonement with Lakewood's lavish new digs and projected $75 million annual budget, Lakewood's opening of its new facility was glorified by fawning local news media, which included numerous lengthy local television "news" reports from the facility touting how wonderful everything is about Lakewood.

Now, that may well be true, but it's also important to know that Lakewood's approach is not universally admired, even within Christian circles. In this post over at the Reformation 21 blog, Rick Phillips expresses his reservations about Lakewood, including the following:

For all the supposed praising of God, it was all about man: namely, Osteen (plus his father, his lovely wife, and his well-behaved children). Osteen’s wife stood before the vast throng and heaped praise upon her husband for ten minutes. The message: What a great man he is, and if you become like him you can be great, too – in your own little way. Then came Osteen’s sermon. It was all about his father’s example of faith and optimism, which he has exemplified and which resulted in the triumph of having enough money to lease a huge arena. There was almost no reference to the Bible and absolutely no Bible teaching. At one point, I opened my Bible during this litany of self-praise and read aloud the parable of the Pharisee and the tax collector. See if you can guess which one was Osteen. "Lord, I thank you that I am . . ."

Certainly seems as if someone in the Houston's news media could have asked Reverend Osteen at least one question about that small issue last week, don't you think?

For an evalution of Mr. Osteen's approach from a theological perspective, see this piece.

Posted by Tom at 5:17 PM | Comments (6) | TrackBack (1)

Trouble in Nuevo Laredo

Following on earlier posts on the same topic here and here, this article reports on an ominous development that flies under radar screen of most Texans and Americans -- the increasing violence in the Mexican border towns along the Texas-Mexico border.

Tony Garza, the U.S. ambassador to Mexico, ordered the closure of the U.S. Consulate in Nuevo Laredo for a week Friday night to assess the security situation just hours after rival drug cartels engaged in a gunfight with machine guns, grenades and rocket launchers in an upscale Nuevo Laredo neighborhood. The battle was fought Thursday night at a single-story house near a country club, which is about five blocks from the Nuevo Laredo's main drag.

The Texas-Mexico border area of Texas -- called the Rio Grande Valley or simply "the Valley" -- has always been a fascinating and troubling part of Texan culture. The area is among the lowest in terms of per capita income in the United States, yet even the chronically depressed economy of the Texas side of the border is a fantasy of riches for many of those living in the poverty of the teeming Mexican border towns. The following is the way I characterized the area's problems in this earlier post:

The region's problems are complex and difficult, which makes the area prone to being ignored. The increased violence of late is the natural result of such neglect, and the usual response to such spikes in violence along the border -- i.e., heightened law enforcement -- is only a short term solution that often contributes to the animus that many of the Hispanic citizens of the area have toward the state. The area is desperate for leadership and a vision for solving its problems, yet those intractable problems tend to repel those in government who are in a position to do something about them. In short, the Valley needs statesmen, which are in short supply in the polarized American political landscape of the early 21st century.

With some politicians calling for the creation of state militia units to combat the increasing problems on the border, it's high time for federal and state leaders to address the problems facing the Valley and devise short and long-term plans to address them. For if they do not, expect to see what happened in Nuevo Laredo on Thursday night to spill over to the Texas side of the border soon.

Posted by Tom at 7:25 AM | Comments (0) | TrackBack (1)

Eric Andell gets probation

Former Houston district and appeallte judge Eric Andell -- who formerly served as deputy undersecretary under fellow Houstonian Rod Paige at the U.S. Education Department -- was sentenced to one year of probation and fined $5,000 Friday after pleading guilty to charges that he intentionally had the federal government pay about $9,000 for travel in which he conducted personal business and worked as a visiting judge while still employed at the Department of Education. Here is a previous post on the matter and here is the Chronicle story on the sentencing.

One of the most popular local Democratic politicians, Mr. Andell is a genuinely good man who made a mistake and owned up to it in a responsible manner. That he avoided any prison time is a just result.

Posted by Tom at 6:59 AM | Comments (0) | TrackBack (0)

Stros 2005 Review: The Stros are streaking again

Last season, after falling to a season-worst 56-60 record on August 14th, the Stros won 36 out of their next 46 games, a run that included 12 and seven game winning streaks, the latter of which ended the regular season and clinched the National League Wild Card playoff spot. That club went on to get within a few outs of the World Series.

With another win in last night's game, this Stros club -- after falling to a season-worst 15-30 record on May 24th -- has gone 41-17, won six games in a row and won 12 of their last 13. The Stros now lead in the National League Wild Card race by one game and are in second place in the NL Central, 8.5 games behind the Cards. Given the way the NL Central race has gone the past couple of seasons, that equates to a pennant race.

Given this club's weak hitting, the Stros will not be able to sustain this level of play for the remainder of the season. But make no mistake about it, this has been an incredible run, even more remarkable than last season's.

Posted by Tom at 4:45 AM | Comments (1) | TrackBack (0)

July 29, 2005

More on the gas trader cases

This Southern District U.S. Attorney Office press release announces that two former gas traders -- former Dynegy trader Michelle Valencia and former El Paso trader Greg Singleton -- had counts added to their pending indictments in connection with a series of criminal cases in which the government alleges that the traders reported bogus trades to industry newsletters to affect the price of natural gas. Here is a previous post on Ms. Valencia's case and other posts on the gas trader prosecutions may be reviewed here, here, here, here, here and here.

These particular trader cases involve alleged efforts to manipulate the trading indexes, which are used to value billions of dollars in gas contracts and derivatives. Industry publications, such as Inside FERC Gas Market Report, use data from traders to calculate the index price of natural gas. Accordingly, movement in index prices often affects the level of profits that traders can generate. In these particular cases, it remains unclear in what context the allegedly false information was provided or whether the publication actually used any such false information. However, the government is contending that it needs only to prove that fake trades were reported to the publications and not that the trades were actually published or affected the markets.

Ms. Valencia and Mr. Singleton were originally charged with "conspiracy, false reporting, and wire fraud related to the transmission of allegedly inaccurate trade reports to industry newsletters which used the reported trades to calculate the 'index' price of natural gas in August 2000," and the superseding indictment adds "additional counts of false reporting and wire fraud relating to inaccurate trade reports used to calculate the 'index' price of natural gas in July 2000."

As noted in this previous post, it would appear that this is a fairly transparent effort by the government to increase the alleged market loss attributable to the alleged false reporting for purposes of seeking longer jail terms against Ms. Valencia and Mr. Singleton. Justice Department lawyers have been making some fairly preposterous positions on that particular issue in other cases recently.

Posted by Tom at 12:26 PM | Comments (0) | TrackBack (0)

Conglomerate forum on the corporate case of the decade

Gordon Wood over at the Conglomerate blog has put together an impressive list of expert contributors for an upcoming forum on the widely-anticipated decision of the Delaware Chancellory Court in the corporate case of the decade -- i.e., the civil lawsuit over The Walt Disney Co. board's decision to pay Michael Ovitz a rather generous severance package for essentially doing nothing during his short stay at Disney (earlier posts on the case are here, here, and here).

As Professor Wood notes, now all we need is a decision, which was expected before the end of July, but has now apparently been pushed back. My speculation is that the decision was close to completion when Professor Ribstein posted his recent prediction on the decision, which sent Chancellor Chandler and his clerks scampering back to the drawing board. ;^)

Seriously, though, the Conglomerate forum is yet another example of the way in which the blogosphere is redefining the way in which information is delivered to the public. Prior to the blogosphere, the only way that one could obtain the type of expert analysis that such a forum delivers would be to luck upon an op-ed in a newspaper or dig through stodgy law review articles. Now, that analysis is delivered in an efficient and effective manner for the world to peruse. That's a remarkable development, and one that all of us should be careful not to take for granted.

Posted by Tom at 7:19 AM | Comments (0) | TrackBack (0)

Judge Roberts and Rome

Over time, politicians will manage to stand just about any issue in American politics on its head.

Houston played host to one of the most important speeches of John F. Kennedy's 1960 Presidential campaign. Conventional political wisdom at the time was that a Catholic could not be elected President of the United States because of Protestants' perception that a Catholic would have to obey the Pope's commands over those of the U.S. Constitution. Mr. Kennedy finally decided to address the issue head-on, and on September 12, 1960, he delivered this statement to the Greater Houston Ministerial Association, in which Theodore White observed that "he knocked religion out of the campaign as an intellectually respectable issue."

Despite Mr. Kennedy's victory in the 1960 election, anti-Catholicism in American politics was not eradicated. This fact was reflected again earlier this week when Sen. Richard Durbin (D., Ill.) supposedly asked Supreme Court nominee John R. Roberts, Jr. during an informal interview "what he would do if the law required a ruling that his church considers immoral" and Sen. Durbin reported that Judge Roberts supposedly answered that he would consider recusal. Although Sen. Durbin quickly backpedaled, but, in the meantime, Jonathan Turley wrote this over-the-top L.A. Times op-ed (free regis. required) that challenged his "fitness to serve as the 109th Supreme Court justice" over that response. The L.A. Times followed that op-ed with this confusing editor's note, which noted the following about Mr. Turley's story regarding Judge Roberts' supposed recusal answer to Sen. Durbin's question:

Tuesday, Durbin's office said the story was inaccurate.

Aides acknowledged that a question about faith and public policy had been asked, and that Roberts had discussed recusals — but they said that the recusal answer wasn't in response to the question about faith.

Turley, however, says it was Durbin who gave him the original information in an on-the-record conversation. Turley says he then confirmed the substance of that conversation with another person who had been at the meeting.

Amidst all that confusion, Douglas W. Kmiec -- a Constitutional Law professor at Pepperdine University and the former dean of The Catholic University of America School of Law -- straightens everything out in this Opinion Journal op-ed. After noting Sen. Durbin's confusion and the fact that a religious litmus test for Supreme Court nominees would violate Article VI of the Constitution (the prohibition of religious oaths) and the First Amendment's free-exercise guarantee, Mr. Kmiec notes as follows:

Yes, the Catholic Church is a defender of life. It has even issued statements that sound suspiciously like a certain famous declaration of self-evident truth -- that we are all created equal, with an unalienable right to life. But the church is also resident in a world where Supreme Court precedent has tragically elevated personal preference over any once-proud declaration of right. What does the church expect of public officials in such an environment?

First and foremost, to be observant of church teaching in one's personal life. The church asks Judge Roberts and his fellow parishioners to pray to end abortion and, in social outreach, to create the conditions that make it less pressing. The church seeks to convert individual souls to the love of God and neighbor; it has no armies to compel either.

Yes, the late Pope John Paul II admonished Catholic public officials to work legislatively to limit abortion -- something that even most Democrats proclaim to be doing at least during general elections. But there is not one iota of church teaching demanding that a judge or justice exceed the scope of his office to undo, on solely religious grounds, the public law of abortion or any other matter.

And, in explaining why a Catholic need not recuse themselves from judging the legality -- as opposed to the morality -- of abortion or the death penalty, Mr. Kmiec observes as follows:

These are matters of constitutional, not moral, authority. When [Sir Thomas] More was asked why he didn't arrest a man directly for being "bad," he replied . . . that, though he set man's law "far below" God's, he was most certainly "not God," and he wanted to draw "attention to [that] fact."

"The currents and eddies of right and wrong, which [others] find such plain sailing," More said, "I can't navigate . . . But in the thickets of the law, oh, there I'm a forester. I doubt there's a man alive who could follow me there, thank God."

As with Sir Thomas, there are few matches for Judge Roberts in those "thickets of the law," which is where Democrats would be wise to evaluate Judge Roberts.

Meanwhile, while on the abortion issue, Todd Zywicki over at the Volohk Conspiracy notes that Fifth Circuit Judge and Clear Thinkers favorite Edith Jones' recent opinion in the McCorvey case -- noted in this earlier post -- was really more about stare decis than abortion.

Finally, did you know that Professor Zywicki has the first selection in his Fantasy Football League?

Update: Don't miss Professor Bainbridge's thoughtful analysis on Justices' religious faith and their legal decisions.

Posted by Tom at 6:09 AM | Comments (1) | TrackBack (0)

The IRA's announcement

In a potentially significant step that could end over three decades of violence in Northern Ireland and on the British mainland, the Irish Republican Army has ordered its members to discard their weapons. As noted in this earlier post, the I.R.A.'s continued use of terrorism in attempting to achieve its political goals -- and some United States politicians' often ambivalent stance toward it -- represented one of the more troubling hypocrocies of the U.S.'s current War on Terror.

More than 3,000 people have died since Northern Ireland's "Troubles" began in the 1970s, about two thirds of which were the result of IRA-sponsored incidents. The purported goal of the IRA's campaign of violence to reunite Ireland and win independence from Great Britain. Despite that, IRA violence hasn't been the top priority of U.K. security forces for several years. In 1994, the IRA declared a cease-fire in its war to force Britain out of Northern Ireland, but that cease-fire was violated when the IRA set off a huge bomb in London's docklands financial district in 1996. Nevetheless, since a comprehensive peace deal in 1998, the only further attacks have been by IRA splinter groups. Political authority was shifted from London to a Northern Irish assembly in which Sinn Fein -- the IRA's political wing -- briefly shared power with Northern Ireland's majority Protestant parties, but the IRA's failure to lay down its arms had prompted Northern Ireland's mainly Protestant Unionist parties to continue objecting to Sinn Fein's involvement in the government.

The United Irelander has some thoughts here on how the various interest groups in the U.K. are reacting to the IRA's announcement.

Posted by Tom at 5:18 AM | Comments (2) | TrackBack (0)

"It's nowhere near as bad as the one a few months ago"

The comment that serves as the title of this post qualifies as genuinely good news these days at BP p.l.c. However, as noted in this post from just the other day, it is getting a bit difficult to keep up with BP's various problems these days.

Another fire erupted at BP's Texas City plant Thursday evening, just four months after the one in March this year that caused 15 deaths and dozens of injuries. No injuries were reported in Thursday's fire that took place in BP's Texas City 1,200-acre complex, but not close within the complex to the unit that exploded in March. BP released a statement saying that "there is no connection between the two incidents."

Meanwhile, crude-oil futures settled up nearly a dollar to push prices above $60 a barrel for the first time in more than two weeks.

Posted by Tom at 4:33 AM | Comments (0) | TrackBack (0)

July 28, 2005

And you thought Tropical Storm Allison was bad?

During a five day period from June 5th through the 9th in 2001, Tropical Storm Allison dumped a huge amount of rainfall on the Houston metropolitan area that caused widespread and tremendously damaging flooding. The Port of Houston recorded 37 inches of rainfall over that five day period. With damage estimates exceeding $5 billion, Allison remains the costliest weather event in Houston's history.

However, as bad as Allison was, it's hard to imagine that this Indian monsoon hit Bombay with 37 inches of rain in one day as "the rainfall descended in what looked like a solid wall of water."

Posted by Tom at 9:13 AM | Comments (0) | TrackBack (0)

Kelo ripples hit the Cowboys stadium project

As noted in this earlier post, the U.S. Supreme Court's recent decision in Kelo v. City of New London inevitably will have ripples, including the use of government's eminent domain power to increase the value of privately-owned professional sports franchises at the expense of private property owners.

Thus, it is not surprising that Arlington landowners have filed the first lawsuit over the City of Arlington's use of its eminent domain power to seize the landowners' land for the benefit of Jerry Jones and his Dallas Cowboys stadium project. The landowners contend that the stadium project -- although tacitly owned by the City -- is beneficially owned and certainly controlled by Mr. Jones through a long-term ground lease, and that using the government's eminent domain power to take private property from one person and give it to another is unconstitutional. Sounds like Kelo II, doesn't it?

In essence, this litigation is over who should be negotiating the sales price of the landowners' property -- Mr. Jones, who does not have the threat of eminent domain power, or the City of Arlington, which does? Inasmuch as Mr. Jones does not have as good a bargaining position as the City, the lawsuit brings into focus the key defect in the Kelo decision -- the shifting of leverage in negotiation over land prices in favor of the private developer and away from the landowner.

My sense is that this lawsuit and others similar to it will likely settle long before the legal issue ever gets to trial or an appellate court because the cost of such settlements is a fraction of the overall cost of the project. But that does not change the fact that the Supreme Court made a serious error in Kelo by holding that a "reasonably well thought out plan of [private] economic development" that may generate jobs and taxes for a local government is enough to trigger the government's use of eminent domain to hand over private land to a developer. In so doing, the Supreme Court has replaced the efficiency of market forces with the expediency of government fiat, which is why we have economic boondoggles such as those described in this post.

Craig Depken -- who has the best compendium of posts regarding the Cowboys stadium project -- has further astute thoughts here.

Posted by Tom at 7:11 AM | Comments (1) | TrackBack (0)

A personal experience with Judge Roberts

Although I do not agree with the writer's conclusion, this post tells a personal story about Supreme Court nominee John G. Roberts, Jr. that reflects why he is one of my favorites for a spot on the Supreme Court and certainly will not result in this type of embarrassment. Hat tip to Craig Newmark for the link to the post on Judge Roberts.

Posted by Tom at 6:10 AM | Comments (0) | TrackBack (0)

The ubiquitous Mr. Lipton

When the Walt Disney Co. board needed advice regarding Comcast's adverse takeover offer for Disney, who did the board call?

When Richard Grasso was negotiating with the New York Stock Exchange Board regarding his compensation package, who did he call?

And when the Morgan Stanley board was considering recently departed CEO Phillip Purcell and his cohort Stephen Crawford's controversial exit pay packages, who did the Morgan board call?

Martin Lipton, that's who. This NY Times article profiles the longtime New York merger and acquisitions specialist, who is famous in corporate legal circles for having refined the use of the poison pill anti-takeover strategy. The article is an interesting read on one of the legal profession's real heavyweights.

As an aside, Mr. Lipton's place in Texas legal history was cemented back in 1985 when his testimony on behalf of his client Texaco was one of the main reasons that jurors awarded $11 billion to Pennzoil during Pennzoil's famous lawsuit against Texaco over Pennzoil's failed bid for Getty Oil. After filing a historic chapter 11 case to avoid paying the resulting judgment, Texaco settled the Pennzoil judgment for $3 billion in 1987, insuring Houston plaintiff's lawyer Joe Jamail's place among Texas' richest lawyers.

Posted by Tom at 5:10 AM | Comments (0) | TrackBack (0)

July 27, 2005

Groundhog Day in the airline industry

Last week, it was Delta.

This week it's Northwest.

Bankruptcy lawyers continue to rejoice with the seemingly endless supply of reorganization candidates that the airline industry generates.

By the way, since 2001, Delta has lost a cool $10 billion, while Northwest has lost $3.6 billion.

Posted by Tom at 6:11 AM | Comments (0) | TrackBack (0)

Reviewing BP's responsibilities

As if the fatal blast at its Texas City plant earlier this year (for which it has already admitted liability) and the listing of its huge Thunder Horse drilling platform was not enough, British Petroleum executives wake up today to a front page Wall Street Journal ($) article that reports that the OSHA investigation into the blast has discovered that it was only the latest in a series of major "incidents" at the Texas City plant over the past 16 months, including a September 2004 accident in which two BP employees were scalded to death while removing a valve from a hot-water line and a big March 2004 fire that did not result in any deaths.

Behind the motto "Beyond Petroleum," BP has been one of the corporate leaders in promoting an image of social responsibility, a topic on which Professor Ribstein has written and commented extensively. For example, BP CEO John Browne has been a mainstream media darling for advocating reduction of global warming by lowering carbon-dioxide emissions at BP facilities. Now, against a backdrop of cost cuts and old equipment at its Texas City refinery, plaintiffs' attorneys in the wrongful death and personal injury lawsuits resulting from the Texas City blast are planning on portraying BP's social responsibility agenda as merely a public relations ruse to cover-up its business practice of exposing refinery workers to grave danger. BP announced a $700 million charge against earnings earlier this week to cover its projected liability related to the lawsuits.

Isn't it interesting how even seemingly innocuous corporate policies have a way of backfiring when they stray too far afield from the basic corporate purpose of maximizing shareholder value?

Posted by Tom at 4:52 AM | Comments (0) | TrackBack (0)

July 26, 2005

Apple stories

The ever informative Dwight Silverman informs us that the new Apple Store is opening this weekend in The Woodlands. Given the spirit of the typical Mac user, Dwight points out that you may want to allow the initial stampede to recede before venturing over to do some serious shopping.

By the way, speaking of Apple, you can rest assured that Ken Leebow will not be one of the shoppers at an Apple Store anytime soon!

Posted by Tom at 3:47 PM | Comments (0) | TrackBack (0)

Bidg and Berkman

In the Stros romp over the Phillies last night, Craig Biggio and Lance Berkman hit back-to-back home runs twice, once in the first inning and then again in the third. By the way, in case you hadn't noticed, the Stros are 52-47, in 2nd place in the NL Central 10 1/2 games back of St. Louis, only 3 games behind in the Wild Card race, and have won 8 out of their last 10 games.

Bidg and Berkman are -- along with injured teammate, Jeff Bagwell -- among a small group of Stros players who are legitimate candidates for Baseball's Hall of Fame. The rare feat of homering back-to-back twice in one game gives me an opportunity to pass along the following career and recent season statistics for both Bidg and Berkman:

Berkman
YEAR	AGE	RCAA	OBA	SLG	OPS	AVG	HR	RBI	SB	G
2003	27	40	.412	.515	.927	.288	25	93	5	153
2004	28	69	.450	.566	1.016	.316	30	106	9	160
2005	29	22	.418	.528	.945	.313	11	43	1	70
CAR		276	.416	.560	.977	.304	167	578	41	845
LG AVG		0	.342	.435	.776	.269	92	372	48
POS AVG		67	.358	.472	.830	.276	117	421	56

Biggio
YEAR	AGE	RCAA	OBA	SLG	OPS	AVG	HR	RBI	SB	G
2003	37	1	.350	.412	.763	.264	15	62	8	153
2004	38	8	.337	.469	.806	.281	24	63	7	156
2005	39	12	.344	.487	.832	.280	15	44	10	96
CAR		358	.372	.437	.808	.286	249	1038	406	2505
LG AVG		0	.338	.419	.756	.268	271	1199	203
POS AVG		-101	.333	.392	.726	.265	196	1011	227

League average and position average figures are included in the tables above to give you an idea of how far above Bidg and Berkman's performance has been over average National League players and position players during their respective careers.

Throughout his almost 18 MLB seasons, Bidg has created 20 more runs per season than an average National League player and 26 more runs per season than the average National League position player (mostly second basemen). Throughout his six year career, Berkman has generated an impressive 46 more runs per season than an average National League hitter and an equally impressive 35 more runs per season than the average National League position player (mostly leftfielders).

There are many Hall of Famers who have no where near as impressive statistics as either Bidg or Berkman. Bidg should be a shoo-in for the Hall and, if Berkman keeps up his production for another 7-8 seasons or so, he would be one, too.

Posted by Tom at 2:30 PM | Comments (1) | TrackBack (0)

Not looking good for Merck

In the ongoing wrongful death civil trial against Merck involving its pain reliever drug Vioxx, the mainstream media tends to focus on seemingly important expert testimony such as that described in this article.

Being more a student of the courtroom, however, I tend to focus in such trials on jury dynamics, such as those described in this Fortune Magazine article:

Speaking in state court in Angleton, Texas, without notes and in gloriously plain English, and accompanying nearly every point with imaginative, easily understood (if often hokey) slides and overhead projections, (plaintiff's lawyer Mark) Lanier, a part-time Baptist preacher, took on Merck and its former CEO Ray Gilmartin with merciless, spellbinding savagery . . .

But in contrast to Lanier . . . (Merck defense lawyer David Kiernan) seemed to read much of his presentation and illustrated it only with stodgy, corporate headshots of Merck officials or hard-to-read excerpts from documents whose meaning was shrouded in medical jargon . . .

The trial offers jurors a stark choice between accepting Lanier's invitation to believe simple, alluring and emotionally cathartic stories versus Merck's appeals to colorless, heavy-going, soporific Reason.

H'mm. On one hand, an interesting story told through a lively presentation given without notes using colorful images. On the other hand, a bland recitation of prepared remarks given with boring images of hard-to-read text in documents.

Translated: This is not looking good for Merck.

Posted by Tom at 8:19 AM | Comments (2) | TrackBack (0)

The essential problem with third party payor health care finance

This outstanding Washington Post article (first in a series of three) on Medicare nails the key problem with reliance on third party payor health care finance systems:

In Medicare's upside-down reimbursement system, hospitals and doctors who order unnecessary tests, provide poor care or even injure patients often receive higher payments than those who provide efficient, high-quality medicine. . .

Researchers at Dartmouth Medical School, who have been studying Medicare's performance for three decades, estimate that as much as $1 of every $3 is wasted on unnecessary or inappropriate care. Other analysts put the figure as high as 40 percent.

Medicare has difficulty controlling waste because of deficiencies in the way it monitors and enforces quality standards. Its oversight system is fragmented, underfunded and marred by conflicts of interest, records and interviews show . . .

Read the entire article, including the sidebar containing related articles and graphs and the subsequent articles here and here. It's a first rate series.

Posted by Tom at 6:21 AM | Comments (0) | TrackBack (0)

City Hall, San Diego style

A couple of former City of Houston aides have had a rough spot lately, but frankly our corruption is blase' compared to what's going on at City Hall in San Diego recently.

First, the San Diego mayor resigned a couple of weeks ago amidst a pension fund scandal. Then, after about 60 hours on the job, the mayor's interim successor -- along with another member of the San Diego City Council -- was convicted of conspiracy, extortion, and fraud in connection with a scheme to receive money for changing a city law to benefit strip club owners. With a new interim mayor and another mayor to be elected in a special election, that makes four mayors by my count in the space of just a few months. All of which prompted economist and San Diego resident James Hamilton to observe:

Forgive me if this sounds paranoid, but isn't this the same crowd to whom the Supreme Court gave the power to kick me out of my home in order to hand it to some developer? Not that any City Council members would ever let how much money they got from that developer influence their decision on something like that.

Posted by Tom at 5:31 AM | Comments (0) | TrackBack (0)

Judge Roberts in action

Orin Kerr over at the Volokh Conspiracy refers us to this recent D.C. Circuit decision in which U.S. Supreme Court nominee John G. Roberts, Jr. wrote a lively dissent and, in so doing, provides a glimpse of why he was one of my favorites for nomination to the Supreme Court.

The decision involves a search and seizure case. The defendant was driving a car with the license plate light out. After police stopped him, it turned out that he did not have a driver's license on him, that his license had been suspended, and that the car had stolen tags. During the stop, the police could find not find anything that indicated that the car was properly registered. Thus, the police arrested the defendant and then they searched the car's trunk, where they found a gun. Wallah! The defendant was charged with a gun possession crime and we now have a search and seizure case.

When the officers searched the trunk, was there a reasonable probability that there would be additional evidence in the trunk? That's the search and seizure question being addressed in this particular decision. The majority opinion concludes that it's unlikely that there would be additional evidence in the trunk of the crimes that the police knew about at the time of the search. Judge Roberts dissents, reasoning that the arresting officers had a reasonable basis upon which to conclude that the car was stolen and thus, the search was justified because evidence of the true owner could well have been in the trunk.

However, as Mr. Kerr notes, the most interesting aspect of the decision is Judge Roberts' style. Non-combative but direct, he makes his essential point with a nice touch of understatement and pragmatism, while noting that the case was a close call:

Sometimes a car being driven by an unlicensed driver, with no registration and stolen tags, really does belong to the driver’s friend, and sometimes dogs do eat homework, but in neither case is it reasonable to insist on checking out the story before taking other appropriate action . . .

I wholeheartedly subscribe to the sentiments expressed in the concurring opinion about the Fourth Amendment’s place among our most prized freedoms. See Conc. Op. at 1, 5. But sentiments do not decide cases; facts and the law do. There is no dispute here on the law: if the officers had probable cause, they did not need a warrant; if they did not have probable cause, no warrant would issue in any event. As for the facts, the officers encountered at 1:00 a.m. an unlicensed driver operating an unregistered car with a broken tag light and stolen tags. The experienced district court judge concluded — and I agree — that "the circumstances were suspicious enough to amount to probable cause to search the trunk." Memorandum Order, at 5. Right or wrong, nothing about that determination reflected insensitivity to constitutional values, any more than a contrary determination would have reflected insensitivity to the needs of law enforcement.

I respectfully dissent.

This is the work of a first rate appellate judge. Check it out.

Posted by Tom at 4:53 AM | Comments (0) | TrackBack (0)

July 25, 2005

The changing Houston golf scene

This Sunday Chronicle article reviews the status of Houston's municipal golf course system, which has run a deficit for the past five years, including a cool $620,000 for the most recent fiscal year. Although rounds are down at all muni courses other than the City's crown jewel at Memorial Park, Brock Park was responsible for over 75% of the losses in the most recent fiscal year.

Frankly, the City of Houston needs to phase out of the golf business entirely. Although providing golf courses for citizens made sense a generation ago, the proliferation of a wide-variety of private daily fee courses in the Houston area have made most of the muni courses not only unattractive by comparison, but also unnecessary. Such a marketplace of private golf courses did not exist when the City of Houston developed its municipal golf system, but given the development of that private marketplace over the past 30 years, there is simply no longer any reason for the City of Houston to subsidize golf operations for a relatively small number of its citizens.

Here is a "thinking outside the box" suggestion for the Houston City Council on the golf course operation. Other than Memorial Park and Hermann Park golf courses, sell the remainder of the golf courses, including a sale or donation of the Gus Wortham Course to the University of Houston, which could then invest the funds necessary to renovate that tract into a potentially fine university course close to the University's Central Campus. With a portion of the funds generated from the sale of the courses, the City could then fund an endowment to be administered by the Houston Golf Association to promote golf to underprivileged children and citizens of Houston.

The foregoing would be a "win-win" situation for the City of Houston and its citizens. Not only would the City shed the cost of its unprofitable golf operation and provide the city's main public University with a convenient home for its storied golf program, the City would maintain two very good, profitable and well-located municipal golf courses, and provide its citizens who need it the recreational opportunity to enjoy the game of golf.

Posted by Tom at 8:24 AM | Comments (5) | TrackBack (1)

Chronicle follows up on Harris County Jail story

The Chronicle's Steve McVicker and Bill Murphy follow up their earlier story on the chronically abysmal condition of the Harris County Jail facilities with this story that reports that Harris County officials have ignored repeated warnings regarding the unsanitary and over-crowded condition of the jails.

To make matters even more egregious (if that were possible), a Sam Houston State University report warned Harris County officials almost two years ago of a looming explosion in the county jail population. Despite that report, the Harris County Criminal Justice Committee -- which was created in 1995 in response to a jail-overcrowding lawsuit that resulted in the jail being under a federal judge's oversight for 23 years -- has not met to review the report or the conditions at the jail.

By strange coincidence, the Criminal Justice Committee is now scheduled to meet this Friday. I'm sure the previous Chronicle article has nothing to do with that.

According to the article, the Chronicle's previous article on the jail conditions prompted several calls from jail employees who described in detail how county officials have intentionally misled state officials regarding just how bad the conditions are at the jails:

Speaking on the condition of anonymity, the two jailers charged that Sheriff's Office officials sometimes hid inmates from state inspectors.

"They played a game of musical inmates," said one jailer, who also is a deputy sheriff. "They would take them from one building to another through the tunnel system."

After the inspectors left, the deputy said, the inmates were crammed back into units that already were fully occupied — a practice he called "sardining."

And, they say, inmates already are suffering from staphylococcus infections.

Chief Deputy Mike Smith, who oversees jail operations, denied that any inmates have been concealed from inspectors and said no inmates are going without mattresses.

He also said he is unaware of any widespread staph outbreak.

"You know, we have to work here, too," he said.

This is really a sad reflection of our community that the chronically poor condition of the Harris County Jail facilities continues to be ignored (or covered up) by Harris County's elected officials. Here's hoping that the Chronicle stays on top of this issue.

Posted by Tom at 6:13 AM | Comments (1) | TrackBack (0)

Stros 2005 Review: Checking in on the Stros

When journeyman Eric Bruntlett (-5 RCAA/.262 OBP/.333 SLG./.595 OPS) jacks a three run yak in the 14th inning to pull out a Sunday afternoon win and finish off a 7-4 roadie, you know it's time to check in on the Stros (51-47).

Somehow, the Stros find themselves only three and a half games behind the Nationals (55-44) for the lead for the NL Wild Card Playoff spot, but my sense is that the Nationals are sinking and will not be in contention any longer by Labor Day. Accordingly, it's looking as if the Stros' competition for the Wild Card spot is going to be the NL East teams other than the Nationals -- the Braves (55-44), Phillies (52-47), Mets (51-47) and Marlins (49-47) -- and the Cubs (49-48) in the NL Central.

Inasmuch as combining each club's runs created against average ("RCAA", explained here) and its runs saved against average ("RSAA", explained here) is a good measure of each club's strength relative to the rest of the league, here is how the above-named clubs involved in the Wild Card race stacks up:

Braves -29 RCAA/85 RSAA = 56
Marlins 72/-16 = 56
Cubs 51/-1 = 50
Stros -26/54 = 26
Mets 4/17 = 21
Phillies -40/63 = 13
Nationals -3/13 = 10

Consequently, given that the Braves will probably win the NL East, the Marlins and the Cubs are the Stros main competition at this point for the Wild Card, although the Mets are showing signs of life recently. The Marlins and Cubs are both considerably stronger hitting clubs than the Stros overall, but the Stros pitching is much better than either of those clubs and the Stros hitting is trending upward with Berkman (19/.422/.508/.930) continuing to regain form, Ensberg (29/.388/.595/.983) making a strong case for Comeback Player of the Year, and Jason Lane showing signs of life (-4/.294/.472/764). If the Stros hitters can climb back to at least an average National League club (i.e., an RCAA of zero), then the Stros pitchers are strong enough to carry the club to an RCAA/RSAA in the 75-85 range, barring injury to any of the key pitchers. The Stros won the Wild Card last season with a 96 RCAA/RSAA and attaining even a 75-85 season total may be a tall order for this club absent acquisition of another strong hitter, but the Stros at least appear to have a chance (barring injury to any key players) to remain in contention for the Wild Card spot with the current lineup. For at least the time being, my pre-season prediction for this Stros club is looking fairly accurate:

Thus, even with the loss of Beltran and Kent, the Stros still appear to me to be an above .500 team. The offense is probably going to slide a bit with Berkman out for the first month of the season. But the starting pitching looks very good, Lidge is currently the best closer in the National League, and the middle relievers look improved over last season's dubious group. If Lane hits as expected, Ensberg rebounds, Bags (+17 RCAA) and Bidg (+8 RCAA) maintain as well as they performed last season, and the young players develop well, then my sense is that the Stros are an 85 to 88 win team with an outside chance to take it over 90 wins if the injury bug does not bite.

Here are the Stros hitters' individual RCAA through Saturday's games, courtesy of Lee Sinins:

Morgan Ensberg 29
Lance Berkman 19
Craig Biggio 9
Orlando Palmeiro 7
Jeff Bagwell 1
Jason Lane -4
Humberto Quintero -4
Luke Scott -4
Todd Self -4
Eric Bruntlett -5
Willy Taveras -6
Jose Vizcaino -6
Raul Chavez -10
Chris Burke -11
Mike Lamb -11
Adam Everett -12
Brad Ausmus -14

The Stros team RCAA of -26 is 11th among the 16 National League clubs. Add Adam Dunn (26/.394/.581/.975) to that group, and things could get very interesting for the Stros.

Here are the Stros pitchers' individual RCAA through Saturday's games

Roger Clemens 43
Roy Oswalt 31
Andy Pettitte 20
Dan Wheeler 12
Brad Lidge 7
Chad Qualls 3
Mike Burns 1
Mike Gallo 1
Russ Springer -4
John Franco -5
Chad Harville -5
Brandon Backe -9
Brandon Duckworth -12
Ezequiel Astacio -14
Wandy Rodriguez -15

The Stros team RSAA of 54 is 4th among the 16 National League teams. Clemens, Oswalt, and Pettitte currently are the strongest three starting pitchers on one team in MLB.

The Stros begin a seven game game homestand against Wild Card playoff competitors the Phillies and the Mets this week before making a West Coast swing next week against the Diamondbacks (48-52) and the Giants (42-55).

Posted by Tom at 4:00 AM | Comments (0) | TrackBack (0)

July 24, 2005

The Chron interviews outgoing Enron Task Force Director

The Chronicle's Mary Flood, who has done a fine job of covering the Enron case for the local newspaper, interviews Andrew Weissmann, the former Enron Task Force director who resigned as director of the Task Force this past week amidst widespread allegations of prosecutorial misconduct.

Overall, the interview is a disappointing fluff piece. Ms. Flood -- who, as the Chronicle's lead reporter on Enron, is not the best person to be ruffling feathers with the Task Force -- asks Mr. Weissman only a general question about prosecutorial misconduct and fails to follow that up with questions about specific instances of misconduct, such as the following:

The Task Force's questionable public relations campaign demonizing anything having to do with Enron;

The Task Force's poor trial record involving former Enron executives (one conviction of a mid-level manager out of seven Enron executives tried to date) compared with the Task Force's bludgeoning former Enron executives into plea bargains;

The Task Force's dubious policy of fingering potential defense witnesses as either unindicted co-conspirators or targets of the Enron criminal investigation to deter such witnesses from testifying for defendants in the Enron criminal trials;

The Task Force's disingenuous market loss arguments in connection with the sentencings of the five convicted Nigerian Barge defendants, which argument contradicted the Justice Department's position before the U.S. Supreme Court;

The dubious nature of the Task Force's prosecution of the Merrill Lynch executives in the Nigerian Barge case, particularly Daniel Bayly (note posts here and here) and William Fuhs.

The overreaching nature of the Task Force's prosecution of Arthur Andersen which the Supreme Court noted in its unanimous reversal of that conviction;

The Task Force's elicitation of false testimony from Ken Rice, its key witness in the Task Force's miserably failed Enron Broadband prosecution;

The Task Force threats toward two witnesses in the Broadband trial -- Beth Stier and Lawrence Ciscon -- who testified favorably for the defense in that trial;

A Task Force prosecutor's violation of the judge's instruction not to question witnesses on certain subjects during the Broadband trial; and

The strong evidence that the Task Force has been chilling witnesses favorable for the defense in the upcoming trial of former Enron key executives, Ken Lay, Jeff Skilling, and Richard Causey.

Given the extent of the foregoing instances of misconduct, if I would have been allowed one question of Mr. Weissman, it would have been the following:

"Do you believe that the end of convicting former Enron executives of crimes justifies the means by which you obtain such convictions?"

My sense is that most Chronicle readers would have been far more interested in Mr. Weissmann's answer to that question than his answer to the question of how has he enjoyed his time in Houston.

Posted by Tom at 6:45 AM | Comments (1) | TrackBack (1)

July 23, 2005

Watch out!

The Chronicle's Rad Sallee reports on one category in which Houston's Metropolitan Transit Authority is surely leading among the country's transit systems:

MetroRail logged its third collision in four days Friday, making 29 this year and 96 since fall 2003, when testing of the rail line began.

Before that, the last collision was July 5. The last string of three accidents in four days was March 13-16. Metro recorded three light rail collisions in two days Jan. 26-27 and five in eight days March 22-29, 2004.

Who boy, Kevin Whited and Anne Linehan at blogHouston.net are going to have fun with this one. BlogHouston.net's Houston Transit category and Kevin's PubliusTX.net Danger Train category are the two best sources for information on the seemingly unending foibles of Houston Metro.

By the way, is it just me or does Mr. Sallee's analysis of MetroRail's many crashes seems eerily similar to the way in which one would evaluate a Major League Baseball player's career statistics?

Posted by Tom at 8:03 AM | Comments (1) | TrackBack (0)

Spitzer fights payola with a little payola

My two teenage daughters and their friends just laugh at me whenever I observe to them that most of the noise that they listen to on the radio is so bad that the only way the "music" could ever make the airwaves is through bribery.

Well, my view was vindicated today as this NY Times article reports that New York Aspiring Governor Eliot Spitzer will announce a settlement that will involve at least a $10 million fine with Sony BMG Music Entertainment as part of an 11-month investigation into how music companies get radio stations to play songs. As is typical in such investigations these days, the big four global music companies -- Sony BMG, Vivendi Universal SA's Universal Music Group, EMI Group PLC, and Warner Music Group Corp. -- have apparently been cooperating with Mr. Spitzer's investigation out of fear of a criminal indictment that would be potentially devastating to the companies' U.S. business.

The investigation apparently relates to the companies' use of so-called "independent promoters," who are brokers who are paid to plug new songs to radio stations. The practice is similar to payola -- direct payment in exchange for airplay of specific songs -- which has been illegal under federal law since the payola scandals of the 1950s. Inasmuch as the line is often a tad fuzzy between merely persuading a radio station executive to play noise and offering the executive a quid pro quo for doing so, representatives of Mr. Spitzer and Sony BMG have apparently been haggling over mutually acceptable guidelines for future conduct between the music company and radio stations.

Although I am usually wary of government attempts to criminalize these types of business transactions, I could make an exception in this case if the settlement contains a prohibition against playing the noise of this "artist." Despite such social benefits, Larry Ribstein notes that there are strong economic arguments in favor of payola and that the governmental prohibition against it only made the market less transparent.

Posted by Tom at 7:14 AM | Comments (0) | TrackBack (1)

July 22, 2005

The sad case of Daniel Bayly

Daniel Bayly has had an impeccable professional career. A 30 year veteran of the executive ranks of Merrill Lynch, Mr. Bayly joined Merrill in 1972 as an associate in New York and rose through the ranks to become a managing director of Merrill while working in Chicago. After returning to New York, Mr. Bayly was named head of Merrill's U.S. corporate banking group in 1993, and eventually was named head of Merrill's global investment banking division. During his three decades with Merrill, Mr. Bayly was one of the firm's most popular and respected executives.

Despite this stellar career, Mr. Bayly has just finished serving the first week of a two and a half prison sentence handed down this past May in connection with the Enron-related Nigerian Barge case. Although Mr. Bayly has a strong case for having his conviction overturned, the Fifth Circuit Court of Appeals denied without so much as an explanation of its basis for doing so his motion to remain free pending disposition of his appeal.

As with the sad case of Jamie Olis, most of the mainstream media is ignoring Mr. Bayly's plight, treating it as a bad dream that has now gone away. However, Mr. Bayly's family and many friends are not going to allow this injustice to recede quietly from public view. In that regard, two friends of the Bayly family -- Susan Scherbel and Steven Jackson -- prepared the following piece that makes as compelling a case as any legal brief that Mr. Bayly is a victim of the government's misguided criminalization of ordinary business transactions in the post-Enron era and that, but for God's grace, this nightmare could be happening to any of us:

Last week, Daniel Bayly left his home and family in Connecticut to report to a prison in Hopewell, Virginia. There, he will begin a two and a half year prison sentence for his role in the Nigerian Barge transaction - a legitimate and successful deal between Enron and Mr. Bayly's former employer, Merrill Lynch. From the evidence presented at his trial, his only offense appears to be that he was at Merrill Lynch when the deal was done. This is a tragic time for the Bayly family as well as for us, the hundreds of friends, colleagues and well-wishers who know Mr. Bayly to be a good, decent and honorable man.

At Mr. Bayly's sentencing in April, Judge Ewing Werlein, Jr. said: " . . . it may be that I've never had a defendant stand before me, probably in my years as a judge and having sentenced hundreds of people, that has had a more glowing and extraordinary record of being a good citizen . . ." However, when Mr. Bayly appealed his conviction, his motion to be released pending appeal was denied. It was irrelevant that he had no history of prior wrongdoing. It was similarly irrelevant that over one hundred of his close friends and supporters sent letters to the court pledging bonds of $10,000, guaranteeing Mr. Bayly's bail. Neither the strength of his appeal, his stellar record nor the trust of his friends has prevented the worst: Mr. Bayly is in jail while his appeal proceeds - this is the way a hardened, serial offender is treated. And, yet, nothing about the case or this man merits this indignity.

At the time Merrill Lynch purchased an interest in unfinished energy-producing barges from Enron, Mr. Bayly was the head of global investment banking at Merrill Lynch. But, contrary to what has been described in press accounts, Mr. Bayly did not structure, champion, approve or benefit from the transaction. The job of analyzing the transaction was delegated to the Merrill Lynch Commitment Committee composed of eight lawyers, CPA's and financial experts from outside of Mr. Bayly's division, who unanimously blessed the deal and recommended approval. Mr. Bayly's boss, one of the top five officials at Merrill Lynch, was responsible for approving the transaction.

Mr. Bayly's sole involvement in the Nigerian Barge transaction consisted of determining that the investment banking division could afford the $7 million investment in the deal (this was not difficult - his division had revenues of $4 billion that year). Then, at the request of the Committee, Mr. Bayly's boss directed him to participate in a conference call with Enron's Chief Financial Officer, Andrew Fastow. During Merrill's review process, Enron had repeatedly promised that the barges would be completed and ready for resale within six months, but the Committee wanted Mr. Fastow's personal assurance on this point.

Despite these benign facts, a Houston jury convicted Mr. Bayly of criminal conspiracy. Anyone with more than passing familiarity with the case was not surprised -- Houston was devastated by the Enron bankruptcy and, unfortunately, the Nigerian Barge trial was the first Enron-related criminal trial to be held there. By this time, many of the key people involved in Enron's fall had already entered plea bargains -- they would never see a courtroom or experience a trial. With none of the "major players" in sight, Mr. Bayly and a few other innocent bystanders were poised to bear the public's wrath.

To make matters worse, Justice Department prosecutors made it practically impossible for Mr. Bayly's lawyers to mount an effective defense. Although there were over fifty other Merrill Lynch and former Enron employees with knowledge about the Nigerian Barge deal (including numerous lawyers and other experts), all of those witnesses declined to testify during the trial because the prosecutors had named them as "unindicted co-conspirators." Inasmuch as the only difference between an indicted and non-indicted co-conspirator is government favor, the prosecutors used this tactic to scare these Merrill Lynch and Enron employees from coming forward and providing valuable, corroborative testimony for Mr. Bayly about the way banking deals operate, the limited role played by Mr. Bayly and the other defendants, and the deal itself. As a result, the true story of Mr. Bayly's involvement in the transaction was never told during the trial. Testimony about the transaction came from prosecution witnesses with second-hand information who had cut deals with the government.

In the end, perhaps the most troubling aspect of this case is that it is about a successful deal common in investment banking circles. Not suited to conventional financing, the barge deal was precisely the kind of transaction companies regularly bring to their investment banks. Merrill's decision to purchase the barges was completely legitimate. Similarly, Merrill's subsequent sale of the completed barges six months to a partnership (set up by Enron for an entirely different set of investors) was appropriate. This sale, too, was thoroughly reviewed by numerous attorneys (including those who had blessed the original sale) prior to being approved (again, not by Mr. Bayly). It is noteworthy that the barges were then combined with other barges held by Enron and sold to a third party buyer, global power company AES Corp., that actually paid more than Merrill had received (proving that the barges were valuable).

In short, Mr. Bayly is in prison because of a highly profitable transaction that occasioned no loss to Enron or to its shareholders. Enron made money, its shareholders made money, the people of Nigeria obtained low price energy and, according to its financial reports, AES is making money (the barges are currently producing roughly $50mm/year). In fact, the sole issue of the case turns on when Enron and its auditors reported the gain (the Justice Department contends that the gain should have been reported at the time of the sale to AES rather than six months earlier at the time of the Merrill purchase). Not even the prosecutors alleged that Mr. Bayly and his co-defendants controlled or even knew of Enron's accounting choice. What kind of justice is this?

Those of us who know Mr. Bayly have tried to help him. However, we are reluctant. We are warned that a single voice raised in his defense could provoke the Department of Justice lawyers to mete out more cruelty. When will their bloodlust be satiated? Isn't it enough that this wonderful man who had a 30-year flawless record at Merrill Lynch was forced out of his job and had his reputation sullied? Isn't it enough that he endured a Kafkaesque trial, when all who could help him were silenced by fear and intimidation? Isn't it enough that he was subject to electronic monitoring and his assets frozen? Isn't it enough that he and the others were plucked from their homes, families and children sent to prison despite their appeals (something virtually unthinkable for first time offenders in American jurisprudence)?

These men did nothing more than assist a respected client. They followed every conceivable rule and procedure. Furthermore, they pose no threat to anyone -- why could not they be free pending their appeals? As we onlookers cower, afraid to help these people, lest our efforts unleash new waves of wanton harassment against them, it's damned hard to refer to their tormentors as "Justice."

Posted by Tom at 4:05 AM | Comments (11) | TrackBack (0)

Dan Jenkins on America's contributions to golf

In summertime, thoughts turn to golf, and the August issue of Golf Digest is called it's All-American edition. That theme gives columnist Dan Jenkins an opportunity to provide his wit and wisdom on America's contributions to golf in this hilarious article entitled What America gave Golf -- We might have burned the edges, but the good outweighs the bad (previous posts on Mr. Jenkins' work are here, here, here, and here). The entire article is a must read, but here are a few Jenkins pearls to peak your interest:

It's easy enough to blame America for the six-hour round, . . . but ask yourself this: What would the game be like without the gimme, the mulligan, the shapely cart girl and a chili dog at the turn?

Look at it this way: If America hadn't gotten interested in the game we might still be swinging at it in tweed coats and plus fours, and trying to talk like Alistair Cooke. . . But what about today? Do we really need a golf ball that can puncture a hole in the side of a 68.7-ton Abrams tank when an anemic 14-year old girl swings at it and doesn't even take the 7-wood back to horizontal? This is the same golf ball you can launch in London with a high slice, have it self-correct somewhere over Paris, and eventually land safely in the fairway in Milan.

Mr. Jenkins goes on to discuss the purely American phenomenom known as "the Amana hat," the invention of metal woods, Jimmy Demarat's flashy clothes, $400 green fees, and the 900 yard par five, to which he observes:

Which begs the question of whether we really need a 900-yard par 5. I mean, does anyone need a 900-yard par 5 other than the real-estate developer who'll surround it with townhouses on streets named for famous courses he's never seen and therefore misspells? Welcome to Interlacking Drive . . . Baltusrover Avenue . . . Winged Valley Court . . . Oakland Pines Boulevard. America didn't originate the gated community -- I think you have to give that to Buckingham Palace -- but we popularized it and contributed the windshield decal.

Read the entire article. No doubt about it, Dan Jenkins is one of America's great contributions to golf.

Posted by Tom at 4:00 AM | Comments (1) | TrackBack (0)

July 21, 2005

How to avoid an Enronesque experience

This earlier post that compares American International Group, Inc.'s business model to that of Enron Corp. makes an important point about the true reason that Enron collapsed.

The general public's perception -- fueled by the Enron Task Force and most of the mainstream media -- is that Enron collapsed under the weight of a massive fraud. However, as the Enron Task Force's abysmal record in court against former Enron executives reflects, the vast majority of Enron's business operations were entirely legitimate outside of former Enron CFO Andrew Fastow's relatively few questionable transactions that he arranged to enrich himself and a few of his close associates. But how did the public disclosure of Mr. Fastow's relatively small financial schemes cause a company with a $60 billion market capitalization to break apart?

The reason is that Enron's business-model -- as does AIG's and most other financial service and insurance companies -- requires its customers to rely on the company's financial integrity and not the company's net worth. Accordingly, when customer confidence in a company such as Enron is undermined, participants in those companies' markets become less willing to engage in the purchase or sale of long-term contracts that might not be fulfilled. For example, as the "bid-ask" spreads on Enron's trading contracts diverged in late 2001 amidst disclosure of Mr. Fastow's shenanigans, Enron's markets unraveled and Enron's formerly profitable trading business collapsed.

Thus, bad accounting alone did not bring down Enron. However, public disclosure of the questionable accounting for a relative few of Mr. Fastow's questionable transactions did undermine the business customers' trust in Enron's financial integrity, and the disappearance of that trust in the marketplace caused Enron's business model to collapse. Regardless of the financial soundness of any such "trust-based" company, when its customers stop believing in the financial integrity of the company, the company will fail.

All of which is a long way of bringing us to this interesting Floyd Norris NY Times column in which he examines what has occurred over the past year with another such "trust-based" company, Allied Capital Corporation:

The government had opened a criminal investigation and the company's stock plunged. What was the company to do?

At Allied Capital, the answer was clear - and effective. First, it blamed short sellers for prompting the investigation. Then it added a politician to its board and declared that henceforth it would provide less information than ever to its investors.

And it worked. More than six months later, Allied Capital's stock is back above where it was when the company disclosed the Justice Department investigation into Business Loan Express, a subsidiary that makes government-backed small business loans.

That unit has supplied Allied with profits it used to pay dividends to investors, but disclosures Allied has made seem to indicate that it was a cash drain on Allied. Even that is no longer clear. In its latest quarterly report, Allied slashed the information it disclosed on Business Loan Express.

Meanwhile, in addition to ratcheting down on the amount of information disclosed to the public regarding its subsidiary, Allied Capital hired a former S.E.C. attorney as a lobbyist, a former Clinton Administration aide to represent it in connection with the Justice Department and S.E.C. investigations, and appointed the former head of the Bush re-election campaign organization to its board. The results of Allied's approach are impressive:

Since Allied took its present form in 1997, shareholders who reinvested dividends have made 13 percent a year, triple the return of the Standard & Poor's 500. It pays hefty dividends and regularly raises cash by selling new shares. Most shares are owned by individual investors.

And what has happened to the short seller?:

[The short seller] has maintained a short position in Allied stock and still questions the company's accounting. It seems likely that he played a role in sparking the government investigations. He has lost money on the short position.

Under similar circumstances back in 2001, when another notorious short seller asked several pointed questions about Enron's accounting to then Enron CEO Jeff Skilling during a conference call, Mr. Skilling snapped that the short seller was an "asshole" for trying to move the market on the price of Enron's stock in favor of his position. A few weeks later, Mr. Skilling resigned, Enron proceeded to undergo a massive review of its accounting that resulted in a restatement of earnings and its balance sheet, Enron CFO Andrew Fastow was fired, and Enron subsequently became much more transparent in its financial disclosures.

You already know the result -- Enron is toast and now synonomous with business fraud in American society. In the meantime, Allied Capital -- while refusing to make detailed disclosure of its finances -- continues to generate impressive earnings for its shareholders.

There is a lesson there, but I'm still trying to figure it out. ;^)

Posted by Tom at 6:00 AM | Comments (0) | TrackBack (0)

Epstein on judicial activism

Richard A. Epstein is the James Parker Hall Distinguished Service Professor of Law at the University of Chicago, and the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution. In this Wall Street Journal ($) op-ed on the nomination of John G. Roberts to the U.S. Supreme Court, Professor Epstein makes a good point regarding the simplistic and often misleading criticism of "judicial activism":

From the get-go, I would insist that we view with suspicion the oft-hurled epithet of "judicial activism." Judicial review, which allows the Court to strike down federal and state legislation, is an indisputable part of the Constitution. The structural and substantive prohibitions the Constitution contains are large. One can be a "strict constructionist" and still believe that major legislative initiatives, executive orders, and administrative rules are unconstitutional. By the same token, the government should be accorded a wider degree of discretion in running its own affairs -- the military, courts, schools, etc. -- a view that is largely permissive of government affirmative action programs that parallel those which comparable private institutions adopt on a voluntary basis. In these cases, the private benchmark offers a useful measuring rod for state discretion.

In that regard, Professor Epstein goes on to make an interesting point about the recent public criticism of the Supreme Court's controversial decision Kelo v. The City of New London as being another example of judicial activism:

Next, Kelo v. The City of New London recently addressed the deceptively difficult question of what counts as a taking of property "for public use." Justice Stevens held that any "conceivable public purpose" sufficed, and thus allowed the City to buy out ordinary homeowners in order to warehouse their property for future but undefined "park support" purposes.

Kelo has prompted an incredible popular backlash, as legislatures across the country have wondered how an "activist" Court could have such a tin ear for the Constitution. How ironic! Justice Stevens's lamentable opinion was the polar opposite of judicial activism. Indeed, it represented a deadly form of judicial deference to legislative action that makes a mockery of both the text and purposes of the "Public Use" Clause. . .

Read the entire piece.

Thus, in matters of judicial interpretation, be wary of labels. As we have seen recently with the failure of many federal judges to exercise their judicial authority to turn back the executive branch's dubious criminalization of business during the post-Enron era, criticism of judicial activism and advocacy of strict constructionism is often merely a political front for deference to the abusive exercise of state power. In that vein, the Supreme Court's recent unanimous decision in Arthur Andersen could be characterized as judicial activism. If that is so, then count me as a judicial activist.

Posted by Tom at 5:06 AM | Comments (2) | TrackBack (0)

A crushing defeat for the Enron Task Force

In yet another stunning blow in a series of setbacks to the Enron Task Force, the jury in the Enron Broadband trial returned late this afternoon and advised U.S. District Judge Vanessa Gilmore that they had acquitted three of the five defendants on certain of the 164 counts and were hopelessly hung on the remainder of the counts against all five defendants. Here is Mary Flood's Chronicle article on the outcome.

Scott Yeager, the former Enron Broadband strategic planning executive, was acquitted on the wire fraud and conspiracy charges, former Enron Broadband co-CEO Joe Hirko was acquitted on insider trading and money laundering charges, and former engineering executive Rex Shelby was also acquitted on the insider trading charges. The jury could not reach an agreement on any of the counts against former Enron Broadband finance executives Kevin Howard and Michael Krautz. Judge Gilmore declared a mistrial on all of the counts -- some of which related to each defendant -- on which the jury could not reach a decision.

On one hand, it's not surprising that the jury would be in disarray over their deliberations on the charges. To reach a decision, the jury had to leaf though 60 pages of jury instructions and answer more than 190 special issues about the guilt or innocence of five former Enron Broadband executives. Consequently, no wonder the poor jurors bailed out after three days of deliberations and three months of an often mind-numbing trial.

On the other hand, it's hard to recall a white collar trial that turned out as badly as this one did for a prosecution team that thought getting convictions in this case would be a tap-in. How did this trial veer so far out of control for the prosecution?

Well, to begin, the Task Force's decision to throw 164 charges of mud at the five defendants to see what would stick turned out to be an unmitigated disaster. The jurors could not reconcile the voluminous allegations of wrongdoing with what they heard over three months of often idiosyncratic testimony. Then, when the trial actually began, the over-confident Task Force prosecutors were placed on the defensive almost from the outset.

The first blunder of the Task Force during the trial occurred when prosecutors elicited false testimony from the government's key witness, former Enron Broadband co-CEO Ken Rice. Then, after Rice's testimony was impeached dramatically during cross-examination, the prosecution compounded its error by calling a witness (Beth Stier) who testified that, based on discussions with the Task Force prosecutors before her testimony, she felt threatened by the Task Force prosecutors. Later in the trial, another witness -- Lawrence Ciscon -- testified that he was threatened shortly before his testimony by prosecutors with a possible indictment if he proceeded to testify on behalf of the Broadband defendants. To make matters worse, toward the close of the trial, U.S. District Judge Vanessa Gilmore sharply rebuked an Enron Task Force prosecutor for asking a question on cross-examination of Broadband defendant Kevin Howard that at least violated the judge's prior instructions to the Task Force prosecutors. Finally, earlier this week, Task Force director Andrew Weissman took the unusual step of resigning as head of the Task Force while the Broadband jury was still deliberating amidst rumblings of prosecutorial misconduct within the Task Force.

Accordingly, at the end of the day, the case that the Enron Task Force thought was their strongest against former Enron executives turned into an absolute debacle. Although the Task Force's mishanding of the trial certainly had something to do with that result, there are two more important dynamics that are actually more revealing of why the prosecution's case went awry.

First, the Enron Task Force is facing what is often called among lawyers involved in high profile cases the "curse of the correct result." The Task Force has always been better at demonizing Enron in the media and bludgeoning former Enron executives into highly-publicized plea bargains than actually proving its charges in court. The scorecard after the Enron Broadband trial is that the Enron Task Force -- in over three and a half years on the job -- has prosecuted to trial seven former Enron executives and obtained precisely one conviction of a mid-level Enron manager. Despite that rather unimpressive batting average, the Task Force's far better public relations machine has effectively pounded into the public's mind that the "correct" verdict should be a conviction in any Enron-related criminal case even before the case is tried. That was certainly the case in the Enron Broadband trial.

However, the public's fixed opinions were not based on the testimony as it was presented in court. The general public did not see the witnesses testify, and the public had no way to assess the credibility of those witnesses. The public's fixed opinions were based largely on propaganda about Enron, much of which the Task Force willingly facilitates.

We now know the story of the trial. The Task Force's case was far less clear cut than the prosecutors suggested to the jury during opening arguments. The Task Force had to deal with the effect of its blunders described above, and the lawyers for the Broadband defendants put up a well-organized and effective defense. As is often the case, the prosecution was forced to rely on the testimony of witnesses who admitted committing crimes and benefiting from those crimes, and some had personal issues that reasonably called their credibility into question.

Thus, the jurors who actually heard the evidence in this case concluded that the Broadband defendants were not guilty or that the government had failed to carry its burden of persuading all the jurors that the crimes alleged had occurred. This result is contrary to the "correct" verdict that the general public has about anything having to do with Enron, but blame that on the "curse of the correct result," not the jurors. In my view, this jury that actually reviewed the evidence and heard the witnesses testify came back with a result that -- although not perfect -- is the correct one based on the evidence that was actually presented in court.

Finally, as has been noted many times on this blog, the result in the Enron Broadband trial stands for the dubious nature of the government's policy of criminalizing merely questionable business practices. As much as the government protests that true business crimes are deterred by vigorous prosecution of such transactions, the fact of the matter is that any reasonable interpretation of justice is strained in attempting to square the result in the Enron Broadband trial with the results in the Richard Scrushy case, the case of Arthur Andersen, the case of Martha Stewart, the sad case of Jamie Olis, the case of Dan Bayly, the case of William Fuhs, the DOJ's handling of the Global Crossing case, the Tyco case, the Bernie Ebbers case and many others.

These highly disparate results are not the product of a rational deployment of our criminal justice system, and the carnage to the families of the businesspeople who are caught in this troubling cauldron simply cannot be reasonably dismissed as a "trade-off" of an imperfect system. Meanwhile, respect for justice and the rule of law upon which the success of American society is largely based is continually eroded by the roulette nature of such prosecutions. If we lose the public's respect for justice and the rule of law, then, as Sir Thomas More asked Will Roper in A Man for All Seasons, "do you really think you could stand upright in the winds [of abusive state power] that would blow then?"

Words to ponder as the Task Force now turns to using admitted felon Andy Fastow as its key witness in the upcoming trial of Messrs. Lay, Skilling and Causey. That trial could well make the hard-fought Broadband trial look like a picnic.

Posted by Tom at 5:00 AM | Comments (5) | TrackBack (4)

July 20, 2005

The least surprising lawsuit of the year

After this, you just knew this was coming.

The Lerach Coughlin Stoia Geller Rudman & Robbins LLP lawsuit against Morgan Stanley's board of directors, former executives and lawyers alleges that directors breached their fiduciary duty and abused their control of Morgan Stanley by mismanaging the firm for several years, but particularly by handing out large severance payments to former Morgan CEO Philip Purcell and his former right hand man, Stephen Crawford. The lawsuit also asserts claims against the firm's departing general counsel and outside law firm Kirkland & Ellis for legal malpractice and professional negligence in their handling of the Ron Perelman fraud case in Florida that recently resulted in a $1.57 billion judgment against Morgan.

Interestingly, the lawsuit even took a swipe at new Morgan CEO John Mack, who the lawsuit claims approved the payoffs to Messrs. Purcell and Crawford "to secure his return to power." Mr. Mack has publicly stated that he did not know about the awards before he was hired, but that he is not going to "second-guess" Morgan board decisions that were made prior to his taking over as CEO. Mr. Mack did waive his own pay guarantee when the awards to Messrs. Purcell and Crawford became public.

Posted by Tom at 8:10 AM | Comments (0) | TrackBack (0)

New Fifth Circuit decision on family limited partnerships

Following on its decision last year on the popular estate planning tool of family limited partnerships, the Fifth Circuit recently issued this decision in the case of deceased Texas millionaire Albert Strangi and, in so doing, provided a guide for what not to do in utilizing a family LP. Here is a NY Times article on the decision.

Family LP's allow parents to transfer assets to their children at a lower tax rate than is assessed on estates and gifts. Under the typical family LP, the parents retain a few shares of ownership while their children hold most of the shares. Moreover, family LP's are often set up in an effort to shield assets from the parent's creditors, so decisions on the vehicle are closely followed by lawyers who specialize in either estate planning or creditors rights.

The Strangi case began when Mr. Strangi died in 1994. The Internal Revenue Service claimed that his children owed taxes on all $11 million in the family LP, while the family claimed that it owed taxes on only $6.6 million. The tax court at first found in favor of Mr. Strangi's estate, but then the Fifth Circuit in an earlier ruling remanded the case to the tax court directing the tax court either to make findings of fact and conclusions of law explaining why it did not allow the I.R.S. to use a section 2036a of the Internal Revenue Code or retry the case. That particular section of the tax code states that assets that a decedent owns at the time of death are taxable using estate tax rates despite a prior transfer of such assets to a partnership.

Subsequently, the tax court issued a new opinion in 2003 in which it held that against the estate this time because Mr. Strangi continued to use assets contributed to the family LP after it was formed. For example, Mr. Strangi continued to live in his house after it was contributed to the family LP, and the tax court concluded that it could be taxed as an inheritance even though it was part of the family partnership. Indeed, the tax court found that 98 percent of Mr. Strangi's assets were contributed to the family LP and that the family LP used its assets to pay Mr. Strangi's debts after his death.

At any rate, in upholding the tax court decision and consistent with its prior ruling, the Fifth Circuit essentially concludes that pigs get fat but hogs get slaughtered when it comes to family LP's. If the transparent purpose of the family LP is tax avoidance or shielding virtually all of the parents' assets from creditors while they continue to live off of such assets, then my sense is that courts are going to read the Strangi decision as allowing the courts to disqualify the family LP from providing such a purpose. In regard to the debtor-creditor issues relating to family LP's, take note of Professor Ribstein's article Reverse Limited Liability and the Design of Business Associations.

Posted by Tom at 7:23 AM | Comments (0) | TrackBack (0)

Is Baron & Budd a target?

This NY Times article reports that Dallas-based personal injury plaintiffs firm Baron & Budd is among three law firms that may be targets of a criminal investigation by the U.S. Attorney's office of the Southern District of New York.

Documents that have surfaced in the chapter 11 bankruptcy case of G-1 Holdings (formerly known as the GAF Corporation), a manufacturer of roofing material, reflect that the debtor's counsel has met with the U.S. Attorney in Manhattan during recent months and turned over records of interviews with former employees of three plaintiffs' firms -- including Baron & Budd -- in which the employees admitted that they had coached potential asbestos claimants and witnessed efforts to influence doctors' diagnosis of the claimants' ailments.

As the article notes, the investigation is potentially troublesome for the plaintiffs bar because asbestos litigation has become a huge industry. A Rand Corporation study notes that almost three quarters of a million people have filed claims for asbestos-related injuries over the past 20 years, resulting in damages of over $70 billion as of 2002. Moreover, the huge unliquiated nature of future asbestos claims has been one of the primary causes of more than 75 companies, including large companies such as Bethlehem Steel, Owens Corning and W. R. Grace.

Posted by Tom at 7:04 AM | Comments (0) | TrackBack (0)

More on the NYSE's failed corporate governance

In what cannot be construed as an endorsment of the oversight abilities of some of the most prominent business executives in the country, this Wall Street Journal ($) article reports that nine of the 12 New York Stock Exchange directors who served on the board's compensation committee in 2001-2002 admit in Eliot Spitzer's lawsuit against former NYSE Chairman and Chief Executive Officer Dick Grasso that they did not understand until later the extent to which the big pay raises awarded to Mr. Grasso would cause his retirement benefits to increase to the extent that they did.

Which begs the question: Why is Mr. Grasso the one being sued here rather than the admittedly negligent NYSE board members?

This free Newsweek article addresses essentially the same subject matter, and here are the previous posts on Mr. Spitzer's lawsuit against Mr. Grasso.

At any rate, Mr. Spitzer's lawsuit against Mr. Grasso is really just a publicity vehicle for his gubernatorial campaign and not likely to lead to a solution for the real problem, which is the NYSE's failed corporate governance. For competing views on what it will take to address that problem, see these earlier posts from Professor Bainbridge and Professor Ribstein.

Posted by Tom at 5:26 AM | Comments (0) | TrackBack (0)

Chevron trumps CNOOC on Unocal bidding

Chevron Corp. has increased its acquisition offer for Unocal to about $63 a share and Unocal's board is supporting that offer over the competing bid of the China National Offshore Oil Corp. Here are the previous posts on the bidding for Unocal.

Inasmuch as Chevron's initial offer was valued yesterday at about $60.51 a share, Chevron increased its offer before a Unocal board meeting yesterday by about $2.50 a share in cash, bringing its total offer for Unocal to about $17.5 billion. Chevron increased the cash portion of the bid to 40% from 25% and raised the per-share value of the cash to $69 from $65, besting Cnooc's offer of $67 a share. The ratio of Chevron stock to Unocal stock in the bid has not changed. Chevron can afford to toss in the extra cash into the bid as it currently has about $11 billion in cash reserves and is adding to that amount by about $1 billion a quarter as a result of high energy prices.

Meanwhile, Cnooc's board has already authorized an increased offer by as much as two dollars a share, but it remains unclear whether Cnooc will make that play. Given the Unocal board's endorsement of the modified Chevron bid, and the political and regulatory obstacles confronting its bid, Cnooc may elect to fold at this point.

Interestingly, investors did not react all that well when Chevron announced that it had won the bidding for Unocal in April as the price of Chevron's stock declined out of out of concern that Chevron was buying at a peak price was ignoring financial returns in favor of increasing oil and gas reserves. However, since that time, energy prices have continued to climb and there is now greater market consensus that such prices are likely to be sustained over the long term.

Posted by Tom at 4:39 AM | Comments (1) | TrackBack (0)

July 19, 2005

President nominates a Clear Thinkers favorite for the Supreme Court

President Bush's selection of D.C. appellate judge John G. Roberts Jr. to replace Sandra Day O'Connor on the U.S. Supreme Court is a solid one and should not lead to much of a confirmation fight. As noted in this post from earlier this year, Judge Roberts was my favorite candidate for one of the Supreme Court openings, a superb thinker and writer while on the D.C. Court of Appeals.

Stuart Buck passes along notes that, before Judge Roberts took the bench, Justice Scalia told one of Stuart's friends that he and several other Supreme Court Justices thought that Roberts was the best Supreme Court litigator in the country. The reason? Because he never became flustered during questioning and was always able to answer any question calmly while skillfully weaving in the substantive points that he wanted to make in the first place. As usual, the SCOTUS Blog has a fine compendium of resources on the Roberts nomination, including this post that reviews some of his decisions while on the D.C. Court of Appeals.

My sense is that the nomination of Judge Roberts means that there is a good chance that President Bush intends to nominate a woman to replace Chief Justice Rehnquist when he retires as expected in the near future. Hopefully, Houstonian and Fifth Circuit Judge Edith H. Jones will be in the running for that nomination.

Posted by Tom at 8:49 PM | Comments (0) | TrackBack (2)

The illusory attorney-client privilege

In this timely post, White Collar Crime Prof Peter Henning notes a recent Fourth Circuit decision that bears on an increasingly knotty issue in this post-Enron era of criminalizing business -- that is, an employee's waiver of the attorney-client privilege for statements made during a conference with an employer's attorneys.

In this particular case, the employees contended that their employer's lawyers led them to believe that they had entered into an attorney-client relationship with the employer's lawyers so that the employer's subsequent waiver of the privilege did not affect their personal right to maintain the confidentiality of their statements made to the lawyers. At the outset of the employees' interviews with the employer's lawyers, each of them received the following reassurance -- er, I mean "warning" -- from the employer's lawyers:

"We represent the company. These conversations are privileged, but the privilege belongs to the company and the company decides whether to waive it. If there is a conflict, the attorney-client privilege belongs to the company. We can represent [you] until such time as there appears to be a conflict of interest, [but] . . . the attorney-client privilege belongs to [the employer] and [the employer] can decide whether to keep it or waive it."

As Professor Henning notes, the second part of the above instruction is incorrect in that a client under a valid joint representation continues to hold the privilege and another party to that joint representation cannot waive it unilaterally. At any rate, after completing its investigation, the employer waived its attorney-client and attorney work product privileges in attempting to obtain a deferred prosecution agreement and avoid the fate of Arthur Andersen (see AIG, Berkshire Hathaway and KPMG for recent examples of this dubious corporate trend).

At any rate, the Fourth Circuit rejected the employees' argument that they had entered into an attorney-client relationship with the employer's lawyers by reasoning essentially that a statement that the employer's lawyers "can" represent the employees is not the same as actually representing them.

Thus, employees beware. Even though the assertion of the Fifth Amendment privilege in connection with an employer's internal investigation will likely result in the employee being fired, the alternative could be far worse -- that is, your employer giving prosecutors of questionable judgment your statements to use in prosecuting you for an alleged crime that you performed while performing your job for your employer. The sad case of Jamie Olis is a stark example of the damage to employees' lives and their families that can result from an employee unwittingly waiving his attorney-client privilege.

Posted by Tom at 6:40 AM | Comments (0) | TrackBack (0)

The Lord of Regulation's turf wars

As noted in earlier posts here and here, New York attorney general Eliot Spitzer does not take kindly to other governmental agencies infringing on his various crusades to demonize wealthy business interests in his seemingly unending quest to promote his political career. But at least he previously maintained the public front of cooperation with other governmental investigators.

But now, as this Washington Post article notes, the Lord of Regulation is no longer maintaining even the pretense of cooperation with other governmental investigators. Apparently, the interagency squabbles were intensified by news leaks from Mr. Spitzer's office of a high-profile April 11 interview of Warren E. Buffett. Mr. Buffett's Berkshire Hathaway, Inc., is the parent of General Re Corp., which is the company that -- along with AIG and other insurers -- is the subject of a criminal investigation into structured finance transactions known as finite risk reinsurance. Here are the previous posts on the various investigations into AIG and Berkshire's General Re.

Mr. Spitzer did not help relations with his federal counterparts when, as a part of his usual propaganda campaign that parallels his various criminal investigations, he blasted the Department of Justice in a speech on May 2 for failing to investigate allegedly illegal practices in the insurance industry. Now, the feud between Mr. Spitzer's office and federal investigators has heated to the point where prosecutions of various targeted executives could be compromised.

It would be sweet justice if Mr. Spitzer's ambition and pride undermines criminal investigations and prosecutions of business executives that never should have been inititated in the first place.

Posted by Tom at 5:46 AM | Comments (1) | TrackBack (0)

Weissman steps down as Enron Task Force chief

In a development that is intriguing by its timing, Andrew Weissmann is resigning as director of the Justice Department's Enron Task Force, reportedly to enter private practice, although that report has not been confirmed. Another Task Force prosecutor -- Sean Berkowitz -- replaces Mr. Weissman as the director of the Task Force. Mary Flood's Chronicle article on Mr. Weissman's resignation is here.

Mr. Weissman joined the Task Force three years ago to lead the prosecution team in the Task Force's controversial prosecution of Arthur Andersen, which led to the giant accounting firm's demise and the loss of 30,000 jobs in the United States alone. He has been head of the Task Force since early March, 2004 when he replaced Leslie Caldwell, who resigned to enter private practice.

Since its inception in early 2002, the Enron Task Force has been particularly adept at generating propaganda demonizing Enron and bludgeoning former Enron executives into plea bargains. Such bludgeoning is most commonly carried out through the Task Force's threat of seeking absurdly long prison sentences for former Enron executives if they elect to defend themselves in a highly-charged atmosphere against anything having to do with Enron that the Task Force has flamed to its advantage. The Task Force has been much less effective at actually proving its charges against former Enron executives in court, as only one former Enron executive -- a mid-level manager in the Nigerian Barge case -- has actually been tried and convicted of a crime in the Task Force's three and a half year existence. The only other former Enron executive prosecuted in that trial -- former mid-level accountant Sheila Kahanek -- was acquitted.

The timing of Mr. Weissman's resignation is unusual because it was announced as jury deliberations are ongoing in the first trial involving primarily former Enron executives, the Enron Broadband trial. That trial has not gone well for the the Task Force and that unexpected turn of events has occurred against a backdrop of recent setbacks and several troubling incidents of apparent prosecutorial misconduct within the Task Force.

The first setback for the Task Force came in the sentencing hearings of the four former Merrill Lynch executives and one former Enron executive who were convicted of fraud and conspiracy in the Nigerian Barge trial, a trial in which the Task Force chilled dozens of defense witnesses from testifying by its questionable tactic of fingering the witnesses as either unindicted co-conspirators or targets of the Enron criminal investigation. During the sentencing hearings, U.S. District Judge Ewing Werlein, Jr. firmly denied the Task Force's dubious arguments for draconian sentences against the barge defendants based on the alleged market effect of the relatively small transaction involved in that case. Judge Werlein was clearly disturbed by the fact that the Task Force's arguments on the market effect of the transaction contradicted the position that the Justice Department had taken before the U.S. Supreme Court well before the Nigerian Barge sentencing hearings in the case that the Supreme Court later decided in Dura Pharmaceuticals v. Broudo.

The second setback for the Task Force came in the Supreme Court's stunning reversal in a unanimous decision of the Task Force's conviction of Arthur Andersen, which brought into clear focus the dubious nature of both the Task Force's decision to put Andersen out of business and the attentuated arguments that the Task Force used in criminalizing Andersen's legitimate docket retention policy.

Next, during the Enron Broadband trial, a series of almost brazen examples of prosecutorial misconduct began to to unfold. First, the Task Force elicited false testimony from its key witness, former Enron Broadband co-CEO Ken Rice. Then, after that mistake, two witnesses (Beth Stier and Lawrence Ciscon) testified that, based on discussions with the Task Force before their testimony, they both felt threatened by a possible indictment if they testified on behalf of the Broadband defendants. Finally, toward the close of the trial, U.S. District Judge Vanessa Gilmore sharply rebuked an Enron Task Force prosecutor for asking a question on cross-examination of Broadband defendant Kevin Howard that, if not in direct violation of a pre-trial order directing attorneys not to refer to certain subjects during the trial, at least violated the judge's prior instructions to the Task Force prosecutors.

Finally, in arguably the most serious indication of prosecutorial misconduct within the Enron Task Force, U.S. District Judge Sim Lake recently issued an ex parte order in the Task Force's "legacy case" against former Enron chairman Ken Lay, former CEO Jeff Skilling and former chief Enron accountant Richard Causey based on an ex parte motion that Messrs. Lay, Skilling and Causey had filed filed with the court under seal. Without revealing the contents of the ex parte motion, Judge Lake ruled that he had concluded that the defendants had established a prima facie case of entitlement to subpoena under Fed. R. Crim. P. 17(c) all evidence relating to communications between the Enron Task Force and the 15 former Enron employees who have pled guilty under plea arrangements with the Enron Task Force.

Although the contents of the ex parte motion is a closely-guarded secret of the defense teams of Messrs. Lay, Skilling and Causey, speculation is rampant among Houston attorneys involved in the Enron case that the defendants had provided Judge Lake with compelling evidence that the Enron Task Force was threatening potential defense witnesses in the Lay-Skilling-Causey trial with criminal charges that could result in long prison sentences if the witnesses testified on behalf of the defendants. In a separate recent court filing, the Skilling defense team observed that "[t]he Task Force has taken control of the witnesses in this case to an unprecedented and impermissible degree. Witnesses will not meet or speak with us for fear of reprisal."

Consequently, count me as tad skeptical of the "official" reason given for Mr. Weissman's resignation during jury deliberations in the Broadband trial. In view of the foregoing setbacks and prosecutorial misconduct it would not be surprising if the Task Force's superiors at the Department of Justice had simply decided that Mr. Weissman's removal was advisable and that any further delay in naming a new director could adversely affect the Task Force's preparations for its legacy case against Messrs. Lay, Skilling and Causey. If that move results in a more judicious Task Force approach to the remaining Enron-related prosecutions, then perhaps at least a small part of the serious injustice that the Enron Task Force's demonization of Enron has heaped on innocent businessmen and their families can still be corrected.

Posted by Tom at 4:30 AM | Comments (0) | TrackBack (3)

July 18, 2005

Feinstein on Nicklaus and Woods

In this Washington Post column, noted author and columnist John Feinstein comments on Jack Nicklaus' farewell to the British Open and, in so doing, observes that 2005 British Open champion Tiger Woods -- while likely to break Nicklaus' record of winning 18 major championships -- has a much more difficult task ahead of him in equaling Nicklaus' qualities as a champion:

Woods seems to think that Nicklaus's legacy is only about numbers, that winning golf tournaments is the only thing that measures a champion. Nothing could be further from the truth, especially in golf.

Woods already holds many records. One of them, which is unofficial, is that he has been fined for using profanity publicly more than any player in history. While using profanity in the crucible of competition is hardly a great crime, it is indicative of Woods's attitude that, rather than try to curb his use of language, he has complained that he is being treated unfairly since there are always microphones following him when he plays. Last month, during the U.S. Open, Woods missed a putt and childishly dragged his putter across the green, damaging it as he did so. When he was asked about the incident later, he shrugged and said, "I was frustrated," (no apology) as if he was the only player among 156 dealing with frustration. In recent years he has allowed his caddie, Steve Williams, to frequently treat spectators and members of the media rudely, not only defending him but also appearing to sanction his misbehavior.

Woods is extremely popular with the golfing public, in part because of his extraordinary play and in part because of a carefully crafted image built around a series of commercials that show him to be a funny and friendly guy. Sadly, that's not the Woods most people encounter. He is the master of the TV sound bite, but he rarely shares any of his real thoughts with the public.

Someday, Tiger Woods will walk across the Swilcan Bridge on the 18th fairway at St. Andrews and say farewell the way Nicklaus did on Friday. No doubt he will be cheered for his greatness as a golfer, just as Nicklaus was. But those cheers -- and the tears -- were not just for a golfer, they were for a man; one who has always won and always lost with grace and dignity. As a golfer, Woods will no doubt continue to close the gap inexorably on Nicklaus's records. He has a much longer road to travel to match him as a true champion.

What's interesting about Feinstein's comparison is that Nicklaus -- while always acknowledged as the best golfer of his generation -- has not always been a universally revered figure. Known as "Fat Jack" when he joined the tour in the early 1960's, Nicklaus toiled during his first several years in the shadow of the more popular and personable Arnold Palmer. Despite the warm and fuzzy memories recalled this week at St. Andrews, Nicklaus and the Scottish crowd did not always get along so well. The first few times that Nicklaus first played the British Open, he criticized the dry courses and wondered publicly why the courses did not have sprinklers. On the other hand, the Scots criticized Nicklaus for playing too slow, which was a common criticism of Nicklaus on the PGA Tour for years. Even Nicklaus' business practices in golf industry have resulted in criticism that he elevated personal interests over those of his shareholders.

However, Feinstein is correct that no one ever disputed that Nicklaus was a great golf champion, and it's a growing blot on Woods' golfing record that many are now questioning that quality in him.

By the way, the only time that I met Woods personally -- which was back when Woods was in college and practicing at my club in Houston from time-to-time with my club's former pro, Butch Harmon -- Tiger was extremely courteous and personable, thanking me as a club member for allowing him to practice at our club. My impression was that his parents raised him well.

Posted by Tom at 7:12 AM | Comments (5) | TrackBack (0)

Why they hate us

Yaroslav Trofimov is a Wall Street Journal reporter from the Ukraine who is fluent in Arabic. While carrying an Italian passport, Mr. Trofimov traveled through the Middle East recently interviewing Muslims for his new book, Faith at War : A Journey on the Frontlines of Islam, from Baghdad to Timbuktu (Henry Holt and Co. 2005).

In this NY Times Book Review, reviewer Philip Caputo notes that many of Mr. Trofimov's encounters led him to the conclusion that poverty is not the root cause of Islamic extremism. More often than not, the most radical ideas regarding Western civilization came from the relatively wealthy and privileged who had experience with the West, not the downtrodden who are typically cast as the primary source of Muslim animus toward the West. One anecdotal experience is particularly telling:

On [Mr. Trofimov's] first stop, Cairo, undergraduates dining in a McDonald's a few days after 9/11 demonstrate that it's possible to delight in a Big Mac and in the fiery deaths of 3,000 Americans at the same time. "Everyone celebrated," an 18-year-old university student gushes as she dips her fries into ketchup, "cheering that America finally got what it deserved."

Posted by Tom at 6:48 AM | Comments (0) | TrackBack (0)

DFW's new Terminal D

This U.S.A. Today article does a nice job of reporting on the opening later this week of Dallas/Fort Worth International Airport's massive new international Terminal D, a $1.4 billion, 28-gate terminal that includes a Grand Hyatt Hotel and the latest features designed to move passengers with comfortable efficiency.

However, as the article points out, whether the new terminal is actually needed is far from a settled issue. The Terminal D project is part of a massive $2.7 billion airport expansion that is the biggest Texas airport construction project ever, and the tenant airlines' cost per passenger will nearly double when the terminal opens. Although that's about an average increase in comparison with other increases resulting from recent terminal construction projects at major airports, it's still no bargain.

If that's not enough, the new terminal is opening at a time in which DFW has an excess-capacity problem. When construction started five years ago, but now 19 of 37 gates in DFW's terminal E are empty, and more will be emptied when some remaining carriers there move into the new Terminal D. Even though airlines will use nearly all of terminal D's gates when it opens, the terminal will initially operate at only about 50% of capacity.

All of which makes me very appreciative of Houston's relatively efficient and far less costly airports.

Posted by Tom at 6:16 AM | Comments (1) | TrackBack (0)

That's one helluva hangover

With Enron and other business scandals, it's been a bit difficult to keep up with the ongoing grand jury investigation in Boston into whether mutual fund employees improperly accepted gifts or entertainment from brokers. Fidelity Investments has already disciplined 16 traders over matters relating to the investigation and five employees have left the company.

But even a grand jury investigation is merely a prelude for this Wall Street Journal ($) article that reports on the grand jury's investigation into the details of the bachelor party of former Fidelity star trader Thomas Bruderman, who happened to be marrying the daughter of former Tyco International CEO Dennis Kozlowski. Small world, eh?

At any rate, the Journal article reports that the investigation has confirmed that this was not your typical bachelor party:

The festivities began with a trip by private jet from Boston to a small airport outside New York City. There, the revelers picked up some Wall Street traders and at least two women who investigators suspect may have been paid for their attendance, say people familiar with the matter. The partygoers -- including the groom-to-be, who was getting ready to marry the daughter of former Tyco International Ltd. boss L. Dennis Kozlowski -- then continued to trendy South Beach in Miami. The fun included a stay at the ritzy Delano Hotel for some, a yacht cruise and entertainment by at least one dwarf hired for the occasion.

"Some people are just into lavish dwarf entertainment," says the 4-foot-2 Danny Black, a part-owner in Shortdwarf.com, an outfit that rents dwarfs for parties starting at $149 an hour. Mr. Black says he spent part of the weekend on the yacht and worked as a waiter on the Friday night at a high-end Miami eatery alongside what he called "regular size" people. "A good time was had by all," he said, declining to provide further details.

One firm, Jefferies Group, paid for $75,000 worth of airfare to shuttle [the participants] to the bachelor party, according to people familiar with the matter. A person familiar with the matter said SG Cowen, a unit of Société Générale SA, paid for the yacht party, which ran to almost $10,000.

Photos of the weekend are circulating on Wall Street, including ones of men and scantily clad women frolicking on a yacht, according to three people who have seen them. In one picture, Mr. Kozlowski is standing with a dwarf on the boat, according to people familiar with the situation. . .

Regulators have been able to piece together some of what happened that weekend . . . through interviews with participants and by reading email and other electronic communications.

Criminalizing agency costs is bad enough, but bachelor parties?

By the way, I do not believe that I have led a particularly sheltered life, but I must admit that I did not know that you could rent a dwarf for entertainment.

Posted by Tom at 5:09 AM | Comments (0) | TrackBack (0)

Professor Hamilton reviews the week in oil prices

Even before he started his smart blog recently, Professor James D. Hamilton of the University of California at San Diego was one of my favorite experts on the economics of energy prices (previous posts here).

In this post, Professor Hamilton reviews several interesting tidbits of information that affect oil prices, which declined 5% last week. Of particular note -- the futures market currently allows for a purchase of oil for delivery in December, 2011 for under $55 a barrel.

Posted by Tom at 4:26 AM | Comments (0) | TrackBack (0)

July 17, 2005

The risk of rising U.S. debt

Awhile back, this post made the point that, rather than focusing on CNOOC's bid to overpay for a second tier U.S. oil & gas company such as Unocal, the real issue that needs to be addressed is that American society is currently impoverishing future generations of Americans by accumulating more debt.

Picking up on that issue, James D. Hamilton provides this insightful analysis that explains why the issue is not the amount of debt that foreigners hold, but the low U.S. saving rate. As noted earlier, the effect of Unocal's bid on Chevron and Unocal is a much narrower issue.

Posted by Tom at 7:36 AM | Comments (2) | TrackBack (0)

More on the criminal investigation of Milberg Weiss

This New York Sunday Times article provides the most detailed report to date on the three-year investigation into whether prominent class action securities plaintiffs lawyers -- William Lerach and Melvin I. Weiss -- and their former New York law firm -- Milberg Weiss Bershad & Schulman -- paid illegal kickbacks to class representatives in connection with various class action cases over the years. Earlier posts on the matter are here and here.

After noting that both Messrs. Weiss and Lerach recently declined a government request to enter into a tolling agreement regarding the statute of limitations on possible crimes involved in the criminal investigation, the Times article provides the most specific description of the possible basis of the government's criminal investigation of the former Milberg Weiss lawyers. Referring to the recent indictment of California lawyers Seymour M. Lazar and Paul T. Selzer

. . . the payments outlined in the indictment [of Messrs. Lazar and Selzer] were referral fees paid to law firms representing Mr. Lazar - fees that are common throughout the plaintiff's bar. But legal analysts say that if the fees were paid to the law firms with the unspoken understanding that the money would be given to Mr. Lazar, then that would be improper.

"They're supposed to be a representative of the class itself, or are supposed to be similarly situated to the other class members," said George M. Cohen, a law professor at the University of Virginia, about lead plaintiffs in class-action suits. "If they are getting lots of money from the law firm, then they are more likely to do things that are good for the law firm and bad for the class."

If this is all the government has, then my sense is that the government has a very difficult case against the Milberg Weiss lawyers. Not only are many of the alleged overt acts far beyond the applicable statute of limitations (prosecutors will probably try to bootstrap those acts through a conspiracy charge), proving that referral fees paid to law firms were really disguised kickbacks for Mr. Lazar will be problematic, to say the least. Those referral fees were almost certainly approved by the courts overseeing the class action settlements under which they were paid, so prosecutors are going to have to prove that the Milberg Weiss lawyers simply used the law firms receiving the referral fees as a conduit to pay Mr. Lazar undiclosed payments for serving as a class representative.

In short, the government's theory of criminal liability is based on an undiclosed oral side deal. Sound familiar?

Note that Professor Ribstein also thinks this investigation sounds strikingly similar to the criminalization of agency costs that has been going on for some time in regard to the Enron, Tyco, AIG, etc.

Posted by Tom at 5:58 AM | Comments (0) | TrackBack (2)

The Robertsons of Houston

The late Corbin Robertson, Sr. was a bright business mind when he came to Texas as a young man from Minnesota in the 1940's. After marrying Wilhelmina Cullen -- the daughter of famous Houston wildcatter Hugh Roy Cullen -- Mr. Robertson ultimately became the brains behind the investment of the Cullen Family oil and gas fortune, a role that Richard Rainwater successfully emulated decades later for Ft. Worth's Bass Family. Houston benefitted greatly from Mr. Robertson's business acumen as both the Cullen and Robertson families became among Houston's greatest philanthropists, contributing huge amounts to institutions such as the University of Houston and the Texas Medical Center.

Mr. Robertson's son -- longtime Houston businessman Corby Robertson, Jr. -- has continued his legacy of astute business acumen and philanthropy. After starring as an outside linebacker for the University of Texas football teams of the late 1960's, Mr. Robertson returned to Houston and worked his way into assuming leadership from his father of the Robertson Family's closely-owned oil and gas business, Quintana Petroleum Corporation. However, over the years, Mr. Robertson has branched his family's fortune into the ownership of a non-sexy but more plentiful (and potentially more lucrative) alternative energy resource -- coal.

As this Chronicle article reports (here is an earlier Forbes article), Mr. Robertson's Natural Resource Partners, a Houston-based master limited partnership -- has a market capitalization of $1.6 billion and, since going public on the New York Stock Exchange in 2002, the value of the partnership's units have more than tripled to a recent price of $63. Quarterly distributions have also increased 62 percent since the partnership went public.

By the way, one item the Chronicle article missed is that, among his many civic duties, Mr. Robertson is currently the chairman of the board of Baylor College of Medicine, where he has led Baylor's board during its historic split last year with its longtime primary teaching hospital in the Texas Medical Center, Methodist Hospital. Nevertheless, the Chronicle article is a good overview of the business background of Houston's First Family of energy and highlights the business talent that has helped make Houston the energy capitol of the United States.

Posted by Tom at 5:00 AM | Comments (0) | TrackBack (1)

July 16, 2005

The abysmal condition of the Harris County Jail

Over my 26 year legal career, a local issue that has been continually discussed among Houston attorneys is the horrid condition of the Harris County Jail.

This is not an easy issue. The constituency most interested in the issue -- prisoners -- is neither attractive nor important to politicians. Similarly, the issue brings into sharp focus a public policy conflict that governments have ducked for decades -- i.e., the tendency of politicians to indulge the public demand for tougher sentencing for political purposes while attempting to avoid responsibility for most government's booming deficits and debt. Stated simply, politicians are not particularly interested in dealing with the fact that governments either have to accept that tougher sentencing means more prisoners and more money spent on building prisons or -- if government is not willing to spend the money -- fewer and shorter prison terms for offenders.

With that backdrop, it's not particularly surprising that, after noting that almost 1,300 inmates are sleeping on mattresses on the floor of the Harris County Jail while large sections of the jail are unused because of a guard shortage, the Texas Commission on Jail Standards has decertified the Harris County Jail for the second year in a row. This Steve McVicker/Bill Murphy Chronicle article reports on the Commission findings.

So, how are our politicians responding to this embarrassing problem? As you might expect, by blaming anyone other than themselves:

Calling the panel "a bunch of arrogant fools," Precinct 3 County Commissioner Steve Radack said Friday that the Texas prison system helped cause the problem by failing to take inmates off the hands of Harris and other counties on schedule.

"The state wants to send a proctologist down here to see what the problem is. And the problem is, (state officials) are the ones that have stacked up the system," Radack said. "If the state of Texas got its prisoners out of our jails and kept them themselves, we wouldn't have all these problems."

Unfortunately, there is a small problem with Commissioner Radack's criticism of the state prison system -- it isn't true:

Under an agreement between the state and the counties, TDCJ has a 45-day window to transport prison-ready inmates to state facilities. The prison system's Mike Viesca says the state is averaging 22 to 23 days in getting county inmates moved to state custody.

Meanwhile, Texas Governor Rick Perry is doing his part to ensure that the problem is not addressed responsibly:

State Sen. John Whitmire, D-Houston, expressed concern this week about a possible return to overcrowding in state prisons and county jails. . . Whitmire, chairman of the Senate Criminal Justice Committee, . . . voiced disappointment about Gov. Rick Perry's recent veto of Whitmire's legislation that would have lowered mandatory probation terms from 10 years to five � a measure that Whitmire said would have reduced the prison population.

And it's not as if the governor and legislators are uninformed about the brewing problem:

In January, Texas prison officials told state lawmakers they expected to run out of prison space this year and may need an emergency appropriation to lease space in county jails. . . The prison system was at 97 percent of capacity then, with more than 150,000 inmates.

Meanwhile, Harris County Sheriff Tommy Thomas concedes that there are serious staff shortages at the jail, but for some reason has failed to bring this issue to the attention of the Harris County Commissioners in the form of a request for increased funding of the county jail system.

It has been often observed that the state of society's prisons are an accurate reflection of that society's values. The horrific conditions in the Harris County Jail are an outrageous and embarrassing reflection of our community's values. Take note of the politicians who continue to avoid addressing the problem, for they are the ones who fiddle while Rome burns. Unfortunately, they are so clueless that they do not know that they are fiddling, nor that Rome is burning.

Posted by Tom at 7:00 AM | Comments (5) | TrackBack (1)

July 15, 2005

More on the Enron Broadband trial closing arguments

Following on this post from earlier this week on the closing arguments in the Enron Broadband trial, a Clear Thinkers reader offered the comments below on the closing arguments, a transcript of which is downloadable here (the pdf file is bookmarked in Adobe Acrobat for each morning and afternoon session of the arguments).

Inasmuch as the author of the following comment actually attended the closing arguments (I did not), the author's account is different -- and likely far more accurate -- than mine:

The trial may have been a snoozer, but the closing arguments were not -- everything but [Prosecutor Ben] Campbell's arguments, that is.

From watching the jury, about three of the fourteen were even looking at Campbell during his three hour argument, which included such "zinger" lines as: "I'm from Iowa, and I didn't just fall of the turnip truck, and neither did you," and "As Jerry Maguire said, 'Show me the money!'" That's right, he referenced Jerry Maguire.

Defense attorneys had a better time holding the jury's attention, Dave Angeli through power-points and videos, and Tony Canales through colorful analogy and talking directly to the jury. At the end of both attorneys' arguments, the jury was intent and leaning forward. After Mr. Canales's, half the jurors -- and all of the defendants' families and friends -- were in tears. At some point Canales retorted, "Show me the money? How about show me the evidence!" He also showed the indictment to the jury (though the government filed a motion to keep it away from the jury) which, if you read it, is all about the Shelby BOS video, which was never shown. He then said, in reference to the supposedly damning Collins lipstick email, "you can put all the lipstick you want on this indictment, it isn't going away." If at this point the jury just wants relief from the drudgery of the trial, they got their wish from the defense.

It's interesting, however, that you think the prosecution laid off of the Braveheart group, because both Campbell and [Prosecutor Cliff] Stricklin spent over half their time talking about them. This is a stark contrast from the one-tenth of the time spent on them during the actual trial. If Campbell and Stricklin laid off of anyone, it was actually Shelby and Yeager. Yeager was hardly mentioned in Champbell's argument, and both he and Shelby were mentioned for ninety seconds each during Stricklin's argument. My impression of the end was that they are cutting their losses and going after Hirko for insider trading (the conspiracy theory has pretty much fallen flat) and after Kraus and Howard.

Though the Braveheart deal is ridiculously confusing, those defendents might be in trouble. It is tough for the government to prove an "oral side deal" because the accountants and experts say it was completely in compliance with accounting rules *and* what the contract said was exactly what happened (there was never a third party buyout, the money was lost, etc.). Yet because it is so confusing, the defense has not been able to explain clearly to the jury exactly what happened. Not even closing arguments brought clear explanation. The Braveheart case might keep the jury out for a while.

Last, (and I'm clearly showing my bias here), I like what I'm hearing about the prosecutors' tactics. Though I see the need for anti-mafia laws that make prosecuting organized crime easier, I don't agree those tactics should be used for white-collar crime. Our government has turned into a brute squad. They sent five guys to bang on Beth Steir's door on Friday night after the Shelby II debacle, and made her cry on the stand. Why? They said she lied to the government by not giving them the correct tapes.

In reality, the FBI had the raw footage from her for six months and never watched it. Canales said yesterday, "doesn't the 'I' in FBI stand for 'investigation'?" The defense got the raw footage from the government - not Beth Steir. Also, The government called Larry Ciscon three times the night before he testified to remind him he was a target.

Even worse, the government destroyed the evidence in this case, namely, the software and the servers. They went to the POPs and scrapped the servers and sold them off. Arthur Anderson gets dismantled for destroying backup copies of non-critical documents. The American government destroys evidence and three years of a defendent's life goes down the drain. This is our America . . . with liberty and justice for all.

I know I'm running the risk of sounding inflammatory, but this whole case has been an abuse of power. Campbell said that money corrupts. I say power corrupts, and the abolute power of an Enron Task Force backed by millions of tax dollars, Rico, and the Patriot Act, has corrupted them absolutely.

Update: Dave, the Clear Thinkers reader who wrote the above account of the closing arguments in the Broadband trial, makes an interesting further comment below about the probable genesis of the Task Force prosecution's closing argument in the Broadband trial -- former Enron Task Force prosecutor's John Kroger's law review article, Enron, Fraud and Securities Reform: An Enron Prosecutor's Perspective.

As noted in this previous post, one of the most outrageous aspects of the government's investigation of Enron has been the Enron Task Force's misguided demonization of many of Enron's perfectly legitimate structured finance transactions. As Dave notes, this criminalization of structured finance has been the product of decisions of people such as Kroger who have no background or specialized knowledge regarding structured finance. Moreover the Task Force did not bother to obtain expert guidance on those transactions before making the decision to criminalize them. The misguided nature of the Enron Task Force criminalization of many of Enron's valid structured finance transactions has already been well-chronicled by University of Chicago structured finance expert Christopher Culp and others in two recent books, Corporate Aftershock (Cato 2003) and Risk Transfer (Wiley 2004).

Thus, the Enron Task Force's mischaracterization during the Enron Broadband trial of the Braveheart transaction -- a standard structured finance transaction that had no criminal intent or purpose -- is simply another outrage by a Task Force that is quickly becoming synonomous with prosecutorial misconduct.

Posted by Tom at 9:43 AM | Comments (1) | TrackBack (0)

Noose tightening for Bonds?

Victor Conte, the founder of Bay Area Laboratory Co-Operative, which is at the center of a steroid scandal involving Major Leage Baseball star Barry Bonds and other top athletes, has agreed to plead guilty today to steroid distribution and money laundering under a plea bargain with federal prosecutors. Here is a previous post on the legal problems that Mr. Bonds is facing in connection with that investigation.

Mr. Conte is one of four men -- including Mr. Bonds weight trainer, Greg Anderson -- who were charged last year with dozens of counts in connection with providing distributing illegal drugs to more than 30 professional baseball, football and track and field athletes. Some of the biggest names in professional sports -- including Mr. Bonds, New York Yankees slugger Jason Giambi and track star Marion Jones -- have been under suspicion based on Balco grand-jury transcripts that were leaked to the San Francisco Chronicle.

Posted by Tom at 7:49 AM | Comments (1) | TrackBack (1)

Is Emily heading for Brownsville?

It's looking increasingly as if Hurricane Emily -- currently a powerful category 4 hurricane -- is headed toward Brownsville and the Texas Rio Grande Valley, probably by Tuesday of next week. Current projections have Emily weakening while it goes over the Yucatan Peninsula this weekend, but strengthening to a category 3 storm once it travels back over the warm Gulf waters.

After having virtually no rainfall for a 45 day period prior to July 1, the Houston area has received as much as 10 inches of rainfall over the past two weeks.

Posted by Tom at 6:49 AM | Comments (0) | TrackBack (0)

Hank fights back

With the criminal investigation of American Insurance Group, Inc. and Berkshire Hathaway unit General Re heating up earlier this week, former AIG chairman and CEO Maurice "Hank" Greenberg made his first detailed public comments regarding the propaganda campaign that New York AG Eliot Spitzer has orchestrated against him.

Mr. Greenberg told a group of current and former AIG executives that at least one of the accounting "errors" that AIG has acknowledged subsequent to his leaving the company -- the failure of AIG to expense executive compensation provided by a Greenberg-controlled company -- had been thoroughly reviewed and approved by AIG's lawyers and accountants before AIG ever approved the arrangement.

Mr. Greenberg's remarks came at the annual shareholders' meeting of C.V. Starr & Co., the closely-held company that 80 AIG executives own and which Mr. Greenberg used while at AIG to supplement the salaries of key AIG executives. About 50 of C.V. Starr's shareholders -- including some current AIG exectives -- attended the meeting. Mr. Greenberg and the three Starr organizations he heads control a large chunck of AIG stock, about 17.5% as of March 31, 2005. Starr International has previously provided a deferred-compensation program for AIG executives, while C.V. Starr has served as a conduit for selling AIG insurance to businesses.

In his comments -- which reportedly drew applause at least once -- Mr. Greenberg promised at least one "white paper" that will rebut AIG's restatement of five years worth of earnings and the allegations of accounting improprieties that Mr. Spitzer has made in a civil-fraud lawsuit against Mr. Greenberg and AIG. Mr. Greenberg stated that the white paper would be sent to regulators and then made available to the public.

Mr. Greenberg also advised his audience that AIG's previous accounting for the compensation that Starr International provided to AIG executives had been reviewed and approved by AIG's legal and accounting advisers. Moreover, when AIG board members raised questions about using Starr International as a compensation vehicle, Mr. Greenberg stated that he offered to put the issue to a vote of AIG shareholders, but that the AIG board declined to do so. Finally, Mr. Greenberg stated that a 2003 letter from an outside law firm advised AIG that its disclosure of the Starr International compensation plan in regulatory filings was appropriate.

Regarding Mr. Greenberg's comments, a spokesman for Mr. Spitzer stated that "we stand by the lawsuit we filed."

Posted by Tom at 5:50 AM | Comments (0) | TrackBack (0)

Another Enron plea bargain

On the day that the jury in the Enron Broadband trial began deliberations, the Enron Task Force announced that Christopher Calger, a former executive with Enron North America, had pleaded guilty to a criminal conspiracy count and agreed to cooperate with Task Force prosecutors in their investigation of a transaction that is expected to be part of the Task Force's upcoming "legacy" criminal trial against former Enron top executives, Kenneth Lay, Jeffrey Skilling, and Richard Causey. The Department of Justice press release on the indictment is here.

The plea bargain involved a convoluted 2000 transaction known as Coyote Springs II in which the company sold some energy assets -- including a turbine and an equity interest in a power plant -- to another company called Avista Corp. That transaction is part of the wide-ranging indictment against Messrs. Skilling and Causey in which the Task Force alleges that Mr. Causey knew about the hidden role in the deal of LJM2, which is one of the seperate partnership entities that Andrew Fastow managed while serving as CFO of Enron. Although Mr. Causey's name is not used in the plea deal, Mr. Calger admits that Mr. Causey had approved part of the LJM2 financial arrangement.

Although the Justice Department's press release on the Calger plea deal is almost incomprehensible, this is what can be pieced together at this point. Mr. Calger was a vice president in charge of the West Power Origination group of Enron North America (ENA), in which he supervised the sale of an ENA project known as Coyote Springs II (CS2) to a subsidiary of Avista Corp.

The CS2 project consisted of essentially three property interests, an equity interest in a power plant, an interest in a turbine that would be placed in the plant, and an interest in a construction contract to build the plant. The government alleges that Mr. Calger and others engaged in a scheme to allow Enron to recognize earnings prematurely and improperly on the part of the deal relating to the turbine sale by violating a requirement of Enron's auditors (Arthur Andersen) that conditioned Enron's recognition of an immediate gain on the sale of the turbine being "independent" from the sale of the equity in the plant. To accomplish such independence, Andersen required the turbine sale be seperated by two weeks from the sale of equity. So goes the interpretation and implementation of often arcane accounting rules.

At any rate, Andersen's requirement of a two week seperation in the transaction apparently did not sit well with Avista, which did not want to take the risk that it would be stuck with the turbine if for some reason its purchase of the equity in the plant did not close two weeks later. To alleviate that concern, the government alleges that Mr. Fastow intervened with the help of LJM2, one of the Fastow-controlled partnerships that were otherwise seperate entities from Enron.

According to the government's version of events, ENA financed an LJM2 "put" option to Avista under which Avista had the right to require LJM2 to buy the turbine from Avista if Enron did not come through and sell the equity interest in the plant to Avista two weeks later as promised. In that regard, LJM2 apparently agreed to refund to ENA about $3.1 million of the $3.4 million put option payment if the option expired as a result of Avista closing on the purchase of the equity interest in the plant. Finally, ENA also allegedly agreed to buy the turbine from LJM2 if Avista exercised the put option requiring LJM2 to purchase the turbine from Avista.

The hedging transactions turned out not to be needed as the deal proceeded to close as planned. The put option expired when Avista's purchase of the equity interest in the plant from ENA closed two weeks after Avista's purchase of the turbine, and LJM2's $3.1 million "put option refund" to ENA was allegedly financed by Enron through a credit to ENA, with LJM2 promising to repay Enron that amount in connection with "future transactions."

This is where the DOJ press release gets a bit foggy. According to the government, Mr. Calger admits in his plea agreement that ENA "improperly" hid LJM2's participation in the transaction and "oral agreements referenced above" (no such oral agreements are referenced in the press release) from Arthur Andersen. To make the government's position even more confusing, the Task Force alleges that Mr. Calger admits receiving "a draft legal risk memorandum" relating to the transaction in which an in-house Enron lawyer confirms LJM2's participation in the transaction and states "in substance" that the "understanding" between ENA and LJM2 could not be documented due to "accounting concerns" and that such "understanding" was not contained in ENA's internal deal approval sheet for the transaction. Without explaining how a reference to LJM2's participation in the transaction in an internal ENA memorandum equates to hiding LJM2's participation in the transaction, the government goes on to contend that Mr. Calger admits that ENA withheld "this information from outside review" while Enron's internal lawyers and accountants approved the transaction.

Accordingly, based on the foregoing description of the transaction, count me as skeptical that Mr. Calger is truly guilty of anything other than melting to the not insubstantial pressure that the Task Force placed on him to plead guilty and agree to testify against Mr. Causey. Inasmuch as there does not appear to be anything wrong or particularly unusual with ENA financing a hedge for Avista in the form of an LJM2 put option, it appears that the government's focus on this transaction will probably be the alleged oral promise of ENA to purchase the turbine from LJM2 in the event Avista had exercised the put that required LJM2 to purchase the turbine from Avista. As it argued in the Nigerian Barge case, the government will probably contend that the ENA sale of the turbine to Avista was not a "true sale" because of ENA's alleged contingent obligation to repurchase the turbine from LJM2.

At any rate, my sense is that the Calger plea bargain is an effort to place more pressure on Mr. Causey to enter into a similar plea deal in which he would agree to testify against Messrs. Skilling and Lay because -- after the embarrassing impeachment of its key witness in the Enron Broadband trial -- the Task Force cannot be particularly comfortable with the prospect of the discredited Mr. Fastow being their key witness in the upcoming legacy trial.

Mr. Calger is the 34th person to be charged and the 16th individual to enter into a plea bargain as part of the government's Enron criminal investigation. The Calger plea deal is a sign that the Task Force is ratcheting up the pressure on other potential witnesses for the upcoming legacy trial, which is scheduled to begin in mid-January, 2006. The Task Force has already contended in court papers in that case that they believe that Messrs. Lay, Skilling and Causey had more than 100 co-conspirators, none of whom have yet to be identified publicly. The use of the co-conspirator tag to chill witnesses from testifying favorably for Messrs. Lay, Skilling and Causey -- while at the same time procuring favorable prosecution testimony by pressuring witnesses such as Mr. Calger into plea deals over questionable alleged crimes -- is yet another dubious tactic that the government is using to elevate obtaining convictions over the pursuit of truth in the ongoing saga of Enron.

Posted by Tom at 4:26 AM | Comments (0) | TrackBack (0)

July 14, 2005

Light rail where? In New Mexico?!

The economic pox of light rail is even filtering down to New Mexico, which enjoys one of the least densely populated areas in the nation. Despite the absurdity of this economic boondoggle, this common sense analysis keeps a straight face while evaluating the light rail proposal.

Posted by Tom at 6:47 AM | Comments (3) | TrackBack (0)

The high price of cooperation

Berkshire Hathaway's decision to roll over and provide government investigators anything they want in connection with the multiple investigations into the transactions between Berkshire General Reinsurance Corp. and American International Group, Inc. is starting to look like a very costly one.

This Wall Street Journal ($) article reports that federal prosecutors are examining whether Joseph Brandon, chief executive of General Re and a close confidant of Berkshire's icon, Warren Buffett, played a role in the transaction between General Re and AIG that has spawned a cottage industry of investigations into General Re, AIG, and other companies that have engaged in similar "finite risk" structured finance insurance transactions. The 46 year old Mr. Brandon -- who took over as General Re's CEO in 2001 -- is the highest-ranking executive at General Re to be investigated in the matter who is still employed at General Re.

A portion of the WSJ article describing the investigation underscores the absurd length to which the government will now go in its campaign to criminalize agency costs:

The fact that Mr. Brandon learned about Gen Re's accounting for the AIG transaction as a loan rather than insurance around the time of the conversations with Mr. Buffett may not present problems for him in the eyes of regulators, people close to the situation say. But if investigators determine that Mr. Brandon also understood the purpose of the transaction for AIG and how AIG accounted for it, he might be vulnerable to charges, the people close to the inquiries say.

Stated another way, prosecutors appear to be suggesting that if Mr. Brandon was informed that the transaction was beneficial for AIG from an accounting standpoint, then he committed a crime.

It is simply impossible to square the foregoing theory of criminal liability with the following language of Chief Justice William Rehnquist in the Supreme Court's recent Arthur Andersen decision:

We have traditionally exercised restraint in assessing the reach of a federal criminal statute, both out of deference to the prerogatives of Congress, . . . and out of concern that "a fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed."

Posted by Tom at 5:58 AM | Comments (0) | TrackBack (0)

Stros 2005 Review: Checking in with the Stros at the halfway point

What a difference a year makes.

Last year at this time, this post about the Stros reflected the overwhelming pessimism that surrounded the team -- the hitting was lousy and the pitching staff was reeling from the loss of Wade Miller and the sore elbow of Andy Pettitte. Of course, that club turned things around dramatically during the last third of the season to take the Wildcard playoff spot and come within a game of the World Series.

On the other hand, this year, the Stros strutted into the All-Star Break on a 29-13 run, the Rocket and Roy O are the top two pitchers in the league, 3B Morgan Ensberg is having a career year, Bidg is performing remarkably, and Berkman is hitting his stride after returning late from off-season knee surgery. As opposed to last season, the overall feeling is one of sunny optimism.

The funny thing about the foregoing is that this season's Stros team (44-43) has lost only one less game than last season's club (44-44) at this time. Expectations certainly color attitudes toward performance, don't they?

Interestingly, the Stros' first half performance last season and this season demonstrates the underlying value of my favorite baseball statistics -- runs created against average ("RCAA," explained here) and runs saved against average ("RSAA," explained here) -- as a tool to reflect and predict performance. By adding team RCAA and RSAA together, the resulting sum gives you a useful statistic to compare a club's performance against that of its competitors -- that is, the number of runs a club's hitters have created as compared against an average National League team and the number of runs a club's pitchers have saved as compared against an average National League team.

At this time last season, that Stros club had a net RCAA/RSAA number of 14 (27 RSAA/-13 RCAA), and this season's club has a net RCAA/RSAA number of 8 (36 RSAA/-28 RCAA). A precisely average National League club would have an RSAA/RCAA figure of exactly zero. Thus, given those slightly above-average overall performances, the fact that both Stros teams had a slightly above average record of about .500 through the first half of their seasons is right on par with their performance relative to the rest of the league.

By the way, if you are wondering whether you should give in to the notion that this season's Stros club is a serious playoff contender, please note that last season's club -- that just barely captured the Wildcard playoff spot after an incredible 36-10 burst to close the season -- ended the season with a 96 net RCAA/RSAA number. Accordingly, this Stros club would have to show a similar level of improvement in the second half to contend seriously for the Wildcard playoff spot.

At any rate, the Stros recent surge has been the result of better hitting and continued solid pitching. Here are the Stros' RCAA as of the All-Star Break, courtesy of Lee Sinins:

Morgan Ensberg 26
Craig Biggio 13
Lance Berkman 11
Orlando Palmeiro 4
Jeff Bagwell 1
Eric Bruntlett -3
Humberto Quintero -3
Willy Taveras -3
Luke Scott -4
Todd Self -4
Jose Vizcaino -5
Jason Lane -7
Adam Everett -8
Raul Chavez -10
Mike Lamb -11
Brad Ausmus -12
Chris Burke -13

Since June 25, the Stros have raised their team RCAA from -67 to -28, which is 13th among the 16 National League teams. Ensberg has been unconcious recently, but expect him to cool off during the second half to the 15-20 RCAA level. Similarly, Bidg is an incredible 39 year old, but the dog days of summer will likely taper his RCAA a bit as the season wears on.

On the other hand, Berkman's RCAA will continue to increase in the second half and likely will more than offset any decline in Ensberg and Bidg's numbers. Unfortunately, looking at the remainder of the Stros' hitters, it does not appear any of the others are likely candidates for a big increase in RCAA. The one possible exception is RF Jason Lane, who has put up decent power numbers during the first half despite showing abysmal plate discipline, which is reflected in his far below average on-base percentage.

Thus, inasmuch as the Stros have no good power hitting prospects in the upper tier of their minor league system, this Stros club is not likely to do much better than their current .500 record the rest of this season unless the club can acquire at least one top notch power hitter via a trade. The Stros have some mediocre young talent at the MLB level that might be marginally attractive for trade purposes (Burke and Backe come to mind) and the club has about a half dozen number of good young pitchers in their minor league system that they can use as trade bait. However, General Manager Tim Purpura's background is in player development and it is doubtful that he would offer either of the Stros' top minor league pitchers -- RHP Fernando Nieve (AAA Round Rock) or Troy Patton (high A Salem)-- in a trade unless it would be for an Adam Dunn-rype quality hitter. So, even though trading for a slugger is really the only way that the Stros are likely to contend for another Wildcard playoff spot this season, it does not appear that the Stros are likely to give up what it would take to make such a trade before the trading deadline at the end of this month.

As noted, the Stros pitching continues to be superb. The following are the Stros' pitchers RSAA as of the All-Star Break:

Roger Clemens 38
Roy Oswalt 29
Andy Pettitte 15
Dan Wheeler 11
Brad Lidge 8
Chad Qualls 2
Mike Gallo 0
Mike Burns -1
Russ Springer -4
John Franco -5
Chad Harville -5
Brandon Backe -9
Brandon Duckworth -12
Ezequiel Astacio -15
Wandy Rodriguez -16

The Stros team RSAA of 36 remains fourth in the National League. The Rocket and Roy O have been spectacular, and Pettitte, Dan Wheeler and Lidge have been very good. However, with Pettitte and Lidge nursing recent arm problems, and the fourth and fifth starter positions remaining shaky (a -52 RSAA generated from those two slots!), there are definitely some signs that the pitching could erode a bit during the second half. My sense is that top pitching prospect Nieve will make his way to Houston from AAA Round Rock sometime in the next couple of months.

The Stros start the second half with a 10 game roadie against the Cards (56-32), Pirates (39-48) and surprising Nationals (52-36), then return home next week for a seven game homestand against the Phillies (45-44) and the Mets (44-44).

Posted by Tom at 4:03 AM | Comments (1) | TrackBack (0)

July 13, 2005

Ebbers receives an effective life sentence

Former WorldCom CEO 63 year old Bernard J. Ebbers received a 25 year sentence for his conviction on charges of securities fraud, conspiracy and seven counts of filing false reports with regulators relating to an a multi-billion accounting fraud that resulted in the bankruptcy of WorldCom. Here are the previous posts on the Ebbers case.

Meanwhile, former mid-level Dynegy executive Jamie Olis continues to serve a 24 year sentence even though the market loss (if any) attibutable to the accounting project on which he worked is a fraction of that which occurred in regard to WorldCom. Indeed, Mr. Olis continues to serve his sentence despite the fact that the prosecution's market loss argument in his case contradicted the Justice Department's position on market loss that the U.S. Supreme Court adopted in Dura Pharmaceuticals v. Broudo. Similarly, the government continues to defend an appeal of Frank Quattrone's conviction for witness tampering even after the Supreme Court strikes down Arthur Andersen's conviction on the same charges under similar circumstances.

Finally, Daniel Bayly is scheduled to report to prison tomorrow and William Fuhs will likely do so in the near future, while Theodore Sihpol goes home (at least for the time being), John and Timothy Rigas are allowed to remain free pending appeal of their convictions for looting their company, Richard Scrushy continues teaching his Sunday school class, and Gary Winnick counts his millions.

Folks, these highly disparate results are not the product of a rational deployment of our criminal justice system. And as Professor Ribstein points out, the Ebbers sentence is worse than any wrong that he committed. Ellen Podgor has these thoughts along the same lines.

Posted by Tom at 2:41 PM | Comments (1) | TrackBack (3)

Disney-Ovitz revisited?

This sure sounds pretty darn similar to the corporate case of the decade:

[Stephen] Crawford, a former investment banker who was appointed co-president by Philip J. Purcell in March amid a power struggle, left the firm yesterday. . . Mr. Crawford's pay package is particularly unusual because he was co-president for only three months, yet he will take home a severance package that pays him [$32 million] as if he had been co-president for two years and allows his stock to vest - the executive-suite equivalent of hitting the lottery.

That's pretty good work if you can get it. ;^)

Posted by Tom at 9:01 AM | Comments (0) | TrackBack (0)

Roll Tide!

Tongues are wagging today throughout college football circles as the Wall Street Journal ($) runs with this front page story on former University of Alabama football coach Mike Price's libel lawsuit against Time Inc. The lawsuit involves an allegedly false story that Time's Sports Illustrated magazine ran in May, 2003 involving a wild night that Coach Price had in Pensacola, Florida while attending an Alabama football-related golf tournament. That night of festive activity led to Coach Price's termination as the Alabama football coach before he had ever coached a game for the Crimson Tide.

After sitting out a season, Coach Price endured the football coaching equivalent of an exile to El Paso, where he now coaches the University of Texas at El Paso football team. For those of you not familiar with the culture of college football, suffice it to say that there is little similarity between being the head coach of the University of Alabama and the head coach at UTEP. Thus, so long as Coach Price can get over the considerable liability issues in his libel suit against Time, establishing damages -- despite the fact that Alabama fired Coach Price three days before the SI article appeared -- will likely not be much of a problem.

As with any defamation lawsuit by a public figure such as Coach Price, establishing liability is a tough obstacle to overcome. To win his suit, Coach Price has to prove that the news organization acted with "actual malice," which means that it published information known to be false or recklessly disregarded whether the information was false.

What's particularly interesting about Coach Price's lawsuit is that he is not claiming that he acted particularly well the night in question, just not as bad as the SI article portrayed:

Mr. Price says that the SI story was inaccurate. In a September 2003 deposition, Mr. Price said that on the afternoon when the magazine said he visited the strip club, he was flying to Pensacola, checking into his hotel and socializing with other golf-tournament attendees. Rather than making a "beeline back to" [the strip club] after dinner that evening, as the article states, Mr. Price said he visited three other bars first and arrived at [the strip club] at about 11:30 p.m., already "pretty intoxicated." He denied seeing [a stripper], let alone groping or propositioning her.

Mr. Price said that he was so inebriated that he didn't realize that his waitress from [the strip club] got into a cab with him and accompanied him to his hotel room. He said that they slept in their clothes and didn't have sex. The next morning, he said, he "was shocked and surprised" to find the waitress there. "I didn't recall that she stayed," he said.

[Mr. Price's counsel] says that the waitress, . . . confirmed Mr. Price's account, saying in an informal interview that she was the only woman in the hotel room that night. She also confirmed his claim that she charged about $1,000 of room-service items to Mr. Price after he left the room in the morning to play golf.

At his deposition, Mr. Price was asked whether, given his admittedly incomplete memory of what happened that night, it was possible that he had "engaged in sexual activity" in his hotel room. "It's possible, but very unlikely," Mr. Price replied. He explained that he didn't bring his Viagra anti-impotence medication with him to Pensacola, and, given all of his drinking that night, he wouldn't have been capable of having sex.

The trial judge in this case will be able to sell tickets to people wanting to get on the jury panel for the trial.

Posted by Tom at 5:58 AM | Comments (0) | TrackBack (0)

Andersen II?

Amidst echos of the Supreme Court oral argument in the Arthur Andersen case, this NY Times article reports that the oral argument before the Second Circuit Court of Appeals in former Credit Suisse First Boston investment banker Frank Quattrone's appeal of his criminal conviction did not go well for the prosecution. Earlier posts on Mr. Quattrone's appeal are here and here.

Mr. Quattrone was convicted in May 2004 of witness tampering and obstructing federal grand jury and SEC investigations into whether Credit Suisse First Boston was improperly requiring kickbacks in the form of larger than normal commissions from customers in exchange for hot initial public offerings. Mr. Quattrone was sentenced to a year and a half in jail, but -- unlike former Merrill Lynch investment banker Daniel Bayly -- remains free pending disposition of his appeal.

With the Supreme Court's recent decision in the Arthur Andersen case as a backdrop, the three-judge appellate panel considering Mr. Quattrone's appeal focused on how much the former investment banker needed to know about the investigations he was convicted of obstructing. As in the Andersen appeal, the judges focused on whether the trial judge's instructions gave the jury leeway to convict Mr. Quattrone of a crime even if he lacked the requisite intent to commit the crime.

Mr. Quattrone's appellate attorney contended during the oral argument that the trial judge should have instructed the jury that the prosecution had to prove that Mr. Quattrone knew that documents called for in government subpoenas were in his group's files when he forwarded an email in December 2000 encouraging compliance with the group's document retention policy. In response, the prosecution contended that the totality of the trial judge's instructions -- including that the jury was required to find that Mr. Quattrone acted with "corrupt intent" -- was sufficient for the jury to connect Mr. Quattrone's email with obstructing the government's investigation.

Moreover, according to this USA News article, at least one of the panel judges was not too thrilled about the prosecution's theory that Mr. Quattrone had violated securities laws regarding an allegedlly undisclosed payment:

At times, presiding Judge Richard Wesley seemed to support Quattrone's side, especially about the prosecution's suggestion at trial that Quattrone broke securities laws involving an undisclosed $2 million payment by a CSFB client.

Instead of just pushing the envelope, "You blew the side of the envelope out, didn't you?" Wesley asked [the prosecution attorney].

Frankly, the Supreme Court's Andersen decision appears dispositive in dispensing with at least the conviction of Mr. Quattrone on the witness-tampering charge because the trial judge instructed the jurors that they did not have to find that Mr. Quattrone even knew about the government probes to find him guilty of that charge. However, given the roulette nature of government prosecutions of business figures these days, even appellate courts get confused sometimes, as this Fifth Circuit decision in the Andersen appeal reflects.

Posted by Tom at 4:45 AM | Comments (0) | TrackBack (0)

Final arguments in Enron Broadband trial

The Chronicle's Mary Flood -- who has done a fine job as the Chron's primary reporter on both the Enron-related Nigerian Barge trial and the ongoing Enron Broadband trial -- files this report on the final arguments in the latter trial that began on Tuesday morning and will conclude today.

No surprises have occurred so far in the closing arguments. As expected, the prosecution repeatedly pointed to the "elephant in the courtroom" -- i.e., the huge amount of money that Defendants Hirko, Shelby and Yeager made on Enron stock sales (between the three, about over $150 million) during the period in which the prosecution contends that they were making false public statements about Enron Broadband's technological capabilities. Similarly, counsel for Defendants Hirko and Yeager attacked the credibility and motives of key government witness and former Enron Broadband co-CEO Ken Rice, whose testimony was impeached at least to some extent earlier in the trial when he testified falsely that a portion of an Enron Broadband promotion video had been shown to analysts when, in fact, it had not.

An unexpected problem that developed for the prosecution during the trial reared its head again during the first day of closing arguments -- that is, the highly different status of Defendants Howard and Krautz from Defendants Hirko, Shelby and Yeager, who made the big money in Enron stock sales. Messrs. Howard and Krautz did not make any huge stock sales and are charged instead with fraud in connection with their involvement in an Enron Broadband structured finance transaction. Nevertheless, the prosecution largely ignored them for large parts of the trial, choosing to focus on the more juicy securities fraud and insider trading charges against Defendants Hirko, Shelby and Yeager. From accounts of Tuesday's arguments, the same trend continued, which may be an indication that the prosecution does not have much faith in its case against Messrs. Howard and Krautz and is trying to bear down on its case against the three big money defendants. Counsel for Messrs. Howard and Krautz will give their closing arguments this morning.

After an often tortuous three month trial, it's doubtful that a day and a half of closing arguments will have much of an effect on the jury. In most long trials, my experience is that jurors have made up their minds long before closing arguments and, at this point, are simply interested in getting into deliberations so that they can freely talk about the trial among themselves. After the closing arguments conclude today, U.S. District Judge Vanessa Gilmore will read the charge to the jurors, who will then probably meet briefly and then adjourn for the day. Substantive jury deliberations will likely commence on Thursday morning.

Update: Here is Ms. Flood's report from the remainder of the closing arguments on Wednesday.

Posted by Tom at 4:00 AM | Comments (2) | TrackBack (1)

July 12, 2005

It's been a tough year for BP

First, British Petroleum had to deal with the explosion at its Texas City plant earlier this year.

Then, yesterday, BP discovered that Hurricane Dennis had damaged its huge Thunder Horse Drilling Platform in the Gulf of Mexico over the weekend, as the picture on the left of the badly listing platform reflects. BP's press release on the damage is here.

Hat tip to Clear Thinkers reader Charles Satterwhite for the amazing picture of the listing Thurder Horse.

Update: Kathy Herrmann is analyzing the technical and financial implications of the damage to Thunder Horse over at Big Cat Chronicles.

Posted by Tom at 9:23 AM | Comments (0) | TrackBack (3)

On foreign aid

The always entertaining Richard Posner (prior posts here) weighs in on the efficacy of foreign aid:

I do not favor foreign aid, debt relief (which is simply another form of such aid), or other financial transfers to poor countries, in Africa or anywhere else. Countries that are not corrupt do not require foreign aid, and foreign aid to corrupt countries entrenches corruption by increasing the gains to corruption. Foreign aid to Zimbabwe, for example, will simply prop up dictator Mugabe.

Foreign aid makes people in wealthy countries feel generous, but retards reform in those countries as well as in the donee countries. . .

Meanwhile, over at Mahalanobis, Michael Stasny refers to this Bill Easterly paper on foreign aid (pdf):

If Zambia had converted all the aid it received since 1960 to investment and all of that investment to growth, it would have had a per capita GDP of about $20,000 by the early 1990s. Instead, Zambia’s per capita GDP in the early 1990s was lower than it had been in 1960, hovering under $500.

To which Tyler Cowen reminds us that, as of 1960 or so, Zambia and South Korea had roughly the same standard of living.

Posted by Tom at 7:38 AM | Comments (0) | TrackBack (0)

Strong medicine with serious side effects

This post from yesterday made the point that that most medications are toxins that often have serious side effects, but that the risk of those side effects has to be weighed against the benefit that patients derive from the medications. However, the side effect noted in this article is, might we say, a bit difficult to weigh:

A Mayo Clinic study published Monday in July’s Archives of Neurology describes 11 other Parkinson’s patients who developed the unusual problem [of becoming compulsive gamblers] while taking Mirapex or similar drugs between 2002 and 2004. Doctors have since identified 14 additional Mayo patients with the problem, . . .

Posted by Tom at 5:31 AM | Comments (0) | TrackBack (0)

Chevron's pitch to Unocal shareholders

In this WSJ ($) op-ed, Chevron Corporation CEO David O'Reilly makes the case to Unocal Corp. shareholders for choosing Chevron's lower bid for the company over the China National Offshore Oil Corp.'s higher bid (here are the previous posts on the Chevron and CNOOC battle over Unocal).

Mr. O'Reilly does a reasonably good job in making his case. His main point is that Chevron's bid is a sure thing that is much further along in the approval process than the CNOOC bid. In short, he advises Unocal shareholders to take the slightly smaller Chevron bird in the hand rather than the bigger CNOOC one in the bush.

But in making his case, Mr. O'Reilly veers off course with his second argument:

The second critical issue is in the arena of public policy. For the U.S. government, the proposal by Cnooc presents fundamental questions about fair trade that have profound implications for all U.S. businesses. Contrary to claims by Cnooc, the company's offer is simply not a commercial transaction. The company is 70% owned by the Chinese government and is relying on large subsidies in the form of government loans at below-market rates to finance its $18.5 billion offer. A conservative analysis shows that the value of these subsidies is at least $2.6 billion or $10 per Unocal share. These terms are simply not available to commercial companies operating in the open market. If Cnooc were to finance its offer on truly commercial terms available to most non-government owned corporations, as Chevron is, it simply couldn't make a competitive bid.

Stated another way, Mr. O'Reilly reasons that Unocal shareholders should reject the higher CNOOC bid because CNOOC's bank (i.e., the Chinese government) is willing to loan the company too much money.

My sense is that this argument might work on U.S. Congressmen, many of whom tend to gravitate toward dubious mercantilist policies. However, arguing to Unocal shareholders that they should reject the CNOOC bid because CNOOC's bank is willing to loan CNOOC so much money that the company can overpay the Unocal shareholders strikes me as a reason for Unocal shareholders to embrace the CNOOC bid, not reject it.

Posted by Tom at 4:44 AM | Comments (0) | TrackBack (0)

July 11, 2005

Spitzer Watch

The blogosphere has finally responded to New York AG ("attorney general" or "aspiring governor," take your pick) Eliot Spitzer's campaign of criminalizing business, which recently crossed the line from merely misguided to petty and vindictive.

Check out Spitzer Watch, which is "exposing the hypocrisy of New York State Attorney General and gubernatorial candidate Eliot Spitzer."

My sense is that this is going to be a very busy blog.

Posted by Tom at 3:02 PM | Comments (1) | TrackBack (2)

A prediction on the outcome of the corporate case of the decade

Larry Ribstein of the University of Illinois Law School pens the smart Ideoblog that examines an eclectic combination of issues and subjects relating to corporate and securities law, regulation, business crime, economics, and film, among others. In particular, the blog contributions of Professor Ribstein and UCLA Law Professor Stephen Bainbridge of ProfessorBainbridge.com over the past couple of years have done more for the understanding of corporate and securities law issues for professionals and the general public than any other resource of which I am aware.

In this remarkably creative and insightful post, Professor Ribstein predicts the Delaware Chancellory Court's decision in the corporate case of the decade -- i.e., the civil lawsuit over The Walt Disney Co. board's decision to pay Michael Ovitz a rather generous severance package for essentially doing nothing during his short stay at Disney (earlier posts on the case are here and here). Regardless of whether Professor Ribstein correctly predicts the outcome, his analysis of the case is masterful and should be required reading for anyone who ever deals with corporate governance issues.

Before the blogosphere, this is the type of analysis that would be found only in a thinly-read professional journal or, at best, perhaps buried deep in the op-ed page of the Wall Street Journal or Financial Times. But now, this type of insight is readily available at all times for a much larger number of people than would read any of the more limited mediums. Just another example of how the blogosphere is redefining the way in which specialized information and wisdom is being delivered to our society and the world.

Posted by Tom at 7:46 AM | Comments (0) | TrackBack (0)

The first Vioxx trial

Jury selection begins today in Angleton, Texas in the first personal injury/wrongful death trial against Merck & Co. for alleged non-disclosure of the risks of taking the pain relieving drug Vioxx. Angleton is a small town in a plaintiff-friendly county about an hour south of downtown Houston. Talented Houston-based personal injury trial lawyer Mark Lanier has been receiving quite a bit of free publicity about the upcoming trial (here is the NY Times article and an earlier WSJ ($) article is here), and here are several previous posts on Merck and Vioxx.

Mr. Lanier's effectiveness as a trial lawyer is in no small part attributable to the fact that he is a devout Christian who regularly teaches a Bible Study class at his church in Houston. Such familiarity with the Bible typically resonates with jurors in small Texas towns, who often rationalize tenuous liability and damage issues through Biblical associations.

Curiously, as Professor Ribstein has pointed out, Mr. Lanier's case against Merck is based largely on the very un-Biblical concept of resentment and not the truth. Merck pulled Vioxx from the market in October, 2004 after a study showed that it increased the risk of heart attack or stoke, but not necessarily the risk of death. That move prompted Cleveland Clinic cardiologist Eric Topol to go postal over Merck's handling of the drug, contending that Vioxx resulted in 15 cases of heart attack or stroke per 1,000 patients.

Unfortunately, what Dr. Topol failed to mention is that the foregoing number of cases relating to Vioxx was precisely seven more cases of heart attack or stroke per 1,000 patients taking the similar medication, Naprosyn. Moreover, as MedPundit points out, Dr. Topol neglected to mention that aspirin -- which is regularly prescribed without controversy for heart attack and stroke prevention -- results in a clinically significant case of bleeding in every 3 out of 1,000 patients. Thankfully, aspirin has not been pulled from the market, at least yet.

Moreover, the statistical bungling got even worse. David Graham, the associate director for science in FDA's office of drug safety, took the results of these studies and without any sub-group analysis calculated that 27,785 heart attacks may have occurred between 1999 and 2003 as a result of Vioxx use based on the number of Vioxx prescriptions. That was music to the ears of the plaintiffs personal injury bar, but the music was a bit tinny given that his conclusion was not based on the number of Vioxx users who truly should have been counted. Rather, it is based on the the number of patients who were on Vioxx continuously for more than 18 months as indicated in the studies that showed an increased risk of cardiovascular problems. Thus, the statistical evidence is quite shaky that short-term or periodic use of Vioxx contributes to an increase risk of cardiovascular problems. Not surprisingly, the initial trials of Vioxx were all shorter than 18 months and they did not find any meaningful evidence of increased risk.

As my late father often observed, the truth is that medicines are toxins that have side effects that sometimes kill people. Vioxx was developed to address the problem of patients who regularly die as a result of the use of non-steroidal anti-inflammatory medications for chronic pain. Studies reflect that about 16,500 patients die and another 100,000 are hospitalized annually as a result gastrointestinal bleeding from the use of these NSAID medications for chronic pain. The number of people who have suffered heart attacks and strokes as a result of the long-term use of Vioxx pale in comparison to these numbers.

The foregoing is not meant to be a defense of Merck or other drug companies. It's simply to point out that Vioxx is not unusual -- most medications have potentially serious side effects. Perhaps there should be more rigorous FDA approval process for new drugs and maybe the FDA should be given the power to require drug companies to fund research to evaluate possible side effects that emerge after a drug is approved and large numbers of patients begin using it. However, those moves are more likely to result in a longer approval process for new drugs and even higher cost for most medications than better patient safety. Moreover, increased regulation raises the sticky issue of establishing parameters to decide if and when a certain side effect in a new drug would require pulling that drug from the market. Stated another way, just when do the risks of a medication outweigh the benefits of the drug in treating a certain disease or medical condition?

Thus, these are the issues that we need to be discussing in regard to medications such as Vioxx. However, the reality is that analysis of such issues is unlikely to be anywhere near as appealing to the jury in Angleton as Mr. Lanier's morality play. Where is the Biblical justification for that?

Posted by Tom at 5:40 AM | Comments (3) | TrackBack (5)

Pogo makes big acquisition

Houston-based Pogo Producing Co. is apparently ready to announce as early as today the $1.8 billion acquisition of Northrock Resources, which owns the western Canada crude-oil and natural-gas properties of Unocal Corp. Pogo has long been one of the best managed and most profitable independent exploration and production companies in Houston, although it's stock price has not kept pace with industry competitors during the recent run-up in energy prices over the past year.

Inasmuch as Pogo has a market cap of about $3.3 billion, the acquisition is a big bite for the company, which has been selling off interests in a couple of foreign countries recently to raise cash for the transaction. The deal will increase Pogo's proven oil and gas reserves by 45% as the company will acquire 644 billion cubic feet of natural gas equivalent of estimated proven reserves on about 300,000 acres in Western Canada and another 1.1 million of undeveloped acres. Pogo projects that the Northrock properties contain more than 200 billion cubic feet equivalent of very high quality probable reserves and another 500 billion cubic feet equivalent of possible reserves. The deal reflects Pogo's bet that energy prices will remain high for the forseeable future, and the company has entered into hedging investments to cover most of its production volumes through 2007 in an effort to protect its rate of return on the investment.

The well-managed but relatively small Pogo is an attractive acquisition target itself in the hot energy industry, but Pogo's longtime chairman and CEO, Paul G. Van Wagenen -- an attorney by background who is one of Houston's most unassuming and delightful business executives -- has built Pogo systematically over the past 35 years and simply will not give up Pogo's independence unless a takeover deal is too sweet for Pogo's shareholders to turn down.

Posted by Tom at 4:39 AM | Comments (0) | TrackBack (0)

July 10, 2005

A remarkable weekend of golf

The John Deere Classic PGA Tour event this weekend lost much of its luster after Michelle Wie came close but failed to make the cut on Friday. However, the tournament turned out to be highly entertaining even without the Big Wiesy as 23 year old Sean O'Hair -- whose troubled life was profiled in this earlier post -- fired a six under par 65 in the final round to break through and win his first PGA Tour event.

This has been a fascinating PGA Tour season so far, as young players such as O'Hair and Ben Crane have acquitted themselves in such a superb manner under difficult circumstances that they are now among my favorite players. In fact, it was a very good weekend for my favorite golfers as Peter Jacobsen -- one of the genuinely nicest men in the game (see this recent Golf Digest interview) -- won his second major championship in his second season on the Champions Tour as he fired a final round 66 to win the Ford Seniors Player Championship in Dearborn, Michigan.

Although he had been a solid player on the PGA Tour from the late 1970's through the early 1990's, Jacobsen's golf game had fallen on hard times for several years when he revived his career in 1995 by changing from a two-plane swing (think Tom Watson, Hale Irwin, and Davis Love) to a one-plane swing (think Ben Hogan, Ernie Els, and Michelle Wie) with the help of his longtime business partner and Houston-based teaching pro Jim Hardy. Hardy recently used his experience in changing Jacobsen's prior two-plane swing to a one-plane swing as the basis of an exceptional new book on golf swing instruction, The Plane Truth for Golfers (McGraw-Hill 2005).

In this new book, Hardy identifies the two-plane swing and the one-plane swing as the two basic -- but much different -- golf swings. In so doing, he makes the brilliant insight that much of golf swing instruction over the past generation has been counterproductive because of the failure of golf instructors to tailor their teaching to the particular golf swing that the student is using or should use. Inasmuch as the key elements of the one-plane swing are quite different from those of the two-plane swing, Hardy points out that attempting to teach two-plane concepts to a one-plane swinger (and vice versa) risks having the student adopt swing elements that are ill-suited for the student's particular swing.

As with Hogan's classic golf swing book Five Lessons, Hardy's Plane Truth for Golfers is only a little over 100 pages. However, take it from a self-taught golfer who has read dozens of golf instruction books over the past 25 years, Houstonian Jim Hardy's Plane Truth for Golfers is a landmark book in the area of golf swing instruction and another of the many contributions that Houstonians have made to golf over the past two generations.

Finally, long John Daly has not won a golf tournament this season, but this touching Bob Verdi/Golf World article tells a wonderful story about something far more important that Daly won for a family that was devastated by the death of its father 15 years ago. The overweight, chain-smoking and problem-laden Daly will never be the cover boy for the PGA Tour, but he is certainly in the competition for having the biggest heart among PGA Tour members.

Posted by Tom at 5:35 PM | Comments (1) | TrackBack (0)

July 9, 2005

Medical Center institutions rank highly again

U.S. News & World Report's annual "America's Best Hospitals" survey is out again and, as usual, Houston's Texas Medical Center is well-represented in the lists of the top hospitals in a number of different categories. Here is a previous post on the 2004 survey.

The U.S. News and World Report survey ranks the country's top 50 hospitals in 17 specialties. Less than a third of the 6,000 U.S. hospitals meet the eligibility criteria and only 176 of those institutions qualified for a ranking. The rankings are based on a survey of board-certified physicians around the country, patient survival data and various other indicators, such as the ratio of nurses to patients, technologies and services available to patients, the number of discharges over a three-year period, and whether the institution has Magnet status as determined by the American Nurses Credentialing Center.

M.D. Anderson was again ranked as one of the top two hospitals in cancer care, a position that it has held since U.S. News and World Report began its annual survey in 1990. M.D. Anderson held the No. 1 position in 1992, 2000, and 2002 through 2004. M.D. Anderson also ranked fifth in gynecology, and 11th in both otolaryngology (i.e., ear, nose and throat diseases) and in urology.

Other Medical Center institutions also ranked highly in various categories. Texas Children's Hospital ranked fourth in pediatrics, while The Menninger Clinic ranked tenth in psychiatry and The Institute for Rehabilitation and Research (known as "TIRR") ranked fifth in rehabilitation. The Texas Heart Institute at St. Luke's Hospital ranked eighth in heart and heart surgery, while St. Luke's also ranked 40th in urology and 42nd in kidney disease. Memorial Hermann Hospital -- the teaching hospital for the University of Texas Health Science Center -- was ranked 41st in kidney disease and 49th in urology.

Finally, the The Methodist Hospital ranked in more specialties than any other Texas hospital -- tenth in neurology and neurosurgery, 13th in urology, 14th in opthamology, 16th in heart and heart surgery, 17th otolaryngology, 19th in psychiatry and 42nd in gynecology.

As I have noted many times, not only is the Texas Medical Center one of Houston's largest centers of employment, it is an amazing collection of medical services talent.

Posted by Tom at 7:12 AM | Comments (1) | TrackBack (0)

McCombs makes huge gift for M.D. Anderson research

San Antonio-based businessman Red McCombs has given the University of Texas M.D. Anderson Cancer Center $30 million for its huge $500 million research park that will eventually consist of six centers focusing on cutting edge areas of cancer research.

The gift -- which is one of the two largest that M.D. Anderson has ever received -- will go to help fund the developing Red and Charline McCombs Institute for the Early Detection and Treatment of Cancer on M.D. Anderson's 116-acre south campus. That campus is about a mile and a half from the main M.D. Anderson hospital complex in the Texas Medical Center.

Posted by Tom at 6:16 AM | Comments (1) | TrackBack (0)

More misconduct by the Enron Task Force?

As this Chronicle article reports, the evidentiary phase of the Enron Broadband trial closed on Friday as the prosecution rested after putting on a thankfully short rebuttal case that lasted less than a day in a trial that just finished the three month mark. The attorneys in the trial and U.S. District Judge Vanessa Gilmore will meet on Monday to finalize jury instructions and then, on Tuesday, final arguments in the trial will begin. Here are the previous posts on the Enron Broadband trial.

Interestingly, the Chronicle article on the trial did not report on another potentially important incident of Enron Task Force misconduct that occurred as the defense case wound down this past Thursday afternoon. During a trial in which the prosecution has already elicited false testimony from its key witness and treated two witnesses (Beth Stier and Lawrence Ciscon) in such a manner that both testified that they felt threatened, Judge Gilmore harshly rebuked Enron Task Force prosecutor Cliff Stricklin for asking a question on cross-examination of defendant Kevin Howard that, if not in direct violation of a limine order (i.e., a pre-trial order directing attorneys not to refer to certain subjects during the trial), at least violated the judge's prior instructions to the Enron Task Force prosecutors.

The rebuke came at the end of cross-examination of Mr. Howard when Mr. Stricklin asked a question about Canadian Imperial Bank of Commerce ("CIBC"), one of the bank's that provided financing for the Enron Broadband unit. CIBC entered into this deferred prosecution agreement with the Enron Task Force back in December, 2003 and Judge Gilmore had apparently at least instructed Enron Task Force prosecutors not to ask any questions on that agreement during the Enron Broadband trial. The following is the exchange that occurred:

Mr. Stricklin: In fact, Enron went to CIBC often to fund such deals, isn't that correct?

Mr. Howard: We had set up a very large investment to fund with a number of banks.

Mr. Stricklin: Including CIBC, is that true?

Mr. Howard: Yes, sir.

Mr. Stricklin: And are you aware that [CIBC has] entered into a deferred prosecution agreement with the Department of Justice . . .

Mr. Howard's defense attorney: Objection, your Honor!

Judge Gilmore: Stop! Mr. Stricklin, just stop it right now! Have a seat! That's the end of the questions!

With that, a clearly angered Judge Gilmore -- standing in front of her seat on the bench -- terminated any further questioning of Mr. Howard by Enron Task Force prosecutors and excused Mr. Howard as a witness. Taking advantage of Judge Gilmore's reprimand of Mr. Stricklin for emphasis, each of the attorneys for the five Enron defendants promptly announced that each of the defendants had completed putting on their defense.

Given the recent similar incident that occurred in the trial of former HealthSouth Corp CEO Richard Scrushy, it appears that we can now add ignoring judges' instructions -- in addition to at least chilling defense witnesses and making disingenuous market loss claims -- as another dubious tactic that Department of Justice prosecutors are willing to use in attempting to taint a jury against unpopular business defendants. However, that tactic backfired in the Scrushy trial, and the use of the tactic in the Enron Broadband trial smacks more of desperation in a prosecution team that is clearly worried about the outcome of a trial that they thought would be the legal equivalent of a tap-in at the outset.

Posted by Tom at 4:18 AM | Comments (0) | TrackBack (2)

July 8, 2005

An emerging big sports story

With the terrorist attack yesterday in London and all, potentially the most remarkable sports story of the year is flying under the radar screen today.

Question: What do the following PGA Tour golfers have in common:

Billy Andrade
Aaron Baddeley
Jeff Maggert
Scott Simpson
Steve Stricker
Kevin Stadler
Skip Kendall
Woody Austin
Robert Gamez
Harrison Frazer
David Duval
Lucas Glover
David Gossett

Answer: They all trail 15 year old Michelle Wie after the first round of the PGA Tour's John Deere Classic taking place this weekend in Silvis, Illinois.

Now that state of affairs will certainly generate more than a few barbs among the men in the tournament locker room this morning.

After posting a one under par 70 in her opening round (the leaderboard is here), Ms. Wie (nicknamed "the Big Wiesy") is one stroke off the projected score for making the tournament "cut" -- i.e., the reduction of the players in the tournament for the two weekend rounds to the 70 players with the best total scores after the first two rounds. If she makes the cut, then Ms. Wie would be the first female player in 60 years -- since Babe Didrikson Zaharias in the 1945 Tucson Open -- to make the cut in a PGA Tour event.

Ms. Wie is 6 foot tall, possesses a flawless one plane swing, and hits the ball far enough to compete against men on the PGA Tour. She is the real deal, and it's only a matter of time until she makes the cut in a PGA Tour event. Today may just be the day.

Update: After getting to five under par for the tournament during her round on Friday, the Big Wiesy faltered on the back nine and shot an even par 71, leaving her at one under par for the tournament and two shots off making the cut. Still, quite a remarkable performance by the 15 year old Ms. Wie, who beat a third of the field in the event.

Posted by Tom at 6:27 AM | Comments (4) | TrackBack (0)

Lea Fastow goes home

The Chronicle's Mary Flood reports that Lea Fastow -- who served a longer sentence under harsher conditions because of her marriage to former Enron CFO Andrew Fastow -- was released early this morning to go home from a halfway house in downtown Houston. Here are the previous posts on the Lea Fastow case.

Mrs. Fastow is the first person in the Enron-related criminal prosecutions to complete her prison sentence. Her husband -- who, as with Mrs. Fastow, struck a plea bargain with Enron Task Force prosecutors -- is presently scheduled to be sentenced at about this time next year.

Posted by Tom at 4:53 AM | Comments (0) | TrackBack (0)

July 7, 2005

Chronicle weblog on terrorist attacks in London

Dwight Silverman, the excellent technology columnist for the Houston Chronicle who has sheparded the Chronicle's increasing contribution to the blogosphere, is contributing to this handy blog on the terrorist attacks of earlier today in London.

Check it out, as Dwight has included lots of good links to commentary and up-to-the-minute news reports. This "instant blog" on a breaking news story is yet another example of how weblogs are redefining the way in which information is delivered to the public.

Posted by Tom at 4:05 PM | Comments (0) | TrackBack (0)

Is the Lord of Regulation unhinged?

Showing an appalling lack of prosecutorial discretion that has become commonplace in this post-Enron era of criminalizing business, prosecutors from the office of New York attorney general Eliot Spitzer announced Thursday that they will re-prosecute beginning August 22nd the four counts in the criminal case against former Bank of America Corp. broker Theodore C. Sihpol on which a mistrial was declared last month. Here are the previous posts relating to the Sihpol case.

Mr. Spitzer's dubious move comes despite the fact that the jury in the previous trial against Mr. Sihpol deadlocked 11-1 in favor of acquittal on the four charges and acquitted Mr. Sihpol on the other 29 counts that Mr. Spitzer asserted relating to alleged larceny, falsifying business records and related charges. The four counts involved in the re-trial relate to allegations that Mr. Sihpol falsified mutual-fund trading documents and participated a scheme to defraud investors.

Inasmuch as Mr. Sihpol's defense attorneys will almost certainly request that much of the evidence in the first trial be excluded from the second trial on the grounds that it relates to charges on which Mr. Sihpol has been already found not guilty, Mr. Spitzer's second prosecution of Mr. Sihpol faces even greater obstacles than the first. But then, Mr. Spitzer has always been more talented in espousing propaganda and demagoguery, so why should he be bothered with actually proving criminal conduct in court, anyway?

Posted by Tom at 2:45 PM | Comments (1) | TrackBack (0)

Will oil prices top $100 a barrel?

Prior posts here and here have highlighted the work of University of California at San Diego profeesor James D. Hamilton, who is one of the country's foremost experts on the economics of energy prices.

In this recent post, Professor Hamilton analyzes the chances of whether the price of oil will hit $100 a barrel in the near future. Using the options market as a guide, Professor Hamilton estimates that there is about a 7 percent chance that the price will rise to that level by June 2006. On the other hand, there is about a 15 percent chance that the price will tumble below $40 a barrel by that same date. Which reminds me of the following exchange, noted in this earlier post, between a Wall Street Journal interviewer and Exxon Mobil CEO Lee Raymond on the rising price of oil:

WSJ Interviewer: Some people think prices will keep going up.

Mr. Raymond: Maybe. I'll bet they'll be lower at some point.

Posted by Tom at 6:15 AM | Comments (0) | TrackBack (1)

The end is in sight in the Enron Broadband trial

After three often tortuous months, the end is finally in sight for the Enron Broadband trial, the Chronicle's Mary Flood reports today.

The last of the five defendants to testify -- former Enron Broadband Services CFO, Kevin Howard -- took the stand yesterday and will likely finish his testimony today. Inasmuch as the prosecution may begin its rebuttal case today, Ms. Flood is predicting that final arguments will take place next week. As noted in this prior post, this trial has turned out to be a far harder one than the Enron Task Force expected, and the outcome will almost certainly affect the Task Force's approach to future Enron-related prosecutions, particularly the Task Force's "legacy" case -- that is, the case against former Enron chairman Ken Lay and former Enron CEO Jeff Skilling.

Posted by Tom at 5:27 AM | Comments (0) | TrackBack (1)

Huge health insurer grows even larger

Minnetonka, Minn.-based UnitedHealth Group Inc., the second largest health insurer in the U.S., announced yesterday that it had agreed to acquire Cypress, Calif.-based PacifiCare Health Systems Inc. for $8.1 billion in cash and stock. The huge deal is the latest in a series of consolidations that is reshaping the U.S. employer health insurance industry, a trend that affects thousands of workers in the large medical services sector of Houston's economy.

The consolidation trend in the employer health insurance is noteworthy also because traditional employer health insurance has been losing market share over the past 15 years because of rising costs. Although almost 80% of U.S. workers in the private sector were covered by traditional employer health insurance in 1990, only 56% of of those workers were covered by such insurance in 2003, and the decline has accelerated over the past five years. The deal also narrows the gap in subscriber bases between UnitedHealth and the largest U.S. health insurer -- WellPoint Inc (formerly Anthem) -- which has 28.5 members.

UnitedHealth's strongest subscriber bases are in the East, Midwest and South, and it has been raising premiums and doing well financially over the past several years. The company's earnings per share have grown at least 30% annually over each of the past four years while the value of the company's shares have tripled over that period. Over that same period, UnitedHealth has has gained nearly five million members from acquisition of other health insurers alone. Under the proposed merger, UnitedHealth would exchange 1.1 of its shares plus $21.50 in cash for each PacifiCare share, which means that the total consideration for the merger would be approximately 111.6 million shares and $2.2 billion in cash. If the deal closes, PacifiCare's 3 million health-plan members would join UnitedHealth's 23 million member base and increase UnitedHealth's presence in three key markets -- California, senior citizens under Medicare, and specialty benefits, such as vision and dental benefits.

Interestingly, the acquisition reflects a big bet that UnitedHealth is making on the Medicare market. PacifiCare has been an industry leader in positioning itself to take advantage of new Medicare opportunities set to begin in 2006 -- including a new government-funded prescription-drug benefit for seniors -- while emphasizing commercial health plans for individual and small group markets in California and other western states.

Posted by Tom at 4:30 AM | Comments (0) | TrackBack (0)

July 6, 2005

More on the CNOOC bid for Unocal

This earlier post addressed the folly of developing a mercantilist governmental policy in response to the China National Offshore Oil Corp.'s hostile takeover bid for Unocal, which had previously accepted Chevron Corporation's friendly bid for the company. In this OpinionJournal op-ed, CNOOC, Ltd. chairman and CEO Fu Chengyu takes up that line of thinking in arguing that CNOOC's bid is actually good for American business interests and poses no threat to those those interests or American security.

In the meantime, in this post, Brad Stetser, senior economist for the boutique firm Roubini Global Economics, has been thinking about the CNOOC bid in the context of the amount of foreign assets that the Chinese accumulate each month by exporting more than they import. Mr. Stetser estimates that the value of those assets is around $20 billion, which is more than the $18.5 billion that CNOOC is bidding for Unocal. Thus, Mr. Stetser notes that it's a tad absurd to worry too much about the Chinese buying one second tier oil & gas company when the real issue is that China has become the largest creditor of an increasingly leveraged U.S. economy. Stated simply, it doesn't make sense to object when Communists want to buy U.S. companies, but sell away when the same Commies offer to buy U.S. debt.

Mr. Stetser estimates that China holds $700-750 billion in foreign reserves, and that about 66-80% of that amount is in U.S. dollars. Moreover, Mr. Stetser projects that China will add at least $250 billion to its foreign reserves over each of the next two years. Thus, it is only natural that China would want to diversify its reserves by investing in companies such as Unocal and Maytag rather than just holding Treasurys. Inasmuch as such investments are harder to unload than Treasurys, such investments are good from the standpoint that it is less prone to economic upheavals that could negatively impact the U.S. economy.

Nevertheless, the level of Chinese reserve accumulation and intervention in the global exchange markets is unprecedented, and Mr. Stetser notes that China's economic policies are challenging the norms that govern international economic relationships. CNOOC's bid for Unocal is important because it calls attention to the larger issue of how the U.S. has leveraged future earning flows and now must begin servicing that indebtedness. Thus, rather than focusing on CNOOC's bid to overpay for a second tier U.S. oil & gas company, the real issue that needs to be addressed in Washington is whether it's in the U.S. national and economic interests to continue being a massive debtor to China. Washington Post columnist Robert Samuelson echos these thoughts in this timely op-ed from today's edition.

Posted by Tom at 6:02 AM | Comments (1) | TrackBack (2)

Benny Hinn and the I.R.S.

Last week, televangelist Benny Hinn was not particularly pleased with, might we say, the responsiveness of his Nigerian hosts to his latest African crusade.

Well, this latest news report probably explains why Benny is a tad jumpy these days:

The IRS is questioning televangelist Benny Hinn's organization about its operations and finances issues that underlie its tax-exempt status as a church.

The inquiry into the flamboyant faith healer's ministry began a year ago, and the IRS has asked for dozens of detailed answers, according to documents provided to The Dallas Morning News by a watchdog group. . .

Separately, The News found that another watchdog group's complaint to the IRS that the ministry lacks financial oversight and independent governance may have led the agency to question the operation through what's called a church tax-inquiry letter.

While detractors argue that Mr. Hinn improperly profits from a ministry that hasn't met the IRS definition of a church for years, his public-relations contractor dismissed the possibility that the tax exemptions -- worth millions a year -- could be at risk. [Hinn's public relations contractor] repeatedly warned The News should "be very careful about what it reports."

Geez, Hinn's public relations contractor sounds a bit like Tom Hagen, Don Corleone's lawyer, don't you think?

By the way, did you know that Benny asserted at one time that the Trinity was comprised not of three persons, but nine?!

Posted by Tom at 5:12 AM | Comments (0) | TrackBack (0)

Mistrial declared in Cleveland corruption trial related to Houston criminal investigation

Not only are a couple of former officials in the administration of former Houston Mayor Lee P. Brown admitted crooks (earlier posts here, here and here), they are apparently not very persuasive witnesses, either.

The Chronicle's Dan Feldstein has been doing a good job of connecting the dots in this developing story, the latest chapter of which has been playing out in a public corruption trial in Cleveland, Ohio. In his latest article, Mr. Feldstein reports that a federal judge in Cleveland declared a mistrial Tuesday after a jury deadlocked on most bribery charges against Cleveland area entreprenuer Nate Gray, who is the person from whom two former Houston officials -- former Brown administration chief of staff Oliver Spellman and building services director Monique McGilbra -- testified that they took cash and gifts. The retrial of the case will begin on August 8.

During the trial, an F.B.I. agent testified that Justice Department officials in Houston are continuing to pursue an investigation that is related to the Cleveland prosecution. It is not known at this time whether any other former Brown administation officials have been named as targets of that investigation.

Posted by Tom at 4:49 AM | Comments (0) | TrackBack (1)

July 5, 2005

Hank Stram, R.I.P.

Hank Stram, one of the most creative professional football coaches and indisputedly one of the best evaluators of talent, died on Monday at the age of 82 from complications of diabetes. He was best known for coaching the Kansas City Chiefs to one of the biggest upsets in Super Bowl history, a 23-7 victory over the Minnesota Vikings in 1970's Super Bowl IV, a game that was particularly notable because of pre-game allegations regarding Kansas City QB Len Dawson's alleged association with gambling figures.

The Chronicle's Mickey Herskowitz -- the preeminent sportswriter regarding football coaches from Stram's era -- weighs in on Coach Stram in this typically fine column. Mr. Herskowitz's piece includes the following anecdote about the early days of professional football in Dallas, where Coach Stram coached the Dallas Texans AFL franchise. After sharing the Metroplex with the Dallas Cowboys NFL franchise for a couple of seasons, the Texans franchise moved to Kansas City in deference to the Cowboys. Herskowitz observes:

Stram fought the battle of Dallas, where the Cowboys and Texans both drew so poorly that a playoff was suggested, with the winning team getting to leave town.

Posted by Tom at 9:42 AM | Comments (0) | TrackBack (0)

Calculating damages in criminal cases against energy traders

One of the hot button legal issues in white collar criminal prosecutions these days is the calculation of the financial damage resulting from the defendant's allegedly criminal actions. Inasmuch as the federal sentencing guidelines correlate the length of a sentence to the amount of financial damage resulting from the criminal act, the government has developed damage models that maximize the amount of financial damage to buttress the prosecution's argument in favor of draconian prison terms for business defendants.

In that regard, the Chronicle's Tom Fowler weighs in with this article that reports on the prosecution's damage claims in the group of criminal cases against Houston business figures categorized as "the trader cases" (previous posts here, here, here, here and here.

These particular trader cases involve alleged efforts to manipulate the trading indexes, which are used to value billions of dollars in gas contracts and derivatives. Industry publications, such as the Inside FERC Gas Market Report, use data from traders to calculate the index price of natural gas. Accordingly, movement in index prices often affects the level of profits traders can generate. In these particular cases, it remains unclear whether the publication actually used the false information provided, but the government contends that it needs only to prove that fake trades were reported and not that the trades were actually published or affected the markets.

Despite that position, Mr. Fowler reports that the government has recently explained the process under which its expert consultants -- the Brattle Group -- uses to calculate damage figures resulting from the alleged false trades. Using the data that the publishers gathered from the trading companies, the government experts strip out the allegedly false data to create a new price index for that trading hub. This adjusted number is then used to calculate how much the companies that employed the traders would have gained (or presumably, lost) based on the transactions made. As you would expect, the defendants contest the government expert's model and will present their own experts, who will contend that the false trading data did not materially affect the amount of trading gains of the various companies.

So, much of the trading cases will come down to a duel between experts. Assuming comparable levels of competence and methodology between the competing experts, one has to wonder how a jury could ever conclude beyond a reasonable doubt based on the evidence that the government's high level of damages is the correct measure of financial damages. But the current wave of prosecution of business figures is not all about the evidence, is it?

Posted by Tom at 8:31 AM | Comments (0) | TrackBack (0)

Update on Enron's Dabhol power plant

One of the enduring symbols of Enron Corp.'s failed foreign business investments was its investment in the Dabhol Power Plant on the Maharashtra coast approximately 150 miles south of Mumbai.

When it first began producing power in the late 1990s, Enron's sponsorship of the project was widely viewed as a breakthrough in the traditional ambivalence of India's government toward foreign investment in Indian assets. However, the plant was shut down in 2001 after a dispute between Enron and its sole customer, the Maharashtra electricity board, and the plant has remained idle as Enron slid into bankruptcy amid competing litigation claims between the foreign owners in the plant, the Maharashtra state government, and the Indian government. So much for attracting foreign investment in a fast-growing Indian economy that could use the benefits of foreign capital.

At any rate, India prime minister Manmohan Singh is back to the drawing board in terms of attracting foreign capital. Apparently, the Prime Minister has ordered government officials involved in the plant litigation to resolve all foreign claims on Dabhol before his July 18 summit with President Bush in Washington. As a result, General Electric Co. announced over the weekend that it reached a settlement to sell its equity in the mothballed power project, although the announcement did not disclose how much it would receive for its stake in the almost $3 billion venture. Bloomberg's report on the settlement estimates the settlement payments to G.E. would total $145 million.

G.E.'s settlement leaves San Francisco-based Bechtel Group Inc. as the only foreign stakeholder in Dabhol that has not reached a settlement, although speculation is that Bechtel is about ready to announce a similar settlement in which it would receive about $160 million in payments to exit the project. Bechtel and GE hold about 85% of Dabhol after buying Enron's stake in the plant last year, and the Maharashtra State Electricity Board owns the balance of the plant. Inasmuch as the 20 foreign lenders in regard to the Dabhol plant have restructured their indebtedness secured by the plant, the resolution of the claims of G.E. and Bechtel will clear the way for the Indian government to proceed with a plan under which two public-sector companies would takeover the generating plant and coordinate its rebirth as a going concern.

Posted by Tom at 7:22 AM | Comments (0) | TrackBack (0)

Amegy Bank is a takeover target

Houston-based independent bank Amegy Bancorporation, Inc. -- known until recently as Southwest Bank of Texas -- is the subject of a takeover battle between Birmingham, Ala.-based Compass Bancshares Inc. and Salt Lake City-based Zions Bancorp, according to the Houston Business Journal (article not yet online). The competition for Amegy will likely be decided within the next week.

Amegy is a relatively small bank holding company with a market capitalization of $1.6 billion and first quarter net income of $about $17 million, but it is one of the few remaining independent banks in the growing and attractive Texas retail banking market. Amegy has about 75 branches in Texas that are located primarily in the the Houston and Dallas metro areas.

The Amegy is the latest in a series of big bank acquisitions in the Texas banking market. Those acquisitions have included Wachovia Corp.'s $13.7 billion acquisition of SouthTrust Corp. and Citigroup, Inc.'s purchase of First American Bank SSB.

Compass is better known in Texas than Zions, but is actually a slightly smaller bank holding company. Compass has about 400 branches in six states in the South and Southwest, about a third of which are in in Texas. Compass has a market capitalization of about $5.6 billion on reported assets of $28.8 billion and reported first quarter net income of just under $100 million. Zions has roughly the same number of branches as Compass, but they are based in eight Western states. Zions has a market cap of $6.6 billion on assets of about $32 billion, and reported first quarter net income first-quarter net income of $110.2 million.

Update: Zions appears to the winner.

Posted by Tom at 6:54 AM | Comments (1) | TrackBack (0)

July 4, 2005

The Talented Mr. Munitz

Almost thirty years ago, the University of Houston Board of Regents was faced with a difficult decision -- replacing longtime UH president Philip G. Hoffman.

President Hoffman was the quintessential tough act to follow. The unusual administrator who was respected by faculty, administrators, and regents alike, President Hoffman sheparded UH during the era from early 1960's to the late 1970's as the university transformed from a sleepy city college into Texas' first dynamic urban university. An example of President Hoffman's influence is the fact that, when he took office in 1962, UH was admitting its first minority student and, when he retired as UH president in 1977, UH had become Texas' most fully-integrated state university by far. Other accomplishments during his tenure included reorganization of UH's administration into that of a major university, completion of the university's first real master plan for campus development, implementation of the initial stages of the University of Houston System of campuses, and overseeing the rise of UH's athletic teams into national powers.

So, given President Hoffman's accomplishments and stature, the UH Board really needed to make a splash in naming his replacement. Their choice? 35 year-old wunderkind, Barry A. Munitz.

Mr. Munitz was an interesting choice. Hired a year or so earlier as Vice-President and Dean of Faculties at UH's central campus, the young Mr. Munitz and his glamorous wife cut a sophisticated and trendy swath through UH social circles. The theory behind Mr. Munitz's appointment was that he represented the new wave of college administrator who encouraged ties between the business and university communities.

Although Munitz has a Ph.D. in comparative literature from Princeton University, he had only two years of teaching experience and -- unlike President Hoffman, who had been a respected history professor -- had never been involved in scholarship or scholarly activities. Instead, Mr. Munitz sold himself as a manager interested primarily in hiring, raising money and policy making. Given the long-standing Texas legislative policy of underfunding the University of Houston's endowment in comparison to that of the other major Texas state universities, the thought of Mr. Munitz increasing the UH endowment through creative relationships with Houston's business community must have been attractive to UH regents.

Alas, as is often the case when money collides with academia, Mr. Munitz's UH tenure did not turn out to be as promising as the UH regents had hoped. Although I can find absolutely nothing on the web about the incident, I recall that, during Mr. Munitz's tenure, his financial administrator at UH was fired (and perhaps prosecuted, although Mr. Munitz was not implicated) in regard to a scandal involving his investment of UH's endowment in highly speculative investment vehicles that ultimately cost the endowment a considerable amount of money. The initial speculation that Mr. Munitz would increase private funding to UH from Houston's business community turned out to be mostly a pipe dream as Mr. Munitz's administrative abilities increasingly took on the shine of elevating form over substance. After a record number of wine-and-cheese parties at the workmanlike UH, Mr. Munitz left in 1982 to become an executive at Charles Hurwitz's MAXXAM, Inc.

Mr. Munitz stayed at MAXXAM for almost ten years, long enough to get intimately involved in the company's controversial Pacific Lumber subsidiary and its ill-advised investment in the now defunct United Savings. Mr. Munitz then moved back into academic administration in 1991 as the Chancellor of the California State University system, where he again generated a fair amount of controversy over his goals and management style before leaving that post in 1998 to become President and CEO of The J. Paul Getty Trust, which includes the Getty Art Museum, Research Institute, Conservation Institute, the Grant Program, educational initiatives and an endowment portfolio.

But frankly, the string of controversies that Mr Munitz experienced before taking on the Getty Trust job pales in comparison to the one that he has gotten himself into now. This past October, the L.A. Observed blog began a series of blog posts that was triggered by a management shakeup at the Getty Museum in which the Museum's director, Deborah Gribbon, announced her resignation. An unnamed source told L.A. Observed the following in the first post about the management shakeup:

"[T]he art world has been buzzing for over a year about the increasingly toxic" working environment up on the Brentwood hill and the departures of long-time staff. Writes the source: "It's gotten to the point where senior staff don't have any time to do serious work -- it's now all about internal politics and palace intrigue."

That broadside was followed by the next post on another L.A. Times article that contained the following observations about Mr. Munitz:

Said Hugh Davies, director of the Museum of Contemporary Art in San Diego and past president of the Assn. of Art Museum Directors: "My chief concern is that Barry Munitz, who came to the Getty without any background or knowledge of museums or art history, is making moves that have enormous consequence for Los Angeles, for culture in Southern California and beyond. "I am very worried that there is a toxic atmosphere at the Getty, and I lay it at his door. This concerns a cultural legacy for all of us" . . .

"I've watched with great sadness as much of the great people who created the Getty Center and had such great ambitions for it have left in recent years," said Barbara Whitney, who in August resigned as the museum's associate director for administration and public affairs. "People have been talking for a long time about how bad things were at the Getty. I can only imagine how intolerable it must have become for her. Part of the reason why I left was that the place had become totally internally focused, with a lot of intrigue about who was in or out of favor, and, it seemed to me, that a huge number of really talented professionals were being wasted."

And if that were not enough, after another post the next day, Tyler Green, art critic for Bloomberg News based in Washington, stated the following at ArtsJournal.com:

My email overfloweth. If I were a Getty boardmember, I would be on the phone to prominent, long-term ex-employees trying to learn whatever I can . . .

In three years of doing this site, no single issue has generated more email than Gribbon's ouster . . . Literally 100 percent of my email, from Getty staff and ex-staff, is running against Munitz. Nearly every emailer is saying morale is pitiful, Munitz' decisions regarding staff and dismissal have been caustic and destructive, and everyone knows that it's only going to get worse. There are more major stories about Munitz' tenure coming down the pike. From what I'm hearing, his board will not be able to ignore what's coming."

Those three posts were followed by this next one -- interestingly entitled "Does the Getty monitor email?" -- that includes the following comment from L.A. Times critic Christopher Knight:

True or false: For more than 20 years, the person running the J. Paul Getty Museum has had not a whit of professional experience in art, art history, art collecting, art museum management or curatorial practice.

Time's up. If you answered "false," go sit in the back of the class.

The correct response is "true." The final word on the Getty Museum has been in the hands of an amateur since at least 1983, bizarre as that might seem . . .

Munitz, a former university administrator and businessman, raised a lot of eyebrows when he assumed the Getty CEO job nearly seven years ago. Some of it came from his involvement in the 1988 collapse of a Texas savings and loan. But partly the consternation was caused by the absence of any art, cultural or museum experience on his resume. . .

On the volatile matter of the resignation of his most important employee, Munitz is surely compromised. Either he's mendacious or a bad manager. The choice is not encouraging.

But all of that is simply a lead-in to the most recent development, which is this post on an L.A. Times report from early June (already archived) that chronicles Mr. Munitz's lavish spending and petty demands, and the resentment of the Getty Museum staff members that has resulted. The following are a few excerpts from the Times article:

Munitz is a man of grand appetites, a player among Los Angeles' elite whose effusive personality and risk-taking management style have won praise even as they have alienated some of the trust's most respected staff members. . .

Records show that he has employed the Getty's money and reputation to do favors for friends, once using trust letterhead to petition a state agency on behalf of a securities trader -- related to his wife by marriage -- convicted of fraud in the 1980s.

He has dispatched his office's driver to pick up videotapes of recent episodes of "Law & Order" and "The West Wing," instructed his assistants to express mail him umbrellas when he travels, and asked them to track down items for his wife, Anne T. Munitz.

"ATM saw in Europe but can't find her Tropicana blood orange juice, no pulp, not from concentrate," Munitz said in one dictation. "Can you look on the website and find out where we can get this on a regular basis locally?"

[snip]

His critics say he has filled the Getty's top ranks with loyalists, transforming the trust into a bitter, divided place that has hemorrhaged talent.

"Barry and his key staff members not only lack the expertise, but have little regard -- and actually seem to have contempt -- for those who do have it," said Barbara Whitney, who resigned in 2004 as the museum's associate director for administration and public affairs.

"The people who dreamed the Getty Center, designed it, worked together, built it, and then opened it to the public with such acclaim and success -- within a few years of the opening, those same people were being treated like idiots by a handful of bureaucrats that Munitz brought in," she said.

This time it appears that the flap won't blow over anytime soon. As this L.A. Times article reports, Mr. Munitz is now coming under severe criticism from prominent political figures:

Amid national attention to excesses at nonprofits, the chairman of the Senate Finance Committee has rebuked the board of the J. Paul Getty Trust, saying it has failed to curb Chief Executive Barry Munitz's lavish pay, perks and travel.

"Charities shouldn't be funding their executives' gold-plated lifestyles," Sen. Charles E. Grassley (R-Iowa) said this week in a statement to The Times. His committee is considering the first major overhaul of laws governing nonprofit organizations in 30 years.

"I'm concerned that the Getty board has been spending more time watching old episodes of 'Lifestyles of the Rich and Famous' than doing its job of protecting Getty's assets for charitable purposes," he said.

Grassley's comments came in response to a June 10 Times story that related how Munitz, who makes more than $1.2 million and is among the nation's highest-paid leaders of nonprofits, had traveled the world first class at Getty expense, often with his wife. Records showed that even when the trust was cutting staff, Munitz used Getty resources on pet projects and favors for friends.

"The board's failure is especially troubling, because the Getty is a private foundation that doesn't rely on outside donations and therefore doesn't need to be responsive to potential donors," Grassley said.

Which prompted the following observation from L.A. Times columnist, Steve Lopez:

Tuscan villas, $1,000-a-night hotel rooms, yachting on the Dalmatian coast. You throw a party, and this guy's there, all smiles and company credit cards. When they gave Munitz the job in 1998, he apparently assumed he was supposed to actually live like a Getty.

Even as the Getty was handing pink slips to sobbing security guards in 2003 and taking other cruel whacks at the budget, Munitz pulled up to work in a gleaming, brand new $72,000 Porsche Cayenne SUV. He had told an aide he wanted the "best possible sound system" and "biggest possible sunroof," all of it on the Getty dime.

Then, while other employees were told that no amount of prayer or groveling would win them a raise, the high-rolling Munitz lobbied for an annual bump from $1 million to $1.2 million.

You can criticize his chutzpah if you like. Me? I want him as my agent.

Agent? That may just be the next career soon for the talented Mr. Munitz.

Posted by Tom at 11:19 AM | Comments (2) | TrackBack (0)

More on the black hole that is Metro

In the "could-it-possibly-be-any-worse" department, this Rad Sadlee/Chronicle article reports on the just-released external audit of Houston's Metropolitan Transit Authority. It's not a pretty picture:

Comparing Metro's numbers for fiscal years 2001 and 2004, the audit shows a 29 percent rise in operating costs, to $304 million, and a 36 percent increase per passenger boarding. On the income side, Metro's annual report shows fare revenue has hovered around $46 million a year since 1995.

The report says ridership slipped 5 percent in the three years, from 100 million yearly boardings to 95 million, despite a one-year bump in 2004 when 5 million boardings on the new MetroRail line offset the loss of 3 million on buses. Most of the loss was on local and express routes, with Park & Ride numbers holding steady.

This less-than-inspiring performance is after Metro plunked down $325 million to construct the underutilized 7.5 mile Red Rail Line from downtown to Reliant Park and Metro's announcement from a little over a month ago that the agency plans to spend another $104 million on the Red Line -- less than three years after completion of the project -- to double the number of trains and fix problems caused by construction errors. Then, as if to jolt into perspective the economic absurdity of all of this, Metro and public officials recently announced a modified public transit plan in which Metro puts up $676 million (in addition to the $325 million already spent on the Red Line) in return for an additional $1 billion in federal matching funds. Given how poorly Metro has invested public money to date makes the details of how Metro intends to spend that additional money almost an afterthought, but Anne Linehan over at blogHouston.net and Tory Gattis at Houston Strategies have done a good job of analyzing that issue. By the way, blogHouston.net's compendium of Metro posts that Ms. Linehan and Kevin Whited have prepared is the flat-out best resource on the web to track what Metro is doing.

In a post on the city's similarly dubious investment in downtown hotels, I observed that after awhile -- by throwing $15 million here and there on bad investments -- you eventually start talking about some real money. However, even though the amount of poorly-invested funds in the scam of Metro's rail system is absolutely huge, the issue of whether such funds should continue to be invested in such a plan does not even seem to register on the local political radar screen.

Unfortunately, the relatively small groups that benefit from these urban boondoggles have a vested interest in keeping that threshold issue from being re-examined. The economic benefit of light rail is highly concentrated in only a few interest groups -- particularly political representatives of minority communities -- who tout the political accomplishment of shiny toy rail lines while ignoring their constituents need for more effective mass transit, environmental groups striving for political influence, construction-related firms that feed at the trough of Metro's poor investment decisions, and private real estate developers who enrich themselves through the increase in their property values along the rail line. None of these reasons for mass transit appeal to the vast majority of the electorate, so this amalgamation of interest groups continues to disguise their true interests behind amorphus claims that the uneconomic rail lines reduce traffic congestion (they do not), curb air pollution (they do not), or improve the quality of life (at least debatable). The literature on all this is public and volumnious -- check out demographia.com, cascadepolicy.org, and americandreamcoalition.org.

How do these interest groups get away with this? The costs of such systems are widely dispersed among the local population of an area such as Houston, so the many who stand to lose will lose only a little while the few who stand to gain will gain a lot. As a result, these small interest groups recognize that it is usually not worth the relatively small cost per taxpayer for most citizens to spend any substantial amount of time or money lobbying or simply taking the time to vote against an uneconomic rail system. Nevertheless, given Metro's poor financial performance -- combined with new proposals for allowing this poorly-managed agency to invest over $1.5 billion before it has even put it's house in order -- it's high time that Houston's civic leaders show some statesmanship by addressing the real demands of folks who need to use mass transit and recognizing that we are talking about some real money here.

Metro's rail system is a bad virus that has infected Houston, and the cost of treating this civic virus is growing larger each month. Without periodic and independent re-examination of Metro's light rail plan, the increasing costs of this plan risk turning this currently manageable problem into a major civic fiscal crisis that could negatively affect the Houston area's growth and prosperity. Real leadership involves recognizing that risk and addressing it, not indulging it.

Posted by Tom at 9:14 AM | Comments (2) | TrackBack (2)

Sometimes these things get overlooked on holiday weekends

Inasmuch as my utterly unprofessional opinion is that the Houston area is going to be hammered by a hurricane this season, just a note to let you know that Tropical Depression 3 has just formed in the Atlantic. Current projections have the storm crossing the Yucatan of Mexico, entering the Gulf of Mexico, and heading towards the upper Texas coast, where current forecasts have it reaching the coast by Wednesday morning or so. While over the Gulf, the depression is likely to intensify into a tropical storm if it survives the journey. While satellite imagery and forecast models indicate weakening, upper level conditions over the Gulf support strengthening.

One thing to note during the hurricane season is that computer models do a better job of predicting the track of a storm than its intensity, where an experienced forecaster's gut reaction often is better than the computer models.

Frankly, a not-too-powerful storm would be welcomed in the Houston area right now as the area is suffering from a combination of typical hot summer tempuratures and a mini-drought over about the past 45 days.

Posted by Tom at 8:52 AM | Comments (0) | TrackBack (0)

July 3, 2005

Create your own traffic jam

With the microsimulation of road traffic, you can now create your own traffic jam in the comfort of your home.

Posted by Tom at 5:47 AM | Comments (0) | TrackBack (0)

July 2, 2005

Let's see, how can we blame Enron for this?

One of the enduring myths of this era of criminalizing business practices is that Enron's energy trading policies were one of the primary causes of California's power crisis during the early part of this decade.

Well, with Enron gone, that myth is not going to hold up this time around if what James D. Hamilton predicts comes to pass:

California may again offer the nation a useful illustration this summer of how not to deal with an energy crisis.

California Energy Blog last month passed along the warning from the Federal Energy Regulatory Commission that the southern half of our state is in "the worst electricity supply situation in the entire country." I'm not worried about it, though, because I know that the California Energy Commission has been working for five years to come up with a plan.

And here it is, in all its glory: the fifth annual installment of the flex your power now! campaign. In the Commission's own words, here's how it works:

Pitch in this summer, California. When you hear the "Flex Your Power NOW!" alert, immediately conserve energy. Learn more about what to do when you hear the alert.

But the really cool thing is the "Conserve-O-Meter". Go ahead, I'll wait here while you check it out.

And thus we continue in the great tradition of California regulators, who seek with great diligence, earnestness and, dare I say, ingenuity, to try to balance supply and demand every day by telling each one of us exactly what we need to do. As long as we all maintain the proper spirit and check up on the Conserve-O-Meter as the day progresses, I'm certain that all Californians can be counted on to do the right thing, ensuring the equality of supply and demand as a result of conscientious attention to civic duty.

Posted by Tom at 7:37 AM | Comments (3) | TrackBack (0)

No fan of Lerach

In this NY Times op-ed, Joseph Nocera tees off on the lead Enron class action securities fraud plaintiffs' lawyer, William Lerach, who has his share of troubles these days (noted here and here). After noting Larry Ribstein's compliment of Mr. Lerach's complaint against Enron and its investment banks (although I suspect that's not all Professor Ribstein observed to Mr. Nocera regarding Mr. Lerach and securities fraud class actions), Mr. Nocera lays the wood to Mr. Lerach:

While I have no way of knowing whether Mr. Lerach is innocent of the charges he may soon face - or whether the investigation is politically inspired - I do know that Mr. Lerach is hardly a candidate for canonization. For much of his career, he made his living playing a dirty game.

He would watch for the stocks of companies to drop, especially volatile high-technology stocks that missed their earnings estimate, and then he would round up a small shareholder like Mr. Lazar and race to the courthouse to be first in line to file a suit seeking class-action status. And then, usually with little else to go on, he would essentially torture the company with discovery motions and deposition requests and legal filings until it finally settled to make him go away.

And he was so gleeful about it! And so taunting! And so vindictive! He sued 3Com five times. Intel, too. He would tell executives of the companies he was suing, "I'm going to take away every penny you own." Once when Alan Shugart, the C.E.O. of Seagate Technology, which was being sued by Mr. Lerach, started a campaign against "abusive litigation," Mr. Lerach sent him a note that said, "Dear Al: More is coming."

John Doerr, the Silicon Valley venture capitalist, has called Mr. Lerach "a cunning economic terrorist."

Then, after noting the changes that the 1995 Private Securities Litigation Reform Act mandated in pursuing securities fraud class actions, Mr. Nocera finds that Mr. Lerach has just placed old wine in a new bottle in pursuing securities fraud class action lawsuits:

[E]ven now, Mr. Lerach's firm files a lot of lawsuits that seem to be based on not much more than some bad news and a big drop in the stock price. Eastman Kodak, OfficeMax, DreamWorks SKG and dozens more companies are facing that kind of lawsuit from him. He also has a new version of the small shareholders he used to have in his hip pocket: various plumbers' and pipe fitters' unions in places like Tennessee and Kentucky.

Mr. Lerach gave an unapologetic shrug when I asked him about these suits. "We like to have a lot of cases," he said. "That's our business model. It keeps you sharp. It's good training for your young lawyers." He described some of his competitors in the plaintiffs' bar, the ones who stick to big institutional clients and only file lawsuits against the likes of American International Group and WorldCom - as "living off the low-hanging fruit."

With that, Mr. Lerach hopped out of the car and walked into the hotel. The old dog knows some new tricks. He really does. His problem now is that he can't stop using the old ones.

Be that as it may, absent clear evidence of criminal wrongdoing, the government's attempt to criminalize the way in which Mr. Lerach pursues class action securities fraud cases is as misdirected as the government's prosecution of agency costs in cases such as Enron.

Update: Professor Ribstein verifies my above speculation regarding his conversation with Mr. Nocera.

Posted by Tom at 4:46 AM | Comments (1) | TrackBack (3)

July 1, 2005

Justice O'Connor replacement information

With Supreme Court Justice Sandra Day O'Connor's resignation announcement this morning, the SCOTUSblog provides the following handy profiles of some of the leading replacement candidates:

Fifth Circuit Court of Appeals Judge Edith Hollan Jones, who is also the subject of an earlier background post here and Larry Ribstein's choice;

Judge Janice Rogers Brown of the D.C. Court of Appeals;

Fifth Circuit Judge Edith Brown Clement

Attorney General Alberto Gonzales

Moreover, if President Bush elects to dip into the pool of candidates to replace Chief Justice William Rehnquist, this post and this post from earlier this year profile the likely candidates.

Finally, SCOTUSblog also provides The Supreme Court Nomination Blog, which provides more in-depth analysis of the positions taken and decisions written by some of the prominent candidates.

Posted by Tom at 12:52 PM | Comments (0) | TrackBack (0)

Piling on Merck

Texas attorney general Greg Abbott announced yesterday that he has filed a lawsuit against Merck & Co. in state court alleging that the company bilked Texas out of about $170 million in Medicaid payments by misrepresenting the safety of its Vioxx painkiller. Although a flurry of personal injury lawsuits have been filed against Merck throughout the country after the company pulled the Vioxx drug late last year, Texas is apparently the first state to file such a suit against the company.

A one-time popular arthritis drug, Merck voluntarily withdrew Vioxx from the market last fall after a study of cancer patients correlated use of the drug with an increased risk of heart attack and stroke. As is typical in such situations, the numerous private lawsuits that have been filed against Merck allege that the company knew of potential problems with Vioxx, but disregarded them and marketed the profitable drug anyway.

Greg Abbott is one of the genuine good guys in Texas politics, but he is wandering far afield with this latest salvo against Merck. As Dr. Rangel has noted here and here, lawsuits such as this follow a troubling pattern of attempting to feed off of the sensationalism and publicity of a side effect of a new and popular drug. It's not at all clear that Merck did the right thing in pulling Vioxx off the market, but the mainstream media and plaintiffs' personal injury lawyers have seized on the company's removal of the drug from the marketplace by drumming the theme that Vioxx is an excessively dangerous drug that could kill you. Not mentioned in such propaganda is the fact that there are plenty of other medications on the market that have side effects that are more common and worse than those of Vioxx, but those drugs remain on the market for patients who are willing to risk the side effects of the drugs to obtain the benefits from them.

As one doctor observed in the Wall Street Journal awhile back, given the known side effects of aspirin, that drug "probably couldn't gain FDA approval today."

Posted by Tom at 5:38 AM | Comments (2) | TrackBack (0)

Is the prosecution engaging in witness tampering in the Skilling - Lay criminal case?

I was at the Federal Courthouse yesterday for a late morning hearing and decided to stick around and pop into an early afternoon status conference in the government's biggest Enron-related criminal case -- that is, the case against former Enron chairman Ken Lay, former Enron CEO Jeff Skilling and former Enron chief accountant Richard Causey. As with my decision to attend this earlier hearing, I'm glad I decided to stick around. What appeared to be a routine status conference turned out to be anything but.

Midway through the conference, U.S. District Judge Sim Lake announced from the bench that he had received an ex parte motion from the defendants that had been filed under seal. Without revealing the contents of the motion, Judge Lake stated that he had concluded that the defendants had established a prima facie case of entitlement to the relief that they were requesting in the motion, which he disclosed was the right to subpoena under Fed. R. Crim. P. 17(c) all evidence relating to communications between the Enron Task Force and the 15 former Enron employees who have pled guilty under plea arrangements with the Enron Task Force. Judge Lake stated that he would first review all documents and records produced in camera and then turn over to both defendants and the prosecution copies of all documents and records that are relevant to the issues raised by the motion.

As a clearly unsettled Enron Task Force prosecution team looked on, Judge Lake went on to authorize the defendants specifically to issue subpoenas for evidence of all communications with the Task Force to the 19 attorneys who have represented the 15 former employees in negotiating their plea arrangements with the Task Force. When the Task Force prosecutor raised a flustered objection to the ruling and requested an opportunity to respond to the defendants' ex parte motion, Judge Lake summarily overruled the objection and stated that he was persuaded by the defendants' motion that the relief was justified. Chronicle Enron reporter Mary Flood's article on the status conference is here.

So, the $64,000 question is this -- what on earth is in the ex parte motion of Messrs. Skilling, Lay and Causey that would prompt Judge Lake to grant this rather extraordinary relief without so much as a response from the Enron Task Force?

Although the motion remains under seal and is not available for public review, my speculation is that the motion is focused on the Enron Task Force's dual tactics of threatening potential defense witnesses in the Enron-related criminal trials with indictment if they testify and bludgeoning former Enron employees to enter into plea arrangements under which they would provide favorable but false testimony in prosecutions of other Enron-related defendants.

That speculation is supported by recent revelations in connection with Enron-related criminal cases. First, several key defense witnesses in the Nigerian Barge case declined to testify on Fifth Amendment grounds because the Task Force had fingered them as targets of the Enron criminal investigation. Then, as noted in this earlier post, former Enron Broadband engineer Lawrence Ciscon dramatically testified earlier in the ongoing Enron Broadband trial that Enron Task Force prosecutors had repeatedly threatened him and had fingered him as a target of an indictment in attempting to dissuade him from testifying on behalf of the five Enron Broadband defendants. Moreover, as noted in this earlier post, former Enron Broadband co-CEO Ken Rice testified falsely during the prosecution's case-in-chief in the Broadband trial after entering into a plea arrangement with the Task Force, and that false testimony was followed by testimony from another witness that she felt threatened by the Task Force in connection with her testimony regarding Rice's false testimony. Finally, as this earlier post noted, the Task Force has set a dubious record by naming 114 co-conspirators in the Skilling-Lay-Causey case, which is just another transparent attempt to chill potential defense witnesses from testifying during the upcoming trial in that case.

Consequently, what this development closely. As noted in this post, the Enron Task Force has been quite successful in the court of public relations in painting anyone having anything to do with Enron as a criminal. However, in actually having to prove its allegations in court (as Professor Ribstein notes in this post from yesterday), the Task Force has been far less successful and now it appears that one federal judge is openly skeptical of the tactics that the Task Force has been using to deter defense witnesses from testifying and to generate dubious testimony under plea arrangements. That government prosecutors believe that they cannot prevail in their prosecutions of Enron-related criminal defendants without engaging in such troubling tactics is more strong evidence that the government's policy of criminalizing business transactions has gone seriously awry.

Posted by Tom at 4:30 AM | Comments (1) | TrackBack (3)