The University of Chicago’s loss is Tufts University’s gain.
Hearty congratulations are in order for Professor Drezner, who is one of the pioneers of the blogosphere.
Daniel Drezner lands on his feet
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Monthly Archives: November 2005
Tyler Cowen discovers Texas barbeque
Marginal Revolution’s Tyler Cowen has been eating Texas barbeque this week in Lockhart and he is finding it to be a very satisfying experience. Indeed, one of the many pleasures of living in Texas is taking a day to visit several of the charming small towns in the triangle formed by the cities of Houston, Austin and San Antonio, and sampling the local barbeque. One of my fondest memories from years ago is accompanying a client to several of these towns as we took a day to meet witnesses in a lawsuit I was defending for him. Each meeting took place in each town’s best local barbeque restaurant and, of course, we sampled the barbeque at every spot. To this day, I have not come up with a better way to prepare for a trial.
A snarky week in Strosland
Kevin Whited and I have been shaking our heads this week over the barbs that have been being flying to and from the Stros’ front office. The Stros’ front office hasn’t been involved in this kind of flame war since the days when the late Stros owner John McMullen teed off on former Stros general manager Tal Smith and Mr. Smith responded with a defamation lawsuit against Mr. McMullen.
This all started when former Stros General Manager Gerry Hunsicker was passed over earlier this week for the Philadelphia Phillies general manager position. Mr. Hunsicker grew up in the Philadelphia area and his tenure with the Stros coincided with the club becoming one of the most successful teams in Major League Baseball over the past decade, so he was thought to be the favorite for the Phillie job. Thus, it definitely raised some eyebrows that he was passed over for the job, particularly in favor of a 68 year old.
Signs of Desperation at the Enron Task Force?
Already having engaged in intimidation of witnesses and dubious plea-bargaining tactics, the Enron Task Force is showing signs of becoming desperate regarding its legacy case.
The Enron Task Force has now done a 180 in regard to its position toward Arthur Andersen and its former partners in connection with its legacy case against former Enron executives Ken Lay, Jeff Skilling and Richard Causey.
After having demonized the firm, prosecuted it out of business, and alleged that its partners were co-conspirators in a number of Enron-related prosecutions, the Task Force is now embracing several former Andersen partners as prosecution witnesses in the Lay, Skilling, Causey case and justifying that reliance on the Task Force’s apparently recent realization that Enron duped Andersen just like everyone else. For Andersen, the Task Force’s revisionist position regarding the firm falls squarely in the “better late than never” department.
Now, this John Emshwiller/Wall Street Journal ($) article and this Chronicle/John Roper article reveal further signs of strain in the Task Force’s case against Mr. Lay.
Although the Task Force’s filing has not yet been uploaded on the public docket of the case (the Task Force, as a part of its propaganda campaign in Enron-related prosecutions, often leaks its filings to reporters before they are filed publicly), Mr. Emshwiller reports that the Task Force filing advises the court and the parties that it intends to go into Mr. Lay’s knowledge of potential losses relating to a trading scandal in the late 1980’s that could have brought the much-smaller Enron down at the time.
Inasmuch as the indictment against Mr. Lay contends that he tried in the latter part of 2001 to cover up Enron’s growing financial problems, the Task Force is contending that Mr. Lay’s alleged similar conduct in regard to the trading scandal 14 years earlier is probative evidence of his guilt.
U.S. District Judge Sim Lake has not yet ruled whether he is going to allow the Task Force to go down that bunny trail during the trial.
Meanwhile, a perusal of the case docket reflects that the Lay-Skilling-Causey team is preparing to present an impressive array of expert witnesses in defense of the Task Force’s amorphous allegations of wrongdoing in regard to Enron’s accounting, structured finance transactions, earnings management and related matters that form the basis of the Task Force’s indictment against Messrs. Lay, Skilling and Causey.
On the other hand, other than an SEC representative and the Andersen partners who the Task Force demonized earlier, there is little indication from the docket on how the Task Force plans to establish its core theory that Enron’s legitimate business operations were a sham that Messrs. Lay, Skilling and Causey misrepresented to the investing public.
Messrs. Lay, Skilling and Causey will never win their criminal case in the court of public opinion that has been polluted by the slanted public statements of the Task Force and the mostly one-sided mainstream media accounts of the Enron scandal. However, assuming that a fair jury panel can be found, the foregoing developments represent clear signals that these men have a much better chance of winning their case in the courtroom.
Is the Lord of Regulation angling for J&J’s support?
Let’s see now. Johnson & Johnson has contracted to buy medical-device maker Guidant Corporation in a deal worth nearly $24 billion. However, J&J included in the deal some fairly sophisticated provisions that allow it to walk away in the event of a material adverse effect on Guidant’s financial condition. J&J has given strong indications recently that it is wanting to walk on the deal, and Guidant has responded that it does not believe an MAE exists and that it expects J&J to consummate the deal.
So, so if you’re J&J, how exactly do you come up with a sure-fire material adverse effect?
Well, how about New York AG (“Attorney General” or “Aspiring Governor,” take your pick) Eliot Spitzer? Yesterday, the Lord of Regulation filed a lawsuit against Guidant alleging the the company concealed from the public a design flaw in one of its surgically implanted heart defibrillators.
No word yet on where and when the J&J-sponsored “Spitzer for Governor Rally” will be held. ;^)
Piling on Arthur Andersen
It’s looking as if the Texas State Board of Accountancy needs to catch up with the government’s investigation into Enron. In this Chronicle article, John Roper and Purva Patel report that the Texas state accounting board is seeking disciplinary action against seven former Arthur Andersen accountants for allegedly failing to scrutinize and report financial events that led to the collapse of Enron. The state board’s press release is here and a copy of the complaint is here.
But wait a minute. Hasn’t the state board staff checked in with the Enron Task Force recently? The board’s complaint is rather dated — indeed, it is based on many of the same allegations that the Enron Task Force made in 2002 when it demonized Arthur Andersen and its partners and improperly prosecuted the firm out of business. But now, faced with the realization that it actually will have to attempt to prove its amorphous charges against former Enron executives Ken Lay, Jeff Skilling and Richard Causey, the Task Force has done a 180 degree turn and is contending that the Arthur Andersen partners were duped by Enron just like everyone else (sorry about the prior misunderstanding, Andersen). Wouldn’t it be the ultimate irony if the former Andersen partners call as witnesses in defending themselves against the board’s complaint members of the same prosecution team that prosecuted their firm out of business?
By the way, the best reflection of the absurdity of the Board’s complaint is that former Andersen partner Carl Bass was included as a defendant. As anyone with even a passing understanding of the Enron case knows, Mr. Bass was a sometimes lone voice of skepticism and reason regarding aggressive accounting positions that Enron management sought to take in regard to various transactions.
Steffy on the sad case of Jamie Olis
Chronicle business columnist Loren Steffy — who blogs over at Full Disclosure — does not generally share my view that government has gone overboard in the post-Enron era of criminalizing merely questionable business transactions. However, when it comes to the sad case of Jamie Olis, Mr. Steffy in his column today says enough is enough:
Olis’ boss, Gene Foster, and a co-worker pleaded guilty to one count of fraud in exchange for a maximum sentence of five years. Olis fought the charges, lost, and bore the burden of the entire stock loss, which resulted in a sentence almost fives times longer than what his former boss faces.
His sentence is only one year less than WorldCom’s Bernie Ebbers, who oversaw the biggest accounting scam in U.S. history, a fraud of more than $11 billion.
Olis may have helped commit a crime, but it was far from Ebbersian in its proportion. After all, Olis didn’t directly profit from Project Alpha. He didn’t enrich himself at shareholders’ expense.
The Supreme Court earlier this year ruled that the strict guidelines that Lake used are not mandatory, that judges should have latitude for judicial prudence.
That gives Lake an opportunity to restore rationality to Olis’ sentence.
A jury found Olis guilty, and for that he should pay a price. He has. Olis, who was ordered to report to prison in May 2004, has already served 18 months. Lake hasn’t scheduled a hearing on a new sentence, and by the time the process is done, Olis will be closing in on two years. Lake should consider time served and set Olis free.
Justice holds a sword, but she also holds a scale. And the scale is supposed to be balanced.
Amen. And here’s hoping that Judge Lake takes note that the position on market loss that the government promoted to him at Mr. Olis’ previous sentencing hearing — and that led to the imposition of the draconian 24 year sentence — was directly contradicted by the position that the government was taking at the same time before the Supreme Court in Dura Pharmaceuticals v. Broudo.
By the way, in regard to the market loss issue, Mr. Steffy quotes Clear Thinkers favorite Larry Ribstein, who has been one of the academic bloggers at the forefront of publicizing the injustice of the Olis case.
Riots spreading in suburban France
This story has been flying a big under the radar screen (at least outside the blogosphere) over the past week, but France’s government is coming under increasing political pressure to find a solution for civil unrest in suburban France that has unfolded over the past week. Over the past couple of nights, rioting youths in the the Seine-Saint-Denis region north of Paris have shot at police and firemen as they battled youths who torched car dealerships, public buses and a school.
The triggering event of the rioting occured last Thursday in the northeastern Paris suburb of Clichy-sous-Bois after the accidental deaths of two teenagers who were electrocuted while hiding from police in a power substation. However, the unrest is really the outgrowth of French society’s failure to integrate millions of immigrants who have come to France over the past generation, many of whom are unemployed immigrants from the Middle East and North Africa who live in poverty in low-cost, suburban housing projects. The riots are focusing attention on the differences between France’s generally affluent big cities and their poor suburbs, where the North African and Muslim immigrants and their French-born children struggle with high unemployment, crime, poverty and a lack of opportunities. As with such ghetto areas anywhere, crime-ridden gangs dealing drugs and stolen goods control many of the more decrepit housing projects and are benefitting from the chaos of the current riots.
As we saw in the chaotic aftermath of Hurricane Katrina in New Orleans, the line between civil order and unrest is fragile, and not easily restored once crossed. Daniel Drezner has more along those lines in this post and related comments.
Business tidbits
I pass along the following tidbits of business information that caught my eye this morning:
The auto industry just recorded its worst October for U.S. sales in 13 years;
For most of October, the nearby price of a natural gas futures contract closed at a high of $14.34 per million British thermal units. That was more than twice what natural gas traded for at the beginning of the year. However, an Energy Information Agency inventory report last week revealed an unexpectedly large increase in natural-gas storage just as most of the U.S. was experiencing an unusually mild autumn. Accordingly, the price of a nearby natural gas contract closed yesterday at $11.60 per million BTUs, down almost 20% from last week’s highs; and
Clear Thinkers favorite James Hamilton notes that, despite record profits, oil and gas companies are reinvesting a surprisingly low percentage of their profits and he is not sure why.
All about Alito
As it did with Harriett Miers, the University of Michigan Law Library has put together this top notch site that includes biographical information, downloadable opinions, and almost everything else you need to know about Supreme Court Justice nominee, Samuel A. Alito, Jr.. Check it out.