Toothless SEC-2

"Broadcom Corp. agreed to pay $12 million to settle [SEC] charges it falsified its reported income by backdating stock-option grants over a five-year period. The company restated its financial results in January 2007 and reported more than $2 billion in additional compensation expenses, one of the largest such restatements to date arising from stock-option backdating, according to the SEC. 'The scope and magnitude of the fraud warrants the significant penalty imposed on the company,' said Linda Thomsen, the SEC's enforcement-division director. The Irvine, Calif., semiconductor maker settled without admitting or denying the SEC's claims. ... The penalty ranks among the biggest brought by the SEC in its investigation into backdated stock options. The largest penalty was against Mercury Interactive Corp., now a unit of Hewlett-Packard Co. Mercury agreed to pay $28 million without admitting or denying wrongdoing, last May to settle charges it failed to record $258 million in compensation expenses", my emphasis, WSJ, 23 April 2008.

"The story starts in 2002, with [David] Einhorn rightly proud of his ability to spot companies with shoddy accounting practices. ... Convinced that he has found another juicy target, he zeroes in on Allied Capital, a business-financing company that seems to dawdle when it comes to marking down the value of its troubled loans. ... He grew so irate about the company's accounting that he alerted the [SEC]. The SEC did little with his complaint; in fact, it investigated him instead for spreading negative views about Allied. ... Large chunks of 'Fooling Some of the People All of the Time' amount to an angry man's recital of his grievances--and Mr. Einhorn has some good ones. An SEC lawyer who quizzed him aggressively about his short-selling methods later went into private practice and registered as a lobbyist for Allied. ... Einhorn's carefully documented battles with Allied Capital say a lot about the temperament needed to be a great investor. Tenacity is vital. So is patience. And so, too, is an ability to keep a sane perspective. ... The book also shows why good accounting really matters. It is easy to mock finicky people with green eyeshades who worry about footnotes. But reliable numbers are essential if capital is to be allocated properly in our economy", my emphasis, George Anders book review of David Einhorn's book in the WSJ, 23 April 2008.

Is Thomsen joking? A $12 million penalty for a $2 billion restatement! Wow, that's .006 of the restatement. I'm sure this will deter future corporate miscreants. I say again the SEC should be prohibited from closing a case without an admission of wrongdoing which the plaintiffs' bar could make collateral estoppel use of, or a no action letter. Who needs the SEC's enforcement division? It's useless. Tell us Thomsen, what size fraud would merit say a $2 billion penalty? $333 billion? Linda, your resume indicates you were an AUSA once. Remember anything? Ever read securities law? It has a "books and records provision", 15 USC 78m.

Einhorn's story is like Ray Dirks, see my 6 October 2007 and 9 April 2008 posts. Nothing Cox's SEC does should be taken at face value. The SEC's contempt for the First Amendment should concern us all. Even you Cox. I understand you have a Harvard Law JD. Does Harvard Law School teach "Con Law"? Did you take it? Do you remember any of it? 2002 was before your reign at the SEC. That said, do you think the SEC owes Einhorn at least an apology?