This short WSJ ($) article left me shaking my head:

New York City Mayor Michael Bloomberg appointed consulting firm McKinsey & Co. yesterday to examine why more international companies are choosing to raise money outside of New York.
The two-month, $600,000 study comes as many of the largest initial stock offerings bypass a listing with NYSE Group Inc. and Nasdaq Stock Market Inc. for listings in London or in their home markets. Mr. Bloomberg and Sen. Charles Schumer (D., N.Y.) will review the results in an effort to improve New York’s position as a financial center.
Many big international IPOs no longer want to have their shares listed on a Western stock market, in part because they want local investors or because big international investment firms can often buy the stock even if its not listed in New York. Out of the top 25 global IPOs in each of the last two years, London snagged 11 listings, Hong Kong picked up six and New York received four, according to recent data.
Regulation costs, legal risks and increased white-collar-crime enforcement also get a lot of attention. The four-year-old U.S. Sarbanes-Oxley accounting-and-governance law has made it more expensive for companies, especially smaller ones, to list.
Investment-bank underwriting fees are also substantially lower in London — 3% to 4% of IPO receipts, compared with 6.5% to 7% in the U.S., according to a June report commissioned by the City of London.
Yesterday, at a private-equity conference in New York sponsored by Dow Jones & Co., Nasdaq Chief Executive Bob Greifeld said he couldn’t think of a reason for the difference in the IPO fees and predicted that there would be more pricing pressure on U.S. underwriting fees in coming years.

Mayor Bloomberg should save his city’s money. For the answer to the question posed, all the Mayor needs to do is talk to his state’s future governor and examine this mindset, which the future governor embraces. That mindset leads to abominations such as this and this, which business owners tend to notice after awhile. Indeed, the proponents of such dubious policies are widely-publicizing them to the international business community.
All of this has already contributed greatly to U.S. public companies and executive talent fleeing in droves to private equity. Why on earth would any international company choose to raise public money in such an environment?

U.S. District Judge Sim Lake resentenced Jamie Olis to six years in prison this afternoon (Olis has already served about 2.5 years in prison) in the latest chapter of the three year saga that has become arguably the starkest example government’s dubious criminalization of business during the post-Enron era.

During the hearing, Judge Lake read portions of a lengthy opinion that he has written on the Olis resentencing. Although Judge Lake found that a sentencing guidelines sentence for Olis would be in a range of 151-188 months based on an estimated $79 million damage amount (the intended tax benefit to Dynegy from Project Alpha), he concluded that Olis deserved a non-guidelines sentence because of Olis’ exemplary character, the fact that Olis did not personally gain from Project Alpha, and that Dynegy did not fail as a going concern as a result of the transaction.

Judge Lake also concluded that the extensive publicity relating to Olis’ case and other recent white collar business cases has sufficiently informed the business world of the severity of fraudulent business conduct that principles of general deterrence do not require a guidelines sentence.

Although six years is a harsh sentence, my initial reaction to Judge Lake’s decision (before reading it) is that it would be very difficult to mount an effective appeal on Olis’ behalf to reduce the sentence.

On the other hand, the prosecution — exhibiting a lack of judgment that has become routine during this era of criminalizing business — announced at the end of the hearing that it intends to appeal Judge Lake’s opinion to the Fifth Circuit.

Frankly, I hope the government does appeal the sentence. That utter lack of prosecutorial discretion might be the only way to prompt the Fifth Circuit to take a whack at reducing Olis’ sentence further.

Update: Doug Berman, Ellen Podgor and Larry Ribstein, all of whom have blogged extensively on the Olis case, add their initial thoughts.

Professor Podgor’s point about the disparity between Olis’ sentence and the sentences of his co-defendants who copped pleas is particularly insightful.

Judge Lake notes in this opinion that this disparity in treatment between cooperating defendants and defendants who assert their innocence is a mechanism that Congress has adopted to facilitate cooperation in federal criminal investigations. But what looks good in theory has become ugly in practice.

Given the government’s overwhelming resource advantage and the willingness of prosecutors to appeal to jurors’ resentment to obtain convictions, asserting innocence in white collar criminal cases has become a risk that is too huge to take.

US District Judge Sim Lake announced yesterday that Jamie Olis will be resentenced on Friday at 2 p.m., almost a year after the Fifth Circuit Court of Appeals reversed Judge Lake’s previous 24+ year sentence.

As we await another chapter in what has emerged as one of the most egregious injustices of the government’s criminalization of business interests during the post-Enron era, the following are a sampling of my posts on the Olis saga since I began following the case two and a half years ago:

My first post on the sad case of Jamie Olis (March 24, 2004), a little over a month after the beginning of this blog;

The WSJ’s Holman Jenkins notices the sad case of Jamie Olis (March 31, 2004);

Larry Ribstein addresses the Olis case for the first time, marking the beginning of this fine scholar’s writings in the blawgosphere on the dubious nature of the government’s regulation-of-business-through-criminalization policy (April 7, 2004);

Olis is ordered to report to prison on May 20, 2004 (May 5, 2004);

The Wall Street Journal runs its first thorough article on the Olis case (May 20, 2004);

Novelist and former prosecutor Mark Costello decries the Olis sentence and the increasing criminalization of business interests in the New York Times (June 7, 2004);

The Los Angeles Times weighs in with a thorough article on the Olis case (July 12, 2004);

Sentencing scholar Douglas Berman takes up the Olis case, beginning his excellent blawgosphere analysis of the unjust nature of the sentence (July 16, 2004);

The sad case of Olis gets even sadder as he is transferred to a prison far away from his wife and young daughter (January 31, 2005);

The government’s misrepresentation of the market losses in the Enron Nigerian Barge trial mirrors the prosecution’s misrepresentation of the market loss involved in the Olis case (April 20, 2005);

Would Olis have fared better had he been tried and sentenced in Russia? (June 1, 2005);

While Theodore Siphol goes home, Bill Fuhs and Jamie Olis go to jail (June 24, 2005);

The Olis case is lost amidst the myopia of the NY Times (September 16, 2005);

Embezzling $43 million and copping a plea is better than embezzling nothing and asserting one’s innocence at trial (October 16, 2005);

Finally, some justice for Jamie Olis as the Fifth Circuit reverses his 24+ year sentence (November 1, 2005);

The Chronicle’s business columnist Loren Steffy — who generally supports the government’s regulation-of-business-through-criminalization policy — says that the government has gone too far in the Olis case (November 24, 2005);

The Justice Department’s initial reaction to the reversal of Olis’ sentence is that he should be resentenced to “only” 15 years (December 21, 2005);

The Justice Department drags its feet in regard to the Olis resentencing (January 18, 2006);

Short-selling and the genesis of the case against Olis (February 4, 2006);

Hope for Olis on the key market loss issue (February 27, 2006);

Martin Frankel’s sentence exposes the absurdity of Olis’ original sentence (March 24, 2006);

“Prison time is slow time” (June 22, 2006);

More hope for sanity in the resentencing of Olis (August 1, 2006);

Professor Grundfest takes on the market loss issue in the Olis case (August 22, 2206);

The Justice Department continues misrepresenting the market losses in the Olis case (September 6, 2006) while The Economist weighs in on the market loss issue (September 19, 2006);

The prosecution asked Professor Grundfest what? (September 13, 2006); and

The Olis resentencing hearing concludes (September 14, 2006).

Update: As usual, Larry Ribstein has a most insightful observation about the Olis resentencing:

The government has built much of its scheme for putting business in jail on this unfortunate young father. For more than two years, prosecutors could use the Olis example to soften up defendants for pleas and cooperation, sort of like a murdering despot pointing to his display of his enemies’ spiked heads. A significant reduction in Olis’s sentence would not only be a welcome bit of justice for Jamie Olis, but an important symbolic turn in the government’s questionable campaign.

Update 2: Olis was resentenced to six years.

Update 3: Olis’ ordeal continues (December 10, 2006).

Update 4: Did the Bureau of Prisons forget about Olis (February 1, 2007)? And Olis finally receives a ticket to Bastrop (February 11, 2007).

Update 5: Troubling information is revealed regarding the DOJ’s interference with the Olis defense (May 28, 2007).

Update 6: The Olis connection to the KPMG criminal case (June 13, 2007).

Update 7: Information on what really happened during Olis’ criminal trial finally starts to come out (October 9, 2007).

Update 8: Did the prosecution violate its Brady obligation to turnover exculpatory evidence to the Olis defense (December 4, 2007)?

Update 9: Why is the United States imprisoning people such as Jamie Olis (April 27, 2008)?

Update 10: This is criminal justice (Aug 9, 2008)?

Update 11: People who live in glass houses . . . (Aug 26, 2008).

Update 12: But what about the case in which the threat worked? (December 5, 2008).

Update 13:Olis as a casualty of the criminalization-of-business lottery (January 13, 2009).

Update 14: Reflecting on astonishing abuses of power (August 10, 2009).

Update 15: Jamie Olis and the trial penalty (October 27, 2009).

Update 16: The incalculable cost of a misguided criminal prosecution (January 5, 2010).

The business news was awash with articles over the past couple of days about how Amaranth Advisors, LLP lost $5 billion or so by making wrong bets that natural gas prices would rise. Inasmuch as Monday morning quarterbacking is much easier than actually making money in placing such bets, it’s fairly clear what happened. As gas prices fell precipitously because of a storage glut, Amaranth increased bets that would pay off exponentially only if natural-gas prices rebounded in anticipation of a cold winter or as a result of a hurricane hammering natural-gas facilities. That hasn’t happened and so prices have continued to erode.
Meanwhile, Amaranth’s risk management systems apparently did not accurately measure how much downside risk the company faced and did not provide an effective mechanism for hedging that risk. Amaranth’s bets went bad because the company misjudged the spread, which is the movement of the difference between prices for different month contracts. The institutions and wealthy investors that invested with Amaranth knew about that risk, but they took it because of the potential for big gains if Amaranth bet right. Nothing too unusual about that.

Continue reading →

In this earlier post, I noted that KPMG’s resistance to paying its former employees’ defense costs in the KPMG tax shelter criminal case could end up being an element in prompting US District Judge Lewis Kaplan to dismiss the charges because of the government’s prosecutorial misconduct in coercing the firm into that position.
Now, it looks as if KPMG has gone one step further. According to this Lynnlee Browning/NY Times article, KPMG is now suing several of its former employees who are also defendants in the criminal case for damages resulting from their alleged embezzlement from the firm and breach of fiduciary duty to the firm in regard to their involvement with the tax shelters.
That lawsuit — along with the firm’s continued refusal to pay their employees’ defense costs in the criminal case — must be giving current KPMG partners a warm and fuzzy feeling, don’t you think? Also, a note to KPMG — such civil suits have a little process called “discovery,” which often leads to the publication of embarrassing information. As if the firm needs any more bad publicity from this seemingly endless debacle.
Meanwhile, this Wall Street Journal editorial ($) reports that two previously undisclosed IRS memos to KPMG from 2003 and 2004 confirm that the Service didn’t think there was anything wrong with the shelters. The defendants in the criminal case are understandably demanding all government documents relating to such memos, and the prosecution — as is typical in this era of criminalizing business — is resisting those demands. In short, the legality of the KPMG tax shelters was a subject of debate within the IRS, but the Justice Department brought the criminal case anyway before the IRS had even won a court ruling declaring the shelters to be illegal.
So much for due process, eh?

As we await U.S. District Judge Sim Lake’s decision on the re-sentencing of Jamie Olis later this week, this Economist article does an excellent job of summarizing the issues that are at play in determining the all-important market loss issue with regard to Olis re-sentencing.

I particularly enjoyed the last sentence of the article:

“If Judge Lake has been spending the summer getting up to date on economics, perhaps Mr Olis will be out of prison much sooner than he must once have feared.”