Kenneth Starr

The Kenneth Starr in the news just now is not the former special prosecutor of the Lewinsky scandal. Nor is he the rapper, Kenn Starr. Nor the country-music singer, Kenny Starr.

No, this is Kenneth I. Starr, a financial advisor to the Hollywood elite. The clients who were at one time or another on his list include: Goldie Hawn; Wesley Snipes; Al Pacino; Sylvester Stallone; Martin Scorcese, and (justifying my use of a great movie poster with this blog entry) "The Bride," Uma Thurman.

It isn't yet clear which of his celebrity clients have lost money. The news so far seems to be mostly a typical Hollywood spin-fest, with every PR agency in L.A. contending that the stars on its list suspected something was up in time, and got their money out of Starr's hands. Uma Thurman is said to have had almost a Kill Bill style confrontation with him to that end!

Here's a humorous take on the subject from The Reformed Broker.

And here's the release from the district attorney on the job Preet Bharara. Bharara? Isn't that how the bad guys in Hollywood movies laugh?

Andrew Stein has been arrested on related charges. Aficionados of the politics of New York City willl recognize that name. Others may want a quick course from wikipedia.

But back to all the spin about how various celebrities didn't lose money because they got it out in time: we'll see. The law can be draconian in the unwinding of a ponzi scheme. A lot of people who thought they got their money out safely may soon face a demand from an estate trustee that they return those funds, as have many in the analogous situation with Bernie Madoff.

Three brief items

1. Equus Total Return

The incumbents won. Dissidents claim moral victory. Why am I reminded of Calvin & Hobbes? Calvin would claim a moral victory even when Susie turned the tables on him, and of course he could count on the support of one tiger pal.

As I've noted here 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.

The Committee to Enhance Equus says: "We also believe that the Company conducted the meeting in a manner intended to discourage personal attendance and voting by shareholders....Despite these concerns about the integrity of the process, we have concluded that further contest of the 2010 board election is not in the best interests of the Company or its shareholders."

2. Greg Meyer

Greg Meyer, a shareholder of Blockbuster (NYSE: BBI), seeks to have himself elected to that company's board.

The meeting is scheduled for June 24, in Dallas, Texas.

Control of the board is not at issue. So far as I can tell, Meyer represents only himself and would occupy just one seat out of seven. The one currently held by Gary Fernandes.

3. Seattle pension fund demand rejected.

Meanwhile, a court has told pension fund managers in Seattle that they should act like big boys and wipe those tears, despite losses in connection with Epsilon Global Active Value Fund II.

The Seattle City Employees' Retirement System had requested a preliminary injunction to force Epsilon executives to provide audited financial statements etc.

The judge, Richard Jones of the U.S. District Court, observed that "SCERS did not contract for transparency" when it made the investment.

Listening to the Shorts: A Book Note

I've been reading Richard C. Sauer's fascinating new book, SELLING AMERICA SHORT: THE SEC AND MARKET CONTRARIANS IN THE AGE OF ABSURDITY (2010). Sauer was with the SEC for 12 years, and what he said he learned in that time was that short sellers are a valuable resource, whom the agency ignores at its own cost. And at the cost of the public.

Some fascinating material here concerns the case of the Belgian software company Lernout & Hauspie Speech Products NV. The two named gentlemen, Jozef Lernout and Pol Hauspie, founded that firm in 1987, and they took it public in 1995. They specialized, as the name suggests, in speech recognition, text-to-speech conversion, and digital speech compressions.

Sauer writes, "As a foreign company with a U.S. listed stock, Lernout was subject to relatively loose reporting standards....We allow foreign companies to file stale and incomplete information because otherwise they might not grace our markets with their securities, depriving the NYSE of a revenue source, and denying our investors the opportunity to make ill-informed investments in companies they probably can't sue if things go wrong."

It was Marc Cohodes, of Rocker Partners -- and Herb Greenberg, of MarketWatch -- who raised the possibility that something was funny with the company numbers. While looking into the matter, the SEC wanted the help of Belgian authorities so they could get information from L&H's auditor, KPMG Belgium, which was not responding to a nice pretty-please request.

"In the United States, auditors are prohibited from releasing client files without a subpoena or the consent of the client. We badgered Lernout management into providing a letter of consent. KPMG Belgium, however, claimed that wasn't enough to protect it from liability....We asked a Belgian law firm for its opinion and were told the law was unclear. I would eventually form the opinion that all Belgian law was unclear and therefore there is little to be gained from hiring local attorneys." That will be sufficient as a sample of the style in which the book is written.

Many of you probably know the upshot. L&H turned out to be one of the biggest frauds in Europe's financial history: the biggest fraud, until Parmalat came along to take the crown. Cohodes, in short, was vindicated.

Lawson Software

Carl Icahn says he has acquired an 8.54% stake in Lawson Software Inc.

Lawson, headquartered in St. Paul, Minnesota, is a B2B software concern, with an especially intriguing line of products in the healthcare human-resources field. What intrigues me, to be specific, is the idea that healthcare has human resources needs that in turn have software needs that constitute a niche in themselves.

Indeed, on Thursday, May 20, Lawson announced it had signed an important deal with Life Science Innovations (LSI). The software will help LSI "integrate its human resource functions, including replacing its legacy in-house payroll system with one that helps streamline reporting processes and helps enable access to critical workforce information by employees and managers across the organization," said the release.

Reality is fractal.

Anyway, Icahn has decided that the stocks are undervalued, so he has bought a stake and wants to talk to company management about how it can get that price up. Here's the Reuters story.

Here's the link to the SEC filing, which doesn't tell you anything more than the Reuters story does, but which uses a heck of a lot more words.

Why? Here's one reason why: "In accordance with Rule 13d-1(k)(1) under the Securities Exchange Act of 1934, as amended, the persons named below agree to the joint filing on behalf of each of them of a statement on Schedule 13D (including amendments thereto) with respect to the Common Stock of Lawson Software, Inc. and further agree that this Joint Filing Agreement be included as an Exhibit to such joint filings. In evidence thereof, the undersigned, being duly authorized, have executed this Joint Filing Agreement this 21st day of May, 2010."

Who are the "persons named below"? Here is the full list.

ICAHN PARTNERS MASTER FUND LP
ICAHN PARTNERS MASTER FUND II LP
ICAHN PARTNERS MASTER FUND III LP
ICAHN OFFSHORE LP
ICAHN PARTNERS LP
ICAHN ONSHORE LP
BECKTON CORP.
HOPPER INVESTMENTS LLC
BARBERRY CORP.
HIGH RIVER LIMITED PARTNERSHIP

For a variety of reasons, it is valuable for Icahn to do his business through that wide range of partnership and corporate entities, and each one of them ends up adding to the long-windedness of the documentation.

Ah, Icahn! Ah, humanity!

Carried Interest

To a tax lawyer or lobbyist, the phrase "carried interest" has a fairly clear meaning: it is the share of the profits of a partnership kept by the general partners by virtue of their performance of managerial services.

Of course, a general partner with managerial responsibilities may also put some of his own "skin in the game," and earn a share of profit on the same basis as does any limited partner ... i.e. any investor. But the issue of "carried interest" involves specifically the portion of his compensation that is designated as a share of profit yet that is earned as a reward for services.

And the issue is this: how is that income to be taxed? Is it a capital gain or is it ordinary income?

Traditionally, carried interest has been taxed at the capital gains rate, which is a considerable tax break for some very wealthy people. This break came about, so far as I can tell, through historic accident, and has been maintained in place for the obvious reasons of cronyism and dealmaking.

There isn't any good resource-allocation justification for this. Back in July 2007 an Associate Professor of Law at the University of Colorado at Boulder, Victor Fleischer, put it this way: "[W]e tax profs are not a group that agrees on much -- there's division in the tax academy about income tax vs. consumption tax, corporate tax vs. full integration, territorial vs. worldwide taxation, whether to have an estate tax." Yet they do agree on this -- "carried interest obviously represents a return on labor, not capital." Further, tax profs tend to believe in a broader base and lower taxes, which also inclines them to oppose a special exemption from ordinary taxation for this particular sort of [managerial] labor.

Personally, I'm against the taxation of income as such, whether the income is from labor or capital. But that does not mean that I'm going to support unwarranted carve-outs from an income tax on behalf of the privileged so long as an income tax is in place.

A lot is going wrong in the world today. A lot of what is going wrong, involves policies of the U.S. government concerning matters of taxation and finance. But this one thing is going right. The capital tax treatment of carried interest seems about to be dumped onto the publishers' slush pile of history.

Penwest Pharmaceuticals

Tang Capital Management LP and Perceptive Life Sciences Master Fund Ltd. have put forward their nominees for election to the board of Penwest Pharmaceuticals Co. (Nasdaq: PPCO), at the annual meeting scheduled for June 22, in Danbury, CT. Here are five more-or-less relevant facts in the backdrop of that election.

1. The dissidents' nominees are: Roderick Wong, Said Zarrabian, and John G. Lemkey.

2. Tang and Perceptive Life Sciences together control approximately 41.3% of the common stock outstanding. They charge that the Company's "most valuable asset is the royalty stream on Opana ER that it receives from licensee Endo Pharmaceuticals," and that "the net present value of this income stream alone has exceeded the market capitalization of the Comnpany for most of the past year and that this disparity has existed primariuly because the Company is spending the cash flow generated by this income stream on activities that we believe will not generate a positive return on investment."

3. What is Opana ER? It is a pain killer that apparently occupies much the same market space as Oxycontin. Opana ER "contains oxymorphone, which is a morphine-like opoid agonist against a Schedule II controlled substance, with an abuse liability similar to other opoid analgesics." I got that off the webpage of the licensee Endo Pharmaceuticals, which is headquartered in Chadds Ford, PA.

4. Penwest and Endo recently settled a lawsuit they had filed against an Israeli company, Teva Pharmaceutical. The terms of the settlement will allow Teva to begin selling a generic version of Opana ER beginning September 15, 2012.

5. The board of Penwest already includes two members who were put their by the efforts of these same two groups -- Tang and Perceptive Life -- at last year's meeting. I wrote about that here. The three new nominees, plus those two incumbents, would constitute a majority.

Merkley-Levin Amendment

We have reached endgame. We know the rough contours, at least, of the financial-regulatory reform that will become law this year. See the particulars here.

Among the tweaks pending, there is an amendment on offer from Sens. Carl Levin, D-Mich., and Jeff Merkley, D-Ore., that would re-work the “Volcker Rule,” Paul Volcker's brainstorm re keeping banks from using their deposits for nasty speculative purposes. This is the rule that would prohibit banks from sponsoring hedge funds or from running their own proprietary trading operations.

The Volcker Rule is section 619 in the Dodd bill, S. 3217. The key point is that the only way to ban prop trading is to distinguish between prop trading on the one hand and market making on the other. The Dodd bill simply took it as a given that legislation can't do this effectively, and left that detailed distinction to the regulators. Subject to "such restrictions as the Federal banking agencies may determine," the buying or selling of securities "as part of market making activities, or otherwise in connection with or in facilitation of customer relationships," is not proprietary trading and thus is not banned. Those Federal banking agencies will presumably "know it when they see it" as a Supreme Court Justice once said in another context.

Levin and Merkley aren't satisfied with this, and their language would attempt to take some discretion away from the federal banking agencies. They, too, have a generic "market maker" exception, which they word so as to exclude from prop trading "the purchase, sale, acquisition, or disposition of securities and other instruments ... in connection with underwriting, market making, or in facilitation of customer relationships, to the extent that any such activities permitted by this subparagraph are designed to not exceed the reasonably expected near term demands of clients, customers, or counterparties."

Which means ... what? For an argument to the effect that this is a loosening of Dodd's version of the rule posing as a toughening-up thereof see The Economics of Contempt, an excellent blog in general and a worthy posting on this subject in particular.

Massey Energy

Massey Energy Company (NYSE:MEE) is holding is annual shareholders' meeting today, at the Jefferson Hotel in Richmond, Virginia. The record date is March 19.

Massey is the owner of the Upper Big Branch Mine in the suitably named town of Montcoal, West Virginia, where an explosion took place on April 5 of this year that killed 29 miners.

A special board of directors panel has been looking into that explosion, and it was expected top release its preliminary report today, but reports are that won't happen -- that the board will simply say it is still gathering information.

Meanwhile Massey announced Friday that it will "actively work toward the declassification of the Board." No action on that point will occur at today's meeting, but "within the next three to six months, the Board of Directors intends to hold a special meeting of the shareholders" to consider the declassification amendment to the certificate of incorporation.

But because of the existing unamended staggering, only three members of the Board are seeking re-election today: Richard M. Gabrys, Dan R. Moore, and Baxter F. Phillips. Each of these nominees Two proxy advisory firms, Glass Lewis and RiskMetrics, have recommended that shareholders withhold any vote for these nominees. If their advice has caught on, and those nominees fail to receive a majority of votes, a recently-adopted rule demands that they submit their resignations (although it doesn't indicate whether their colleagues will accept the resignation once submitted).

Intriguingly, all three of the incumbents up for re-election today serve on the board's safety committee. If these guys are going to continue to lead unruffled directorial lives, then the concept of a captain going "down with his ship" seems to have withered completely away from us.

Oil Tanker Company

DHT Maritime Inc. is the operating company that owns and leases out a fleet of oil tankers -- the name letters "DHT" originally stood for "double hull tankers," but since at least 2005 they haven't properly stood for anything -- the letters are simply the name.

Anyway, on March 1 of this year, DHT Maritime completed transactions that made it a subsidiary of a holding company, appropriately called DHT Holdings, organized in the Marshall Islands.

Still more recently, DHT Holdings has been engaged in a proxy dispute with MMI Investments, a New York based hedge fund we've encountered before in this blog. It's DHT's largest shareholder, currently owning 9.7% of DHT Holdings' equity.

On Friday, May 14, MMI and DHT have reached an agreement. Here's the filing. The gist of it is that DHT Holdings will expand the size of its board of directors to include MMI's nominee, Robert Cowen.

One of the issues involved in the proxy fight was the question of paying dividends and/or starting a share buyback. Previously, DHT's chairman has said that the company "will certainly consider reinstating the dividend" or starting a share-buyback in the future, but conditions in its industry do not allow for that just now. There's nothing explicit on the dividend/buy-back issues in the peace treaty.

Following Ackman: A Book Note

Bill Ackman is the protagonist of Christine Richard's new book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff. Ackman, the founder and managing partner of Pershing Square, even appears with her at at book signings.

I haven't read the book, but for the benefit of others such as myself who are curious about it, here is the link to what seems an informative review.

The book concerns the bond insurer MBIA, and portrays Ackman as the boy who saw and spoke to the nakedness of that particular emperor. Of course, he didn't do this because he was public spirited. He did it because a general public recognition of that nakedness would make him money. Still, he did it and was right.

This proves something of broad importance about speculation and its value in the broader economy. Speculation isn't the enemy. Speculators serve valuable functions, one of which is the ferreting out of information that managerial suits want to hide. When they're good at it, they deserve their monetary rewards. When they're bad at it, they quickly remove themselves from the marketplace.

Richard's book might be worth a read.

Medifast litigation

Count me among those who are thoroughly convinced that "multi-level marketing programs" are inherently suspect. The Medifast Inc. litigation concerning "Take Shape for Life" is only the latest superfluous piece of evidence.

Multi-level marketing (MLM) programs are those in which a salesperson makes a portion of revenue from sales of the product, but also gets a cut from sales of the product made by those persons whom he/she has persuaded to become salespeople. Such an arrangement is not at law necessarily a fraudulent pyramid schemes. After years of litigation with Amway in the 1970s, the FTC defined the line thus. A MLM business is lawful, and so by definition not a pyramid scheme, so long as the company buys back the goods of terminating distributors, requires the distributors to have sales to at least ten customers per month, and and requires distributors to sell 70% of their products each month to non-distributors.

So "selling" only to those you have persuaded to join the team, who then "sell" to the tier further down, whom they persuaded to join the team, is verbotten. In that case of course the "product" is just a pretext for the chain letter.

The Amway case, and its 70/30 rule, have given a cloak of legitimacy to an industry. But, in my view and that it seems of most of those who have looked at the matter dispassionately, the distinction between lawful MLM and unlawful pyramids is itself something of a sham. MLM systems as defined above inevitably create a context in which the success stories are the sales people at the top of the chain, and those at the bottom are their suckers. The success stories are held up as role models, and this is used to generate more suckers.

Certain MLM systems, such as Amway's itself, appear to last for a long time. That appearance in turn suggests that they are legitimate, and are selling valuable products to the general public. This, though, is illusory. Amway regularly starts new products, which function as new pyramids, and it lets the older pyramids collapse. The reality is not of continuity but of a lot of short-lived schemes sharing a brand name.

So we return to Medifast, and its lawsuit against a variety of people who have made points like that abstractly made in the above paragraphs, but who have made them with specific reference to its "Take Shape for Life" program.

These lawsuits are classic SLAPPS (Strategic Lawsuits Against Public Participation). California has an anti-SLAPP law in its Code of Civil Procedure. In essence this allows for a special motion to strike a cause of action that arises from any act of the defendant (like, say, speaking the truth about MLM) in furtherance of the defendant's right of free speech under the constitutions of the US and of California.

So Medifast has brought a lawsuit, and the defendants have moved that it be striken under the anti-SLAPP law, which in essence requires Medifast to make an early showing that it will "probably" prevail on the merits.

Medifast now seems to be confirming the growing skepticism about MLMs in general, by its delaying tactics in regard to the anti-SLAPP motion. As one of the defendants sensibly enough asks: "If they’re so sure of their claims… and if we’ve told lies about them… and if they can prove it… why not proceed with the anti-SLAPP motions? Probably because the longer Medifast can drag this out and the more they cost the defendants in legal fees, the better their chances of shutting us up (and also shutting up any other citizen who dares to challenge the validity of the multi-level marketing business model)."

Split Verdict at CFS

CFS Bancorp Inc., the Indiana-based holding company that operates Citizens Financial, held its annual meeting on April 27.

CFS stockholders re-elected the current chairman and chief executive officer, Thomas F. Prisby. But they also rewarded the dissidents, electing John Palmer, managing member of PL Capital LLC, to its Board of Directors.

Follow this link for my pre-meeting discussion of the issues.

Shareholders also ratified the appointment of BKD, LLP as the Company's independent public accounting firm for the fiscal year ending December 31, 2010.

"We congratulate Tom Prisby on his reelection, and look forward to working with John Palmer to continue our efforts to further the interests of all shareholders," said Gregory W. Blaine, lead independent director of CFS Bancorp, Inc. "Despite the economic headwinds we continue to face, we believe we are on the right path to enhancing shareholder value over the long term and remain committed to executing our Strategic Growth and Diversification Plan."

And follow this link to get an inkling of an earlier adventure of Mr. Palmer's, in the same field, the exciting world of bank equity.

Speaking of bank equity, and since good links should come in threes, here's an update on Basel capital requirements.

"People familiar with the matter"

The Wall Street Journal this morning is quoting "people familiar with the matter" who say that Goldman Sachs is close to a deal to provide $2.2 billion in financing to a group led by Starwood Capital Group, so Starwood can buy the Extended Stay hotel chain.

May 17 -- a week from today -- is the deadline set by the bankruptcy court for acquisition plans from Starwood and/or from another bidder.

The alternative bidder is a group led by Centerbridge Partners LP.

The Wall Street Journal's story, by Lingling Wei, suggests that Goldman's willingness to get involved in this is a good sign that a recovery is underway.

"For months, investors have been gathering huge war chests to buy distressed real estate, but debt financing has been much harder to obtain. Goldman Sach's willingness to finance the Starwood bid is a sign that large well-capitalized banks are dipping their toes back into the business of financing offices, shopping malls, hotels and other commercial buildings."

Biglari says, "Don't look at us!"

Biglari Holdings Inc., the corporate alter ego of Sardar Biglari, has announced that it has "absolutely no involvement in Denny's Corporation .... Without our approval, both parties' references to our company, including its subsidiaries, contain misinformation. However, we do not intend to correct any of these errors."

S. Biglari has been chairmnan of the board of Western Sizzlin' Corp. since March 2006, its CEO since May 2007. There is talk that he considers himself a restaurant business deal-maker extraordinaire, and that he could be tempted to make a move on Denny's.

What is simple fact is that Denny's is facing a proxy challenge, and that the challengers have argued: "The weaknesses of Denny's management have forced us to seek changes to the board in the interest of all shareholders. If the status quo is maintained, we are deeply concerned that the Company's future will mirror its past."

RiskMetrics agrees with some of the contentions of the dissidents, writing that in its analysis that Denny's has been a long-term underperformer "compared to IHOP in terms of the restaurant footprint, revenue growth and [same store sales ("SSS")] metrics. Denny's total unit count has declined since the current management took charge in 2001."

The incumbents reply: "Although they profess to want to work with the Board, none of the dissident nominees have ever spoken to the Company or made legitimate efforts to discuss their views or learn about the Company’s strategy and plan."

The dissidents want the company to reduce capiutal expenditues by $10 million. The company charges that in essence they've pulled that number arbitrarily out of their bunghole. (Okay, the filings with the SEC don't exactly put it that way. I'm paraphrasing.)

Bristol-Myers Squibb

The board of directors of Bristol-Myers Squibb, (NYSE: BMY) the New York based drug maker, has authorized the repurchase of $3 billion of its common stock. The decisioin reflects a cash-healthy balance sheet.

Also, at Bristol-Myers' annual meeting yesterday, two dissident shareholder proposals were soundly defeated.

Also Tuesday, stockholders at Bristol-Myers' annual meeting overwhelmingly rejected a couple of shareholder proposals. A total of 90 percent voted against a proposal that would require the company to identify, in any future proxy statements, every executive whose compensation exceeds $500,000 a year. A total of 75 percent voted against a proposal that would require Bristol-Myers to increase its public reporting on its use of animals in research and product testing, as well as on its efforts and future goals toward eliminating use of research animals.

There wasn't much market movement on any of this news, presumably because the rest of the market was taking such a beating yesterday that even a slight rise (which BMY did manage) constitutes an accomplishment.

BMY, or its precursor firms, have an impressive history, dating back to 1858, when Edward Robinson Squibb (1819-1900) started his own pharmaceutical laboratory in Brooklyn, New York. During the US civil war, Squibb invented the pannier -- a compact wooden chest that battlefield medics could use for easily carrying around the medicines used to treat casulaties.

Separately, William Bristol and John Myers formed a company in Clinton, New York in 1887.

Those two companies merged in 1989.

In 2002, BMY was involved in an accounting scandal. They were apparently "channel stuffing" and had to restate their results three years back. They agreed to pay $150 million to settle the matter, while neither admitting nor denying guilt.

Onward!

Cascade Financial

Cascade Financial Corp., the holding company for Cascade Bank, has resolved a dispute with a shareholders' group short of having to wage a proxy contest.

The group announced on Thursday, April 29, that it will expand the size of its board of directors. This is a fairly common way of adding some of the discontented group's representatives without having to boot any of the incumbents. But it raises the question: don't boards have an optimal size? There must logically be a trade-off involved between hearing the various points of view that ought to be represented in the board room on the one hand, and having unwieldy too-many-cooks meetings on the other? And if there is such an optimal number, this sort of resolution would tend to cause firms to overshoot it. Thus there would be a sacrifice for the immediate good of peace.

Anyway, Proxy Partisans extends its congratulations to the new directors of Cascade: Arnold Hofmann, Christian Sievers, and Thomas Rainville. Here's a bit of bio about each of them:

* Christian Sievers is an executive officer of H&H Properties, which grandly calls itself "the real estate company that gets results.

* Thomas Rainville is an elected Commissioner of the Mukilteo [Washington] Water and Wastewater District, which looks like a small town within broadcasting distance of Frasier Crane's radio station.

* Arnold Hofmann is the owner and developer of various multi-family and commercial properties in the Pacific Northwest.

MBIA lawsuit

Early last month a state court judge in New York dismissed five of the six counts of a lawsuit MBIA filed against Merrill Lynch a year before.

MBIA was a bond insurer, and it lost big in the recent credit crisis as the insurer of CDOs issued by Merrill Lynch.

In the lawsuit, MBIA claimed that Merrill Lynch had fraudulently induced it to enter into these transactions as part of a scheme to “offload billions of dollars in deteriorating U.S. subprime mortgages and other collateral that [it] held on its books by packaging them ... or hedging their exposure through swaps with insurers.”

Merrill Lynch's reply, "So what? We're allowed to look for suckers, and you're allowed to be a sucker."

The court's response to MBIA, "You're a Big Boy." MBIA and its affiliate had contractually disclaimed reliance on any representations by Merrill Lynch as to the quality of those CDOs, so the court dismissed causes of action for fraud in the inducement, fraud by omission and negligent misrepresentation without regard to the truth of their accusations.

The contract claim that will go forward involves the theory that Merrill Lynch had promised to deliver securities of “AAA” credit rating quality, but had failed to do so when it delivered securities which had received but did not deserve such a rating.

Neighborhood Watch

In January, Stephen Davis and Jon Lukomnik wrote a column for Compliance Week, summarizing the decade just completed from the point of view of "executives, boards, and investors."

In large part, the column is a criticism of Sarbanes-Oxley, the corporate reform bill created in response to Enron's melt down at the start of the new millennium. Davis and Lukomnik don't have a high opinion of SOX, and prefer instead what they think of as a "neighborhood watch" approach to compliance.

Read it for yourself here.