This Texas Observer article provides an interesting analysis on how Dallas-based TXU Corp dealt with the carnage in the energy industry resulting from the demise of Enron Corp.
Did TXU commit securities fraud?
1
Daily Archives: September 13, 2004
2004 Weekly local football review
Given the over-analysis of football that takes place in Texas, I am going to institute a brief review of each local team’s game from the past weekend with links to more thorough analysis:
Chargers 27 Texans 20. In their first game as a betting favorite, the Texans lay an egg as four turnovers (2 fumbles, 2 David Carr interceptions) undermine the Texans’ chances to pull out the win. The Chargers’ fourth year QB — Drew Brees from Austin — who the Chargers have been trying to get rid of since the end of last season, threw two TD passes to none for the third year QB Carr, who was the first pick in the 2001 draft. As noted earlier here, Carr has shown very little to date to indicate that he is a talent worthy of taking with the first pick of the NFL Draft. That he was outplayed by Brees in the first game of the season is telling.
Minnesota 35 Dallas 17. Vikes culpepper Pokes. Big Tuna will not be pleased.
Horns 22 Arkansas 20. A quality road win for the Horns, who received productive games from both QB Vincent Young and RB Ced Benson. UT’s defense looked improved over last season’s unit, as new defensive coaches Dick Tomey and Gregg Robinson appear to be making an impact. One major problem for the defense against Arkansas was a poor pass rush and containment, which better be fixed before the Horns tee it up in three weeks with OU in the Red River shootout. Offensively, it is still unclear to me whether UT can throw the ball well enough to force OU’s safeties to play safety rather than linebacker, which is essential if a team wants to beat the Sooners. Unfortunately, neither Rice nor Baylor — the Horns’ next two opponents before the OU game — will provide quality competition in which UT can develop that part of their offense.
Oklahoma 63 Houston 13. In a game that was not as close as the score indicates, the Cougars were in it all the way through the coin flip. In glancing at the Coogs’ schedule, it appears reasonably likely that UH will be 1-6 (Army appears to be the only likely win) by the end of October unless dramatic improvement occurs. Quite a comedown from Art Briles’ first season magic.
A&M 31 Wyoming 0. The Aggies take care of business against a patsy at home, which is an accomplishment for A&M the way they have been playing for the past couple of seasons. The Ags get a better test this Saturday night a home against a decent Clemson team, which is coming off a close loss to Georgia Tech.
Rice was idle this past Saturday. The Owls play the Run N’ Shoot Hawaii Warriors this Saturday at Rice Stadium. If Rice plays defense as well as they did against Houston’s junk offense a week ago, then the Owls could be 2-0 before becoming sacrificial lambs to Texas in Austin the following week.
For more information on Texas Tech, Baylor, and other Big 12 teams, Kevin Whited does a good weekly analysis of Big 12 games over at PubliusTx.Net.
Class Action Industrial Complex
This Forbes article addresses a trend noted in these earlier posts — public pension funds becoming the lead plaintiffs in securities fraud litigation. And the public policy implications are not pretty:
And so it goes in the cozy confines of the class action racket. Plaintiff lawyers give handily to the politicians who hire them. They hire ex-insiders to woo pension funds, fete clients at cushy conferences and pay referral fees to powerbrokers who hook them up with new pension plaintiffs. None of this is illegal per se; nor does it violate existing rules of legal ethics. But even some lawyers have problems with it.
“This is corruption on a grand scale,” says class action lawyer Howard Sirota of New York, who says payola by his rivals may force him out of the game. Contributing cash to the officials who oversee your business “is illegal in municipal finance. The American Bar Association [discourages] it. A grand jury is investigating it (see Forbes, Feb. 16). And absolutely nothing happens,” Sirota says.
Last year plaintiff shareholders won $3 billion in class actions against the companies they had invested in, says Institutional Shareholder Services. (Let’s ignore, for now, that often they drain money from companies in which they still hold a stake; see box on this page.) The take was distributed in small chunks to thousands upon thousands of recipients. But $800 million of it will go to a small circle of very lucky people: securities plaintiff lawyers.
The plaintiff lawyers had help in amassing their $800 million take-from pension fund trustees who are oblivious, defense attorneys who won’t challenge the fees because it might prompt the other side to push for an even bigger settlement and insurers who are happy to charge higher premiums to cover the rising costs of litigation.
How did this happen? As usual, the law of unintended consequences of regulatory “reform” had a lot to do with it:
The Republican-controlled Congress hoped to smash this lawsuit cabal when it passed the Private Securities Litigation Reform Act in 1995.
The reform law hands control to big institutional investors. Nicknamed the “Anti-Milberg Weiss Act,” it requires that lead plaintiff status must go to the investor who suffered the greatest loss. Big investors, Congress hoped, would shun frivolous suits and push to cut legal fees.
But the act has morphed into an industrial-strength shakedown. Trial lawyers reached out to new partners: the boards of public and union pension funds. They often include union veterans unabashed about suing corporations. These boards, rather than cutting back on lawsuits and pressing lawyers for lower fees, have jumped into bed with them.
And the results of the reform legislation? Take note:
All told, public and union pension funds were lead plaintiffs in 28% of investor class actions last year; in 1996 they led just 3% of cases, says PricewaterhouseCoopers. Yet they have done nothing to improve shareholder recoveries or reduce significantly the lawyers’ cut.”We have a system where the courts consistently allow law firms to file cases on behalf of figureheads,” complains University of Arizona law professor Elliott Weiss. Translation: The lawyers still run the show. It is a pointed criticism, for Weiss did the research on class action settlements that helped shape the reform act.
Read the entire article. Hat tip to the 10b-5 Daily for the link to this article.
Krispy Kreme looking like Dunked Doughnuts
Krispy Kreme Doughnuts Inc. announced that its auditor, PricewaterhouseCoopers LLP, refused to complete a review of the company’s financial statements for the latest quarter until an outside law firm hired by the company’s board is finished performing, ahem — “certain additional procedures” — that the auditors have “requested.”
This is not looking good for the mercurial Winston-Salem, North Carolina-based doughnut chain. Given its high profile since going public in 2000 and the current anti-business climate in the U.S. Justice Department, it would not be surprising to see a criminal inquiry emerge from Krispy Kreme’s current financial problems. I wonder if the grand jurors can bring a box of Krispy Kremes into the grand jury deliberations?
Krispy Kreme’s latest regulatory filings indicate that it had $19.3 million in cash as of Aug. 1, which is less than a third of what it raised in its 2000 initial public offering.
The company’s latest disclosure sparked new questions about Krispy Kreme’s accounting and a series of acquisitions that included the repurchase of several franchises, including two owned that Krispy Kreme insiders owned. The company recently reported a sharp falloff in growth and declining earnings, and already faces an informal SEC inquiry focused on its franchise repurchases and a profit warning it gave in May.
US Air tanks
As expected, US Airways Group Inc. filed its chapter 22 case (i.e., chapter 11 for the second time) in the U.S. Bankruptcy Court in Alexandria, Virginia. US Air’s previous case concluded a little over two years ago.
Like its larger competitors, US Air continues to be hammered by high fuel prices, competition from discount carriers, anemic revenue and a heavy burden of debt and operating-lease commitments. With the filing, two of the nation’s six “legacy” carriers — those whose costs and cultures are rooted in the pre-deregulation era — now wallow in bankruptcy, although a number of other legacies could end up in the same court. The other legacy already in bankruptcy is UAL Corp.’s United Airlines, and Delta Air Lines is struggling to avoid the similar fate.
US Airways will maintain normal operations and honor all customer-service agreements and marketing arrangements with other carriers. US Airways’ current schedule consists of nearly 3,300 daily flights in about 180 airports in the U.S., Europe and the Caribbean.
The company’s theory of the case in its reorganization is to propose a reorganization plan by year-end that will transform the legacy carrier into a discount airline. Traditional labor and regulatory agencies will undoubtedly oppose the old-line, hub-and-spoke carrier attempting to shed its rigid work rules, inefficient work practices and richer benefits to make the transformation to a discount airline. If that occurs, then US Air may be forced into a liquidation under the weight of its massive debt obligations and lack of profitable operations, although previous legacy airline reorganizations indicate that such a liquidation will not come without creditors enduring even more losses during the reorganization case.
Another big complication in US Air’s reorganization is financing. Unlike the usual big reorganization, US Air did not file an emergency debtor-in-possession financing motion on Sunday to bolster its cash position. Because all of its assets are already pledged, the company did not even try to arrange such interim financing. However, US Air did disclose that it had reached an agreement with its lenders to give the airline access to an undisclosed portion of $750 million of cash it has on hand to use as working capital in lieu of a debtor-in-possession financing. The company said it currently has $1.45 billion in cash, cash equivalents and short-term investments.
The US Air filing gave Democratic Presidential nominee John Kerry an opportunity to comment intelligently on a business policy issue, and his campaign screwed the pooch on that opportunity. Check out the following gibberish:
“It is a tragedy that the employees of US Airways, who have already made great sacrifices to help the company stay afloat, will now suffer more harm. And it’s unforgivable that the Bush administration has sat on the sidelines rather than act to address this crisis.”
The Kerry Campaign failed to mention that the Bush administration authorized the dubious post-September 11, 2001 federal loan-guarantee program that was supposed to help the ailing airline industry, but really just delayed the inevitable in regard to such carriers as US Air. As for the real reason behind the Kerry Campaign’s above statement — US Air employs thousands in the key battleground state of Pennsylvania.