Coyote Blog

I have often criticized Aspiring Governor Eliot Spitzer for his overreaching tactics aimed more at keeping himself on the front page (and in the hearts and minds of voters) than in really catching bad guys.  However, one of the reasons Spitzer gets support for his tactics is that there seems to be an enforcement vacuum at the SEC in pursuing corporate and banking fraud.  The Adelphia case brings us a great example, courtesy of Professor Bainbridge.  It appears that the Rigas family is going to get off with forfeiting some of the assets they plundered - no jail time and no fines!

The Securities and Exchange Commission today announced that it and the United
States Attorney's Office for the Southern District of New York (USAO) reached an
agreement to settle a civil enforcement action and resolve criminal charges
against Adelphia Communications Corporation, its founder John J. Rigas, and his
three sons, Timothy J. Rigas, Michael J. Rigas and James P. Rigas, in one of the
most extensive financial frauds ever to take place at a public company.

In its complaint, the Commission charged that Adelphia, at the direction of
the individual defendants: (1) fraudulently excluded billions of dollars in
liabilities from its consolidated financial statements by hiding them on the
books of off-balance sheet affiliates; (2) falsified operating statistics and
inflated earnings to meet Wall Street estimates; and (3) concealed rampant
self-dealing by the Rigas family, including the undisclosed use of corporate
funds for purchases of Adelphia stock and luxury condominiums. The USAO also
announced that it had entered into a Non-Prosecution Agreement with Adelphia and
had settled forfeiture claims against Rigas family members.

Under the settlement agreement, which is subject to the approval of the
District and Bankruptcy Courts for the Southern District of New York, the Rigas
family members will forfeit in excess of $1.5 billion in assets that they
derived from the fraud, including the Rigas family's interests in certain cable
properties.

This is absurd.  The stay-at-home wife of the treasurer of Enron is in the slammer right now but the Rigas's get to walk?  Note that the Rigas's last year were convicted of numerous criminal charges, but there sentencing was delayed so they could negotiate.  I guess they negotiated pretty well.  In my understanding of the cases, this is a much worse case of fraud than Enron.  These guys looted the company for personal gain, and raped their minority stockholders.   Shame on the SEC.

I bet you thought I was kidding here when I said I might pursue my new niche in parking lot blogging.  Not so - here today is an idea from Ross Mayfield:

My uncle was a guru on wall street when I asked him where I should invest my paper route money. He said to visit the parking lots of Silicon Valley companies during the weekend. If the parking lot was full, there was a good chance they were close to a breakthrough or release.

At the corporations I worked for, this would probably just mean that everyone was working on Powerpoint presentation for an upcoming planning conference.  Anyway, I don't know much about Silicon Valley, so I don't know if it will work, but this is an interesting suggestion to use the Internet to gather intelligence:

But with enough mobloggers, a panopticon of performance may be a great leading indicator.  So this weekend I started the Parking Lot Indicatr group and people have taken interest.

Hopefully, the cars are not all there responding to an SEC inquiry.

I had some links on Social Security reform here. 

One thing I forgot to mention -- No matter what we decide to do, please, please do not let the government invest social security funds in private equities.  I am all for giving individuals control of their social security funds and allowing these individuals to make their own investment choices.  But, allowing the government to invest in equities will lead to all sorts of problems:

1. The most obvious is creeping socialism and regulation, particularly of companies that are not well-loved by the intelligentsia.  Mad at Dick Cheney?  Pass a law that the trust fund can't invest in Haliburton.  Don't like Dan Rather?  Pass a law that the trust fund can't invest in CBS.  You get the idea.  The mere threat of disowning the company's equity from the trust fund investments portfolio would force companies to kowtow to the populist notion of the moment.
2. If you worry about private individuals manipulating the stock market, just wait until the government has the incentive to get in the game.  The government has all kinds of ways, from small (control of economics data) to large (interest rates and SEC regulations) to manipulate the market for short term gain. 

Marginal Revolution also has an interesting post on whether the historic equity premium would still exist if the government invested massively in equities.