Daily Archives: July 9, 2007

Threatening to go Arthur Andersen on KPMG

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KPMG070907.gifThis earlier post noted how the shadow of the sad case of Jamie Olis continues to hang over the KPMG tax shelter case in New York, and this post explored how Olis’ defense was financially undermined by the Justice Department’s overt threats to go Arthur Andersen on his employer, Dynegy.
Now, this Lynnlee Browning/NY Times article analyzes evidence that has been generated in the KPMG case about how the Justice Department threatened KPMG with indictment unless it abandoned its policy of paying the defense costs of its partners who had been indicted. It’s a harrowing tale and a stark reminder of how the federal government’s awesome prosecutorial power is being abused to cause job loss and erosion of wealth while ruining careers and damaging families in the process. This is not the product of a truly civil society.

Fiddling while the tofu burns

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wholefoods070907.jpgIt all started with this Holman Jenkins/WSJ column in which he blasted the Federal Trade Commission’s vacuous campaign against the proposed Whole Foods-Wild Oats merger.
That prompted this WSJ letter-to-the-editor from Arnie Celnicker, a former attorney for the FTC and the Antitrust Division of the Justice Department, in which he contends, among other things, that the complexities of markets is such that “[t]he fact that I can now buy organic milk at Wal-Mart tells us something, but very little, about the realistic nature of competition between Whole Foods and Wal-Mart, or about the effect of Whole Foods’ acquisition of Wild Oats.”
Which prompted Don Boudreaux to throw up his hands in exasperation:

How in the name of free-range chicken do these facts justify government blocking this merger? Precisely because consumers now want more and more organic products, financial markets have every incentive to invest in firms catering to this growing market if these firms are well-managed. Wild Oats’ inability to get adequate private financing in this growing market is strong evidence that its assets now are poorly managed. It’s only natural that Whole Foods spots and seizes this opportunity to use these assets more effectively at meeting consumer demands. The FTC’s interference – an unwholesome additive to the market – jeopardizes consumer well-being.

Not to speak of the jeopardy in which the FTC’s interference places the investment of Wild Oats shareholders.

A healthy way to deal with stress

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business%20golf.jpgAccording to this Patrick McGeehan/NY Times article, Bear Stearns chief James E. Cayne had a healthy way to relieve stress during the recent crisis surrounding the demise of two Bear Stearns hedge funds:

The near-meltdown of a hedge fund managed by Bear Stearns does not appear to have interrupted the golfing habits of its chief executive, James E. Cayne.
In the summer, Mr. Cayne routinely hops a helicopter from Manhattan to the Hollywood Golf Club in Ocean Township, N.J., where his pilot has permission to land on the grounds. According to scores posted on an online golf database, he continued to do so through the weeks in June when his firm was struggling to keep one of its mortgage securities funds afloat.
On June 14, the day when Bear Stearns reported a 10 percent drop in its operating earnings for the second quarter, Mr. Cayne played a round and shot a 96, his scores on the online database, GHIN.com, indicate. The next day, a Friday, he played again.
On Thursday, June 21, as several big banks pressured Bear Stearns to increase the collateral on loans they had made to its sinking fund, Mr. Cayne was back on the course. That day, he shot a 98.
The next day, in the biggest rescue of a hedge fund in almost a decade, Bear Stearns pledged to put up $3.2 billion to bail out its fund. (It later said that $1.6 billion would suffice.) Then the remarkably consistent Mr. Cayne played golf, shooting a 97.
Elizabeth Ventura, a spokeswoman for the firm, explained that Mr. Cayne flies down after work on Thursdays and plays an evening round of golf. On Fridays, he plays a round and works from his New Jersey home, where he is in constant touch with the office, she said.

Cayne’s handicap index is 15.9, so his scores during that stressful time certainly ballooned a bit higher than normal. But think how bad this could have gotten for Bear Stearns if Cayne had not been able to get his golf therapy? ;^)