I wonder how many American International Group, Inc. shareholders are glad that the Lord of Regulation ridded the company of its supposedly fraud-indulging former CEO, Maurice “Hank” Greenberg?
This Wall Street Journal ($) article reports on some interesting new competition that AIG is facing in its key Chinese markets:

American International Group Chief Executive Martin Sullivan made the rounds at a gathering of multinational CEOs a month ago, meeting Chinese officials — some for the first time — whom he must cultivate to build up the insurance giant’s business here.
But across the room, a different American magnate was holding court, with a large group of Chinese officials he had known for decades. When they saw him, they warmly greeted their old friend — AIG’s longtime former chief, Maurice “Hank” Greenberg.

Continue reading →

You have to hand it to New York Times business columnist Joseph Nocera — he has certainly come up with a reason that most folks would not have thought of for why New York Aspiring Governor Eliot Spitzer should drop his propaganda campaign, . . . er, I mean, excessive compensation lawsuit against former New York Stock Exchange chairman Richard Grasso and the former chairman of the NYSE board’s compensation committee, Kenneth Langone.
In this NY Times Select ($) column written in the form of a memo to Spitzer, Nocera starts off by snarking Clear Thinkers favorite Larry Ribstein for “gloating” over Spitzer’s decision earlier in the week to drop fraud and larceny charges against Paul Flynn, the former Canadian Imperial Bank of Commerce executive who Spitzer had accused of aiding hedge funds in improper mutual-fund trading. Then, without ever mentioning the substance of Professor Ribstein’s well-grounded criticism of Spitzer’s dubious regulatory tactics, Nocera proceeds to urge the Lord of Regulation to drop the Grasso lawsuit not because it lacks merit, but because the lawsuit will probably not lead to the type of salutory business reforms that earlier Spitzer lawsuits have prompted — “the Grasso suit doesn’t meet the lofty standard you’ve set for yourself.”
Are you kidding me? The phrase “lofty standard” being associated with Eliot Spitzer?

Does Nocera mean that lofty standard of indulging public envy and resentment of wealthy businesspeople by defaming Maurice “Hank” Greenberg (here and here)?
Or does he mean the lofty standard of criminalizing those who would take the risk of creating a market for home ownership for those who most need it?
Or is Nocera referring to that lofty standard of Spitzer creating employment opportunities for his chums?
Or maybe he means the lofty standard of Spitzer not coordinating his investigations with other agencies?
Or perhaps Nocera is contemplating the lofty standard of Spitzer interfering with the regulatory role of other governmental agencies (here and here and here)?
Or maybe he is simply referring to the lofty standard of Spitzer’s not insubstantial contribution to the drive of U.S. governmental officials to criminalize everything?

Nocera is right that Spitzer should drop the Grasso lawsuit, but for the wrong reason. Spitzer should drop it because it’s a cheap publicity stunt, which is hardly a “lofty standard.”
Update: Professor Bainbridge does an even better job than the examples above in fisking Spitzer’s “lofty principles.”

On my way out the door to College Station, I note that the Lord of Regulation simply cannot stay out of the news.
After publicly flogging former American International Group, Inc. CEO Maurice “Hank” Greenberg for months (note earlier posts here and here), New York Attorney General Eliot Spitzer has decided not to pursue criminal charges against Mr. Greenberg in his probe of the giant insurer’s structured finance transactions, according to this Wall Street Journal ($) article. The WSJ reports that Spitzer has decided to focus on the civil-fraud allegations that he has already filed against Greenberg and AIG and leave any possible criminal fraud charges against Greenberg to federal prosecutors, who currently have ongoing criminal investigations over AIG in New York and D.C. Here is a Reuters article on the WSJ piece, and here are previous posts chronicling Spitzer’s investigation into AIG and Greenberg.

Continue reading →

Apparently disturbed with the adverse publicity earlier this week emanating from the decision not to pursue this case, New York’s Aspiring Governor fought back yesterday by announcing that he is continuing to protect all of us from that sordid business practice of payola — i.e., radio stations owners accepting money from promoters to pay certain types of noise — er, I mean, music — over the airwaves. this NY Times article reports that Mr. Spitzer has reached a $5 million settlement with Warner Music Group Corp. for offering trips, gifts and agreements to cover operating costs in exchange for increased airplay for certain songs. Here is an earlier post on Mr. Spitzer’s payola investigation.
By the way, the Wall Street Journal ($) article on the settlement included the following quote from Mr. Spitzer: “I never like to presume what an investigation will show or conclude.” Oh, really?
Although certainly an effective vehicle for his gubernatorial campaign, Spitzer’s payola investigation is simply another example of his misguided approach to regulating business (Larry Ribstein has been at the forefront of making this point). As with his many other forays, Spitzer has used the leverage of a criminal investigation to force the type of business regulations that he deems appropriate. But Spitzer’s regulations are not developed under any legislative process and are not even reviewable under the normal administrative process for business regulations. In short, Spitzer’s approach is regulation through force rather than the rule of law, without regard to whether the regulations that he is imposing are more costly to the public than the supposed wrongs that the regulations are supposed to correct.

You can’t slip a deal past the New York Times in which too much money is being made.
In this article that is clearly intended to decry capitalists taking advantage of deregulated markets, the Times compares the sellers in the pending Texas Genco deal (more accurately described in earlier posts here and here) with the societal pariah Enron and then mischaracterizes the true risk that the sellers took on the deal.
I was going to criticize the Times’ one-sided analysis of the Texas Genco deal, but then it occurred to me that such puerile analysis is utterly consistent with a news outfit that — in the face of the public’s increasing access to free online news sources — responds to its sagging subscription sales by charging for its web content. For a more astute analysis of the transaction, note Dale Oesterle’s observations on the deal over at the Business Law Prof Blog.

Following the decision to drop his dubious prosecution (or was that persecution) of Theodore Siphol in regard to alleged improper trading of mutual funds (here, here, here and here), New York Attorney General Eliot Spitzer dropped similar fraud and larceny charges against Paul Flynn, a former executive at Canadian Imperial Bank of Commerce who had been accused of aiding hedge funds in improper mutual-fund trading.
Interestingly, spokespersons in Mr. Spitzer’s office defended the decision to drop the charges against Mr. Flynn on the grounds that his indictment on criminal charges was merely a small part of the better good — i.e., the Lord of Regulation’s campaign to overhaul the mutual fund industry and extract over $3 billion in fines, restitution and fee cuts from those evil capitalist roaders. Besides, nine of the 11 people facing criminal charges from Spitzer’s office related to the improper trading had pleaded guilty, so that’s a pretty good batting average. Don’t need to get greedy in chocking up another one against Mr. Flynn.
H’mm. Sounds to me as if Mr. Spitzer is using the criminal justice system to extort settlements from companies and individual defendants through headline-grabbing threats of business destruction and prison time. Plus, the publicity from these public crusades is cheap advertising for the “Spitzer for Governor” campaign.
Isn’t such conduct more deserving of a criminal investigation than many of the matters that Spitzer pursues?
By the way, this Peter Elkind puff piece in the current edition of Fortune magazine at least provides some interesting personal background on Mr. Spitzer. Mr. Elkind is a co-author of Smartest Guys in the Room about the Enron scandal. Hat tip to Adam Shpeen for the link to the Spitzer article.

Landon Thomas, Jr. of the New York Times has written this major Sunday Times article about the sad case of Daniel Bayly, the former head of Merrill Lynch’s global investment banking division who is presently serving a two and a half year prison sentence as a result of his conviction on corporate fraud charges in connection with the controversial Enron-related Nigerian Barge case.

Mr. Thomas’ article is an excellent portrayal of the extraordinary personal damage that is resulting from the Justice Department’s dubious criminalization of business in the post-Enron era. Mr. Thomas points out how that the implementation of that policy has moved beyond catching big fish such as Ivan Boesky or Bernard Ebbers and is now ensnaring relatively unknown business executives such as Mr. Bayly, who really had limited involvement in the underlying transaction involved in the Nigerian Barge case.

Moreover, Mr. Thomas delves extensively into the troubling conduct of Merrill Lynch’s management, which offered up Mr. Bayly and his three Merrill colleagues to the Justice Department as sacrifical lambs in an effort to avoid an indictment of the firm that might have prompted an Arthur Andersen-type meltdown. The disturbing nature of such corporate sacrificial lamb offerings has been a frequent topic on this blog.

Mr. Thomas’ article is a refreshing change from the more common demonization of business executives that usually takes place in the mainstream media. However, beyond the scope of Mr. Thomas’ piece is the distressing conduct of the Enron Task Force prosecutors in the Nigerian Barge case and the other Enron-related criminal cases. Regardless of what one thinks about the issue of whether the Nigerian Barge case should have been made into a criminal case in the first place, no reasonable analysis of the case can justify the Task Force’s suppression of the truth during the trial of case.

In short, the Task Force took a reasonably complex finance transaction between Enron and Merrill Lynch and criminalized it through a brazen web of distortion, suppression of key testimony, inadmissible hearsay, opposition to the defense’s jury instruction on the key issue in the case and prosecutorial misconduct. Rather than charging Mr. Bayly and his colleagues and then allowing the jury to sort through all relevant testimony and evidence in determining the truth, the Task Force presented to the jury a fictional screenplay of the underlying transaction and then effectively prevented Mr. Bayly and the other defendants from presenting the mountains of testimony and evidence that contradicted the Task Force’s fictional account. To make matters worse, the Task Force is deploying precisely the same deplorable tactics in its legacy case against former key Enron executives Ken Lay, Jeff Skilling and Richard Causey.

Thus, despite the enormous personal tragedies that each of the families of the four Merrill Lynch executives involved in Nigerian Barge case are enduring, the even greater tragedy of this case is the damage done to our system of justice and the Rule of Law. For as Sir Thomas More reminds us, if we do not require the state to adhere to justice and the Rule of Law in even cases against the unpopular business executives of the moment, then “do you really think you could stand upright in the winds [of abusive state power] that would blow then?”

The Enron Task Force’s suppression of the truth in the Nigerian case is showing us precisely what happens when such ill winds blow, and the resulting emotional trauma that the Merrill Lynch executives and their families are experiencing cannot reasonably be dismissed as merely a trade-off of an imperfect system.

Following on the theme from this earlier post, this Kimberly Strassel/Wall Street Journal ($) op-ed examines the deposition testimony that is emanating from New York Attorney General Eliot Spitzer‘s lawsuit to recover alleged overcompensation paid by the New York Stock Exchange to former NYSE CEO Richard Grasso in connection with Mr. Grasso’s $140 million pay and retirement package. Ms. Strassel reports that the deposition testimony from the NYSE directors is contradicting Spitzer’s theory of the case, which is that the directors were given incomplete information regarding Grasso’s pay package and that they shirked their duty to evaluate the compensation arrangement fully. Noting Ms. Strassel’s piece, Larry Ribstein points out the transparent nature of the legal issue and the political purpose of the Grasso lawsuit, and provides the following “money” observation:

Spitzer is attempting to collect the rent on this litigation for his gubernatorial campaign. . . .
An imponderable here is where Spitzer gets off second-guessing a compensation decision. Shouldnít this be subject to the business judgment rule which, after all, gave the Disney board considerable coverage in the Ovitz affair? Well, the NYSE is a non-profit, and so gets Spitzerís solicitous stewardship under an arguably stricter rule. But one wonders why the business judgment rule wouldn’t apply here, since non-profits have to operate under the same conditions in hiring executives that the for-profits do, and courts aren’t any better able to review compensation in a non-profit.

New York Bankruptcy Judge Prudence Carter Beatty — who is overseeing the Delta Airlines chapter 11 case — is apparently somewhat of a live-wire on the bench. The airline pilots union has already asked her to recuse herself over remarks she made from the bench regarding the pilots’ compensation, and this Wall Street Journal ($) article reports on several barbs that the judge has tossed from the bench during hearings in the Delta chapter 11 case, including the following:

Yesterday, when Delta’s labor attorney asked the company’s chief financial officer, on the witness stand, what Delta did when it found itself falling behind in meeting financial targets, the judge interjected, “They did what everyone else did: engage in creative accounting.” Amid laughter, the judge continued, “It’s what Enron did, what WorldCom did.” The executive replied, “That’s absolutely not the case.”

So, how would you like being an auditor?
First, Arthur Andersen was prosecuted out of business by the Justice Department in an ill-advised prosecution.
Next, KPMG almost melted down in the face of a criminal investigation into its promotion of tax shelters, and still might not be out of the woods, yet.
Meanwhile, the other largest US accounting firms — PriceWaterhouseCoopers, Deloitte Touche, Ernst & Young and Grant Thornton — all have had problems of their own.
In such an intensely adverse environment, one can only speculate on how many of these firms have been propped up with the infusion of revenue that has been generated over the past couple of years from the gravy train of the Sarbones-Oxley legislation.
But even the benefits of Sarbones-Oxley are not without another swift kick in the rear. The Public Company Accounting Oversight Board — created under Sarbones-Oxley “to oversee the auditors of public companies in order to protect the interests of investors” — has been issuing inspection reports this year in which it has been evaluating the Big Four and other auditing firms’ audits of several undisclosed publicly-traded companies.

Continue reading →