Wednesday, April 28, 2010

Equus Total Return

Equus Total Return is a business development company (BDC) HQ-ed in Houston that trades as a closed-end fund on the New York Stock Exchange. I haven't said anything about BDCs in this blog yet, so perhaps this entry is a good way to start, because they are a peculiar corner of our financial system.

"In what way 'peculiar'? Am I a clown for you? Am I here for your amusement?"

Let me just focus for now on the news, Mr Pesci. Equus faces a proxy fight at the May 12 annual shareholders meeting. The stock price has been rather stagnant recently. It has been trading in a range roughly between $3 a share and $3.50 a share since June 2009.

The Committee to Enhance Equus, owning 11.4% of the outstanding shares of Equus Total Return, Inc., the dissident group, says that it shares its fellow shareholders' disappointment over this stagnation.

"The Committee also notes the current five-member majority of the Board, which includes Kenneth I. Denos, are attempting to further entrench themselves by packing the Board with four new nominees (who do not personally own any Equus shares) without properly investigating their backgrounds."

Equus has responded by noting that the committee has connections with one of Equus' own portfolio companies, Trulite Inc. , a hydrogen fuel cell firm. One of the nominees for director on the dissidents' slate is Jonathan H. Godshall, CEO of Trulite. Its chairman, John D. White, is another. Paula Douglass, a Director of Trulite, is yet a third. The charge, then, is that they want to take over Equus in order to run Equus for Trulite's benefit, not that of its own stockholders.

Tuesday, April 27, 2010

Barington Capital Group

Last month the Barington Capital Group sent a letter to the bigwigs of Ameron Int'l Corp. advising Ameron to rationalize and refocus its portfolio.

Ameron (NYSE: AMN), a company based in Pasadena, Calif., producers of water transmission lines and fabricated steel products, such as wind towers; fiberglass-composite pipe for transporting oil, chemicals and corrosive fluids and specialized materials; and products used in infrastructure projects.

As for Barington, we've encountered them once before.

The letter was addressed James S. Marlen, the Chairman and CEO of Ameron. It said that Ameron has unused potential that is being ignored due to its leading market positions, attractive end markets, valuable joint ventures and a healthy, asset-rich balance sheet.

On March 31, Marlen replied, in what sounds like passive-aggressive fashion. "While we wholeheartedly agree with you that Ameron's stock is undervalued given its long list of positive attributes, which include leading market positions, attractive end markets, valuable affiliations and a healthy, asset-rich balance sheet, we disagree with many of your theories as to why Ameron is undervalued. We look forward to discussing these positive attributes with Barington and all of our valued shareholders in the future."

Presumably, then, they do not think that their portfolio of products is inadequately focused.

Monday, April 26, 2010

Principal Place of Business

Recently, in Hertz Corp. v. Friend, the US Supreme Court has unanimously endorsed the so-called "nerve center" test for determining what is a corporation's "principal place of business."

This is an important question in terms of access to the federal courts on a "diversity" rationale. A natural person is deemed to have only one state of residence for purposes of diversity jurisdiction. A corporation is deemed to be a resident of any state in which it is chartered and of the state that is its principal place of business. What does this mean? There has been what the law firm Blank & Rome has called a "cacophony of approaches," circuit by circuit, and SCOTUS now wants to turn this into more of a melody.

In the instant dispute, Friend et al. sued Hertz in a California state court seeking damages for what they claimed were California's wages and hopurs laws. Hertz, presumably believing it would receive better treatment in federal court, sought to remove the issue to same on ground of diversity of citizenship. The federal district court in California refused to take the case. It said Hertz was a citizen of California, so there was no diversity.

SCOTUS has now reversed that, finding that Hertz' nerve center is in New Jersey, so it may get into federal court.

The meaning of the phrase "principal place of business" is also a contested one in the context of bankruptcy, as SCOTUS observed.

Here's a quite recent illustration of that fact.

Sunday, April 25, 2010

WellCare Health

The story about WellCare Health seems to have been rather buried in the weekend edition of The Wall Street Journal. But it's there if you look. Furthermore, if you do find it on page B6 you might skip right by it because the headline is misleadingly anodyne.

The headline is "Director Resigns at Wellcare Health," -- which sounds as if the story is a mere personnel matter, not a significant accusation. The subhead doesn't help much. It says "Head of Audit Committee Raises Questions About Company's Accounting." She did more than raise questions. She made statements. And they weren't about "accounting." This isn't an issue concerning, say, mark-to-market versus mark-to-model. This has to to with overcharges, and potentially it seems with fraud.

Here's a link to the resignation letter, dated April 21.

Regina Herzlinger, the head of the audit committee of the board of directors at WellCare, has resigned from the board and has made significant accusations on her way out the door. She says internal audits have found that WellCare overbilled Medicaid program of the state of Illinois by $1 million in 2009 and potentially overcharged states by almost half a million dollars more in connection with maternity care.

Nor does she regard this sort of thinbg as the result of honest mistakes. She also writes, after all, of "facially credible evidence of an unlawful agreement among at least Chairman Chuck Berg, Director Chris Michalik, and Lead Director Hickey to seize control of the Board regardless of the best interests of shareholders."

WellCare has a history. Back in the fall of 2007, 200 state and federal agents raided company headquarters in a dispute that led to the restatement of three years of earnings, and the firing of three of the entity's top executives. Last year, Georgia's Dept. of Community Health fined WellCare $610,000 in connection with the company's failure to account for each patient visit in which it paid providers.

Wednesday, April 21, 2010

CFS Bancorp Meeting, April 27

CFS Bancorp, the Indiana-based holding company that operates Citizens Financial, holds its annual shareholder meeting in less than a week.

A proxy contest is underway, because PL Capital Group, which owns 9.9% of the common stock, wants to put John Palmer on the board.

The company has received some assistance of late, because Glass Lewis has recommended a vote in favor of the election of the board's nominees. Glass Lewis says "we are not convinced that the Dissident should be elected to the CFS Board."

Glass, Lewis & Co. serves institutional investors that collectively manage more than $17 trillion in assets, and conducts research focused on the long-term financial impact of investment and proxy decisions. In its report, Glass, Lewis, speaking to one of the contested issues behind the proxy fight, said that it considers the retention bonuses paid by issuer to be appropriate, "given the company's reasonable pay-for-performance and the cancellation of cash bonuses despite [named executive officers] meeting portions of their individual performance objectives."

One of the issues here involves the charge of nepotism. The chairman of CFS is Thomas Prisby. The company employs two of his children -- Michael and Sandra Prisby. But Glass Lewis writes soothingly, "we do not feel that the Dissident's intent to eliminate all related party transactions, including the employment of Michael and Sandy Prisby are in the best interests of shareholders in this case."

Another proxy advisory group has taken the opposite side. Proxy Governance has written, “Given the other significant issues the dissidents have raised about the board’s attention to important governance details – the structure of certain bonus programs even as shareholder value plummeted, and the board’s acceptance of unnecessary related party transactions with the CEO’s direct family members – we believe shareholders will be best served by electing the dissident nominee, J. Palmer.”

Tuesday, April 20, 2010

Canadian mining

Here's a link to a very well-written article about the Canadian mining industry, a story that ran April 6 in the Financial Post Magazine.

Reporter Karen Mazurkewich adopts an almost elegaic tone as she ticks off the names of the great mining companies who have played a big part in that country's history:
Barrick Gold Corp., Falconbridge Ltd., Noranda Inc., Inco Ltd., Teck Resources Ltd.
These companies have either been swallowed up by foreign concerns, or they are now doing their mining outside Canada.

Is this because Canada's mineral wealth has been exhausted? Not at all. As Mazurkewich notes, the industry momentum has stalled due to "rising energy and labour costs, First Nations' protests, a provincial stealth tax on diamonds in Ontario and moratoriums on exploration."

She quoted Warren Irwin, a name that leaders of this blog may remember. Irwin, president and president and chief investment officer of Toronto's Rosseau Asset Management, which is invested in Noront Resources, says that battles with First Nation groups have made the climate too uncertain.

"Ontario thinks of itself as a stable world-class mining jurisdiction, but the reality outside is that it can get pretty lawless for exploration companies, and the government has been turning a blind eye to it," says Irwin. "As a direct result of the uncertainty in investing in mining in Ontario we have been forced to go to other jurisdictions for investments."

This blog can offer him nothing but a sympathetic ear, but it does offer that.

Monday, April 19, 2010

Lennar Corp.

Lennar Corp. is attracting the wrong sort of attention these days. I might as well put this blog officially on that bandwagon.

Lennar, which is based in Florida, is the third-biggest homebuilder in the United States.

Back in 2006, when home building still seemed like a bullet-proof business to be in, Lennar and LNR Property Corp. co-owned a large property north of Los Angeles, Calif., known as Newhall Ranch. They agreed, at the urging of go-between Victor MacFarlane, to sell a majority stake in that property to the California public retirement system, CalPERS, for $970 million. The land sat along the I-5 corridor, a developers' dream. What could go wrong?

A good deal did go wrong with this joint venture, known as LandSource. CalPERS lost $1.2 billion, and this rather dented that pension system's previously high reputation for making prudent investment calls.

That was the least of things. It appears that this year federal criminal investigators have become interested in the LandSource imbroglio.

The Fraud Discovery Institute has listed the LandSource matter as one of several red flags indicating, in FDI's words, that something RICO-actionable is underway in Lennar. It portrays LandSource (I'm paraphrasing here) as a classic pump-and-dump situation, in which Lennar took the money while the gettin' was good.

It obviously isn't illegal, or wrong, to buy low and sell high. But the FDI regards the LandSource deal as part of a broader pattern of behavior -- one of many red flags, which also allegedly included such matters as a falsified HUD document, civil complaints by homeowners, F grades from the Better Business Bureau, etc. They put together an intriguing case.

Here's what Tracy Coenen has had to say.

I've focused on the CalPERS loss here because ... well, because that is eye-catching, given CalPERS' image and broader significance for widows and orphans. But I'll be trying to catch up on this story in its other aspects as it develops.

Sunday, April 18, 2010

Dennys Meeting in May

The restaurant chain Dennys will hold its annual shareholders meeting in May.

Incumbent directors are involved in a proxy campaign against the nominees of a dissident group led by Oak Street Capital Management and Dash Acquisitons, who together account for about 6.3% of Dennys' common shares.

One of the claims of these shareholders is that Dennys has not been responsive to the needs of its franchisees, as exhibited for example in a letter sent to the Dennys board last year by the franchisees' organization, the DFA, a group that represents 85% of the company's franchised restaurants.

That letter, dated November 9, referred to the "emotional toll from the anxiety, frustration and despair of the franchisees," and included a graph indicating "that not only have system-wide same store sales been negative for the last eight quarters but the gap between our Brand and its primary competitor (IHOP) is widening ... the sales trends are indicative of the fundamental process failures...."

The company has now produced on its own behalf a newer letter from the DFA, asserting regret that there "may be some confusion about communications from the DFA Board during 2009 expressing certain concerns to the Denny’s Board on behalf of its members."

Actually, according to the latest letter, everything is lovey-dovey now: "As a result of those communications, a healthy and constructive process began which included a meeting between you and me. The focus of this process and our meeting involved a comprehensive discussion of the state of the Denny’s Brand, strategic initiatives and franchisee perspectives."

Don't you love a good group hug?

Wednesday, April 14, 2010

To How Many Failures is Trump Entitled?

I just wish I understood Donald Trump's career path.

I guess that failing on a really big scale gets one a reality TV show, and success in that peculiar endeavor gets one another chance to fail on a really big scale again, as indicated in the article to which I've just linked you.

Am I missing anything?

Tuesday, April 13, 2010

Rule 10b(5)-(B)

Recently, the Court of Appeals for the First Circuit, sitting en banc, decided SEC v. Tambone, thereby creating precedent on the question: what does it mean to make a "statement" for the purposes of a securities-fraud enforcement action?

As most of my readers likely know, the Securities Exchange Act of 1934 contains the fateful section 10(b), which declares that it is unlawful to use any "manipulative or deceptive device" in connection with the purchase or sale of any security. The statute also authorizes the SEC to create "rules and regulations" as needed to protect investors against such misstatements. The catch-all rule that the SEC created in reliance on that mandate is 10b-5, which in relevant part, 10b-5(B), prohibits the making of "any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading...."

But, what exactly does it mean to make a statement? Defendants James Tambone and Robert Hussey worked for Columbia Funds Distributor, an underwriter for mutual funds. It was not part of their job to write the prospectuses for those funds, but they did routinely in the course of employment provide both broker-dealers and investors with copies of the funds prospectuses. Thereby, on the SEC's theory of the case, they "made the statements" that they knew or should have known were in those documents.

Originally, at the district court level, the SEC had contended as a matter of fact that the defendants had been involved in the drafting of these prospectuses. But at some point in the proceedings that contention dropped away and the agency stuck instead with a more legalistic claim -- that the defendants were liable irrespective of whether they had anything to do with the drafting.

Frankly, that confuses me a bit. On a motion to dismiss, the trial court in the normal course of events would have assumed that the contested facts favored the side responding to that motion. Anyway, the First Circuit in decided the matter said: "In accordance with our usual praxis, we deem abandoned all arguments that have not been briefed and developed on appeal."

Praxis? That seems unnecessarily fancy and foreign. "Practice" would be sufficient, would it not?

It is all Greek to me. The upshot though is that the Circuit Court has now ruled that the defendants had not made the "statements" at issue. The majority was concerned, it appears, about a slippery slope:

While the defendants in this case held significant positions, there is no obvious stopping point: virtually anyone involved in the underwriting process might under the SEC's "making a statement" theory be charged and subject to liability in a suit under section 10(b). The SEC may select its defendants sensibly; but private litigants have their own incentives, and the SEC concedes that its definition of "make," if adopted, would apply to private party actions as well.

A wise decision: a thicket best avoided.

Monday, April 12, 2010

Bruce Wasserstein and Vanity Fair

Buce Wasserstein, the chairman and CEO of the investment bank Lazard died six months agao. The May 2010 issue of VANITY FAIR has a story on Wasserstein by William Cohan, the author of a book about the history of Lazard.

It appears that Wasserstein was rushed to a hospital on Sunday, October 11, experiencing heart palpitations. According to Cohan's sources, he was put on life support immediately upon arrival, and the prognosis was always grim. It was "just a question of how long he would hang on," Cohan tells us. Death came that Wednesday, October 14.

Some of the people Wasserstein interviewed said this death was a shock, because their friend had seemed very healthy only recently. Toby Myerson said that he had seen Wasserstein at a birthday party four months before, and Wasserstein looked "healthy ... very engaged and engaging." Others, though, suggested that this was not such a surprise, because Wasserstein had been very sick (though closed-mouthed about it) for years. In February 2006, he disappeared from Lazard's offices, not returning until that May. When he did return, said an anonymous souyrce, "He was bruised all over his body. He looked like a guy who had been going through chemo or something."

Here's a link to the full story.

Two points stand out for me. One is simply that Wasserstein was (understandable) unhappy with the nickname that Forbes gave him in 1989, "Bid 'Em Up Bruce." The snap behind the nickname was that Wasserstein used "psychological bullying" to get his clients to 'win' auctions in the margers-and-acquisitions context by bidding more than made sense, more than they could really afford. Robert Campeau's 'victory' in a bidding war in which Wasserstein had advised him turned out to be especially pyrrhic.

The other, related, point is the ambiguity as to whether Wasserstein's last deal fit that bad old pattern. He advised Kraft in the early steps that led to its purchase of Cadbury. Cohan quotes Antonio Weis, head of investment banking at Lazard, who spoke up for his deceased boss on this point. "Bruce's last deal was specifically designed to acquire the target company at the lowest possible price. So it was the exact oppositre of what is alleged."

Bruce Wasserstein, RIP.

Sunday, April 11, 2010

An incomplete work of fiction

This has nothing really to do with the struggle over power in the corporate suites. Just a bit of fiction I started on a while back. I think I'll post it here just for fun.

The Flight From East Africa


In the Ratskeller, below Champlain Hall, on the campus of Aquinas College, sometime in the early 1970s.

This was before anybody cared that students were smoking in a campus facility. This was also before anybody cared very much whether the freshmen with steins of beer at their tables were below 18 years.

Two young men and a young woman sat at one table. One of the men was Karol Wozniek, a philosophy major. He was expounding about how the rest of the room disappeared once he closed his eyes. Gladys laughed a little at this, enjoying the paradox of it.

But the third at the table, Hank Wagner, didn’t laugh at all. He found the idea repulsive. He said, “I dare you to close your eyes for five seconds, then open them and tell me that again!”

Wozniek obliged, closing his eyes while continuing to expound on Berkeleyan themes. When he opened his eyes at last, his stein had been emptied of its contents.

“Well, there was some sort of disappearance after all,” said Hank, wiping mysterious drabs of beer off the left corner of his mouth. “Congratulations on the confirmation of your theory.” At this, Gladys’s laughter resumed, and Karol shrugged elaborately. With perhaps a bit too much of a flourish for the moment, he headed back to the counter for a refill.

Act One: Twenty Years Later

“What was her name? The girl who never dreamt?”


“Do you really think she never dreamt?”

“None of us had the dreams we claimed to have. It was just the way we threw the shit around. We’d hoist a beer at the Rat, much like we’re doing at this dive now, and ask each other ‘had any dreams lately’ and compete for who pretended to have had the wildest one. I remember you once claimed to have had a dream in which you were a gnat flying out of a monkey’s butt. You made quite the elaborate story out of your emergence from the ‘stinking tunnel of a simian colon.’ Isn’t that how you put it? Nobody could top that.”

“I said stinking corridor of a simian colon, balancing the sibilance of the ‘s’ adjectives with the alliteration of the ‘c’ nouns. Anyway, there were wilder dream reports as our little tradition matured….”

“And we refused to,” the friend chimed in.

The bartender came by – our scene is set at Joyce’s pub, midtown Manhattan, and this conversation took place sometime in the 1990s. We don’t need to be specific. But by this time in history a customer who wanted to light a cigarette was expected to step outside.

Joyce is a self-consciously Irish place with d├ęcor of shamrocks, and for historical significance the wall to the left of the bar holds up a framed faded newspaper that describes the rebellion of 1916.

And the two friends? The one who once dreamt – or claimed to have dreamt – that he was a gnat is the chief subject of our inquiry. He’s Hank Wagner. The same – insofar as one is “the same” after the passage of twenty years anyway – as the philosopher’s nemesis of our preface. Karol isn’t in this scene, though. The old college drinking buddy with whom Hank is holding this impromptu reunion is Ishmael. Or we’ll call him that.

And Hank didn’t want to leave the memory of Gladys, or of the early 1970s, alone just yet.

“So, do you think she always said that she had no dreams because that was her way of bullshitting the rest of us?”

“OOOH, she was cute, wasn’t she?”

“Ish, please. Cute is an understatement.”

“Anyway,” said Ish, “enough about old times. I’ve got a tip for you.”

“Everybody’s got a tip for me,” Hank said, sounding tired.

I should mention here that after he and Ishmael, and Gladys, and Karol, and the whole rest of the crowd had all graduated, Hank got a job as a reporter. He soon had the grand title of “East Africa Bureau Chief” for World Press. The grandness of the title was misleading. There was hardly any such thing as World Press. There was a dreamer in New York who thought he could beat the AP and Reuters with a start-up, so he created WP. He hired gullible but bright young men and women and sent them to distant places with high-falutin’ titles like that and little else. Then he gave himself the task of marketing whatever they wrote.

So Hank was the whole of the East Africa Bureau, the poobah of a tiny office in Nairobi, Kenya.

There came a day when Israel raided Entebbe airport in Uganda, and there came the following day, when the dreamer in New York got on the phone, “Amin is the story, fool! Who ever told you to go to Kenya?”

So the East Africa bureau moved to Uganda, and endured tedious weeks of getting the proper credentials, in time becoming one of the elite members of the press corps entitled to hang around waiting for Amin or some flunky to make a statement or for the flunky’s flunky to hand one out in writing.

Wagner was tall and thin in those days. He looked like a basketball player – indeed, he looked a bit like Larry Bird. And the press corps attached to the Presidential palace often played pick-up basketball – somebody had attached a basket to a lamp out in the parking lot they used. When they were bored and the mosquitos weren’t too punishing – the former condition was constant, the latter was rare – they’d go at it.

And so it was that President Amin, in high spirits after some diplomatic coup in March 1977, walked out of the palace, saw a game underway, and shouted before anyone realized he was there, “Who wants to take me on?”

Nobody stepped forward, but someone did bounce the basketball in Amin’s direction. The dictator laughed, picked it up, and threw it, more or less at random. It hit Hank in the gut. Hank was chosen.

So it was that the two men played one on one. Amin scored a couple of quick baskets, and laughed. “These white boys aren’t so tough. I’ll give you one more time,” he said, and tossed the ball back to Hank’s gut.

Hank dribbled and walked forward, and Amin stretched out his arm to steal the ball. Hank slipped, the ball escaped from both of them, but before anybody knew exactly what had happened, Hank again had the ball, and was two steps closer to the basket than Amin. The credentialed photographers in the group saw what was happening and got their cameras ready.

Hank’s bloodstream filled up with adrenaline and his brain told itself, “I’m only going to have one shot at this.” He jumped, managed a perfect dunk for the only time in his life, and about fifteen flashbulbs seemed to go off at once.

The best of the resulting photos was the one that showed not only Hank, the ball, and the basket – but Idi Amin to the side, with what looked like grudging admiration on his face. That photo was on the front pages of newspapers around the world the next day. And the caption usually read: “World Press’ East Africa Bureau Chief, Hank Wagner, scores against Idi Amin.” World Press was … a real news agency. And he was its star.

In another two years, the East Africa Bureau was a real bureau, with offices in Kampala, Nairobi, and Mogadishu. That was when Uganda went to war with Tanzania over the disputed Kagera province. The notoriety won him by that basketball shot made Hank the recipient of valuable tips from leakers within both governments, and his bureau was unique among competitors in being able to wire New York about the crucial battles as they were underway – AP didn’t know about them until its beavers read about them in WP stories.

Amin fled Uganda in April 1979, and as the new Tanzania-supported government took power, Hank thought that a part of his life was over; a story that he had been immersed in telling had come to its end. He asked for re-assignment in New York.

In later years he would come to regret this. There were surely other stories to be told in East Africa. He could have stayed and continued to tell them. Instead, he was sending out assignments to the tellers of such tales, and fending off people who opened conversations with “I’ve got a hot tip for you,” since the leads they gave generally turned out to be crusts of bread long since eaten by the birds of the competition.

And he didn’t like being the guy in the newsroom who kept telling the same old stories. There was that time in 1991 when the regime of the Ethiopian dictator, Mengistu, was falling apart. Unfortunately, on the day that Mengistu fled the country, the AP had the story first. Hank started to say, “I remember when the AP got its news from East Africa by reading the WP’s dispatches.” But by the time he uttered the words “news from” a crowd of people around him was nodding in tired unison and then they all said as a chorus, “by reading the WP’s dispatches.”

But there was another strand of reaction by now. He sometimes wrote his own obituary in his mind. In the lead paragraph, Hank knew, he would be described as the reporter who once played one-on-one basketball with Idi Amin. No administrative excellence in his current duties – nothing he could do about Mengistu – would change that. He’d have to involve himself with something really big to get Amin out of the lead of his own obit.

So when, at Joyce’s pub, Ishmael said “I’ve got a tip for you,” Hank had two very distinct first reactions. The one that won out was to clutch at a chance for something new and big. He remembered Ishmael as a natural linguist who had astonished the Russian-language department of Aquinas College. He must have something in mind.

Act Two: The Simian Colon Again

So it was that a major New York publishing house invested a considerable sum (get a plausible number) into a publicity campaign for the forthcoming book, The Wartime Diary of Josef Stalin. Stalin’s account of events in his original Russian ran on the left hand side of each page. On the right hand side was an English translation. In the back of the book there was an extensive commentary by a team of distinguished scholars of Soviet history and military affairs.

Did the diaries tell the world anything new? They proved, sometimes in very colorful language, that Stalin was contemptuous of his allies, especially the English-speaking ones: Roosevelt, “a cripple, a dandy, and a fool,” Churchill, “afraid to get his sleeves dirty on the beaches of France – the invasion they keep promising will never come off.” Stalin thought DeGaulle a “rather clever little monkey” but planned to have him shot when the war was over – surely the French Communists would take over after that country’s liberation from the Nazis and the new government would take Moscow’s instructions in such matters.

All this was a bit disappointing. Though the language was colorful, nobody had previously thought that Stalin admired any of those folks – no wagons were toppled by such revelations.

A bit more novel were those portions of the diaries in which Stalin speculated about post-War China. It was clear from the diaries that he did not believe that Mao led a tenable Communist movement, and he anticipated the shriveling of Mao’s rural power base once the war was over. The Stalin of these diaries anticipated a friendly post-war relationship between the Soviet Union and the Nationalist government in China.

The book hit bookstores (Amazon dotcom existed, but was very new and had little following as of yet – old-fashioned brick-and-mortar stores were still employed in the marketing of books) on a Tuesday, and the first printing was sold out by Friday. That was a heady week for Hank. In front of the book there was an essay with his name attached to it on the historical significance of this discovery, which he modestly refrained from calling “my” discovery.

He was no longer “that guy who went one-on-one with Amin years ago.” His obituary would start with something else.

That weekend, four days after the publication date, the AP ran a story with a headline that reflected typical wire service caution – but that may have reflected, as well, some institutional memory of the days when the AP had to learn about battles by reading the despatches of a man who had gotten lucky on an improvised basketball court. The headline read: “Questions Raised About Stalin Dialect and Diary.”

Stalin, of course, was a Georgian, and had grown up speaking Russian as a second language. If this diary was really a personal journal, wouldn’t he have written it in Georgian? That’s the chief question the AP reporter had posed to several historical and lingual experts. None of the experts found it extraordinary that the diaries were written in Russian. The best the AP guy could get out of them was some skepticism about the lack of dialect. Georgians speak and write Russian, when they do, in a distinctive regional manner – they don’t use the same Russian as one would use if one had been brought up in Moscow or Leningrad. Or if one had been a diligent student of Russian in an American college. Stalin seemed unlikely as the author of the Russian of these diaries.

Hank met Ish later that day at Joyce’s, and they dug into their corned beef while Ish explained why it was of no significance.

“Many Georgians of Stalin’s generation felt inferiority in the face of Russians. It’s a common phenomenon. Those who grow up on the edge of an empire, even the crumbling Czarist empire, envy and wish to emulate those at the center. He composed his diary in the language that he knew Lenin would have used, and that the deposed but grudgingly admired Trotsky would have used.”

This made sense. And Ish, after all, was the language expert.

Hank appeared on Meet the Press later that week and gave just that answer. He came in for more skepticism than he had expected. Even earlier episodes in his career came up for not-so-friendly discussion.

“You’ve always said that when Amin came out to play basketball, it was because he had just scored a diplomatic coup, so he was in high spirits.”


“What was that diplomatic coup? Wasn’t it your job to find that out? Did the basketball game help you in that endeavor?”

Hank started to explain about the rotating chairmanship of the Organization of African Unity.

“Let me interrupt you before the glaze on our eyes becomes terminal,” said the host, “We have to go to commercial break. Then we’ll come back and talk about how strangely unrevealing these diaries have turned out to be.”

The public response to the diaries turned nasty after the broadcast of that show. And oddly enough Ish disappeared. Hank continued to make public appearances, defending the authenticity of the documents. Eventually, though, the publishing company agreed to let a laboratory test a tiny slice of the paper the diaries were written on. By this time….


Two security guards came to ‘help’ him out of the building. The younger one was rather full of himself – and his face was unknown to Hank. The older guard had been hired about a year after a certain photograph of a basketball dunk had become world renowned. The dreamer/founder of WP had by that point taken the title “chairman of the board,” taken up golf, and was letting a professional management team run things. The managers decided to “optimize the opportunities for exploitation of this fortuitous exposure” and had moved themselves into a big new headquarters building, one big enough to call for security guards and cameras for them to monitor. Siegfried’s career had begun then.

“Let’s go sir,” the younger guard was saying. “ Haven’t you packed everything up yet? You don’t want to keep everyone waiting. Somebody else will be using this room,” and so forth.

Hank finished filling up his cardboard box in his own time, and spoke to the older guard in words he had heard in an old movie, last seen many years before. “Teach your friend some manners, Siegfried. Without me there wouldn’t be a WP.”

The older guard smiled, either approving of the sentiment or just recognizing the Norma Desmond reference.

Act Three: Our Resolution

Days after his quick expulsion from the offices of WP Hank answered a telephone call. He had been receiving hundreds of calls, almost all of them from lunatics. Some thought he was a pro-Stalinist dupe. Some thought he had invented the diaries himself out of a vicious hatred of all things Russian. Or Georgian. Or socialist. Some demanded he ‘do the honorable thing’ – brace a hand gun carefully in your ear and fire, was the most common suggestion. Yet others offered to help with that. He of course made no response to such calls.

But to this one he did reply. It was from Karol Wozniek, the one-time philosophy major. Wozniek had sounded friendly, and it would be a shame to ignore an offer of friendship at such a time.

The exchange went thus:

“Are you looking for work, or are you going to take time off and live a life of leisure?”

“I don’t do leisure.”

“Do you happen to know the name of the new chief executive of the Associated Press?”

“I remember when the AP had to get … um, no. No, I don’t. I think I saw a brief mention of her. Kerrapith?”

“Kerrapith, yes. But you probably remember her as … Gladys.”

Hank was stunned.

“She could use an experienced hand in her East Africa bureau. Somalian pirates, you know. Somebody has to tell the story.”

“I’ve been away from East Africa for a long long time.”

“Yes, you have. All I can tell you about East Africa today is … well, something you taught me long ago.”

Hank waited for the punch line, determined to say nothing.

“Things don’t disappear just because you’re no longer looking at them.”

Wednesday, April 7, 2010

The fighting over EMAK continues

In February, the fighting over control of California based marketing company EMAK Worldwide created a significant precedent in the courts of the state of Delaware, regarding vote buying claims in the context of consent solicitation campaigns, the mechanics of votes held in “street name,” given the federally mandated system of indirect ownership through the Depository Trust Company (DTC), and the absence of any provision in Delaware law that would a consent solicitation campaign to terminate the service of an incumbent director by reducing the number of seats.

Here's what the folks at Paul Weiss had to say about the result.

That decision put the former "outs" on the corporate "inside," but it didn't end the
fighting. EMAK has put out this statement that makes that clear.

The whole mess seems to have been catalyzed by the faling out between EMAK and its one-time prized client Burger King.

Tuesday, April 6, 2010

Calmbacher's Testimony

As many of my readers will have heard, in 2008 an expert appointed by a court in Ecuador estimated that a predecessor corporation of Chevron Corp. had done $27 billion worth of damage to the rainforest. That appears not (yet) to be a judgment of the court, Chevron can and has continued to fight there. But the expert's opinion does create a foundation for an expected Monster of a judgment against it.

Chevron's strategy, accordingly, has been to look past the Ecuadorian court and the now-expected Monster judgment -- to call into question the legitimacy of the proceedings there, so as to oppose any effort to enforce such a judgment through the courts of the US.

They've just gotten good news in that regard. That court-appointed expert was working, at least in part, on the basis of a written report submitted to him over the name of Charles Calmbacher, a biologist hired by the plaintiffs. The plaintiffs, by the way, are natives of the Amazonian region where Chevron's precursor company, the old Texaco, did the contested drilling.

Anyway, Calmbacher has signed a deposition that says that the plaintiffs stopped paying his bils in 2004 and dismissed him from the case. Before that happened, he now says, he signed blank pages on the understanding that his report would later be printed over that signature. Something was, in fact, printed over that signature ... but Calmbacher says what was put there wasn't his work.

"I did not reach these conclusions and I did not write this report," he said in a recent deposition. Here's more.

Why am I re-hashing stuff that many of you read in yesterday's newspaper? Simply so that if I report further developments in this case, I'll have this to which to link for the background.

Monday, April 5, 2010

Sisters of Charity

Sisters of Charity of Saint Elizabeth, Missionary Oblates of Mary Immaculate, and 13 other religious organizations are trying to get Goldman Sachs, JPMorgan, Citigroup Inc. and Bank of America Corp. to make public more information on the collateral used in their derivatives trading.

Father Seamus Finn, of Missionary Oblates, said in a statement: "The use of these instruments, if they’re not disclosed by the dealers and the information made available, by their very nature can contribute to systemic risk.”

The proxy votes for the different groups are being co-ordinated by the Interfaith Center on Corporate Responsibility (ICCR), whose executive director is Laura Berry. A Bloomberg story last week quoted Ms Berry saying: "The immorality of the financial crisis is rooted in the fact that these derivatives contracts weren’t based on creating value and didn’t create incentives for people to keep their promises."

Frankly, my own belief is that the immorality of the financial crisis (or just its imprudence for that matter) are alike grounded in the inability of the government to maintain a hard money policy. The government's continuous resort to easy money, the forcing of more credit upon the economy than it can productively use at a given moment, necessarily leads to bubbles and to nasty bursts thereof. But I don't know if the managers of these banks will say that, or anything like that, if they resist the ICCR's proposed resolutions in a proxy campaign.

When I saw the name of Father Finn's organization in a story about this proxy campaign, I scratched my head a bit. What's an "oblate"? Well, in ecclesiastical history the word has had a variety of meanings. I won't bore you with that but will refer you to wikipedia.

In geometry, the term refers to a sort of spheroid that is not perfectly spherical, but flattened. The distance from pole to pole is less than the diameter. The planet earth is, roughly speaking, an oblate.

This fact brings us back to my reflection on monetary policy. Addressing the use of derivatives on a company-by-company basis seems to me a matter of treating the "immorality of the financial crisis" as a local topographical feature of the planet, rather than (more accuartely) treating it as a systemic characteristic, akin to the planet's oblate shape.

Sunday, April 4, 2010

Three brief items

1. Mutterings after Stern Hu Gets Hard Time

Australia's foreign minister, Stephen Smith, says that Stern Hu's sentence is harsh, and that part of the trial took place behind closed doors, in defiance it appears of the Sino-Australian consular agreement.

"Because we have had no access to that part of the trial, there are I think serious, unanswered questions which international business community will want to continue to pursue with China." For more on the diplomatic fall-out from the Rio Tinto case, go here.

2. Supreme Court on Foreign-Cubed Securities Fraud Actions.

What are called "foreign cubed" actions are those brought in the courts of the US by a foreign party, against another foreign party, and based upon securities issued in a foreign country. So what is the connection with the US?

In the case of Morrison v. National Australian Bank, the foreign country is -- as you've probably just guessed -- Australia. Investors in that country bought securities issued by a bank in that country and traded on an exchange there. But in 1998 that bank purchased a US based mortgage company, HoimeSide Lending, and the investors complain of shenanigans Australian investors in NAB complain that NAB's treatmnent of that mortgage unit thereafter.

On March 29, 2010, the Supreme Court of the United States heard oral arguments in this case, considering whether the federal courts of the US ought to be considering the question of whteher NAB violated section 10(b) of the Securities and Exchange Act of 1934.

3. Richard Grubman back in the news.

I have to note this mug shot. That's Richard Grubman, who was arrested and released on his own recognizance after an altercation with the valet at the parking garage of a fancy-schmansy hotal. Grubman is due back in Boston Municipal Court on April 30 for a pretrial conference.

Grubman is one of the principals of a prominent hedge fund. His previous "15 minutes of fame" arrived back in 2001. In a now-infamous conference call, Grubman pressed Enron's Jeffrey Skiling about why Enron had not submitted a balance sheet with its 10k. Skilling responded, "Thank you very much ... asshole." The moment became emblematic of Enron's troubles -- executives of large cap companies are generally expected to put their best foot forward on such conference calls, and not to "lose it" even under provocation!

Anyway, there is now likely one valet who thinks Skilling was right.