Wednesday, October 29, 2008

Pay Up, Or Else!

"While America buckles in for years of sacrifice, the five chiefs [Blankfein, Dimon, Stephen Schwartzman, Larry Fink and Glenn Hutchins] took a different approach. The group pulled straight from the what-government-can-do-for-you school of 2006, lobbying for Wall Street tax breaks, the repeal of Sarbanes-Oxley and against the distraction of class-action lawsuits. ... Blankfein, meanwhile shrugged off the idea that Wall Street could do much. The political system has gotten so tainted that 'people like us may not lift their heads above the parapet to give ideas for fear that their heads may be shot off,' the Goldman CEO said", Dennis Berman at the WSJ, 14 October 2008.

"It is now clear that much of the bonus pay awarded to executives on Wall Street in the past two years was richly undeserved. ... And with a Main Street mob howling about Wall Street parachutes, the motive [to get it back] is there. The Feds could try out a rarely applied provision of Sarbanes-Oxley, the Enron-inspired legislation intended to criminalize accounting chicanery. A public company can recoup bonuses paid to its chief executive and financial officers if 'any misconduct' causes the firm to restate its financials. ... But applying the Sarbox strategy to failed banks is a long shot, says Nader Salehi, a partner in the securities practice at law firm Bingham McCutchen in New York. ... Another tricky legal weapon can be found in bankruptcy code and federal bank insolvency laws. The feds could argue that a payment to an executive constituted a 'fraudulent conveyance.' ... There's nothing like the threat of jail time to get an executive to write a big check to the government", Evan Hessel and Scott Woolley at Forbes, 27 October 2008.

"Shot off"? See, how smart Lloyd Blankfein (LB) is. He knows enough to duck! Let's see: Goldman Sachs, JPMorgan, Blackstone, BlackRock and SilverLake. Possibly excepting Dimon, a rogues gallery. Hey Mike Garcia (MG), do you have the NY FBI keep tabs on these guys? When are you going to bring them in for questioning? You can figure out what for later.

If the Feds want to nail someone, they can. If they could convict Martha Stewart for nothing, they can nail say, LB and John Mack (JM). Imagine Wall Street's reaction to LB and JM each getting a 20-year sentence for securities fraud. MG would have a block-long line in front of his office of white-collar criminal defense attorneys waving eight-figure certified checks and begging not to have their clients indicted as they had already made restitution for their wrongs. This is a standard criminal defense tactic to avoid prosecution, "Parallel Civil And Criminal Litigation", LA Lawyer, Vol. 38, No. 9, 36-42 (December, 1990), Nessim, Ronald. The Feds don't need Sarbox for anything. Wire, mail, bank and securities fraud and continuing financial crimes enterprise will do fine.


Sparky said...

Great Write-Up!!

Great idea too! Sparky's been saying for years now that Morgan Stanley shareholders would beetter off if John Mack, the repulsive and elitist piece of human refuse, were to promptly resign.

But frankly, MS shareholders woyld be far better off ig were to be sentenced to 20 years!

At the same time, it would amount to "pay back" for how he, represented by thunder-thighs "Juice," completely escaped SEC-inspired prosecution regarding his tipping Pequot Capitel Management about the Heller & GE Capital deal.

Sot of like what OJ is now going through; back door justice one could call it.


Anonymous said...

If all those crooks are in jail and stripped of all their assets, I won't feel as ripped off about the trillions of dollars of bailouts.

Francine McKenna said...

I think that SarBox provison could be used and for some reason the Feds are letting Andrew Cuomo in New York do the heavy lifting for them. I hope he gets a good job in the Obama administration...

I also agree that a little fear of jail will make these guys pay up and pay back. But given what we're seeing with how the bailout funds are disappearing into the AIG black hole for example, I'm not sure the money shodu go back to the Fed. AIG is owned 80% by the Feds and still doesn't believe they owe any responsibilty to the taxpayer to report how they're sepnding our moeny. And no one us forcing them to do so. Send the National Guard. :)

I'd like to see the plaintiff's lawyers stick it to the banking executives. Repossess the Bentleys in Fairfield CT.

Anonymous said...

On criminal action, when the crime bosses are in charge of the courts the only way to get justice is to remove them by citizens action, the time for the guillotine is close replacing the statue of the wall st bull with the tool of the french revolution might encourage the criminals to reform before they become fodder for that terminal form of justice

Been there said...

"I think that SarBox provision could be used and for some reason the Feds are letting Andrew Cuomo in New York do the heavy lifting for them…"

I seem to recall that a previous SEC boss/Bush appointee Harvey Pitt sat on his hands before pursuing the bad guys during the last go-round with the ENRON, WORLDCOM, etc bad guys. I also seem to recall that it was prior NY AG Spitzer's successes in pursuit of those rascals that finally embarrassed the SEC to finally get its game together. IMHO this administration’s MO is to force the SEC chief to sit on his hands and let the markets take care of themselves no matter what transpires.

Independent Accountant said...

I agree Sarbox could be used, but I would rather ignore it and rely on pre-Sarbox statutes, if for no other reason to show Sarbox was largely superfluous.
If our new president gives William Lerach a pardon then appoints him SEC chairman, that would out the fear of the Lord into Wall Street. And increased the SEC enforcement budget 100%. Paraphrasing Hamlet, "Tis a consummation [I] devoutly " wish.

Been there:
Yes there was an SEC Chairman named Harvey Pitt. I've been critical of him at these posts: 10 and 16 August; 7 and 9 October 2007; 12 and 27 April, 9 and 11 July and 23 August 2008. I disagree that Cox's superiors in the Bush adminstration are forcing him to do anything. I believe Cox was hired with the understanding he would protect Wall Street and he has functioned as expected.

Anonymous said...

The government is owned by Wall Street executives. I think that's been made clear to everyone. They and their families are the royalty of America.

The meowing I hear across the blogo-sphere is good for ratings ,but is on par with "How will we produce food when we get to Mars."

The US public is stoned on fatty food and cable TV. They are hopeless, divided by distance and identity (the fact that 40% of the US public thinks Sahra Palin would make a fine Pres says it all). In fact they'll stone you to death if you say she's not.

Heck, they've just been robbed of their 401ks and lost their jobs but
say nothing, do nothing except post
chatter on websites.

Until people are starving in the streets, nothing will change.

I fear though that the good people at Frito-Lay will never allow such an event to transpire.

Independent Accountant said...

Don't make light of America's current situation. I have likened it to that of 1780s France, at for example my 22 September 2008 post. Governments fall when they become bankrupt. That's history. When Uncle Sam's debt collapses, we will be lucky to see an American Napoleon as opposed to a Hitler arise. Really. That's history.