Yesterday we explained that Bruce Wayne–who fights street crime and evil clowns by night–has all the markings of a corporate criminal. We even went so far as to explain that Wayne seems like exactly the “better class of criminal” that his nemesis The Joker claims Gotham City deserves.
Some of you fanboys disagreed!
But it turns out we’re not alone in seeing the criminality of Bruce Wayne. Smart lawyers and law professor types agree with us! And it’s not just criminality: Wayne–and his Batman alter-ego–bring up a whole host of legal issues. After the jump, a quick summary of Wayne’s white-collar criminality and litigation inviting ways.
White Collar Crime
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Posted in:
White Collar Crime
Bruce Wayne: Your Typical Self-Dealing Corporate Chieftain Lionized By Wall Street
By John Carney-
Posted in:
White Collar Crime
The Case Against Criminalizing Business Hits The New Yorker
By John Carney
That was quick.
Just yesterday we worried that our optimism about the tide turning against the war on white-collar crime might be misplaced. The Wall Street Journal had just won a Pulitzer Prize for its sometimes misleading “gotcha!” reporting on backdating. We hoped that the backlash against the scandalization of backdating might provoke some rethinking about criminalizing corporate executives.
“I think that it’s more likely that the Pulitzer itself will just spur more Watergate-itis in business reporting,” Ideoblogger Larry Ribestein wrote. And a part of us feared that Larry was right. We might be in for a very long haul of journalists, regulators and prosecutors marching against what they see as rampant greed and theft in corporate board rooms and executive suites.
But we hadn’t seen the most recent issue of The New Yorker yet. James Surowiecki, the guy employed by magazine to explain finance to its readership, has a relatively balanced article that echoes a lot of the sentiments expressed here and elsewhere about the criminalization of business going too far.
Sending executives to prison for bad judgment is costly, not just for the C.E.O. but also for the economy as a whole, because it discourages other executives from taking reasonable risks. So we do need to be careful about criminalizing agency costs, to use a phrase coined by Larry Ribstein, a law professor at the University of Illinois.
Surowiecki warns that caution about criminalization need not involve the wholesale rejection of prosecuting white collar criminals. Of course it does not. What academics like Ribstein have been calling for is not immunity for genuine thieves but a re-assessment of the costs and benefits of what seems to have been an abandonment of reasonable caution in the past decade.
The quibble aside, it’s certainly reassuring to see these ideas in a middle-brow, mainstream magazine like The New Yorker. Perhaps our hope wasn’t so misplaced after all.
Free Agents[New Yorker]
Surowiecki on criminalizing agency costs [Ideoblog]
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Hedge Funds
Hedge Fund Scammers Give “Let’s Do Lunch” Entirely More Sinister Meaning
By John Carney
Another hedge fund scammer has been caught allegedly posting false gains while he burnt lost investors money on questionable investment, the Washington Post reports today. The latest accused hedge fund con-man and his Canadian partner Stephen Chesnowitz had a unique way of getting investors—they took them out to lunch!
Over the past two years, the two traders sent out mass mailings advertising a free “gourmet meal” and the opportunity to “earn excellent returns with a guarantee against market risk.” More than 150 people, mainly from Montgomery and Prince George’s counties, attended the seminars and gave Williams a total of $9 million. He transferred the money to Chesnowitz’s hedge funds in Canada and the Cayman Islands.
As always, the way to a man’s wallet is through his stomache.
William’s “investments” included a Canadian bed-and-breakfast and two vintage cars. Presumably one for himself and the other for Chesnowitz. After posting phony gains on his website, Williams allegedly took a standard 20% hedge fund commission on the gains. Nice work if you can get it.
Hedge Fund Manager Charged in Fraud [Washington Post]
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legal
As It Turns Out, David Stockman Is Still Around, And Now Under Investigation
By John Carney
David Stockman is under investigation for his role running Collins & Aikman, an autoparts company. You might recall the name Stockman. it became a household name when he was appointed budget director in the first Reagan administration. Before that he had been a member of Congress with a reputation for being allied with the tax-cutting supply siders.
Shortly after he started working on the Reagan budgets he voiced his complaints about the budget process built around cutting taxes while deficits mounted to a reporter named William Greider, and that conversation became an article titled “The Education of David Stockman.” Despite the scandal of this article, which referred to the supply-siders tax-cuts as a “Trojan Horse,” Stockman managed to stick it out in the administration for several more years. After leaving in 1986, he published a book claiming that the “Reagan revolution” had failed because Congress had refused to embrace spending cuts.
After leaving politics, Stockman spent the next dozen or so years running around the finance world, first at Salomon Brothers then at Blackstone. Eventually he left Blackstone to start his own private equity firm, Heartland Industrial Partners, L.P., which specialized in buying up companies in decidely unfashionalbe industries, especially the auto industry. A few years ago, Stockman installed himself as CEO of Collins & Aikman. And, apparently, that’s where the trouble really started.
From the New York Sun:
Federal investigators and prosecutors are preparing a case against Mr. Stockman and other corporate officers from Collins & Aikman and expect to present the findings soon to a grand jury in New York City, the official said.
The investigation is focused on whether Mr. Stockman and other corporate officers at Collins & Aikman misled investors about the financial health of the company by artificially inflating stock prices. ABC News reported on the case Monday.
Reagan Official Is Investigated For Possible Fraud [New York Sun]
Is there some special shame that attaches to being convicted in one of the biggest financial scandals of the era and yet still being a nobody? Probaby not. If he took the Ken Lay out, we’re betting he’d just end up in whatever ordinary Hell accountants usually go to.
Former Enron Corp. Chief Accounting Officer Richard Causey was sentenced to 5 1/2 years in prison for his role in the fraud that destroyed the company, an 18-month reduction from the term offered in his plea deal.
Causey, 46, was charged with more than 30 counts and faced trial alongside former Enron Chief Executive Officers Kenneth Lay and Jeffrey Skilling, both convicted in May of spearheading the fraud that forced the company into bankruptcy in 2001. Skilling was sentenced to 24 years in prison. Lay’s conviction was thrown out because he died before his appeal.
Former Enron Accountant Causey Gets 5 1/2-Year Term [Bloomberg]
In retrospect, perhaps investing in a hedge fund named for a poisonous snake wasn’t such a good move.
The Securities and Exchange Commission yesterday sued a San Francisco hedge fund manager, Edward S. Ehee, and the funds that he managed, Viper Capital management and Compass Fund Management, accusing him of fleecing 18 investors out of about $5 million.
Mr. Ehee raised the money from investors, including a neighbor who gave his children’s trust funds to Mr. Ehee and the neighbor’s mother-in-law, who invested her entire retirement savings in the funds, according to the complaint.
Rather than invest the millions he raised, Mr. Ehee gave the money to family members and used it to pay for his mortgage, his cars and vacations in Las Vegas, the complaint says.
S.E.C. Accuses Hedge Fund Manager of Deceiving Investors [New York Times]
Come on. You know you’re hoping the “unidentifed Texas oilman” is the ghost of Ken Lay.
Disgraced corporate tycoon Dennis Kozlowski sold his opulent Colorado mountain mansion for $10 million – and got an extra $750,000 for the furnishings, court papers revealed yesterday.
An unidentified Texas oilman agreed to plunk down the giant chunk of cash for the ex-Tyco mogul’s 8,627-square-foot palace, complete with a heated driveway, three wine cellars, two hot tubs and a stuffed mountain lion.
“At 10 million, it’s a decent house, although some people I talked to thought it wasn’t worth more than eight,” said David Nilges, a real estate broker not involved in the sale. “The view is to die for.”
But Kozlowski, who is serving 8-1/3 to 25 years in prison for looting up to $1 billion from Tyco, won’t be pocketing a dime from the big deal.
Kozlowski will use the proceeds to chip away at the $59 million in outstanding restitution he still needs to make. He has already turned over more than $100 million.
Ex-Tyco looter sells mansion in snowy Colo. for cool $10M [New York Daily News]
The Wall Street Journal reports:
Former CA Inc. Chief Executive Sanjay Kumar was sentenced to 12 years in prison and fined $8 million Thursday for his role artificially boosting financial results at the software maker.
At a hearing in federal court in Brooklyn, U.S. District Judge I. Leo Glasser sentenced Mr. Kumar, 44 years old, to 144 months in prison, to be followed by three years of supervised release.
Judge Glasser said though Mr. Kumar was not a violent criminal, he “did violence to the legitimate expectations of shareholders.”
Uhm, we know Kumar’s totally supposed to be, like, the Worst. Corporate. Fraudster. Ever. And all that. But Judge Glasser’s statement there is a little troubling. It kind of makes it sound like Kumar got 12 years based on a metaphor. We’d be more confident Kumar deserved his sentence if the judge could deliver it without resorting to literary devices.
Kumar Is Sentenced to 12 Years For Role in CA Accounting Fraud
The noose just got a little tighter around the neck of ex-Comverse CEO Kobi Alexander. The company’s former general counsel, William F. Sorin, is expected to plead guilty to charges stemming from controversially “backdated” stock options grants made by Comverse.
Under a practice now known as backdating, dozens of companies have revealed that they pegged the options to dates earlier than the date they were actually granted, making the grants potentially more valuable to recipients. Because the date fudging wasn’t disclosed to investors or tax-authorities, backdating has led to investigations and indictments by the SEC and federal prosecutors.
Sorin is the second Comverse executive to plead guilty to backdating charges. It is expected that they are cooperating with prosecutors. Federal officials currently seek the extradition of Alexander from Namibia, where the fugitive executive has been since sometime this summer. Although many companies have revealed that backdating occurred in years past, federal prosecutors seem to have focused on Comverse because high-level executives seem to have gone to extraordinary lengths to conceal the practice from shareholders and board members. ANd it probably doesn’t hurt that, everyone knows, Kobi Alexander is no where near as popular as the CEO of another famous backdating Company, Steve Jobs. That guy invented the Ipod so you totally can’t indict him.
Comverse Executive to Plead Guilty [Reuters in the New York Times]
It’s check-in on your favorite white-collar criminal day at the New York Post, so be sure to read all about Steve Dunleavy’s day with former Tyco head Dennis Koslowski. The Koz is definitely not king in the Mid-State correctional facility. His wife has only visited him once—to deliver the message that she wanted a divorce. Ouch.
On Her First Visit [New York Post]
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Hedge Funds
The Aguirre-Mack-Samberg-Pequot-Heller-Credit Suisse-Morgan Stanley-SEC-GAO-Grassley Scandal Goes Meta And Picks Up Two New Players
By John CarneyThe New York Sun thinks that the allegations made against Pequot Capital and Morgan Stanley chief John Mack have been getting a little too much ink from the New York Times. And they think they know why.
Mystified New Yorkers were left wondering what could possibly explain the Times’s fascination with this story. Some might say it’s Mr. Mack’s connection to Mr. Bush, but it could just as easily be Mr. Mack’s connection to Morgan Stanley. That is the bank that, earlier this year, withheld its proxy votes for members of the board of the New York Times Co. to protest the Sulzberger family’s preferential voting status. A Morgan Stanley analyst complained at the time that the Times was underperforming as a business in large part because of the ossified management perpetuated by the ruling family’s use of super-voting shares to control the Times despite a relatively puny stake in the Times company.
It’s a scandal about the scandal! And just insanely paranoid enough to possibly be true!
‘A Full Airing’ [New York Sun]
[Disclaimer: John Carney has written for the New York Sun and the Times, and he's friendly with a couple of the girls at both papers. Morgan Stanley was a client on several deals he worked on. He's never met John Mack or anyone named Sulzberger. George Bush won't return his phone calls.]
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