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. ;^)

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.

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.