In yesterday's entry, I wrote about a story in this month's issue of Vanity Fair, one that concerned Mayor Giuliani's campaign for president and, in consequence, the law firm in which he is a name partner, Bracewell & Giuliani.
Today I'd like to stay within the four corners of VF. For it has another story with at least a tangential relationship to the themes of this blog: David Margolick's article on Governor Elior Spitzer of New York, and the tough year he has had in Albany.
The reason that's of interest to Proxy Partisans, of course, is that in his last job, as state attorney general, Spitzer put himself front-and-center as the "sheriff of Wall Street." In his view, the SEC wasn't doing its job, so he would.
Margolick contends that Spitzer developed a model of "strategic craziness" -- planned tantrums, really -- for getting what he wanted in terms of changes in the way business is done on Wall Street, but that this model, become a habit, has backfired on him.
He quotes an unnamed source explaining the difference between being a prosecutor and being a governor -- a difference that (this is the gist of the piece) -- Spitzer has yet to grasp: "If you're a C.E.O. at a company and I call and I say, 'I'm going to fuck you, I'm going to destroy you, I'm going to indict your company,' and I sound totally crazy, you hang up on the phone, and you go see your chairman of the board, and you say, 'This guy is crazy, we need to settle,' because you're given no option. If you're a state legislator and you get the same thing, you hand up the phone, you call the Albany Times Union, and you say 'This guy is crazy,' because you don't give a shit."
Perhaps tomorrow I'll look back upon Spitzer's days as New York A-G, especially in connection with two high-profile scandals (a) "market timing" in regard to mutual fund shares, and (b) the relationship between research and underwriting.
Monday, December 31, 2007
Sunday, December 30, 2007
Bracewell & Giuliani
The latest issue of Vanity Fair has a feature story about former New York mayor Rudy Giuliani. Some of the buzz about this issue has suggested that this story, written by Michael Shnayerson, would be a great take-down piece. A serious blow to Rudy's candidacy.
It isn't. Frankly, I got the sense reading it that Shnayerson was flailing about a bit, trying to score a solid punch and missing.
Example: In 2005 (as the story accurately reports), Giuliani became a partner at what had been the Texas law firm of Bracewell & Patterson. It's now, of course, the Texas & New York law firm of Bracewell & Giuliani.
By the time Giuliani put his name on the door, Bracewell had become, we're told, "the go-to law firm for major polluters in oil and gas as well as coal companies."
Shocking. Until you give it a second's thought. A prominent Texas law firm represents oil and gas companies? Such companies, when accused of environmental violations, hire lawyers to defend them? What's the shocker there again?
Then we get a long graf re-hashing the Citgo connection. No "mini-scoop" here. This stuff was all thoroughly vented months ago. Yes, Citgo is run by the Venezuelan state, which is currently run by Hugo Chavez, a nasty piece of work.
"Bracewell & Giuliani [has] been happy to take Chavez' money," our intrepid reporter breathlessly informs us.
Would he be happier -- would he want us to be happier -- if B&G hadn't taken Chavez' money? Suppose they had represented Citgo's interests in the US for free, and called it their pro bono work for the year. Feel better?
Either way: they're in the business of advocacy, aren't they? A law firm can, without any shadow to its reputation, defend a serial killer -- for money if he can pay it. Why is it hard to believe that a law firm can work for the interests of a company that does a lot of business in the US, that is run by the government of a foreign state.
The fact that I say "big whoop" to this doesn't make me partial to Giuliani. (Although, for the sake of full disclosure, I might as well admit that a couple of the lawyers who work in Bracewell & Giuliani -- NOT the candidate -- have been valuable sources to me in explaining some legal issues pertinent to stories I've been working on.) I'm not partial to Rudy as a candidate at all -- indeed (a) I don't believe in politics, (b) even if I did believe in politics, it would be a sort of politics that would involve the rejection of the two major parties, and (c) even thinking within the box of those two parties, the only candidate who makes even a smidgen of sense to me is Ron Paul. So there, for Rudy.
Still, I recognize a flailing boxer in the ring when I see one. And that is the figure Mr. Shnayerson cuts.
It isn't. Frankly, I got the sense reading it that Shnayerson was flailing about a bit, trying to score a solid punch and missing.
Example: In 2005 (as the story accurately reports), Giuliani became a partner at what had been the Texas law firm of Bracewell & Patterson. It's now, of course, the Texas & New York law firm of Bracewell & Giuliani.
By the time Giuliani put his name on the door, Bracewell had become, we're told, "the go-to law firm for major polluters in oil and gas as well as coal companies."
Shocking. Until you give it a second's thought. A prominent Texas law firm represents oil and gas companies? Such companies, when accused of environmental violations, hire lawyers to defend them? What's the shocker there again?
Then we get a long graf re-hashing the Citgo connection. No "mini-scoop" here. This stuff was all thoroughly vented months ago. Yes, Citgo is run by the Venezuelan state, which is currently run by Hugo Chavez, a nasty piece of work.
"Bracewell & Giuliani [has] been happy to take Chavez' money," our intrepid reporter breathlessly informs us.
Would he be happier -- would he want us to be happier -- if B&G hadn't taken Chavez' money? Suppose they had represented Citgo's interests in the US for free, and called it their pro bono work for the year. Feel better?
Either way: they're in the business of advocacy, aren't they? A law firm can, without any shadow to its reputation, defend a serial killer -- for money if he can pay it. Why is it hard to believe that a law firm can work for the interests of a company that does a lot of business in the US, that is run by the government of a foreign state.
The fact that I say "big whoop" to this doesn't make me partial to Giuliani. (Although, for the sake of full disclosure, I might as well admit that a couple of the lawyers who work in Bracewell & Giuliani -- NOT the candidate -- have been valuable sources to me in explaining some legal issues pertinent to stories I've been working on.) I'm not partial to Rudy as a candidate at all -- indeed (a) I don't believe in politics, (b) even if I did believe in politics, it would be a sort of politics that would involve the rejection of the two major parties, and (c) even thinking within the box of those two parties, the only candidate who makes even a smidgen of sense to me is Ron Paul. So there, for Rudy.
Still, I recognize a flailing boxer in the ring when I see one. And that is the figure Mr. Shnayerson cuts.
Wednesday, December 26, 2007
Datascope Results: Tie Game
Datascope held its annual meeting on December 20. This was the big showdown. Or (as Jon Stewart likes to say) not so much.
The activist investor/hedge fund manager Ramius wanted to put two new faces on the seven member board. The company stood by the two corresponding incumbents up for re-election, James J. Loughlin or William L. Asmundson.
It now appears that one of the two dissident nominees, David Dantzker, has won a seat, but that the other, William Fox, has not. It isn't clear yet whether Dr. Dantzker's victory will be at Mr. Loughlin's expense, or Mr. Asmundson's. That will presumably be straightened out when the meeting reconvenes January 3.
The December 20 meeting seems to have been devoid of bile. Although this lessens the amusement value of the enterprise since the snappiest quote I can give you from a Ramius representative at the meeting is: "We do believe operations and corporate governance can be much improved," the amity is probably good for the stock price. Datascope was worth $2.30 a share at close of business last Tuesday, a little more than a day before the meeting convened, but is trading above $2.40 as I write.
Smiles and sugarplums all round, then.
The activist investor/hedge fund manager Ramius wanted to put two new faces on the seven member board. The company stood by the two corresponding incumbents up for re-election, James J. Loughlin or William L. Asmundson.
It now appears that one of the two dissident nominees, David Dantzker, has won a seat, but that the other, William Fox, has not. It isn't clear yet whether Dr. Dantzker's victory will be at Mr. Loughlin's expense, or Mr. Asmundson's. That will presumably be straightened out when the meeting reconvenes January 3.
The December 20 meeting seems to have been devoid of bile. Although this lessens the amusement value of the enterprise since the snappiest quote I can give you from a Ramius representative at the meeting is: "We do believe operations and corporate governance can be much improved," the amity is probably good for the stock price. Datascope was worth $2.30 a share at close of business last Tuesday, a little more than a day before the meeting convened, but is trading above $2.40 as I write.
Smiles and sugarplums all round, then.
Tuesday, December 25, 2007
The class action against AIG
The usual drill in a class-action securities fraud lawsuit is to create a "class period," defined by two dates. Date A is that day on which the company should have disclosed some specific important piece of information. Date B is that day on which the public became aware of it anyway.
The class, then, consists of all persons who bought the defendant company stock between A and B. It is worth noting that just holding stock during that period doesn't make one a member of the class so defined. Nor does selling stock then have any relevance. The class consists of buyers within the class period.
The reason? only a buyer can claim to have been over-charged. The buyers are complaining that between A and B, the market price was higher than it would have been had the market in general been aware of the realities.
The filing against AIG last year fit this pattern. The class period begins in October 1999, on the basuis of a press release put out that month that described consolidated assets as $259 billion and shareholders' equity as $32.3 billion. The class period continues until October 2004, when the CBS MarketWatch issued an article headlined "Spitzer attacks insurance industry," which disclosed to the public (as the plaintiffs see it) that the kind of claims re: assets and equity the company had been claiming for fivce years were based on the manipulation of the financial statements.
The law firm that represents AIG is Paul Weiss Rifkand. It has argued that the plaintiff doesn't have a case for "scienter," or in layfolk term that they were knowingly committing fraud. They can't be held responsible for the fact that a New York State A-G would eventually get a bee in his bonnet about certain practices, after all. Did they understand that the accounting procedures and re-insurance deals at issue would result in pumping up the price of their stock?
That's enough work for me on a Christmas Day. Enjoy the holiday, all.
The class, then, consists of all persons who bought the defendant company stock between A and B. It is worth noting that just holding stock during that period doesn't make one a member of the class so defined. Nor does selling stock then have any relevance. The class consists of buyers within the class period.
The reason? only a buyer can claim to have been over-charged. The buyers are complaining that between A and B, the market price was higher than it would have been had the market in general been aware of the realities.
The filing against AIG last year fit this pattern. The class period begins in October 1999, on the basuis of a press release put out that month that described consolidated assets as $259 billion and shareholders' equity as $32.3 billion. The class period continues until October 2004, when the CBS MarketWatch issued an article headlined "Spitzer attacks insurance industry," which disclosed to the public (as the plaintiffs see it) that the kind of claims re: assets and equity the company had been claiming for fivce years were based on the manipulation of the financial statements.
The law firm that represents AIG is Paul Weiss Rifkand. It has argued that the plaintiff doesn't have a case for "scienter," or in layfolk term that they were knowingly committing fraud. They can't be held responsible for the fact that a New York State A-G would eventually get a bee in his bonnet about certain practices, after all. Did they understand that the accounting procedures and re-insurance deals at issue would result in pumping up the price of their stock?
That's enough work for me on a Christmas Day. Enjoy the holiday, all.
Monday, December 24, 2007
PACER and AIG
I used the acronym PACER in yesterday's blog entry but neglected to explain myself.
Here goes, then. PACER stands for "Public Access to Court Electronic Records," and it provides exactly that (for a modest fee) for anyone with internet access.
For a reporter nowadays it's a wonderful time saver in contrast to the old days when you'd have to cajole a court clerk into faxing you the files. Alas! not every state court system has caught up with the digital era. Some of the states have their analogs to the federal PACER, but they vary wildly in ease of access and use.
PACER itself, though, is marvellous. Thanks to it, I just typed in "Ohio Public Employees Retirement System" for the district court, southern district of New York and found the four cases there in which OPERS is a party, Two of them seem relevant (judging from the name alone) to the matter I was discussing in yesterday's entry -- OPERS v. Greenberg et al., and In Re AIG Securities Litigation.
The "In re" case is, as such titles generally indicate, a consolidationof several distinct filings. The "OPERS v. Greenberg" lawsuit claimed that in order to get out from under that action, in which he was a co-defendant, Greenberg made a "fraudulent conveyance" of his stock to his wife without compensation, and OPERS (filing in May 2005) asked the court to set aside this conveyance.
The "fraudulent conveyance" case was dismissed by agreement of the parties three months later. The big "In re: AIG" action is still open. I'll wait to open that file, though, until Christmas day.
Here goes, then. PACER stands for "Public Access to Court Electronic Records," and it provides exactly that (for a modest fee) for anyone with internet access.
For a reporter nowadays it's a wonderful time saver in contrast to the old days when you'd have to cajole a court clerk into faxing you the files. Alas! not every state court system has caught up with the digital era. Some of the states have their analogs to the federal PACER, but they vary wildly in ease of access and use.
PACER itself, though, is marvellous. Thanks to it, I just typed in "Ohio Public Employees Retirement System" for the district court, southern district of New York and found the four cases there in which OPERS is a party, Two of them seem relevant (judging from the name alone) to the matter I was discussing in yesterday's entry -- OPERS v. Greenberg et al., and In Re AIG Securities Litigation.
The "In re" case is, as such titles generally indicate, a consolidationof several distinct filings. The "OPERS v. Greenberg" lawsuit claimed that in order to get out from under that action, in which he was a co-defendant, Greenberg made a "fraudulent conveyance" of his stock to his wife without compensation, and OPERS (filing in May 2005) asked the court to set aside this conveyance.
The "fraudulent conveyance" case was dismissed by agreement of the parties three months later. The big "In re: AIG" action is still open. I'll wait to open that file, though, until Christmas day.
Sunday, December 23, 2007
Labaton Sucharow LLP
A Merry Christmas to the lawyers of Labaton Sucharow and their staff.
I mentioned in an entry on Veterans' Day that somebody at Labaton, a prominent securities-litigation law firm, had googled the name "Hank Greenberg" and ended up at this blog as a result.
Labaton, a New York based firm, represents the Ohio Public Employees Retirement System, which is lead plaintiff in a lawsuit against AIG and Greenberg for their use of sham reinsurance agreements that made the books look unrealistically favorable and allegedly induced pension fund executives to buy and/or hold the stock when they wouldn't have otherwise.
I'd like to extend an invitation to anyone from Labaton to comment on this blog about the nature of that lawsuit.
A couple of questions come to mind. First, are the managers of public employees retirement systems supposed to be very sophisticated folk, knowledgeable in the ways of the investment world? If they lost some money on AIG ... so what? my guess is the portfolio was diversified, and nobody has missed any pension payments as a consequence of a dip in the value of this particular stock, have they?
Shouldn't there be anything of "caveat emptor" in our reactions to such situations?
Of course, in the case of blatant corruption there should be some recourse. If somebody on AIG's payroll had bought a really nice beachside condo on the Gulf Coast of Florida for somebody in the relevant Ohio bureaucracy, and the day after that sale closed the pension plan suddenly put a lot of $ into AIG stock ... okay, I can see how the people of the fine state of Ohio would be ticked off at that.
But so far as I can tell, there's been no such allegation. In fact, since I'm too lazy to go to PACER right now to look it up, let's count that as my second question. Am I right that there's been no charge of that sort of corruption at AIG?
So: in your own words Labaton ... what gives?
I mentioned in an entry on Veterans' Day that somebody at Labaton, a prominent securities-litigation law firm, had googled the name "Hank Greenberg" and ended up at this blog as a result.
Labaton, a New York based firm, represents the Ohio Public Employees Retirement System, which is lead plaintiff in a lawsuit against AIG and Greenberg for their use of sham reinsurance agreements that made the books look unrealistically favorable and allegedly induced pension fund executives to buy and/or hold the stock when they wouldn't have otherwise.
I'd like to extend an invitation to anyone from Labaton to comment on this blog about the nature of that lawsuit.
A couple of questions come to mind. First, are the managers of public employees retirement systems supposed to be very sophisticated folk, knowledgeable in the ways of the investment world? If they lost some money on AIG ... so what? my guess is the portfolio was diversified, and nobody has missed any pension payments as a consequence of a dip in the value of this particular stock, have they?
Shouldn't there be anything of "caveat emptor" in our reactions to such situations?
Of course, in the case of blatant corruption there should be some recourse. If somebody on AIG's payroll had bought a really nice beachside condo on the Gulf Coast of Florida for somebody in the relevant Ohio bureaucracy, and the day after that sale closed the pension plan suddenly put a lot of $ into AIG stock ... okay, I can see how the people of the fine state of Ohio would be ticked off at that.
But so far as I can tell, there's been no such allegation. In fact, since I'm too lazy to go to PACER right now to look it up, let's count that as my second question. Am I right that there's been no charge of that sort of corruption at AIG?
So: in your own words Labaton ... what gives?
Wednesday, December 19, 2007
Thinking Again About Enron
A story I was working on for my day job yesterday got me thinking about Enron again.
The story involved Amaranth,the natural-gas concern that went bust a little more than a year ago.
Both FERC and the CFTC have commenced proceedings against FERC, as have the managers of the San Diego County employees' pension fund. The two agencies claim Amaranth manipulated natural gas prices. The pension managers claim it lied about how risky its portfolio was.
Anyway, the story on which I was working yesterday involved FERC, which contracted with a professor at Rice University, in Texas, to study the natural gas market for them as a consultant, and tell them whether Amaranth had a large enough share of that market to have manipulated the prices. He said that they did.
The name of that consultant? Vincent Kaminski.
To fellow Enron-scandal nerds that name will ring a bell. He was Enron's "risk manager" when some of the decisions were made (over his protest) to take risks that proved disastrous.
Here's a news report on the Kaminski testimony at the Lay and Skilling trial last year: http://www.cfo.com/article.cfm/5623848
While my stream of consciousness flows back toward Enron, I'm also reminded of my own impression, as it unravelled, that the decisive internal battle at that company was the one in which Rebecca Mark lost out, the battle over whether Enron would be an asset-lite or an asset-heavy company.
Jeffrey Skilling believed in an asset-lite business model. Ownership of old-fashioned physical assets was a burden best shrugged off the shoulders of an up and coming new-economy company. Who needs pipelines and power plants? Less tangible assets ... contracts, trading positions, trading systems ... those were the gleam inhis eye.
Mark believed in those old-fashioned tangible assets, though. And her division was in charge of building them around the globe, including an especially controverial power plant in Dabhol, India.
Here's the URL for a rather admiring profile of Mark, post-Enron, http://www.fastcompany.com/magazine/74/enron_mark.html
And here's a less admiring view:
http://www.swaminomics.org/articles/20020216_rebeccamark.htm
The obvious truth (though even to state it would probably sound absurdly philosophical to a Jeffrey Skilling) is that physical assets ultimately back all the less tangible sorts of wealth that the Skilling's admire. If there aren't power plants, tankers, port facilities, and pipelines, then what possible good is a bright new idea of the more efficient trading of energy futures? Can it be a great business model to fob off those assets on 'somebody else' somewhere else?
Another obvious truth: lenders want collateral. Tangible assets are very good for this purpose, so they help ensure the continued solvency of any operation that possesses them.
When I've written about this subject, I've gotten a range of responses. One line of thought has been: the asset that matters most isn't the kind that Mark was in charge of. It's simply cash in the bank. Her projects were draining Enron of that asset, not building it.
But I think that's wrong. There is such a thing as being too liquid for one's own good. LTCM was dramatically tooliquid for its own good and that should have been a valuable lesson at precisely the moment that Lay was encouraging the Skilling/Mark rivalry.
But that's enough of a trip down memory lane for today. My head hurts already.
The story involved Amaranth,the natural-gas concern that went bust a little more than a year ago.
Both FERC and the CFTC have commenced proceedings against FERC, as have the managers of the San Diego County employees' pension fund. The two agencies claim Amaranth manipulated natural gas prices. The pension managers claim it lied about how risky its portfolio was.
Anyway, the story on which I was working yesterday involved FERC, which contracted with a professor at Rice University, in Texas, to study the natural gas market for them as a consultant, and tell them whether Amaranth had a large enough share of that market to have manipulated the prices. He said that they did.
The name of that consultant? Vincent Kaminski.
To fellow Enron-scandal nerds that name will ring a bell. He was Enron's "risk manager" when some of the decisions were made (over his protest) to take risks that proved disastrous.
Here's a news report on the Kaminski testimony at the Lay and Skilling trial last year: http://www.cfo.com/article.cfm/5623848
While my stream of consciousness flows back toward Enron, I'm also reminded of my own impression, as it unravelled, that the decisive internal battle at that company was the one in which Rebecca Mark lost out, the battle over whether Enron would be an asset-lite or an asset-heavy company.
Jeffrey Skilling believed in an asset-lite business model. Ownership of old-fashioned physical assets was a burden best shrugged off the shoulders of an up and coming new-economy company. Who needs pipelines and power plants? Less tangible assets ... contracts, trading positions, trading systems ... those were the gleam inhis eye.
Mark believed in those old-fashioned tangible assets, though. And her division was in charge of building them around the globe, including an especially controverial power plant in Dabhol, India.
Here's the URL for a rather admiring profile of Mark, post-Enron, http://www.fastcompany.com/magazine/74/enron_mark.html
And here's a less admiring view:
http://www.swaminomics.org/articles/20020216_rebeccamark.htm
The obvious truth (though even to state it would probably sound absurdly philosophical to a Jeffrey Skilling) is that physical assets ultimately back all the less tangible sorts of wealth that the Skilling's admire. If there aren't power plants, tankers, port facilities, and pipelines, then what possible good is a bright new idea of the more efficient trading of energy futures? Can it be a great business model to fob off those assets on 'somebody else' somewhere else?
Another obvious truth: lenders want collateral. Tangible assets are very good for this purpose, so they help ensure the continued solvency of any operation that possesses them.
When I've written about this subject, I've gotten a range of responses. One line of thought has been: the asset that matters most isn't the kind that Mark was in charge of. It's simply cash in the bank. Her projects were draining Enron of that asset, not building it.
But I think that's wrong. There is such a thing as being too liquid for one's own good. LTCM was dramatically tooliquid for its own good and that should have been a valuable lesson at precisely the moment that Lay was encouraging the Skilling/Mark rivalry.
But that's enough of a trip down memory lane for today. My head hurts already.
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