Monthly Archives: March 2006

GM’s Enronesque slide continues

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gm11.gifGeez, talk about a bad day at the office.
Embattled General Motors (prior posts here) conceded in its delayed regulatory filings filed yesterday that it had found “material weaknesses” or “significant deficiencies” in the company’s accounting controls, and that the company’s financial statements for 2002-2004 and for the first three quarters of 2005 “should no longer be relied upon” because of accounting errors. The company filed corrected statements for those periods with the SEC yesterday.
In addition, the company announced that it may have a bit of trouble peddling its valuable financing unit because of the complexity involved in arranging such a deal and, oh by the way, several years worth of results for that unit need to be restated, too. Then, this NY Times article questions whether GM current management has what it takes to pull the company out of its tailspin.
But to top it all off, GM announced that it had received a subpoena from a federal grand jury investigating its handling of payments or “credits” from suppliers, and that it had received a subpoena from the Securities and Exchange Commission in connection with a previously disclosed investigation of GM’s transactions in precious-metal raw materials. That makes six subpoenas from the SEC and two subpoenas from federal grand over the past six months.

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The state of talk radio political discourse

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Sean Hannitty.jpgbaldwin2.jpgFirst, outspoken actor Alec Baldwin goes on a radio talk show.
Then, Fox News pundit Sean Hannity calls in.
The result?
A quintessential example of the state of political discourse on talk radio.
Demogoguery continues to sell well in America.
Hat tip to TigerHawk for the link to the story.

Bid high, then settle

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cooper.jpgStephen Cooper, the fellow who oversaw Enron’s liquidation for a couple of years, has backed off his request for a $25 million “success” fee (earlier post here) — on top of his $1.3 million annual salary and tens of millions already paid to his company for its services in the Enron case — after the U.S. Trustee examining his request pointed out some “billing issues” to the Bankruptcy Judge overseeing the Enron chapter 11 case. Mr. Cooper now is requesting “only” a $12.5 million success fee in the Enron case, where creditors holding unsecured claims will probably receive somewhere between a 15% – 25% dividend on their claims.
Something tells me that Lynn LoPucki is not pleased.

Criminalizing an executive’s right to counsel

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scales of justice6A.gifIn the post-Enron era of criminalizing business, a business executive’s attorney-client privilege with the company counsel of the executive has already become largely illusory (posts here, here here and here). Now, according to this Nathan Koppel/WSJ ($) article, the government is now threatening to go Arthur Andersen on a New Hampshire company unless the company breaches its contractual obligation to provide counsel to a company executive that is accused of a crime.
The fee-payment issue has become an issue over the past several years after the 2003 “Thompson Memo,” former Deputy Attorney General Larry Thompson’s dubious directive that advised prosecutors how to induce companies to cooperate with the government in order to avoid an indictment and an Arthur Andersen-type meltdown. The memo advises that a company’s willingness to advance legal fees to “culpable employees” may signal a lack of cooperation. The nonpayment of legal fees has been a huge issue in the ongoing tax-shelter prosecution against former executives of KPMG LLP, where the accounting firm has not reimbursed its former executives since 2004.
In the New Hampshire case, five former executives of technology company Enterasys Networks Inc. are charged with accounting fraud. The case was scheduled to go to trial in Concord this month, but the defense received a three-month reprieve after federal prosecutors were accused of misconduct in pressuring the company to cut off legal fees to the defendants. At a March 7 hearing, U.S. District Judge Paul Barbadoro voiced concern over the prosecutors conduct, but he did not sanction the prosecutors and Enterasys reluctantly agreed to pay past-due fees and costs of defense counsel and to cover future costs.
The article notes that, over the past three years, federal prosecutors in New York, Alabama and now New Hampshire have placed companies at risk of being indicted out of business if they fail to cut off payments to an executive’s defense counsel. Clear Thinkers favorite Ellen Podgor of the White Collar Criminal Prof blog comments in the article:

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Update on the Bagwell disability claim

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Bags news conf3.jpgThe Chronicle’s Stros beat writer, Jose de Jesus Ortiz, reports today that the insurer of the Stros disability insurance policy on slugger Jeff Bagwell has denied the Stros’ claim that Bagwell’s arthritic right shoulder has rendered him disabled under the terms of the policy. Previous posts on the Bagwell disability claim are here and the post from the past weekend on Bags’ impending retirement is here.
The insurer’s position is not particularly surprising. Although Bagwell cannot throw a baseball well enough to play Major League Baseball in the National League, he was in the same condition last September when the Stros activated him to pinch-hit in the final regular season games and the playoffs. Consequently, the insurer contends that nothing has changed since Bags was physically capable of playing last fall and, thus, he continues not to be disabled.
On the other hand, the Stros are contending that the fact that Bags was able to handle partial duties in the fall (i.e., bat, but not throw) fails to establish that he is not disabled now. The Stros contend that Bagwell’s disability was not finally confirmed until January 12, 2006, when orthopedic expert Dr. James Andrews examined Bags, according to Stros’ counsel, Wayne Fisher:

“He was throwing the ball at 35 mph at what distance he could throw. On Jan. 12, we know total disability began, because Dr. James Andrews, a world-renowned physician, told him. That was the first time any physician had ever said that to Jeff. If Connecticut General Insurance Co. can tell us what person in that insurance company knows more about whether Jeff Bagwell was totally disabled on Jan. 12 than Dr. James Andrews, I’ll be very interested in cross-examining him.”

Fisher is a first-rate plaintiffs lawyer and an old friend of Stros owner, Drayton McLane. The success or failure of these types of claims are notoriously dependent on the policy provisions, particularly those pertaining to the definition of disability and the litigation forum. If the policy requires arbitration of the claim, then my sense is that the Stros have a tough case. On the other hand, if Fisher can get the insurer into state district court in Harris County, then the home field advantage definitely favors the Stros.

Governmental intervention in oil and gas markets

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oil rig offshore.jpgThis NY Times article reports on the successful lobbying effort by the oil and gas industry in the mid-1990’s during a time of low energy prices to persuade Congress to create incentives for energy companies to explore for oil and gas in the Gulf of Mexico.
Congress passes legislation to create the incentives, but the legislators don’t bother to read the legislation carefully.
During the current period of relatively high energy prices, the oil and gas companies take advantage of the legislation to make a lot more money through paying reduced royalties to the government than they would otherwise have made without the legislation.
Journalists point this out to legislators.
Hilarity ensues.

More on criminalizing those unpopular shorts and hedgies

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short selling6.jpgThis earlier post noted the dust-up over the SEC’s dubious issuance of subpoenas to financial journalists over Overstock.com’s accusation that a hedge fund and a stock-research firm manipulated the media and the market to drive down the price of Overstock.com’s stock for the purpose of profiting through shorting the stock.
Now, this NY Times article reports that the SEC is seeking documents about communications that the stock research firm — Gradient Analytics Inc. — had with journalists and several hedge-fund advisers. The new subpoenas appear to be intended to gather information about Gradient’s contacts with journalists without seeking the information directly from the journalists themselves. If you can’t get the information one way, try another.
The NY Times story reports allegations that SAC, a big hedge fund, persuaded Gradient to generate a misleading and negative report on Biovail, a generic drug firm. Then, the allegation goes, SAC persuaded (bribed?) Gradient to delay publication of the negative report on Biovail so that SAC could profit by shorting Biovail stock. If true, then SAC and Gradient’s scheme is sanctionable under existing securities laws.
Although Biovail stock hasn’t been doing all that well anyway and it’s unclear whether the negative reports had any effect on the company’s stock price, the NY Times article rachets up the “more business regulation” demagogery, anyway:

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“Keep Up”

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Sabbatini Mrs.jpgStephen Ames — you know, Tiger Woods’ buddy — won the Players Championship in a walkabout on Sunday, so the final round wasn’t particularly interesting. Nevertheless, the golf tournament generated some highly entertaining moments, anyway.
During the first two rounds of the tournament, the PGA Tour paired Rory Sabbatini — who is one of the hottest players on Tour this season — and NBC golf color commentator and part-time Tour player, Nick Faldo.
As you may recall, Faldo and Sabbatini had a dust-up with each other last year. During the 2005 Booz Allen, Sabbatini was harshly criticized by television commentators Paul Azinger and Faldo on the air for leaving playing partner Ben Crane behind to finish the 17th hole. Sabbatini, who is one of the fastest players on Tour, was fed up with Craneís pace of play, which is one of the slowest on Tour. Sabbatini reportedly was not pleased with Faldo and Azinger slamming him on the air, although he reportedly talked with Azinger about the incident later and made up with him. But not Faldo.
To make matters, Faldo is also a slow player himself. So, during the first round of the Players Championship, tournament officials put the Sabbatini-Faldo-Camilo Villegas group on the clock (i.e., gave them a warning before assessing a penalty to each of the players) for — you guessed it — slow play. The group sped up and no penalties were assessed.
Nonetheless, that incident prompted Sabbatiniís wife — no shrinking violet herself — to show up the next day for the second round sporting a tee shirt emblazoned with the words ìKeep Upî as she followed the group around the course. Asked about Mrs. Sabbatini’s t-shirt after the round, Faldo observed the following:

“I think itís very embarrassing for them to bring their sexual problems to the golf course. Poor fellow. I thought he had enough problems as it is without her announcing them to the world.”

Your serve, Mr. Sabbatini.

Thomas Sowell is a wise man

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Thomas Sowell.jpegThomas Sowell (previous post here) is the Rose and Milton Friedman Senior Fellow of The Hoover Institution at Stanford University, where he has written yet another book, On Classical Economics (Yale 2006).
Although Professor Sowell’s preference for free markets and disdain for governmental planning has often resulted in him being labeled as a leading black conservative (whatever that means), this Jason L. Riley/weekend WSJ ($) interview of Professor Sowell provides an interesting insight regarding that label:

Free-market economics, a legacy of the classical school, is thought of as an old conservative doctrine. But Mr. Sowell explains that it was in fact one of the most revolutionary concepts to emerge in the history of ideas. Moreover, “the thinking of the classical economist was not only a radical break from landmark intellectual figures like Plato and Machiavelli, but also from mainstream thinking to this day.” The notion of a self-equilibrating system — the market economy — meant a reduced role for intellectuals and politicians, [Sowell] says.
“And even today many still haven’t accepted that their superior wisdom might be superfluous, if not damaging.”

Update: Following on the Sowell interview, this NY Sunday Times op-ed by Orlando Patterson, John Cowles Professor of Sociology at Harvard University, is a thoughtful and timely piece on the plight of young black men in America. He argues that academicians have an affinity for socioeconomic explanations and too often dismiss cultural explanations. As he notes: “Too much is at stake for us to fail to understand the plight of these young men.”

Bags to start season on DL

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Bags news conf.jpgAs predicted by this earlier post, first baseman Jeff Bagwell — the greatest player in the 46-year history of the Houston Astros franchise — announced today that he would begin the 2007 season the disabled list and that his arthritic right shoulder probably will not allow him to resume his certain Hall-of-Fame career.
While some consider it sad that Bags’ baseball career is drawing to a close, I prefer to appreciate the opportunity that I had to watch this extraordinary player on a daily basis over the past 15 years. Fearsome slugger, superb defensive player, excellent baserunner — Jeff Bagwell was the entire package. A job well done, sir.

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