Daily Archives: April 16, 2007

Stockman’s story

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david_stockman_nr.jpgFormer Reagan Administration budget chief David Stockman is fighting to stay out of prison for the rest of his life as a result of a federal indictment over his stewardship of the defunct auto parts supplier Collins & Aikman. Stockman is essentially taking the same defense approach as former Enron executives Jeff Skilling and Ken Lay, which cannot be particularly comforting for Stockman. Although the entire Landon Thomas-authored profile of Stockman is interesting, the rendition of how Stockman’s professional life cratered has to be daunting for any businessperson engaged in taking big risks:

Rumors had begun to spread that Collins & Aikman was experiencing a liquidity crisis. On March 17 [2005], Mr. Stockman presented preliminary year-end results to investors. Badgered on the call by analysts about the firmís cash position, Mr. Stockman did his best to stay upbeat, while also laying out the challenges ahead.
On May 9, Mr. Stockman made a last bid to save his company, securing, he says, a promise from Chrysler, Collins & Aikmanís largest customer, to give the company better pricing. Mr. Stockman was ecstatic.
However, on that very afternoon, Mr. Stockman got a call from Dennis E. Glazer, a partner at Davis Polk. The law firm was now questioning whether Mr. Stockman gave overly optimistic forecasts during the March conference call.
Mr. Stockman defended himself, saying that he had provided sufficient caveats. But Mr. Glazer was not convinced. In its indictment, the government would charge that Mr. Stockman drafted the materials and made ìat least three material misstatements or omissions.î
Late the next night, Mr. Stockman received a call in his Troy, Mich., hotel room from Daniel P. Tredwell, his partner at Heartland. The board would ask for his resignation the next day. Mr. Stockman could not believe it. ìThe audit committee had taken over the company and delegated authority to a lawyer from New York wearing suspenders,î he says now. That night, he would add a third Klonopin anti-anxiety pill to the two he was taking each night to bring on sleep quickly.
Mr. Glazer declined to comment on the case, citing confidentiality.
The next day the board demanded his resignation.
ìLeave your office now and donít take anything with you,î Mr. Stockman recalled Mr. Glazer as saying.
It had happened so quickly that he could not even call a lawyer.
ìI was in shock,î he said. ìI had been with the company for 14 years ó I mean I had put this whole thing together. I had put these guys on the board, invested the money, owned the shares and they stabbed me in the back. It was like a Stalinist show trial.î
A week later, on May 17, Collins & Aikman filed for bankruptcy.

Have we now come to the point where a chief executive officer of a financially-troubled publicly-owned company cannot speak optimistically of the company’s prospects for pulling out of a tailspin because of the risk of a criminal indictment if the company cannot pull it off?

Texas parole shenanigans

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jailimage.jpgDon’t miss this Chuck Lindell/Austin American Statesman that reports on the bizarre case of Jimmy Lee Page, a man who was acquitted of murder twenty years ago, but was never released from prison:

Now 52, Page is in prison today because state officials revoked his parole ó trumping the juryís verdict with their own finding of guilt. Itís a common practice. Last year, 91 Texas parolees were returned to prison after being charged with a new crime, even though the charges against them were later dropped or they were acquitted in court.
Bound by looser rules than a court of law, parole officials reached their verdict on Page after hearing testimony from only one witness, a police detective who declares Page is ìguilty as homemade sin.î In the years since, he was denied parole a dozen times, most recently in early 2006.

Page is certainly no saint. He was convicted of murder in 1975 and sentenced to life in prison, but he was paroled on that conviction after eleven years. Maybe he still ought to be serving time for that murder. However, he is serving time for a crime for which he was acquitted. That’s wrong.
Lindell goes on to address the lax parole hearing process, noting that the system gives undertrained and unprepared people mere moments to look at a case before making a decision and moving on to the next one. In such an environment, maintaining the status quo becomes the most convenient outcome. Constitutional guarantees such as due process, confrontation of witnesses, and a reasonably competent defense are mere afterthoughts.
This looks to me like a process that is ripe for a Constitutional challenge.

More costs of the new Prohibition

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speakeasy-prohibition.gifThese earlier posts discuss the high cost of the government’s prohibition of internet gambling, but this Sallie James/TCS Daily op-ed reports that those costs are about ready to go up another level entirely:

On March 30, a World Trade Organization tribunal handed down a potentially significant finding against U.S. restrictions on internet gambling.
The panel was set up at the request of Antigua and Barbuda, who complained that the United States had not complied with the WTO’s earlier decision that it must change the way it regulates gambling over the internet. The previous ruling, in April 2005, found that while the United States was within its rights to restrict the import of goods and services on “public morals” grounds, as it had argued in its defense, those rules must be applied in a non-discriminatory manner. If the United States finds online gambling offensive, it must be consistent in its restrictions and apply them equally to domestic and foreign providers.
And therein lies the rub: the United States allows interstate online betting on horseracing. The United States had also agreed during the Uruguay Round to open its markets to foreign suppliers of gambling and betting services, although the United States Trade Representative (through a spokesman) claimed in 2004 that the previous administration “clearly intended to exclude gambling from U.S. service commitments” when they signed the deal. Both of those inconsistencies lost it the original case.
The United States Congress passed the Unlawful Internet Gambling Enforcement Act in October 2006, ostensibly to bring its laws into conformity with the April 2005 ruling. But the compliance panel ruled that the United States has taken no satisfactory remedial action that would bring its laws into conformity with its previously-established obligations. Moreover, it appears that the United States applies its laws in a discriminatory manner, by prosecuting foreign gambling entities more than it does U.S. gaming firms. Game, set and match: Antigua and Barbuda.

Frankly, the WTO decision sounds about right to me.