Daily Archives: June 1, 2007

$12 million = Billions in damages

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golfplated%20scales.jpgAmerican Enterprise Institute’s Ted Frank provides this excellent WSJ ($) op-ed on the stakes involved in the upcoming Supreme Court decision in Stoneridge v. Scientific-Atlanta, which could seriously erode the Central Bank rule against holding financial institutions secondarily liable for damages in providing financing for a company that defrauds its investors. As usual, Professors Ribstein and Bainbridge do a fine job of explaining why it would be poor public policy to undermine the Central Bank rule, while J. Robert Brown makes the case for expanding secondary liability.
But policy reasons aside, there is a practical reason why the Supreme Court should uphold the Central Bank rule. The Court is currently considering whether to expand the Stoneridge v. Scientific-Atlanta case to include the review of the denial of class status to the plaintiffs in the main securities fraud lawsuit against several investment banks that provided financing for Enron. One of the myriad of claims in that case is one based on the much-discussed the Nigerian Barge transaction that has already resulted in the unjust conviction and imprisonment of four former Merrill Lynch executives. The plaintiffs in that Enron securities fraud case contend that Merrill should be held liable for billions of dollars in damages resulting from Enron’s demise because Merrill purchased an interest in the barges that allowed Enron to book $12 million in allegedly false earnings.
So, the Enron securities fraud case provides a preview of what we will get from erosion of the Central Bank rule: Help arrange $12 million in earnings = liability for billions of dollars in damages.
I don’t see the Supreme Court buying that math.

What is it about John Edwards?

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John_Edwards_NYC.jpgPresidential politics is outside the usual scope of this blog, but Democratic candidate John Edwards is a lawyer and was so underwhelming as the 2004 Democratic Vice-Presidential candidate that he became a fairly regular topic with his frequent gaffes. Well, along those lines, in this article in this week’s Time magazine, former Kerry campaign advisor Bob Shrum new book is previewed and here’s some of what Shrum has to say about Kerry’s first meeting with John Edwards when he was considering him as the VP candidate:

Kerry talked with several potential picks, including Gephardt and Edwards. He was comfortable after his conversations with Gephardt, but even queasier about Edwards after they met. Edwards had told Kerry he was going to share a story with him that he’d never told anyone elseóthat after his son Wade had been killed, he climbed onto the slab at the funeral home, laid there and hugged his body, and promised that he’d do all he could to make life better for people, to live up to Wade’s ideals of service. Kerry was stunned, not moved, because, as he told me later, Edwards had recounted the same exact story to him, almost in the exact same words, a year or two beforeóand with the same preface, that he’d never shared the memory with anyone else. Kerry said he found it chilling . . . [. . .]
Kerry also wanted a specific reassurance. He asked Edwards for a commitment that if he was chosen and the ticket lost, Edwards wouldn’t run against him in 2008. Edwards agreed “absolutely,” as Kerry recalled him saying. If Kerry had shared this at the time, I would have told him what I did later: it was naive to think he could rely on a promise like that.

Shrum also alleges that Edwards told him that wanted to vote against the Iraq War, but didn’t do so because he thought it would hurt his career.
Now, Shrum has not been the most successful political advisor, so perhaps these allegations should be taken with a grain of salt as the sour grapes of a bitter man with an ax to grind. But much of it sure seems consistent with what was revealed about Edwards during the 2004 campaign. Given his lackluster performance during the 2004 campaign, and now with a former prominent Democratic Party advisor throwing him under the campaign bus, how does Edwards remain a serious political candidate?
Perhaps the answer lies somewhere in this development.

Nothing changes at TSU

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tsu053107.gifAs bad as Texas Southern University’s chronic problems are, they can be resolved through a combination of forceful leadership and common sense. However, intractable local and state political forces prevent TSU’s problems from being addressed effectively. Consequently, it is somehow appropriate that the first act of the new board of trustees of TSU to address TSU’s financial problems is taken against the folks least capable of resolving those problems — i.e., the students:

Texas Southern University’s regents approved a new round of tuition increases Wednesday, with students paying 8 percent more at the historically black institution this fall. [. . .]
The tuition hike follows a 22 percent increase last year. The university had tried in previous years to hold off increases because of the potential hardship for students, many of whom are working adults or recent high school graduates from low-income families.
Regents said they voted reluctantly for the tuition increase, but the university’s financial problems required the additional revenue.

TSU’s tuition is now higher than Houston’s other open-admissions university, the University of Houston Downtown Campus, which does a better job of educating its students than TSU.
I put the over/under for the next scandal at TSU at three years.