Mark Pincus Blog

Corporate Corruption Getting Some Great Play! - how about calling them corruptions!

sometimes the world does seem to get it right and then we have to give big kudos to MSM. today's nytimes has a slew of stories raising everyone's conciousness around different forms of corporate corruption.

one big question for me is why we dont hear more corporate and political leaders denouncing the level of ceo and upper management stealing (i mean compensation). this is one of the great injustices of our time.

today's paper highlights the amazing story of the team running UAL. why should they get 8% of the new company for showing up to work? this isnt a startup where people are forgoing cash comp in the hopes of equity upside. the team originally demanded 15% with the ceo asking for $80m in comp. the bankruptcy court says he'll have to make do with $40m.

what's ironic is that in another story they talk positively about terry semel at yahoo having now made some $630m in options and stock. it may sound hypocritical at first that they would laud semel while denegrating the guys at UAL, until we realize that semel put up $20m of his own money and then proceeded to lead a company in massive growth.

on the enron front, it appears that there is now a big chance that mssrs lay and skilling will escape prison since their defense team believes the accounting chicanery (cool word:) they oversaw will be too complicated to explain to a jury of dumb americans. if those two walk free while poor dumb bernie ebbers serves life in prison we'll know just how unjust our country is.

on the one side, we lock up a former football coach for life for crimes he still doesnt even understand (not that he shouldnt have gotten some time). on the other, we take two of the most sophisticated white collar crooks of our time and let them go free because their crimes are too complicated to explain? you gotta be kidding.

and what of the rest of the enron crew who sold options worth hundreds of millions just before it went to zero? the paper talks about some lady who was famous for running around in mini skirts and stilletos, even lauded as one of the most powerful women in america. she walked with $80m in stock and now splits her time with her bolivian boyfriend between ranches in several states. that's fucking ridiculous. if the SEC (or anyone) ever listened to me, we could right these wrongs faster than bush can say 'wiretap'.

for those who dont memorize every post, i'll remind you of my simple proposal to stop the corporate gravy train. it's so simple it pains me. the SEC adds a rule saying that any insider who sold stock or options during a period of fraud has to disgorge the profits. helloooo!! how fucking simple is that? can anyone guess how much money would have been returned to innocent investors by now? 414 companies restated earnings in 2004 alone.

i'd like to start a running tab of great corporate insider windfalls that could have been reversed without ever proving a thing. (and if someone showed me how to do a wiki spreadsheet we could all add to it.)

first and worst...

gary winnick, global crossing - $600m

john moores and family, peregine systems - $600m

clearly, the SEC works for its bosses at goldman, morgan and csfb who have rich clients to protect. otherwise, we'd hear someone besides me point out obvious rules like this that would really protect investors as opposed to ridiculous window dressing like sarbanes oxley which just punishes all companies and makes it prohibitively expensive for small companies to maintain public status favoring big corruptions, oh i mean corporations, even more.

i do want to point out that if we just shortened corporate corruption to corruptions, we'd say a lot of unnecessary verbage:)

Frank Rich on Corruption Thriving in Washington

everyone should read frank rich's great op/ed piece in this week's ny times detailing how the same 'enron' culture of crony corruption is thriving in DC today on both sides of the aisle. it's surreal to me to read how bush continues to appoint totally unqualified people for solely political purpsose, how even after the scandal and great loss due to his ridiculous choice (michael brown) for FEMA director he is replacing the guy with yet another crony, and how the whistle blower who outed the govt's awarding $8B in no bid contracts to haliburton has had to endure demotions and ridicule. (craig also posts on how he has now admitted to ignoring warnings about katrina)

frank says...The mutant Enron version of the C.E.O. culture still rules in Washington: uninhibited cronyism, special-favors networks, and the banishment of accountability.

Rigas's get life in prison

wsj reports today that the father who's 80 got 15 years while the son got 20 years. i'd love to know how these sentences compare to other white collar crimes over past 20 years. i believe milken served less than 2 years for a higher dollar figure crime. same with ivan boesky. while i am happy that there is govt interest in fighting corporate corruption (maybe they'll focus on the govt variety next) it is still troublesome to see them do so in such a political way. while i have no sympathy for the rigas's, i am deeply troubled by the inequity in this approach. how can gary winnick be lauded by the nytimes after taking $600m from investors in his fraudulent venture (global crossing) and john moores be the pillar of san diego, owning the padres, after taking a similar amount from his peregrine systems after that company filed for bankruptcy for faking $1 billion in profits. i dont mean to say that either of these guys had their hand in the cookie jar (moores was never accused of anything while winnick was exonerated), but the whole thing does strike me as bizarre and lopsided and not the way i would hope to see our justice system managed. shouldnt there be some test of consistency with past rulings? is this really a deterent or more of a sign that large corrupt acts will fare better if matched with large political donations? makes me wonder how long ken lay's donations to bush served in protecting him. and how can it be fair for the executives at haliburton (accused of multiple counts of fraud) get away scott free? guess it helps to be part of the ruling class.

Enron, the biggest crooks in the room...

ken norton has an awesome story about his own amazing experience seeing enron up close before the bust. if you saw the enron documentary, 'smartest guys', you will really appreciate this. i only hope they lock these guys up, throw away the key and that enron alumni aren't lauded in 10 years for their acts of philanthropy (with stolen money) and brilliant financial engineering (read crimes) like the drexel burnham alum today. anyone remember the puff piece in the nytimes about what great citizens and business people we've seen out of drexel like gary winnick and how the firm was just the victim of over zealous regulators. these stories write themselves.

Will SEC ever make corporate insiders pay for fraud?

we are all watching yet another venerable old company (AIG) blow up over corporate accounting fraud and investor misrepresentation. same old story, investors lose billions, often everything, while corporate insiders say 'i'm sorry'. then the SEC tries to go after a small few with expensive criminal proceedings that rarely yield much. in this case the chairman, maurice greenberg, has decided to 'retire' and walk with $2.8 billion, in addition to the millions he's already sold. maybe there'll be a whistle blower. maybe in 5 yrs he'll face trial after an enron style bottom up investigation. this white collar crime has become the norm and the SEC is useless in correcting it.

here's the easy solution - MAKE THEM PAY!. it would be soo simple. just create a rule that says any insider who sold during a time of accounting fraud (or any restatement) has to disgorge all profits. this would immediately make every insider liable for the billions they made without bothering to prove any knowledge of wrong doings. the rationale is that they didnt deserve the profit, that they were selling a 'lemon'. california has this for cars, why cant the SEC have it for stocks? instead we punish all companies (especially small ones) with sarbanes oxley (also known as SUX), one of the dumbest laws our country has ever produced. it makes about as much sense as asking people to swear on the bible before testifying.

last year over 400 public companies restated earnings. think about the billions that would have been recaptured for the injured investors. think about AOL where the insiders walked with billions, virtually unscathed, while the poor saps who owned stock in time warner were left with a billion dollar tab to the SEC over fraudulent accounting. how about gary winnick who sold $600m at global crossing before it blew up? he chose to give back $30m to former employees. with this rule, he would have returned the whole boot. john moores sold $600m in his company, peregrine systems, before it too went bankrupt for fraudulent filings. maybe these guys didnt know about it. WHO CARES. just make them give back the ill-begotten gains. and the SEC can still go after any of these people in the current long drawn criminal process and nab one out of 400 or less at a huge tab to the taxpayers.

we're all disgusted with ken lay and the insanity they brewed at enron (see the enron documentary. you wont want to invest in another texas company!). maybe a few of these guys will see jail time, but even then they'll keep the loot.

so why doesnt the SEC enact this obvious rule? i dont know. maybe the same wall street guys who run the very stock exchange that regulates them have a hand here. maybe this would go too far in causing some real pain to a group that represents massive political donors.

btw, there is a clear precedent for this in the current 16B short swing profit rule that says if an insider buys and sells in a six month period he must disgorge the profit. i'm sure this was enacted after realization that criminal laws were ineffective against insider trading.

if anyone has ideas on how we push the SEC to enact real dollar regulations that will start to protect investors and not white wash the same old game, let me know.