Thursday, May 15, 2008
McLean on Shorts
"'This is indeed a concern and we will tackle it.' That was SEC chairman Christopher Cox's handwritten note to a Senator worried that companies were retaliating against analysts who produced research critical of them. ... In an new book, Fooling Some of the People All of the Time, David Einhorn, who runs a $6 billion hedge fund called Greenlight Capital, recounts his multiyear battle with Allied Capital, a publicly traded private equity firm. ... But the most troubling material concerns an issue that is bigger than Allied and Einhorn's battle: It's the way criticisms of corporate behavior are received in the marketplace. Many, including the SEC, appeared inclined to shoot the messenger. ... After Einhorn gave his speech, the SEC launched an 'informal inquiry'--into Greenlight. When Einhorn testified at the SEC, the 'gist of the questions,' he writes, was 'When did you start manipulating Allied's stock?' The SEC declined to comment. ... Lawmakers have urged the SEC to investigate whether short-sellers spread rumors to bring down Bear Stearns. ... The larger point is that even if a blameless Bear Stearns was crippled by wicked short-sellers-ha!--there's a big difference between spreading rumors and publishing critical research", my emphasis, Bethany McLean (BM) at Fortune, 12 May 2008.
Way to go BM. BM has followed this story for years, see my 20 December 2007 post about the monoline insurers. The SEC has largely been a fraud. For decades. I've cited the Ray Dirks fiasco before. The SEC frequently, it not usually protects politically well-connected corporate miscreants. I never heard of the SEC investigating say, a CPA firm, finding it fired an employee who complained about a client's wrongdoing, putting the employee in a position to sue his former firm and the client in question and win millions in a wrongful termination public policy tort suit. Hey, Mark Olson, does the PCAOB regularly interview former CPA firm employees to find out what went on during an audit? What does the PCAOB do aside from beat up miniscule CPA firms? The SEC's long-held contempt for the First Amendment is appalling. Apparently the SEC only applies it to rating agencies, which no matter how bad their opinions are, use it as a shield against lawsuits. But I thought one could sue over bad "expert" opinion. Apparently the SEC conferred "sovereign immunity" on the NRSROs.