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March 31, 2006

Randy Quaid's Brokeback lawsuit

Former Houstonian Randy Quaid, the fine character actor who is a product of Sidney Berger's outstanding theatre department at the University of Houston, is making news these days in the courtroom -- he is suing the producers of the recent hit movie Brokeback Mountain for $10 million in damages for misleading him to contribute his talent to the film in a supporting role. Here is the Variety article on the lawsuit.

According to Variety, Quaid -- the grizzled ranch boss character in the movie who brought the tragic lovers Jack and Ennis together -- alleges that the Brokeback producers misled him into thinking that the movie was just an "art" film with little chance of generating any profits:

Defendants were engaging in a 'movie laundering' scheme designed to obtain the services of talent such as Randy Quaid on economically unfavorable art film terms for a picture that, in reality, had studio backing and would be exploited using traditional studio marketing and distribution techniques," the lawsuit states. [...]

Quaid is asking to be awarded $10 million, the amount the lawsuit suggests he would have received had Focus been upfront about its intentions for "Brokeback," which has grossed nearly $160 million worldwide.

"Randy Quaid is an instantly recognizable household name and much-admired actor on the world's stage with a worldwide box office total of nearly $2 billion. His likeness, talent and name are worth millions of dollars and are solely his property," the lawsuit states. [...]

According to the suit, Lee told Quaid during a meeting that "we can't pay anything, we have very little money, everyone is making a sacrifice to make this film.

Meanwhile, the NY Times article reports that Quaid's lawsuit is focusing unwanted attention in certain Hollywood circles on how talent is being paid for working in features produced by the so-called "mini-majors" -- the arthouse divisions of huge studios that claims that low-budget films wouldn't be made without casts and crews drastically cutting their fees. Now, prominent actors such as Quaid are contending that they are being hoodwinked only to have the studios spend huge amounts on marketing in order to generate huge returns:

"It's a complicated question, and it is both the genius and the nefarious nature of these mini-majors," said Linda Lichter, a lawyer who sells films in the independent world. "The purpose of those mini-majors is to try to make movies that the major studios can't afford to make, for less money. But they don't make those movies unless they get big players who are willing to cut their price." [...]

"Good Night, and Good Luck," from Warner Independent, cost a mere $8 million to produce, with the actors earning the lowest permissible union fee, known as scale, an executive involved in the film said. Warner Brothers spent about $25 million to promote the film for the Oscars and in its general release, so while the movie took in $51 million around the world, there will be no profit to share in, the executive said. (Distributors share box office revenue with theater owners.)

Gee, imagine that. Who would have thought that Hollywood -- which regularly misrepresents and bashes business in films -- regularly misrepresents its business to others within its own industry? ;^)

Posted by Tom at 5:31 AM | Comments (3) | TrackBack (1)

The risk of being a baseball icon

As noted earlier here, objective research does not support the current conventional wisdom that widespread steroid use in Major League Baseball is largely responsible for the home run records that were set over the past decade. Nevertheless, while continuing to ignore or refine such research, Major League Baseball announced yesterday that former U.S. Senator George Mitchell will lead an investigation into alleged steroid use by Barry Bonds and other players.

The Chronicle's Richard Justice thinks that the investigation will put primarily Bonds in the crosshairs of investigators, but I'm not as sure that Bonds will end up being the only icon tarnished by the investigation. For quite some time now, some pundits on the steroid issue have alleged that the Stros and star slugger Jeff Bagwell were at the center of the steroid use in Major League Baseball and that Bagwell was even indirectly involved in Bonds' decision to take steroids. Accordingly, don't be surprised if the investigation implicates Bags and other Stros.

Given the conclusions to which generally uninformed people jump in regard to steroid use, it will be unfortunate if Bags' reputation is dragged through the mud in this process. Just remember that steroids did not make him the greatest slugger in Stros history or Bonds one of the greatest sluggers in Major League Baseball history.

Posted by Tom at 4:37 AM | Comments (6) | TrackBack (0)

Lay-Skilling, Week Nine

U.S. District Judge Sim Lake declared "Spring Break" at the conclusion of a short Week Nine of the criminal trial of former key Enron executives Ken Lay and Jeff Skilling as the prosecution concluded its case-in-chief and the Lay-Skilling team made final preparations for putting on its case. The break was certainly appreciated by the participants in the energy-draining trial and allowed everyone else who is following the case to step back and evaluate where the trial stands.

My experience is that it is almost impossible to understand the dynamics of a particular trial fully unless one sits in the courtroom and watches the trial each day. Although I have read the entire trial transcript to date, I have only been able to sit in on the trial on a few occasions, so I certainly do not have as good a perch to view the trial proceedings as the primary beat reporters who are in the courtroom almost every day -- Alexei Barrionuevo of the NY Times, Mary Flood of the Houston Chronicle, John Emshwiller and Gary McWilliams of the Wall Street Journal, and Carrie Johnson of the Washington Post. Interestingly, although each has dutifully reported the presentation of the Enron Task Force's case against Lay and Skilling, none of these day-to-day reporters have indicated that they believe the trial is a slam dunk winner for the prosecution.

At the Week Nine pole, my sense is that the prosecution has competently presented a reasonably fast-paced version of a fundamentally weak case. That's not to suggest that the prosecution can't win it -- indeed, weak cases are won all the time and the Task Force still has the huge advantage of the presumption that someone must be guilty of some crime whenever a company melts down in the way Enron did. However, if the jurors have not already decided against Lay and Skilling based on that presumption, a quick glance of the Task Force's case over the past nine weeks reveals more than enough holes through which the Lay-Skilling team could well deliver a good dose of reasonable doubt to the jury.

The week nine testimony was a case in point. Former Enron treasurer Ben Glisan completed his testimony in which, on direct, he contended that he had been advising Lay and others of Enron's dire financial condition since mid-August of 2001 immediately after Skilling's resignation. However, Glisan had no meaningful documentary evidence to support his testimony on that issue, and Lay's attorneys on cross-examination introduced Glisan's own reports from September and October, 2001 detailing Enron's improving finances. In fact, on October 8, Glisan told Enron directors that the company was "on target" to meet its year-end liquidity goals and it would hold onto its investment-grade credit rating, calling a lowered outlook the "most likely worst-rating outcome" from its third-quarter earnings report. Glisan also transmitted an October 17 Deutsche Bank credit analysts' report to Mr. Lay and others that noted Enron's "liquidity remains solid."

But lack of documentary evidence to support testimony and contradictory documentary evidence in regard to such testimony are not the only problems for the prosecution. Virtually every material prosecution witness -- including Glisan -- testified that they initially lied to investigators when they denied that they did anything illegal at Enron. Now, however, those witnesses are claiming that they are telling the truth after cutting a deal with the Task Force in return for their favorable prosecution testimony. Is the jury really going to believe that the biggest corporate conspiracy in history was hidden from everyone except these relative few Enron executives who have copped pleas, struck deals while in prison or entered into non-prosecution agreements?

Moreover, virtually none of the testimony to date has supported a key element of the prosecution's case -- the alleged huge conspiracy within Enron to cover up the wrongdoing at the company. Despite alleging now that Lay and Skilling were involved in lying about Enron to the investment community years ago, none of the prosecution witnesses produced any corroborating documentary evidence that they had any reservations at the time about the statements that Lay and Skilling were making and none of the witnesses have testified that either Lay or Skilling at the time ever confided to them that they thought they were making misleading statements. Doesn't sound like much of a conspiracy, does it?

Meanwhile, the Task Force has several major problems with a number of its witnesses. Mirroring his infamous false testimony in the Enron Broadband Trial and the Task Force's abysmal handling of that false testimony, it now appears that the prosecution team had former Enron Broadband executive Ken Rice testify in Lay-Skilling regarding a dubious presentation document that the prosecution failed to produce to the defense as required before trial. It's usually not a good sign for the prosecution when a key prosecution witness performs so badly that the defense is considering calling the witness back to testify in the defense's case-in-chief.

Likewise, the Task Force's decision to go for a cheap score during the testimony of former Enron Broadband executive Kevin Hannon -- he of "they're on to us" fame -- has turned into a major can of worms for the prosecution. Understandably, the the Lay-Skilling defense is wondering why no other prosecution witness who attended that meeting testified regarding such a supposedly revealing statement by Skilling and, if they didn't hear the statement, why that exculpatory evidence was not disclosed to the defense prior to trial?

Finally, the testimony of key prosecution witness Andy Fastow on his negotiation of a plea deal at the expense of his wife and on the "Global Galactic" memo (also here) was so bizarre that the prosecution simply elected not to attempt to corroborate Fastow's testimony with either former Enron chief accountant Richard Causey or key Fastow henchman, Michael Kopper. Maybe the Task Force brings in Causey as a rebuttal witness later, but, if not, then what did Causey tell the Task Force about Global Galactic?

So, midway through the corporate criminal case of the decade, the Task Force has presented a "pump and dump" case that, to a large extent, relies on a complex mix of innuendo and opinion. According to the Task Force, Enron was so successful in making money in its trading operations that it allowed Lay and Skilling to soft-pedal to the markets the losses that Enron was incurring in a couple of less successful parts of the company's business. The Task Force does not contend that either Lay or Skilling was involved in approving fraudulent accounting, but rather that mainly Skilling engineered a reorganization of a poorly-performing Enron business unit in a manner that hid losses of that unit underneath the blanket of high profits of Enron's trading unit. The alleged hiding of these losses, along with over-reserving to hide excess profits of the trading unit, allowed Skilling and Lay to misrepresent Enron to the investing public as a stable logistics company rather than the more volatile trading company that prosecutors allege that Enron had become. As noted in this earlier post, that theory of the case plays heavily on "the presumption" in such cases -- i.e., that Lay and Skilling are rich and Enron collapsed, so they must be guilty of something as a result of Enron's failure.

Come Monday, the Lay-Skilling team begins presenting its case-in-chief, which I expect to be spirited and entertaining. However, the defense is not without its own problems, the biggest of which is its inability to obtain exculpatory testimony from numerous former Enron executives who are declining to testify on the basis of their Fifth Amendment privilege after the Task Force fingered them as targets of the Enron criminal investigation and designated them as unindicted co-conspirators in the Lay-Skilling case.

That such witnesses will likely not be testifying is a terrible injustice to Lay and Skilling. Although reasonable people can differ over whether criminalizing corporate agency costs is sound public policy, there is no question that the government's effective preclusion of exculpatory testimony for Lay and Skilling from this trial is a serious violation of the principles of justice and the rule of law upon which our criminal justice system is based. If the government believes that those important principles must be shoved aside to obtain successful prosecutions of questionable business judgments, then isn't that a blue ribbon reason to re-think the prosecution of such cases altogether?

Posted by Tom at 4:11 AM | Comments (3) | TrackBack (1)

March 30, 2006

Fifth Circuit orders William Fuhs released from prison

In an extraordinary development, the Fifth Circuit Court of Appeals this afternoon -- just three weeks after oral argument in the appeal by four Merrill Lynch executives of their convictions in the controversial Enron-related Nigerian Barge case -- ordered former Merrill Lynch executive William Fuhs released immediately on bond pending final disposition of his appeal. A copy of the Fifth Circuit's order is here and here are the NY Times and the Chronicle articles on the order.

From the Fifth Circuit docket of the appeal, it appears that Fuhs was the only one of the Merrill Four who filed a renewed motion for release pending disposition of the appeal after the March 6th oral argument. The Fifth Circuit's order came after both U.S. District Judge Ewing Werlein and the Fifth Circuit had previously denied Fuhs' motion for release pending appeal of his conviction. Fuhs will make an appearance on Friday at 2 p.m. before an U.S. Magistrate in Oklahoma City (where he was serving his sentence) to establish the terms and conditions of his release. The Fifth Circuit's unusual action is a strong signal that Fuhs has a winner on the merits of his appeal.

Fuhs is represented by David Spears of Richards Spears Kibbe & Orbe LLP of New York City and on appeal by Seth Waxman, Paul A. Engelmayer, and Anne K. Small of Wilmer Cutler Pickering Hale and Dorr, LLP's New York and Washington offices.

Posted by Tom at 3:15 PM | Comments (0) | TrackBack (3)

The Convertino case

Clear Thinkers favorite Peter Henning provides this cogent analysis of the important case of Richard Convertino, the former Assistant U.S. Attorney who was indicted yesterday on conspiracy, obstruction of justice, and perjury charges for his part as lead counsel in the extraordinary "Detroit Terrorism Trial," the case in which two defendants were convicted on terrorism charges only to have the prosecution request that the verdicts be thrown out because of prosecutorial misconduct. A copy of the indictment is here, the WaPo article on the indictment is here and the NY Times article is here.

As Professor Henning reports, this may be the first indictment based on a prosecutor's alleged failure to comply with the government's Brady obligation and the prosecution's duty to turnover to the defense potentially exculpatory evidence that the prosecution obtained in the course of its investigation. Given the Enron Task Force's use of similarly questionable tactics in connection with various Enron-related prosecutions -- including this recent alleged failure to comply with the Task Force's Brady obligation in the Lay-Skilling case -- you can bet that the defense attorneys involved in the Enron-related criminal cases will be following the Convertino case closely.

11/01/07 Update: Convertino was acquitted.

Posted by Tom at 7:06 AM | Comments (2) | TrackBack (0)

The New Face of Exxon

This NY Times article profiles new ExxonMobil CEO Rex W. Tillerson, who succeeded Lee Raymond three months ago.

Although Exxon's core strategy will not change under Tillerson's leadership, the article notes that Tillerson's style is definitely different from that of the notoriously serious Raymond. At a recent news conference, Tillerson was asked what he thought would happen to oil prices this year:

"If I knew," Tillerson quipped. "I'd be living on a Caribbean island with my flip-flops and a laptop, working just two hours a day."

Posted by Tom at 6:35 AM | Comments (0) | TrackBack (0)

Rockets choose a stathead as new GM

The moribund Houston Rockets -- clearly the least popular of Houston's three major professional sports franchises -- announced yesterday that longtime general manager Carroll Dawson will retire as GM after next season and that he will groom 32 year-old Boston Celtics executive Daryl Morey as the Rockets' new GM over the next year.

Morey is an interesting hire, to say the least. An MIT graduate, Morey has never been a player or a coach, and essentially has spent his entire professional life developing statistical models for analyzing various sports, most recently basketball for the Celtics. Bill James and the sabermatricians have used such statistical models in analyzing professional baseball over the past three decades, but such statistical modeling remains relatively new in professional basketball. Over the past several years, Morey has been an adjunct professor at MIT Solan in recent years, teaching "Analytical Sports Management" with Mr. James -- who is currently a consultant with the Red Sox -- contributing as a guest instructor.

Although an unusual hire, Rockets owner Les Alexander should be applauded for taking a flyer on Morey. As noted in earlier posts here and here, the Rockets have been mismanaged for the better part of a decade now and have essentially wasted all of the goodwill that the club had established as a result of their back-to-back NBA titles in the mid-1990's.

Once the toughest ticket in town, the Rockets now play to small and unenthusiastic crowds in the club's new, gleaming downtown arena and rarely are even a topic on the city's multiple sports-talk radio shows. Inasmuch as the team has not even been particularly competitive over the past several years with either of its Texas counterparts -- the San Antonio Spurs and the Dallas Mavericks -- this is an organization that desperately needs new blood and life. Here's hoping that Morey can provide it.

Posted by Tom at 5:04 AM | Comments (1) | TrackBack (0)

Tough client

Most of us lawyers have had difficult clients from time to time, but this WaPo article reports that would-be 9/11 bomber Zacarias Moussaoui redefines the concept of the difficult client.

As we all know, Moussaoui pled guilty to six counts arising from the 9/11 suicide bombing of the World Trade Center and now federal prosecutors are seeking the death penalty because Moussaoui could have supplied information that would have prevented the attacks. Moussaoui's defense contended that the defendant was a merely a fringe figure in al Qaeda. That led to the following testimony:

[Zacarias Moussaoui] had planned to fly a hijacked airliner into the White House, but he got arrested before the attack and had to sit it out. Yesterday, fighting the death penalty in an Alexandria courtroom, he took the stand -- over his lawyers' strenuous objections -- and pretty much destroyed the defense his team had built.

He readily agreed that he was part of the 9/11 plot. "I was supposed to pilot a plane to hit the White House," he said, and he knew of the World Trade Center attacks but lied to prevent authorities from stopping them.

"You rejoiced in the fact that Americans were killed?" the prosecutor asked.

"That is correct," Moussaoui said, matter-of-factly.

You called the collapse of the twin towers "gorgeous"?

"Indeed."

You asserted that "3,000 miscreant disbelievers" burned in a "hellfire"?

"That is correct."

Moussaoui's defense team proceeded to contend that he is insane and, thus, his testimony should be disregarded, while the prosecution contended that it would be unfair to deny Moussaoui the opportunity to testify. Moussaoui agreed with the prosecution. In fact, Moussaoui was more cooperative with prosecutors and became restless on the stand only when questioned by his own lawyers.

Tough client, indeed. Hat tip to Carolyn Elefant for the link to the WaPo article.

Posted by Tom at 4:37 AM | Comments (1) | TrackBack (0)

March 29, 2006

And I thought it was because of those two big guys down on the blocks

Alex Tabarrok of Marginal Revolution blog fame and colleague Peter Boettke author this Slate.com piece that places the unlikely NCAA Basketball Tournament Final Four appearance by George Mason University in the context of an overall renaissance that is occurring at the university as it copes with competition in the marketplace of ideas:

What's remarkable is that GMU's freewheeling basketball team and its free-market academic teams owe their successes to very similar, market-beating strategies. GMU has excelled on the court and in the classroom by daring to be different. . . .

GMU remains an underdog in both basketball and economics. But Coach Larranaga has a plan to succeed in the long term and so do GMU's professors. Click here to read about how GMU is seeking out different new kinds of undiscovered geniuses.

Are you listening, University of Houston?

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

Cap Weinberger, R.I.P.

Reagan Administration Secretary of Defense Casper Weinberger died Monday at the age of 88 after a short illness. Weinberger is best remembered for a combative style that likely had something to do with his indictment in the Iran-contra affair (for which he was later pardoned), but his impact on the American armed services is his far more important legacy.

At the time that Weinberger took over the Defense Department in 1980, the Pentagon was still in its post-Vietnam War funk that was exacerbated by the malaise of the Carter Administration. Although the Pentagon is a notoriously tradition-bound institution where new ideas that do not come through the normal chain of command are viewed by top Pentagon brass with skepticism, Weinberger developed a culture at the Defense Deparment that increasingly embraced intellectual ideas from non-conventional sources.

For example, Andrew Marshall in the late 1970's and early 80's argued from an obscure Pentagon office that wars could be revolutionized by precision bombs, unmanned planes and wireless communications that would allow the American military to destroy enemies from a distance. Similarly, the work of the late Pentagon iconoclast John Boyd and his acolytes in revolutioning the way in which the American military approaches war in the late 20th and early 21st century has been well-chronicled in Robert Coram's book, Boyd: The Fighter Pilot Who Changed the Art of War (Little, Brown 2002).

The Pentagon brass often fought tooth and nail against the innovative ideas of people such as Boyd and Marshall -- and continues to do so today with regard to Donald Rumsfeld's ongoing reorganization of the Defense Department -- primarily because those new ideas often ran contrary to the sacred cow military appropriations that the Pentagon brass traditionally protect. However, Weinberger was instrumental in instituting the cultural changes at the Pentagon that altered that institutional mentality, and leaders such as Rumsfeld, Dick Cheney, and Colin Powell over the past two decades opened up and accepted recommendations from non-traditional Pentagon sources that have revolutionized and dramatically improved America's ability to conduct war in places such as Afghanistan and Iraq.

But for Cap Weinberger's leadership, the traditional Pentagon brass would have likely squelched those innovative ideas before they would have ever seen the light of day. That is not what you will read about in the traditional obituaries of Weinberger, but it may be his most important contribution as a governmental servant.

Posted by Tom at 5:42 AM | Comments (0) | TrackBack (0)

GM's Enronesque slide continues

Geez, talk about a bad day at the office.

Embattled General Motors (prior posts here) conceded in its delayed regulatory filings filed yesterday that it had found "material weaknesses" or "significant deficiencies" in the company's accounting controls, and that the company's financial statements for 2002-2004 and for the first three quarters of 2005 "should no longer be relied upon" because of accounting errors. The company filed corrected statements for those periods with the SEC yesterday.

In addition, the company announced that it may have a bit of trouble peddling its valuable financing unit because of the complexity involved in arranging such a deal and, oh by the way, several years worth of results for that unit need to be restated, too. Then, this NY Times article questions whether GM current management has what it takes to pull the company out of its tailspin.

But to top it all off, GM announced that it had received a subpoena from a federal grand jury investigating its handling of payments or "credits" from suppliers, and that it had received a subpoena from the Securities and Exchange Commission in connection with a previously disclosed investigation of GM's transactions in precious-metal raw materials. That makes six subpoenas from the SEC and two subpoenas from federal grand over the past six months.

Despite its mounting problems, GM remains reasonably liquid and is in just the beginning stages of a large layoff plan. However, should GM's board continue to postpone what increasingly looks like an inevitable need for a reorganization under chapter 11 and risk that depletion of the company's liquidity levels during such a postponement will make such a reorganization even more difficult? Or would authorization of a chapter 11 case while the company still has decent liquidity reserves breach the board's fiduciary duties to GM shareholders?

The WSJ's Holman Jenkins chimes in today with this column ($) on what GM needs to do:

Getting rid of the Jobs Bank not only helps cure GM's rational incentive to underinvest -- it also helps cure its rational incentive to overproduce, churning out cars that command just enough of a market price to meet GM's fixed labor bill even if they fail to generate any profits.

Don't underestimate the importance of this factor. Dumping these cars on the market, especially through cheap fleet sales, undermined the pricing and image of all GM cars, then undermined it again when these fleet vehicles reappeared on used-car lots a year or two later. Optimizing production volume under GM's crazy labor guarantees was such a puzzle that an economist in the company's R&D department even published a research article on it in 1995. A year earlier, GM had actually found itself hiring temps and paying overtime to meet demand for hot cars even as it paid 8,300 UAW workers at other factories to stay home.

Much inveighing over Detroit's "addiction to incentives" over the years has missed this fundamental point. "Incentives" are just gimmicks for rationalizing the fact that GM was obliged to produce cars to generate cash flow regardless of whether they made any money for shareholders. As the company began to spell out in a briefing Monday, unwinding its jobs-for-life commitments would enable GM to alter this basic approach to the car business. Bluntly put, GM would be able to build fewer cars and charge more for them.

There are no easy answers these days for GM board members.

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

March 28, 2006

The state of talk radio political discourse

First, outspoken actor Alec Baldwin goes on a radio talk show.

Then, Fox News pundit Sean Hannity calls in.

The result?

A quintessential example of the state of political discourse on talk radio.

Demogoguery continues to sell well in America.

Hat tip to TigerHawk for the link to the story.

Posted by Tom at 9:05 AM | Comments (2) | TrackBack (0)

Bid high, then settle

Stephen Cooper, the fellow who oversaw Enron's liquidation for a couple of years, has backed off his request for a $25 million "success" fee (earlier post here) -- on top of his $1.3 million annual salary and tens of millions already paid to his company for its services in the Enron case -- after the U.S. Trustee examining his request pointed out some "billing issues" to the Bankruptcy Judge overseeing the Enron chapter 11 case. Mr. Cooper now is requesting "only" a $12.5 million success fee in the Enron case, where creditors holding unsecured claims will probably receive somewhere between a 15% - 25% dividend on their claims.

Something tells me that Lynn LoPucki is not pleased.

Posted by Tom at 7:44 AM | Comments (0) | TrackBack (1)

Criminalizing an executive's right to counsel

In the post-Enron era of criminalizing business, a business executive's attorney-client privilege with the company counsel of the executive has already become largely illusory (posts here, here here and here). Now, according to this Nathan Koppel/WSJ ($) article, the government is now threatening to go Arthur Andersen on a New Hampshire company unless the company breaches its contractual obligation to provide counsel to a company executive that is accused of a crime.

The fee-payment issue has become an issue over the past several years after the 2003 "Thompson Memo," former Deputy Attorney General Larry Thompson's dubious directive that advised prosecutors how to induce companies to cooperate with the government in order to avoid an indictment and an Arthur Andersen-type meltdown. The memo advises that a company's willingness to advance legal fees to "culpable employees" may signal a lack of cooperation. The nonpayment of legal fees has been a huge issue in the ongoing tax-shelter prosecution against former executives of KPMG LLP, where the accounting firm has not reimbursed its former executives since 2004.

In the New Hampshire case, five former executives of technology company Enterasys Networks Inc. are charged with accounting fraud. The case was scheduled to go to trial in Concord this month, but the defense received a three-month reprieve after federal prosecutors were accused of misconduct in pressuring the company to cut off legal fees to the defendants. At a March 7 hearing, U.S. District Judge Paul Barbadoro voiced concern over the prosecutors conduct, but he did not sanction the prosecutors and Enterasys reluctantly agreed to pay past-due fees and costs of defense counsel and to cover future costs.

The article notes that, over the past three years, federal prosecutors in New York, Alabama and now New Hampshire have placed companies at risk of being indicted out of business if they fail to cut off payments to an executive's defense counsel. Clear Thinkers favorite Ellen Podgor of the White Collar Criminal Prof blog comments in the article:

"If companies don't cooperate with the government, they can face a death penalty by being indicted," says Ellen Podgor, a professor at Stetson University College of Law. She adds that companies fear becoming the next Arthur Andersen LLP, which imploded shortly after its indictment in 2002 for allegedly obstructing the government's investigation of fraud at Enron Corp. (The accounting firm was later convicted of obstruction, but the Supreme Court overturned the verdict last year.) "Prosecutors can now force individuals to pay their own attorneys' fees," Prof. Podgor says, "and corporations have to go along."

Justice Department spokesman Brian Roehrkasse disingenuosly responded by suggesting that "the government does not force corporations to do anything." If a company declines to advance fees, "that is a business decision made after weighing all of the costs and benefits of cooperation."

Yeah, right. Let's see, here. Is the company better off with the cost attributable to breaching its obligation to pay the defense costs of an executive accused of a crime? Or of fulfilling that obligation, but being indicted out of business? Faced with that "choice," what company wouldn't elect the former?

So it goes with regard to the prosecutorial abuses (partial lists here, here, here and here) that are making a mockery of our criminal justice system in the post-Enron era of criminalizing business. As Larry Ribstein wryly notes:

Apparently the presumption of innocence isn't what it used to be. But then, as a law professor was recently was quoted as saying, letting defendants pay lots of money to defend themselves could "undermine the deterrence idea of white-collar crime prosecution."

Come to think of it, wouldn't we get more deterrence if we dispensed with those pesky trials?

Posted by Tom at 6:02 AM | Comments (0) | TrackBack (1)

Update on the Bagwell disability claim

The Chronicle's Stros beat writer, Jose de Jesus Ortiz, reports today that the insurer of the Stros disability insurance policy on slugger Jeff Bagwell has denied the Stros' claim that Bagwell's arthritic right shoulder has rendered him disabled under the terms of the policy. Previous posts on the Bagwell disability claim are here and the post from the past weekend on Bags' impending retirement is here.

The insurer's position is not particularly surprising. Although Bagwell cannot throw a baseball well enough to play Major League Baseball in the National League, he was in the same condition last September when the Stros activated him to pinch-hit in the final regular season games and the playoffs. Consequently, the insurer contends that nothing has changed since Bags was physically capable of playing last fall and, thus, he continues not to be disabled.

On the other hand, the Stros are contending that the fact that Bags was able to handle partial duties in the fall (i.e., bat, but not throw) fails to establish that he is not disabled now. The Stros contend that Bagwell's disability was not finally confirmed until January 12, 2006, when orthopedic expert Dr. James Andrews examined Bags, according to Stros' counsel, Wayne Fisher:

"He was throwing the ball at 35 mph at what distance he could throw. On Jan. 12, we know total disability began, because Dr. James Andrews, a world-renowned physician, told him. That was the first time any physician had ever said that to Jeff. If Connecticut General Insurance Co. can tell us what person in that insurance company knows more about whether Jeff Bagwell was totally disabled on Jan. 12 than Dr. James Andrews, I'll be very interested in cross-examining him."

Fisher is a first-rate plaintiffs lawyer and an old friend of Stros owner, Drayton McLane. The success or failure of these types of claims are notoriously dependent on the policy provisions, particularly those pertaining to the definition of disability and the litigation forum. If the policy requires arbitration of the claim, then my sense is that the Stros have a tough case. On the other hand, if Fisher can get the insurer into state district court in Harris County, then the home field advantage definitely favors the Stros.

Posted by Tom at 5:22 AM | Comments (1) | TrackBack (0)

March 27, 2006

Governmental intervention in oil and gas markets

This NY Times article reports on the successful lobbying effort by the oil and gas industry in the mid-1990's during a time of low energy prices to persuade Congress to create incentives for energy companies to explore for oil and gas in the Gulf of Mexico.

Congress passes legislation to create the incentives, but the legislators don't bother to read the legislation carefully.

During the current period of relatively high energy prices, the oil and gas companies take advantage of the legislation to make a lot more money through paying reduced royalties to the government than they would otherwise have made without the legislation.

Journalists point this out to legislators.

Hilarity ensues.

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

More on criminalizing those unpopular shorts and hedgies

This earlier post noted the dust-up over the SEC's dubious issuance of subpoenas to financial journalists over Overstock.com's accusation that a hedge fund and a stock-research firm manipulated the media and the market to drive down the price of Overstock.com's stock for the purpose of profiting through shorting the stock.

Now, this NY Times article reports that the SEC is seeking documents about communications that the stock research firm -- Gradient Analytics Inc. -- had with journalists and several hedge-fund advisers. The new subpoenas appear to be intended to gather information about Gradient's contacts with journalists without seeking the information directly from the journalists themselves. If you can't get the information one way, try another.

The NY Times story reports allegations that SAC, a big hedge fund, persuaded Gradient to generate a misleading and negative report on Biovail, a generic drug firm. Then, the allegation goes, SAC persuaded (bribed?) Gradient to delay publication of the negative report on Biovail so that SAC could profit by shorting Biovail stock. If true, then SAC and Gradient's scheme is sanctionable under existing securities laws.

Although Biovail stock hasn't been doing all that well anyway and it's unclear whether the negative reports had any effect on the company's stock price, the NY Times article rachets up the "more business regulation" demagogery, anyway:

Hedge funds operate with a fair amount of secrecy, which naturally shrouds them in mystery and, often, suspicion. Combine that with the veiled practice of shorting and the devaluation of stock research since the market collapse, and it becomes a recipe for concern — if not paranoia. . . If the Biovail lawsuit can show that hedge funds are persuading analysts to come to predetermined conclusions and then asking that the reports be held so they can make low-risk bets that stocks will fall on the negative news, then the case will open another ugly chapter of corruption and greed on Wall Street.

Uh, oh. "Another ugly chapter of corruption and greed on Wall Street" are buzz words justifying another NY Times exposé and Congressional hearings on those evil capitalist roaders.

As usual, Larry Ribstein provides common sense advice in response to the Times article:

The danger here is that this will be seen as part of a pattern of misconduct regarding trading negative information by hedge funds – leading to extensive and unnecessary regulation of honest funds and researchers and the relationship between the two. . . Hedge funds are doubly vulnerable because they are not only short-sellers, but also active in a market for control that carries its own perils for incumbent managers.

The bottom line is that we should be looking for ways to encourage the market efficiency role of hedge funds and short selling, . . .

For more, see Professor Ribstein's article that he co-authored with Bruce Kobayashi, Outsider Trading as an Incentive Device.

Look, scamming the market by timing the release of false negative information about a stock while shorting it can already get one in trouble under current securities and criminal laws. But attempting to control that type of scam through more regulation runs a much greater risk of curtailing useful market functions than preventing such already illegal market manipulation. Criminalizing statements made to the market in order to perpetuate a myth is rarely a good idea.

Posted by Tom at 5:29 AM | Comments (0) | TrackBack (0)

"Keep Up"

Stephen Ames -- you know, Tiger Woods' buddy -- won the Players Championship in a walkabout on Sunday, so the final round wasn't particularly interesting. Nevertheless, the golf tournament generated some highly entertaining moments, anyway.

During the first two rounds of the tournament, the PGA Tour paired Rory Sabbatini -- who is one of the hottest players on Tour this season -- and NBC golf color commentator and part-time Tour player, Nick Faldo.

As you may recall, Faldo and Sabbatini had a dust-up with each other last year. During the 2005 Booz Allen, Sabbatini was harshly criticized by television commentators Paul Azinger and Faldo on the air for leaving playing partner Ben Crane behind to finish the 17th hole. Sabbatini, who is one of the fastest players on Tour, was fed up with Crane’s pace of play, which is one of the slowest on Tour. Sabbatini reportedly was not pleased with Faldo and Azinger slamming him on the air, although he reportedly talked with Azinger about the incident later and made up with him. But not Faldo.

To make matters, Faldo is also a slow player himself. So, during the first round of the Players Championship, tournament officials put the Sabbatini-Faldo-Camilo Villegas group on the clock (i.e., gave them a warning before assessing a penalty to each of the players) for -- you guessed it -- slow play. The group sped up and no penalties were assessed.

Nonetheless, that incident prompted Sabbatini’s wife -- no shrinking violet herself -- to show up the next day for the second round sporting a tee shirt emblazoned with the words “Keep Up” as she followed the group around the course. Asked about Mrs. Sabbatini's t-shirt after the round, Faldo observed the following:

"I think it’s very embarrassing for them to bring their sexual problems to the golf course. Poor fellow. I thought he had enough problems as it is without her announcing them to the world."

Your serve, Mr. Sabbatini.

Posted by Tom at 4:10 AM | Comments (0) | TrackBack (0)

March 26, 2006

Thomas Sowell is a wise man

Thomas Sowell (previous post here) is the Rose and Milton Friedman Senior Fellow of The Hoover Institution at Stanford University, where he has written yet another book, On Classical Economics (Yale 2006).

Although Professor Sowell's preference for free markets and disdain for governmental planning has often resulted in him being labeled as a leading black conservative (whatever that means), this Jason L. Riley/weekend WSJ ($) interview of Professor Sowell provides an interesting insight regarding that label:

Free-market economics, a legacy of the classical school, is thought of as an old conservative doctrine. But Mr. Sowell explains that it was in fact one of the most revolutionary concepts to emerge in the history of ideas. Moreover, "the thinking of the classical economist was not only a radical break from landmark intellectual figures like Plato and Machiavelli, but also from mainstream thinking to this day." The notion of a self-equilibrating system -- the market economy -- meant a reduced role for intellectuals and politicians, [Sowell] says.

"And even today many still haven't accepted that their superior wisdom might be superfluous, if not damaging."

Update: Following on the Sowell interview, this NY Sunday Times op-ed by Orlando Patterson, John Cowles Professor of Sociology at Harvard University, is a thoughtful and timely piece on the plight of young black men in America. He argues that academicians have an affinity for socioeconomic explanations and too often dismiss cultural explanations. As he notes: "Too much is at stake for us to fail to understand the plight of these young men."

Posted by Tom at 12:00 PM | Comments (4) | TrackBack (0)

March 25, 2006

Bags to start season on DL

As predicted by this earlier post, first baseman Jeff Bagwell -- the greatest player in the 46-year history of the Houston Astros franchise -- announced today that he would begin the 2007 season the disabled list and that his arthritic right shoulder probably will not allow him to resume his certain Hall-of-Fame career.

While some consider it sad that Bags' baseball career is drawing to a close, I prefer to appreciate the opportunity that I had to watch this extraordinary player on a daily basis over the past 15 years. Fearsome slugger, superb defensive player, excellent baserunner -- Jeff Bagwell was the entire package. A job well done, sir.

This column from Chronicle sportswriter Richard Justice reviews Bags' career with the Stros, and here are Bags' career stats, courtesy of Lee Sinins:

Bags ranks 8th in National League history for career runs created against average ("RCAA," explained here) since 1900:

1 Barry Bonds 1502
2 Stan Musial 1204
3 Rogers Hornsby 1081
4 Hank Aaron 1039
5 Willie Mays 1008
6 Mel Ott 989
7 Honus Wagner 938
8 Jeff Bagwell 680
9 Joe Morgan 657
10 Eddie Mathews 652

Not a bad group of players, eh? Bags also holds the Astros RCAA record by a huge margin:

1 Jeff Bagwell 680
2 Craig Biggio 354
3 Lance Berkman 289
4 Jose Cruz 277
5 Cesar Cedeno 249
6 Jimmy Wynn 240
7 Bob Watson 216
8 Joe Morgan 170
9 Moises Alou 128
10 Terry Puhl 114

Barring injury, Berkman has a chance to catch Bags, but it's a testament to Bags' greatness that there is not another player in the entire Stros' system today that has a chance of topping him. He truly has been a once-in-a-generation type player.

Posted by Tom at 3:16 PM | Comments (0) | TrackBack (0)

March 24, 2006

Comparing Martin Frankel and Jamie Olis

Outside the glare of the trial of the corporate criminal case of the decade, a true corporate crook -- financier Martin Frankel -- was re-sentenced yesterday in a post-Booker hearing to 17 years in prison for pulling off one of the biggest insurance frauds in American history.

As this previous post explains in more detail, Frankel was a small-time New York money manager in the early 1990's who arranged for the acquisition of a group of financially-troubled insurance companies throughout the 1990's, which he then used to pull off a several hundred million dollar scam.

With investigators closing in on him in May, 1999, Frankel bought millions of dollars worth of diamonds, wired money to accounts all over the world, torched any remaining paper trail and fled the country for Germany under a blaze of publicity. He was apprehended in Germany several months later, spent a year and a half in a German prison, and then was extradicted to the US to face criminal charges here. The Wall Street Journal's Ellen Joan Pollock was a lead writer on the reporting team that covered the FBI's four-month international manhunt for Frankel, and she eventually wrote a good book about the affair called The Pretender (Free Press 2002).

Meanwhile, as Frankel returns to prison to serve the remainder of his 17 year sentence, Jamie Olis -- an honest, hard-working, American success story who did what his bosses told him to do in regard to a merely questionable business transaction -- continues to await resentencing after his previous 24-year sentence was overturned on appeal.

Comparing the sentences of Frankel and Olis provides a stark example of the injustice involved in the government criminalizing corporate agency costs to assuage public animus after a business meltdown such as Enron. As noted in my prior post on Frankel, if the government cannot tell the difference between Martin Frankel and Jamie Olis, then it is highly unlikely that it can tell the difference between Martin Frankel and you or me.

Posted by Tom at 8:45 AM | Comments (3) | TrackBack (0)

Five questions about the Stros

As Spring Training winds down, freelance writer and longtime Stros follower Bob Hulsey addresses five questions about the Stros upcoming season. Check it out.

By the way, word from Florida is that Jeff Bagwell will either begin the season on the disabled list or retire because of his inability at this point to throw a ball adequately to play slow pitch softball, much less Major League Baseball. From the looks of it this spring, Bags' damaged right shoulder has also sapped him of any remaining power that he once had as one of the most feared sluggers of the past decade and a half. Thus, my bet is that Bags hangs 'em up rather than linger on the Stros' bench for the season as the highest-paid singles hitter in the game.

With his retirement, Bags will immediately become the greatest former player in Stros history and will likely become the first Stros player to be named to Baseball's Hall of Fame. This post explains why.

Posted by Tom at 7:58 AM | Comments (1) | TrackBack (0)

Lay-Skilling, Week Eight

Week Eight (previous week summaries here) of the corporate criminal case of the decade drew to a close on Thursday with former Enron treasurer and Andy Fastow protégé Ben Glisan on the stand and with the Enron Task Force announcing that presentation of its case-in-chief was drawing to a close. That's entirely appropriate because, in many ways, Glisan's testimony has been a microcosm of the Task Force's case against former key Enron executives Ken Lay and Jeff Skilling.

During a heavily-scripted direct examination that took a little over a day, the Task Force had Glisan provide a 30,000 foot flyover of the various alleged misrepresentations that, somewhat surprisingly, mostly Lay and, to a lesser extent, Skilling made to the market and Enron employees about the company's finances. Then, during yesterday's cross-examination, defense attorneys began to chip away systematically at Glisan's allegations, focusing much more on the specific circumstances relating to Glisan's allegations of wrongdoing than the prosecution did on direct. Much of the testimony on both direct and cross-examination pertained to dizzying analysis of the financial details of the Raptor financial structures that involved certain of Enron's special purpose entities, a subject that clearly has become a snoozer for the jury and even the ever-patient Judge Lake, who continually encourages both sides to move things along.

Nevertheless, Glisan provided some of the most fascinating testimony to date in regard to the sledghammering manner that the Task Force has handled the biggest corporate criminal investigation in the United States since Rudy Guiliani's prosecution of Drexel Burnham and Michael Milken almost 20 years ago. First, as noted in this earlier post, Glisan disclosed that he had been successfully negotiating with Task Force prosecutors about a better prison deal almost from the beginning of his prison term in September 2003. That important fact was not revealed to the court and the jury during Glisan's key testimony in the earlier Enron-related Nigerian Barge trial in 2004 that resulted in four Merrill Lynch executives being sent to prison for the dubious "crime "of not sufficiently appreciating that Enron may not have accounted properly for an asset sale. The Task Force had presented Glisan in the barge trial as a witness whose testimony was particularly credible because he had not cut any deal with the government in regard to his testimony and was being compelled to testify under a grant of immunity. That presentation of Glisan in the barge trial was disingenuous, at best.

Then, during cross-examination yesterday, Glisan revealed even more sordid details of his negotiations with the government. Soon after Enron went into bankruptcy in early December, 2001, Glisan and his attorney went to prosecutors and the SEC and attempted to minimize his role at Enron while, at the same time, apparently hoping that prosecutors wouldn't discover Glisan's involvement in effectively embezzling about $1 million from Enron in connection with Fastow's Southhampton deal. When that approach didn't work and Glisan was indicted in April, 2003, Glisan changed his story and began singing like a canary about alleged wrongdoing at Enron, but entered into a plea deal with the Task Force that did not include a cooperation agreement so that he could begin serving his five-year prison term immediately at a minimum security prison camp, the best alternative in the bad choices that a prisoner confronts in the federal prison system.

Despite Glisan's turnabout, the Task Force apparently was still interested in extracting a better level of "cooperation" from Glisan. So, rather than sending him to the prison camp that the judge in Glisan's case recommended and for which Glisan qualified, the Task Force apparently arranged with the Bureau of Prisons to send him to a harsher minimum-security prison facility, where Glisan was shockingly thrown into solitary confinement for most of his first two weeks in prison and then forced to share an 8 by 12 ft. prison cell with two other prisoners over most of the following month.

That had the intended effect on Glisan, who immediately began bartering his testimony in other Enron-related cases for the Task Force's assistance in moving to the more-desirable prison camp and in lessening the length of his sentence. That led to arguably the most shocking revelation of all.

In February, 2004, the Task Force arranged to have Glisan brought to Houston so that he would be here during the time that Skilling was indicted. On the day after Skilling's indictment, when the Task Force put Skilling through his "perp walk" before his initial court appearance, the Task Force had Glisan -- in prison jump suit, leg shackles and handcuffs -- meet Skilling and ride with him in the same federal courthouse elevator. In one of the most dramatic exchanges of the trial, Skilling lawyer Daniel Petrocelli asked Glisan the following question about that incident:

"Did you believe for one second, sir, that [meeting Skilling in the elevator] was a coincidence?" asked Petrocelli.

"No, I didn't believe that," replied Glisan.

Although the Task Force's transparent purpose in exposing the defeated Glisan to Skilling in this heavy-handed manner was to shock Skilling into seeking his own plea deal, the Task Force badly miscalculated the strength of Skilling's backbone.

Glisan went on to testify on how he parlayed his testimony in the barge and Lay-Skilling trials into a Task Force-sponsored transfer to the more desirable mininum-security prison camp in Beaumont, liberal furloughs at home while working with the Task Force, and the Task Force's facilitation of a reduction of his prison sentence by over year through his participation in an alcohol-rehab program. As a result, Glisan -- who entered prison in September 2003 to serve a five-year sentence -- is scheduled to be released to home confinement in September of this year and will be released from custody entirely in January, 2007. Not bad for a "non-cooperating" witness, eh?

What effect all of this is having on the Lay-Skilling jury remains decidedly unclear. I was in the courtroom for most of the direct examination of Glisan and it is clear that most the jurors now check out when the testimony turns toward the boring details of Enron's complex financial transactions. On the other hand, reports from courtroom observers from yesterday indicate that most jurors were listening intently during Glisan's testimony about his solitary confinement and his arranged courthouse elevator meeting with Skilling. My sense is that the Task Force has done a competent job of presenting a generally weak case that has some gaping holes, and that the jury is anxious to begin hearing Lay and Skilling's side of the story.

So, at this point, it appears that Lay and Skilling will begin presenting their side of the case on Monday, April 3rd and that the defense's case-in-chief will take about a month to six weeks to put on. My bet is that it will be a vigorous and highly entertaining defense, so stay tuned as the corporate criminal case of the decade -- and arguably the purest attempt to criminalize corporate agency costs in recent memory -- turns toward home.

Posted by Tom at 4:12 AM | Comments (5) | TrackBack (1)

March 23, 2006

The Rawls Course at Texas Tech

The notoriously flat and dusty West Texas terrain is not normally associated with outstanding golf courses, but golf course architectural expert Jay Flemma gives a hearty thumbs-up to the Tom Doak-designed Rawls Course at Texas Tech University in Lubbock:

He may not be a cowboy in the real or allegorical sense of the word, but the wild wind that is Tom Doak’s design team blew into west Texas on top of the already legendary fierce howls that blow errant golf shots to New Mexico.

It was 2002. Doak and company had just conquered the world for the first time, fresh off the smash hit at Pacific Dunes. He was a bit of a cowboy in terms of golf course design. Unapologetic about his industry raking book The Confidential Guide to Golf Courses, Doak talked the talk, then walked the walk, proving that the success of a golf course lies not in the money or the marketing, but the golf course itself.

Doak wrote on his website, “After Pacific Dunes, it was inevitable that the next site we had to work with would be a letdown, so we went back all the way to square one – a flat cotton field on the north end of Texas Tech’s Lubbock campus, bounded by major streets, power lines and apartment houses.”

Flemma concludes:

There is no way to overstate Doak’s accomplishment here. The land use went from the outhouse to the penthouse.

It was a roar of dust and diesel. Now it’s a shining Lone Star.

And in case you forgot, it’s Doak . . . [for the eminently reasonable price of] $35-$42 a round.

By the way, check out Flemma's idea of a tournament bracket during NCAA Basketball Tournament season.

Posted by Tom at 6:21 AM | Comments (4) | TrackBack (0)

The Glisan Deal

When former Enron treasurer and Andy Fastow henchman Ben Glisan cut his plea deal with the Enron Task Force in September, 2003, he did not -- unlike most other Enron plea bargainers -- enter into a cooperation agreement that required him to cooperate with the Task Force in other Enron-related prosecutions.

Interestingly, in connection with Glisan's plea deal, U.S. District Judge Ken Hoyt recommended that Glisan be assigned to a more-favored minimum-security camp. However, the Bureau of Prisons assigned Glisan to the Bastrop, Texas prison facility, which was contrary to Judge Hoyt's recommendation that Glisan be assigned to the less-restrictive camp. Glisan reportedly was miffed with the BOP's assignment.

Nevertheless, during the previous Enron-related Nigerian Barge case in Sept.-Nov., 2004, Glisan was the key prosecution witness. Because he has no cooperation agreement, Glisan testified in that trial -- as he is currently doing in the Lay-Skilling trial -- under a grant of use immunity so that his testimony cannot be used against him in another prosecution. Accordingly, the Task Force presented Glisan during the Nigerian Barge trial as a witness who was being "forced" to testify under the immunity grant and who had no deal with the Task Force to get a lighter sentence in return for his testimony. Indeed, the prosecutors touted Glisan during the barge trial as a witness who was more credible than the typical prosecution witness who had cut a deal for a reduced sentence under a cooperation agreement with the prosecution.

Well, in a startlnig revelation during Glisan's direct examination in the Lay-Skilling trial yesterday, it appears that the Task Force's presentation of Glisan as a non-cooperating witness during the Nigerian Barge trial was a sham. This 30 September 2005 letter introduced into evidence yesterday sets forth the terms of the cooperation agreement between Glisan and the Task Force. In return for Glisan's cooperation in other Enron-related cases, the Task Force arranged Glisan's transfer to his favored Beaumont, Texas minimum-security camp (from the his disfavored Bastrop, Tx. prison facility) and helped Glisan shave a year off of his five-year prison sentence by facilitating his involvement in a prison alcohol-rehab program. As a result of the deal, Glisan is now scheduled to complete his five-year prison sentence in January, 2007 and is scheduled to be released to home confinement in September.

Moreover, although the letter between the Task Force and Glisan's suggests that Glisan's lawyer had proposed "the deal" in early 2005 after the completion of the Nigerian Barge case in November, 2004, it's clear that Glisan and the Task Force were negotiating the deal well before the trial of the Nigerian Barge case. The final paragraph of this 1 June 2004 letter from the Task Force to the defense counsel in the Nigerian Barge case contains the following statement about Glisan's negotiations with the Task Force:

In May, 2004, Glisan, through his counsel, requested that the government support his request to be transferred to a minimum security camp in Beaumont, Texas. The government responded to Glisan's attorney as follows: the government will not weigh in on BOP's decision to designate Glisan to a particular facility; that is a matter for BOP. However, if BOP inquired, the government would advise BOP of the government's assessment of Glisan's truthfulness in [the Nigerian Barge case].

Contrary to the foregoing statement, it now appears clear that the prosecution did weigh in on Glisan's transfer to the Beaumont facility, in addition to helping Glisan shave a year off of his sentence. Moreover, contrary to the suggestion in the June 1 letter that the BOP is independent of the Task Force, the September 30 Task Force letter exposes that the BOP is, in fact, a cooperating agency with the Task Force (the BOP's Houston office is on the same floor of the federal courthouse as the Task Force's offices).

Does anyone really believe that Glisan's original assignment to the more restrictive Bastrop prison facility was the result of "administrative necessity?" Or that the assignments of Nigerian Barge defendants Dan Bayly and William Fuhs to more-restrictive facilities far away from their families was not the product of Task Force intervention with the BOP? Remember, Task Force prosecutors were clearly upset with U.S. District Judge Ewing Werlein's refusal to accept their draconian recommendation regarding the length of the prison sentences for the four Merrill Lynch defendants convicted in the barge case.

Glisan's testimony helped place four Merrill Lynch executives in prison for doing their jobs in connection with the firm's purchase of a dividend stream for which Enron, not Merrill, may have improperly accounted, although even that issue was never proven during the barge trial. Now it appears that the true motivation for Glisan's testimony during that trial was not disclosed to either the defense or the jury. Chalk it up as yet another example of the lengths that prosecutors must go to justify the criminalization of the unpopular businesspersons of the moment in the post-Enron era.

Posted by Tom at 4:51 AM | Comments (3) | TrackBack (0)

March 22, 2006

Farewell, Ten Cups

For a number of years, my favorite driving range facility in Texas has been San Antonio's Ten Cups facility just down the road from the La Cantera Resort. Owner Dave Fineg hails Ten Cups as "maybe the finest third rate goat pasture in Bexar County" and has used the facility for years to promote his theory that golf should be an enjoyable form of recreation rather than a frustrating obsession.

Urban driving ranges such as Ten Cups are usually interim land uses, and urban encroachment is the reason for Ten Cups' demise. So, Fineg is taking his "Golf is Fun" seminars on the corporate roadshow circuit and -- if this absolutely hilarious spoof on golf club infomercials is any indication -- his new endeavor should be a big success.

Hat tip to Bogey McDuff for the links.

Posted by Tom at 5:43 AM | Comments (0) | TrackBack (0)

On federal deficits and debt ceilings

Clear Thinkers favorite James Hamilton points out in this post the seemingly non-partisan point that it is hypocritical for politicians in Washington to vote, on one hand, for spending and tax measures that generate the federal deficit while voting, on the other hand, against an increase in the debt ceiling necessary to service the deficit.

Then, commentators to Professor Hamilton's post promptly take his non-partisan point and turn it into a partisan issue.

Hilarity ensues.

Posted by Tom at 5:28 AM | Comments (0) | TrackBack (0)

The Murray Plan

In this intriguing WSJ Opinion Journal op-ed, American Enterprise Institute scholar Charles Murray -- author of the new book, In Our Hands (AEI Press 2006) -- takes dead aim at the American welfare state:

This much is certain: The welfare state as we know it cannot survive. No serious student of entitlements thinks that we can let federal spending on Social Security, Medicare and Medicaid rise from its current 9% of GDP to the 28% of GDP that it will consume in 2050 if past growth rates continue. The problems facing transfer programs for the poor are less dramatic but, in the long term, no less daunting; the falling value of a strong back and the rising value of brains will eventually create a class society making a mockery of America's ideals unless we come up with something more creative than anything that the current welfare system has to offer.

So major change is inevitable -- and Congress seems utterly unwilling to face up to it. Witness the Social Security debate of last year, a case study in political timidity. Like it or not, we have several years to think before Congress can no longer postpone action. Let's use it to start thinking outside the narrow proposals for benefit cuts and tax increases that will be Congress's path of least resistance.

Murray goes on to lay out his proposal, which he dubs as "the plan":

[The federal government] makes a $10,000 annual grant to all American citizens who are not incarcerated, beginning at age 21, of which $3,000 a year must be used for health care. Everyone gets a monthly check, deposited electronically to a bank account. If we implemented the Plan tomorrow, it would cost about $355 billion more than the current system. The projected costs of the Plan cross the projected costs of the current system in 2011. By 2020, the Plan would cost about half a trillion dollars less per year than conservative projections of the cost of the current system. By 2028, that difference would be a trillion dollars per year.

Murray concedes that there are many technical issues that need to be sorted out before implementing such a system, but addressing those is not the purpose of his piece. Rather, he addresses why such an alternative to the current system of federal entitlements is preferable from a policy standpoint:

[D]o we want a system in which the government divests itself of responsibility for the human needs that gave rise to the welfare state in the first place? I think the reasons for answering "yes" go far beyond the Plan's effects on poverty, retirement and health care. Those issues affect comparatively small minorities of the population. The more profound problem facing the world's most advanced societies is how their peoples are to live meaningful lives in an age of plenty and security. . .

If you believe . . . that the purpose of life is to while away the time as pleasantly as possible, . . . then it is reasonable to think that the purpose of government should be to enable people to do so with as little effort as possible. But if you agree with me that to live a human life can have transcendental meaning, then we need to think about how human existence acquires weight and consequence.

. . . Aristotle was right. Virtue is a habit. Virtue does not flourish in the next generation because we tell our children to be honest, compassionate and generous in the abstract. It flourishes because our children practice honesty, compassion and generosity in the same way that they practice a musical instrument or a sport. That happens best when children grow up in a society in which human needs are not consigned to bureaucracies downtown but are part of life around us, met by people around us.

Read the entire piece. Regardless of whether you agree with Murray's plan, his ideas on the underlying individual and societal qualities that American governmental policies should promote is the type of clear thinking that we need in addressing the inevitable reorganization of the American welfare state.

Posted by Tom at 5:00 AM | Comments (2) | TrackBack (0)