It still amazes me that despite a preponderance of evidence and admissions of guilt by former enron execs, I hear people complain that corporations like enron were merely victims of over zealous prosecutors.
In todays nytimes, another former exec, ken rice, who ran the internet and broadband divisions admitted guilt saying to the judge, “what got me here is, I lied over about a two year period, on a number of occasions, to the investing community. I wasn’t raised that way, and I’m ashamed of that.”
I believe his division housed some of the businesses which were used to book profits on the unrealized gains from the present value of future business operations. These accounting tricks included deals like a blockbuster joint venture to distribute movies direct to homes.
Enron accountants would ‘mark to market’ enabling them to claim that that venture was already worth tens or hundreds of millions on paper because of the expected future profits.
Enron was a house of cards. I’m sure its execs knew exactly what its cfo and managers were doing. What ceo is unaware of the reality behind his major numbers? And why would a disparate group of underlings all decide independently to impliment massive accounting fraud when they had the least to gain?
America needs to set clear guidelines and penalties for its corporate managers. Why does bernie ebers have to spend the next 20 yrs in jail cell while other former execs of public companies guilty of mas accounting fraud walk free?
I have stated many times on this blog that there is a straight forward way to create a single standard that could be meted out consistently, broadly and inexpensively, and most importantly, enabling immediate payback to the injured investors.
I’m referring to the idea for insider profit return. The sec should create a new reg requiring any insider or affiliate who sold stock during a period of accounting fraud (or significant restatement) to disgorge profits (plus penalties if there was fraud) to former investors.
Todays system while feeling good to politicians and journalists actually further punishes investors. Look at the poor shlubs who actually bought the bullshit and invested in aol post time warner. Their reward for believing numbers (which were later found to include huge accounting ‘irregularities’) was to foot the bill for massive penalties.
Let’s get this straight. I buy aol stock in 2000 from the executives who are promoting the deal. Later I find out that the historical numbers (and then future guidance) were mis-stated *and* I pay the penalties assessed for that?? Sounds like buying a lemon car that has illegal emissions and then getting fined for driving it.
The sec already has a similar rule (I believe 13g) which requires insiders to disgorge profits on short swing trades. Why not add one for bad accounting trades?
And does it really make sense to lock por bernie up for 27 yrs? Doesn’t that sound like the modern equivalent of being sent to the tower of london? Is society really safer now that the former football coach is locked up?
Strip these men of their money and power. Some will be more broken by the shame of having to recreate their resumes and look for low level jobs. Some, like michael milken, wil seek redemption and try to spend the rest of their lives doing good works. (Granted milken didn’t lose all his money.)
Anything would be better than today’s system of arbitrary justice meted about by politically motivated prosecutors where some large donors remain pilars of society while others due to media attention and perhaps leser political capital rot in cells.
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