Monthly Archives: April 2004

The Rocket leads Stros over Reds

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Roger Clemens showed one of the reasons tonight why he is a certain first ballot Hall of Famer and one of the three or four best pitchers in baseball history.
Not blessed with his best stuff and unable to throw any of his breaking pitches consistently for strikes, Clemens threw almost 35 pitches, walked four, and walked in a run in the first inning of the Stros’ game tonight against the Cincinnati Reds. However, Clemens then settled down, began spotting his fastball effectively, did not walk another batter, and scattered five hits over six innings. He left the game without giving up another run.
In short, 41 year old Clemens without his best stuff could still shut down the Reds. He is an incredible pitcher.
The Stros cruised behind Clemens to a 6-1 win over the Reds in front of an SRO crowd of over 41,000 at the Juice Box. Wade Miller pitches on Saturday evening in the second game of the series against the Reds.

Sidley Austin tax shelter clients lose another round

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This NY Times article reports that U.S. District Judge Matthew F. Kennelly of the Northern District of Illinois upheld a government order for Sidley Austin Brown & Wood to turn over a list of client names involved in tax shelters that the firm allegedly promoted, and then approved a request from the group of about 50 clients to stay the order pending an appeal. The I.R.S. and the Justice Department filed pleadings late last year demanding that the firm produce the names of more than 600 clients that the government suspects bought abusive tax shelters from 1996 through mid-October 2003. Although Sidley Austin has turned the names of clients who did not object, the group of 50 clients sued to prevent the disclosure on the grounds that their dealings with the law firm are subject to rules governing confidentiality between lawyers and their clients.
In the meantime, U.S. District Judge James B. Moran of the Northern District of Illinois denied a Jenkens & Gilchrist motion to dismiss a government lawsuit seeking to force it to turn over the names of hundreds of clients who bought certain tax shelters. In his decision, Judge Moran concluded that the names of the clients were not protected by attorney-client privilege.
Sidley Austin and Jenkens & Gilchrist are among the targets of the government’s tax shelter inquiry because the firms wrote opinions attesting to the legitimacy of shelters that the U.S. Justice Department contends were questionable or illegal.

Baylor faculty members go public with criticism of move from Methodist to St. Luke’s

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This Chronicle story reports on a recent letter from seven Baylor College of Medicine faculty members to the Baylor Board of Trustees that predicted “a crisis of major proportions” if the Baylor Board followed through with its decision to sever Baylor’s 50 year relationship with Methodist Hospital. The Baylor Board announced the decision to sever its ties with Methodist and commence a relationship with St. Luke’s Episcopal Hospital on April 21, as reported earlier here.
Apparently, a group of prominent Baylor physicians tried to prevent last week’s breakup between the medical school and Methodist by warning of “a crisis of major proportions” that could cause the school to “implode financially.” On April 18, seven Baylor faculty members — who are apparently either department chairs or division chiefs — wrote the letter to the Baylor Board and the Methodist Board pleading that their affiliation not be terminated. The Chronicle reports that the letter says the following in part:

“If the St. Luke’s affiliation proposal is adopted, a crisis of major proportions for Baylor will develop, and we will struggle to avoid devastating consequences. With (St. Luke’s), the college will be burdened by more debt and, in fact, may implode financially.”

The letter went on to say that Baylor had never “faced such an alarming crisis over its future.” The letter also predicted that many Baylor’s faculty members would “undoubtedly” keep their clinical practices at Methodist because Baylor and Methodist over the years have established so-called “centers of excellence” in various medical fields, including cardiovascular surgery, neurosurgery, psychiatry, ophthalmology and gene therapy. The letter contends that St. Luke’s does not have the financial ability or facilities to build such programs in the near future, and also does not have sufficient operating rooms or bed space to meet Baylor’s needs.
Finally, the letter predicts that some Baylor faculty members would become “voluntary faculty” to avoid moving to St. Luke’s and that others would “leave Baylor and Methodist altogether.” Replacing these faculty members, states the letter, would be costly and a blow to Baylor’s academic prestige.
Dr. Richard Stasney, a long-time ear, nose and throat specialist at Methodist and a Baylor faculty member, was quoted in the Chronicle as saying: “It’s very upsetting that a 50-year marriage ended. It’s going to hurt Baylor a lot more than Methodist.” Dr. Stasney was not one of the seven faculty members who signed the April 18 letter.
Read the entire article. More than a few ears are going to be burning in the Medical Center over this public disclosure.

Enron Task Force blinks, enters into new plea deal with Lea Fastow

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This Chronicle article reports that Lea Fastow, wife of ex-Enron CFO Andrew Fastow, was charged with a misdemeanor tax count today and is scheduled to plead guilty at a new arraignment next Thursday. Previouwly subject to a six counts of felony tax fraud charges, the Enron Task Force superseded Mrs. Fastow’s indictment today with one count of willfully delivering a fraudulent 2000 tax form to the IRS. Although this action was widely anticipated after U.S. District Judge David Hittner declined to approve a prior plea bargain, it is nevertheless an unusual step for prosecutors and greatly reduces Mrs. Fastow’s exposure to a long prison term. The maximum prison sentence for the misdemeanor is 12 months, although it is expected that the Task Force will ask Judge Hittner to sentence Mrs. Fastow to a lesser sentence than the maximum.
With Mr. Fastow already having agreed to a plea deal and cooperating with them, the Enron Task Force had no desire wasting time on Mrs. Fastow ‘s trial when they have bigger cases pending, particularly the six-defendant Nigerian barge trial starting June 7 in front of U.S. District Judge Ewing Werlein.

Stros roll behind Pettitte

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In his first game off the disabled list, Andy Pettitte threw six innings of one hit ball as the Astros took the second and final game of their weathered shortened series against the Pittsburgh Pirates, 2-0. Dan Miceli, Brad Lidge, and Octavio Dotel followed Pettitte and secured the win, facing a total of 11 batters over the final three innings and striking out six of them.
The Stros return to Houston this afternoon to begin a seven game homestand at 12-9 and a game back of the Cubs in the NL Central. My prediction about this team is proving correct as, despite several games in which they have scored over 10 runs, the club struggles mightily at the plate at times. For example, in Roy O‘s last three starts, the Stros have scored a total of five runs. In the last three games of this road trip, the club scored a total of five runs. Bags, Kent and Bidg all cooled off considerably on the road trip.
The Rocket pitches the first game of the series at the Juice Box on Friday evening.

Breaking news – Texas Supreme Court Chief Justice Tom Phillips to step down

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Chief Justice Thomas R. Phillips announced Thursday that he will resign on September 3, 2004.
Chief Justice Phillips, the 29th chief justice of the Texas Supreme Court, will have served almost 17 years by the time he leaves the Court. He was appointed by Gov. William P. Clements to replace former Chief Justice John L. Hill, who resigned, and took office January 4, 1988. Chief Justice Phillips was elected in 1988 to finish the remainder of Hill’s term and won re-election in 1990, 1996 and 2002.
He will assume the Spurgeon Bell Distinguished Visiting Chair this fall at South Texas College of Law in Houston. The following is Chief Justice Phillips’ statement:

This morning I visited with the Governor and delivered to him a letter advising that I intend to resign the office of Chief Justice of the Supreme Court of Texas, effective September 3, 2004.
I believe that no secular calling is higher than to sit in judgment over disputes brought by the people to their public courts for resolution. I am most grateful for the rare opportunity to serve this great state as both a district judge and as Chief Justice of the Supreme Court of Texas. I hope that my tenure as Chief Justice has been worthy of the high standards set by my predecessors, most notably my friends and mentors John Hill, Jack Pope, Joe Greenhill and the late Robert W. Calvert. I hope that my performance in office has to some extent justified the confidence placed in me by Governor William P. Clements, who appointed me in 1988, and by the voters of Texas, who four times have returned me to office.
I am one of those truly lucky persons who reached their ultimate career goal at age 38, when I became the youngest Chief Justice since Texas joined the Union. Now, more than sixteen years later, I have the opportunity to pursue new goals, some of which I have set already, some yet to be discovered.
I will always be proud of the Supreme Court of Texas and its accomplishments during my tenure. For instance, the Court has amended the rules of procedure, evidence and court administration to reduce delay, confusion and abuse in our legal system. We have enhanced both judicial and legal ethics through new conduct rules and disciplinary procedures. We have adopted procedures to make both court case files and administrative records more open to the public. And we have taken bold steps to make civil legal services more accessible to the poor. But beyond these important administrative reforms, I am proud of this Court’s commitment to the rule of law. Today, our opinions are respected across the nation for their scholarship and fairness. Our justices respect the Court’s proper role of interpreting and applying the law, not inventing it. The justices I leave on the Court are men and women of the highest intellect and integrity, and it has been a privilege to work with and learn from each of them.
Of course, the Texas judiciary is still far from perfect. Many of its problems may be traced to the structure of our judicial system, which is essentially a relic of the nineteenth century. I sought a fourth term in 2002 because I believed that this Legislature would make real changes in the way we select our judges and organize our courts. Some progress was made, but not enough. Perhaps new leadership can rally public support for comprehensive reform that will give our great state the court system our people deserve.
While I pursue future career opportunities, I will spend the next academic year as the Spurgeon Bell Distinguished Visiting Chair at the South Texas College of Law in Houston. While I am leaving public office, I am not renouncing my interest in public affairs. I will speak out on judicial and other issues if and when I have something useful to contribute. Finally, I must take a moment to thank those who have made my service possible. First and foremost, I acknowledge with deep gratitude my family’s sacrifices and their help. My wife Lyn left an important career at Rice University and my stepson Thomas Kirkham left his family, his friends and his school to move from Houston to Austin. They and my son Daniel, who was born since I became Chief Justice, have had to share me with boxes of petitions for review on evenings and weekends and with judicial conferences and commencement addresses on family vacations. Second, I appreciate the dedicated service of my Supreme Court staff, including my administrative assistant, staff attorneys, and law clerks, who have worked so hard to make me look good. Finally, I sincerely thank all those who supported my appointment, election, or reelection to this position.
I leave with the sure knowledge that Governor Perry will choose an excellent choice successor, just as he has chosen four excellent justices to previous vacancies on our Court. I hope that my successor finds this position as challenging and rewarding as I have.

Chief Justice Phillips is a class act and a fine jurist. He will be missed and difficult to replace. I wish him the best in his new professional undertakings.

This fellow should not apply for a job in the Phoenix area

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This is dispositive proof that some newspapers confuse poor judgment with First Amendment rights.

Icahn profits on Martha’s travails

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In a world where reality is often more intriguing than fiction, this Wall Street Journal ($) article reports that Carl Icahn needs no stinkin’ stock tips:

By now, everyone knows how Martha Stewart was alerted by a Merrill Lynch & Co. brokerage assistant that Sam Waksal, her friend and founder of ImClone Systems, was trying to sell the biotech company’s shares.
Less well known, however, is the story of how financier Carl Icahn was buying ImClone shares that very day, possibly even snapping up the same shares that Ms. Stewart was unloading.
Mr. Icahn recently disclosed in a filing with the Securities and Exchange Commission that he owns 5.24 million shares of ImClone, a stake he first began accumulating with a purchase of 10,000 shares on Dec. 27, 2001, people close to the situation say.
After his purchase on Dec. 27, Mr. Icahn stopped buying ImClone for a few months. As the scandal unfolded and the share price fell to below $10 in the summer of 2002, Mr. Icahn began buying ImClone shares again, adding 3.6 million shares to his holdings. He bought the stock again earlier this year, picking up 1.63 million shares. That purchase brought his average purchase price to $19.58, according to the SEC filing.
His profit, with ImClone shares now at $70 each, the level where they were before the scandal hit would be a cool $250 million.

Shaking his head from it all, Professor Ribstein places this latest development in appropriate perspective with earlier events in this saga:

So let’s take inventory. The stockbroker’s tip that Martha supposedly relied on, which as I have written likely was not illegal inside information, may not even have been material. But that’s ok, because she was not convicted of this non-crime, but of covering it up. The person she would have defrauded had she committed a crime has made a quarter billion dollars on the stock. The guy who invented the drug that produced these profits is already in jail.

Nortel’s developing scandal

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With Nortel Network Corporation’s announcement yesterday of its firing of three top executives “for cause” (i.e., “we’re not paying you nuttin’ further”), another corporate accounting scandal appears to be warming up quickly. Nortel is North America’s largest telecommunications manufacturer.
Nortel‘s board fired President and Chief Executive Officer Frank Dunn and two other senior officials, Douglas Beatty (former CFO) and Michael Gollogly (former controller). Moreover, the company announced that there would be a sharp downward revision of its profit for last year.
The move drove the Brampton, Ontario-based company’s shares down 28% on the stock market yesterday, and raises questions about how severe the telecommunications-equipment maker’s problems really are. After restating results in November, Nortel announced last month that it would restate its past results again and delay filing its 2003 financial statements with securities regulators. The Securities and Exchange Commission and the Ontario Securities Commission, Canada’s main regulator, are currently investigating Nortel’s accounting.
Nortel named William Owens, 63, as its new president and chief executive. Mr. Owens, who has been a Nortel director since 2002, was previously the chairman and chief executive of Teledesic LLC, a satellite communications company. He was also vice chairman of the U.S. Joint Chiefs of Staff and Commander of the U.S. Sixth Fleet during Operation Desert Storm.
Nortel said yesterday that while its audit committee “has not yet determined the full extent of the adjustments that will be required, it expects “no material impact to prior period revenues” and “no material impact” to its Dec. 31 cash balance of $4 billion. In its first restatement filed last November, Nortel said $952 million of liabilities, mainly accruals and provisions, recorded on its June 30, 2003, balance sheet should have been recorded in earlier financial statements. A spokeswoman for Nortel’s longtime auditor, Deloitte & Touche, said it is “a speculative question” whether the firm should have caught Nortel’s accounting problems at an earlier stage.
Here’s betting that Deloitte representatives will have an opportunity to answer that “speculative question” in the various securities fraud class action lawsuits that will result from the foregoing events.

Comcast-Disney post-mortem

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As reported yesterday, Comcast Corp. dropped its $48.7 billion unsolicited bid for Walt Disney Co., which put an end to a takeover battle that was in trouble from the start.
The bottom line on this saga is that Comcast’s management misjudged its the market and the Disney Board’s reaction to its offer. The former is reflected by the fact that, even though most stock prices fell yesterday, Comcast’s stock price rose, although not much (1%). Comcast’s shares are still 11% below where they were before the company’s Feb. 11 offer for Disney.
The theory behind Comcast’s bid was that years of poor performance at Disney and shareholder disenchantment over the leadership of Disney CEO Michael Eisner would make Disney an easy target. Initially, the bid looked interesting, but it became apparent quickly that the strategy had backfired when Disney’s Board refused to discuss the offer and hired poison pill expert Martin Lipton to advise it on the bid.
Moreover, when the value of the bid fell almost immediately below the value of Disney’s stock, the Disney Board could not be forced to act. Comcast’s offer of 0.78 share of Comcast for every share of Disney lost its premium of $2.38 a share immediately after it was announced, reflecting that Comcast shareholders and the market generally were not bullish on the deal. That gave the Disney Board a valid reason to ignore the bid. Before the bid was dropped, the offer was worth $23.77 a share, while Disney’s share price was $24.18. Inasmuch as increasing its offer for Disney in either stock or cash would have driven Comcast’s own stock price down, such a bid would have made it necessary to raise its bid yet again. So, with Comcast shareholders showing no enthusiasm for the deal, Comcast essentially could not raise its initial bid, which is almost always how unsolicited takeover offers ultimately are resolved.
Despite (or perhaps because of) the failed bid for Disney, Comcast continues to do quite well financially. The revenue of its cable systems rose $4.65 billion, or 9.8%, from the first quarter of 2003, and Comcast reported a profit of $65 million, or three cents a share (compared with a loss of $297 million, or 13 cents a share a year earlier). Comcast also announced resumption of its $1 billion stock-repurchase program. With the distraction of the Disney bid gone, Comcast management can now concentrate on less sexy but more productive acquisition targets, such as Adelphia Communications Corp., the country’s fifth-largest cable company, which is currently mired in bankruptcy.
Meanwhile, with Comcast’s withdrawal of its offer, Disney will shift the focus back to Mr. Eisner and whether he should be retained beyond the September 2006 expiration of his personal services contract with the company. Given Disney’s lackluster performance over the past decade, real questions remain whether Mr. Eisner is capable of sustaining a long-term turnaround and repairing glaring problems within the company, such as Disney’s reeling ABC television network.
The Disney Board still faces angry shareholders, 45% of whom attended the Disney annual meeting last month voted to oust Mr. Eisner. Next month, a committee of Disney executives and board members will meet with representatives of several public pension fund-investors in Disney, including the California Public Employees’ Retirement System, which have called on the Board to remove Mr. Eisner. The Disney Board also faces the continued public criticism of ex-directors Roy E. Disney and Stanley Gold, who issued a statement yesterday criticizing the board’s “complete indifference to the will and interests of its shareholders” and the appearance that “the only ‘succession plan’ is to keep Eisner as CEO for as long as he wants.”
Disney has projected earnings growth of more than 40% for the fiscal year that ends on Sept. 30, and it has predicted double-digit earnings growth through 2007. The company’s 2004 forecast has remained steady, despite such high profile mistakes as the movie “The Alamo,” which cost more than $100 million to make and has taken in only about $20 million in the U.S. since its release in early April. However, Disney’s theme-park business is making a solid comeback after being hammered by the 2001 recession and the travel slump resulting from the 9/11 attacks.
The most insightful commentator on the Comcast-Disney dance has been Professor Bainbridge, who is a bit under the weather and has not yet posted his views on the withdrawn bid. Meanwhile, Professor Ribstein over at IdeaBlog notes perceptively that “the price of acquisitions is so high now that it takes a near-delusional synergy theory to make ousting management of a major company even look plausible.”