Daily Archives: July 17, 2004

Stros are getting monotonous

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The Stros losing campaign continued Saturday afternoon as the Padres beat them at the Juice Box for the second game in a row, 7-4.
The Stros are now 44-46 and have dropped four straight and eight of 10, falling two games below .500 for the first time since they were 0-2 on April 6. They remained a season-high 12 games behind the NL Central-leading Cards.
The Pads blew open the game with a five-run fifth. After Craig Biggio had another adventure in left field misjudging Burroughs‘ drive, Loretta hit a two-run homer on the next pitch. Game, set, match.
Roy O, who beat the Pads on July 7 for the fourth straight time, gave up seven runs and eight hits in 4 2/3 innings. It was only the second time in his career that he’s allowed seven or more earned runs. Jason Lane hit an RBI grounder in the bottom of the fifth, Lance Berkman hit a two-run homer in the sixth and Jeff Bagwell homered in the eighth, his 12th of the season but first in 81 at-bats. Ouch.
The Rocket tries to pick up this moribund group of Stros in the Sunday matinee, as the Dodgers arrive on Monday for a three game set.

John Kerry, Red Sox fan?

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Baseball writer Peter Gammons passes along this tidbit on a recent radio interview for which John Kerry’s staff did not prepare him particularly well:

Thing called love
We have been led to cynically believe that many politicians are disingenuous and generally phony, but few will ever beat Massachusetts Senator John Kerry. This man, who changed his middle initial to be JFK and at an anti-Vietnam rally threw someone else’s medals into the water, made a self-promotion appearance with Boston talk-show maven Eddie Andelman and claimed he was a big Red Sox fan from his days growing up in Groton, Mass. And at the promotion he said Eddie Yost was his favorite player.
The problem with that is just the simple fact that Eddie Yost never played for the Red Sox.

The inevitable errors of war

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/Victor Davis Hanson’s latest NRO column is another outstanding history lesson the inevitable mistakes of conducting warfare. Good stuff.

Ken Lay’s insider trading

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One of the most interesting aspects of the government’s indictment against former Enron Chairman and CEO Kenneth Lay is that it does not includes any insider trading charges. On the other hand, the SEC’s civil complaint against Mr. Lay includes insider trading charges. Why the difference?
This Business Week article does a good job of summarizing why the government elected not to bring the insider trading charges and why the SEC believes that it can make its insider trader case against Mr. Lay:

In 2001, Enron Corp. was quietly lurching from crisis to crisis. Whatever he did or didn’t know about Enron’s woes at the time, Kenneth L. Lay rarely missed an opportunity to talk up the oil-and-gas trading concern with analysts and Enron employees. The ex-chairman and CEO even urged workers to follow his lead and buy stock. From August through October, 2001, Lay bought $4 million worth of Enron shares — which he cites as proof that he had faith in the company.
But there’s a hitch. Privately, Lay was dumping far more stock than he publicly acquired, according to criminal and civil charges filed against him on July 8. In the same three months, he sold $26 million of Enron shares. Altogether in 2001 he unloaded Enron stock for $90 million. But because those shares were sold back to Enron, Lay did not have to disclose the sales until 2002, thanks to a loophole — since closed — in Securities & Exchange Commission rules.
The difference between Lay’s public statements and private actions is the foundation of the SEC’s civil charges — one of the more aggressive interpretations of insider-trading law in decades. Opening a new chapter in the SEC’s pursuit of alleged corporate crooks, the agency, in effect, is putting all CEOs on warning: They now face the risk of violating insider-trading laws when they trade company stock or borrow against it.

The article then goes on to explain how Mr. Lay cashed out of Enron stock while publicly appearing to support the company:

In 2001, according to the suit, he borrowed a total of $77.5 million from Enron, spread out over 20 transactions, and repaid the loans entirely with Enron shares. The repayments often came within a few days. Such stock sales vastly outweighed purchases. In seven transactions from August, 2001 — when he resumed the CEO job after Jeffrey K. Skilling’s surprise resignation — through October, 2001, he converted more than 918,000 shares into $26 million. “He was selling all the time,” says Duke University law professor James D. Cox. “And the number of shares he sold is staggering.”
Lay doesn’t see it that way. In public he has said that he sold because he needed the funds. He had pledged his shares as collateral for some $100 million in personal loans from three commercial banks. When the value of his Enron stock declined, his bankers made margin calls or demands that he increase his collateral. In his trial, Lay is expected to claim that, with few other assets he could easily sell to satisfy those demands, he was forced to borrow from Enron, repay the Enron loans with stock, and use the proceeds to pay off the banks.

And the foregoing is the crux of why the Justice Department passed on indicting Mr. Lay for illegal insider trading, while the SEC decided to take its shot on those causes of action in its civil complaint:

Justice would have had to show beyond a reasonable doubt that Lay possessed important information the market lacked and that he intentionally traded to take advantage of that information. The SEC’s burden of proof is lower. It need only show that the preponderance of evidence points to insider trading. The SEC complaint argues that Lay’s trades reveal an effort to pump up the shares, dump his stock, and skirt disclosure rules that might tip off investors.
Under then-SEC rules, sales of stock back to the company did not have to be reported until 45 days after the close of the calendar year in which the trades occurred. So when Lay urged Enron employees to buy on Sept. 26, 2001, he knew there would be no record of his sales. SEC filings showed only that he had bought that $4 million worth of stock.
The SEC case, however, is equally significant for the new liabilities it could create for other execs. Agency officials believe it’s relatively common for managers to try to have their cash and keep their shares, too, by borrowing against their stock. Doing so allows them to avoid sending bearish signals to investors while still monetizing their shares. The Lay case seems to show that the SEC views the practice as deceptive. “I think the SEC clearly is saying that you’re going to have to disclose if you’re borrowing against your stock because, in effect, that’s a sale,” says UCLA law professor Stephen M. Bainbridge.

The agency also is warning that execs may be setting themselves a trap if they use shares as collateral. Monetizing shares via loans could create a motive to pump up the stock and, as with Lay, subject execs to insider-trading charges if they later sell because of margin calls, . . .

UCLA law professor Stephen Bainbridge — who provides the consistently best analysis in the blogosphyere on issues pertaining to corporate law — notes in this post that the SEC is charting a new course in the Lay case that should give all corporate officers pause as they consider borrowing money with their company stock pleadged as collateral.

The men who would be Presidents

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Ryan Lizza of the New Republic reviews three books from three former Democratic candidates for President — George McGovern, Gary Hart, and Mario Cuomo — in which the three provide their views on how the Democratic Party should regain control of the American government. Particularly interesting are Mr. Hart’s views toward redirecting American foreign policy, which Mr. Lizza summarizes in the following manner:

Few Americans have more right to say ”I told you so” than Gary Hart. During the 1990’s, when the foreign policy establishment was obsessed with Star Wars and other issues left over from the cold war, Hart headed a commission on national security with another former senator, Warren Rudman. Its report, issued early in 2001, warned of catastrophic terrorist attacks in which ”Americans will likely die on American soil, possibly in large numbers.” Incredibly, the work of the Hart-Rudman commission was widely ignored by the press and the Bush administration.
”The Fourth Power” builds on the many ideas of the commission, offering sweeping recommendations for how America should orient its foreign policy in the 21st century. Hart’s timely central argument — an alternative to both the neoimperialist impulses of the Bush administration and the creeping Kissingerian realism of the Kerry campaign — is that the traditional military, political and economic powers of American foreign policy should be constrained by and imbued with a fourth power, America’s unique principles. To those who advocate a crusading foreign policy of preemption to ”rid the world of evil” and spread democracy — even at the point of a gun — Hart argues that the first casualty would often be America’s moral authority: ”There is a vast difference between advocating, as I do, that America live up to its own principles and advocating, as the Bush administration does, that the rest of the world live up to America’s principles.” At the same time, Hart counters Kerry’s retreat to a Kissinger-style foreign policy, based largely on America’s interests, with a humble but still idealistic internationalism, with the spread of liberal democracy at its core. It’s a call for nation building without Abu Ghraib.
In 1993, Hart sent President Clinton a memo arguing that the end of the cold war was the ideal occasion to reorient the military ”for new missions relating to hostage rescue, counterterrorism, low intensity conflict, guerrilla warfare and stabilization of new democracies.” Much of this prescient document is reprinted as an appendix. We were told.