Opening Bell: 6.1.06

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Deterrence (Conglomerate)
Some of our readers are criminals. There we said it. One of you reading this is probably engaged in some brilliant insider trading scheme, or maybe you're helping to cook the books for a company teetering on bankruptcy. So, it's on your behalf, our reader(s?) that we continue to present compelling arguments for the legalization of fraud. If any of these plans go through (prognosis: very unlikely), you're totally in the clear! Sleepless night? Gone! 8 AM perp walk out of the office? Forget about it. On your behalf, Larry Ribstein has a thoughtful post on why the deterrence argument is bunk when it comes to corporate criminal law. Part of it is that the market also acts as a deterrent -- shady business dealings can devastate a career and a company, without any extra government pressure. Furthermore, it assumes that in all cases the individual knows the difference between risky and criminal. How can you be sure you're deterring criminal actions, while not discouraging risk taking? So call your congressman up or forward Ribstein's post to their email -- and then maybe those "criminals" rotting in jail will see freedom in their lifetime.
Global price-fixing conspiracy suspicions bolstered (CNN Money)
It's a rare price-fixing case that isn't nonsense on stilts -- the whole idea that it would be illegal to set goods at certain prices seems downright bizarre, and in the best instances it's merely arbitrary. The ongoing investigations into memory chip pricing (some executives are already in prison, others have paid huge fines) seems unusually peculiar. One of the main charges, in the past, was that Korean companies conspired to keep prices too high. Now, emails claim to show that companies conspired to keep prices low, to damage Rambus' business. But why are Rambus' interests placed ahead of everyone else's, people who would benefit from low prices. As they say, if you price equal to your competitor, it's collusion, higher than your competitor, it's gouging, and lower than your competitor, it's uncompetitive pricing. So who isn't a violator of these laws?
ExxonMobil defends profits, record (Reuters)
Since anyone can buy a share of a company and show up at their annual meeting, it's really hard to know what's going on when, supposedly, shareholders voice concerns about various corporate issues. And since reporters are trained to give both sides of an issue, they're prone to get confused when an extremely small vocal minority of shareholders gets up to complain. First, Reuters pictures of dreadlocked protesters with tattoos and face paint, okay, these are probably not shareholders -- of any company. Second, to the woman who supposedly took to the mic and demanded that Lee Raymond give back half of his retirement, and then give a bunch to charity, would you do the same? In fact, it would have been great if that had been Raymond's reply, "Ma'am, our stock has risen to record highs under my watch, why don't you sell your shares, give half of the money to the company and the rest to charity".
Novartis wins landmark U.S. biogeneric approval (Reuters)
This is just the start of what's going to be an epic battle among pharmaceutical companies. Sandoz, the generic wing of Novartis, has finally received FDA approval for their human growth hormone Omnitrope, which is similar to Pfizer's Genotropin. The issue of biogenerics, which the FDA has been rather mum about, is going to become a big issue, as more drugs do fall into the biotech category. It's also interesting that the first one was approved by a division of an incumbent pharmaceutical company, suggesting the importance of advanced manufacturing expertise in this area. But, as in all areas regarding incumbents and generics, what happens to the corpus of law surrounding this area, once incumbents start regularly fighting for the right to make a generic? Don't they risk harming their regular business by fighting these fights? It'll be a long slow process before biogenerics are regularly introduced.


Ford to start new incentives (Detroit Free Press)
Last summer was the famous summer of the auto discount. For a brief period market share for Detroit was soaring again, as they offered generous discounts on their cars. But, as we noted previously, the companies have never really been able to wean themselves off the discounts, and they appear to be back in full force now as Ford will match GM in giving away free gas to lure back buyers. Any buyer of a 2006 vehicle will get a $1,000 gas card, which is great for the buyer -- but then why not just knock $1,000 off the price of the car? The discounts worked great, right? So why try to hide them?
Sun Micro to Cut as Many as 5,000, or 13%, of Workers (Bloomberg)
How do you feel now Scott McNealy? Did you know that when you quit you'd take 5000 workers down with you? It really comes as no surprise, despite the fact that when Schwartz took the helm he claimed that layoffs weren't on his agenda. Turns out it was the first thing on his agenda, a slight difference. And there's probably more to follow. As Paul Kedrosky notes in a back-of-the-envelope calculation, after the layoffs the company will still only be doing close to a third of the revenue-per-employee that boxmaker Dell gets. And that's struggling Dell, of all companies.
Wal-Mart Weighs Ethanol-Fuel Sales At Its Gas Stations (WSJ)
Who can dislike Wal-Mart? Clearly they're doing their part to reduce America's energy independence, as they explore plans to sell ethanol at their gas stations. Though they might not want to draw unnecessary attention to their gas stations, just in case the mom-and-pops take notice and complain. And of course this puts environmentalists (well, the dwindling number of them who actually think of ethanol as "green energy") in a pickle. It's clear that Wal-Mart's large national footprint can be leveraged for more than it is now. Eventually, this will include banking as well. In fact, they may become the Amazon.com of physical retailers -- a complete one-stop shop for those who don't make purchases online. Perhaps one day they'll let other companies set up shop within Wal-Mart, a store within a store. Tenants could leverage the location, as well as Wal-Mart's innovative logistical expertise. Any analysts out there want to do a report on this strategy? No need to credit us; we'll know.
Lawyers: Enron's Last Mystery? (BusinessWeek)
Some critics of the death penalty claim that it never really offers the cathartic relief that people claim it does, that victims' families are never really satisfied even after watching the killer's life drained from his body. Instead they regret that the killer didn't suffer enough, that he got to make a last statement, that he got years of appeal, that he got alcohol applied to his skin before they put the needle in, etc. Perhaps we're seeing something similar with the Enron trial. Despite the palpable relief that "ok, it's over now" some don't want it to die. There are still guilty parties out there, like Enron's law firm perhaps? BusinessWeek, if you're interested, points the finger.
Gabelli in possible $100M settlement (Reuters)
The long nightmare for Mario Gabelli may be coming to an end as he may pony up $100 mln to settle fraud charges relating to the illegal acquisition of wireless spectrum. Gabelli's accused of illegally partnering with small businesses (alleged to be shams), which are eligible for a discount on the acquisition of spectrum. This has been a pretty hot-button issue of late, and it has delayed upcoming wireless auctions, as the rules get sorted out. Seeing as the rules are still getting revised, can we be sure that Gabelli knew he was breaking the law, a central tenet to the idea of deterrence. The only question for us, though, is whether Gabelli will still be part of the Barron's roundtable.

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