Fair enough, I suppose. Obviously, I’ve been a bit tardy recognizing the intended irony of some of your posts, Scylla. I’ll try harder.
BTW, are these the questions you’re so valiantly trying to get answered?:
I wonder if the first question (on which the other two are dependent) is not a bit limited. Wouldn’t a better question be “By what method or methods could Bush have known or had reason to believe that the SEC was going to disallow the transaction?” I think that question might be more inclusive of other scenarios.
Personally, though, I’m not convinced that Bush knew or cared one way or the other. I believe he unloaded the stock to finance the Rangers deal; the timing of the stock sale was incidental. Of course, this doesn’t exonerate Bush of sleaziness, any more than Clinton’s skillful obfuscations at the Jones deposition, while not technically perjury, exonerated him of sleaziness (hence the fine and censure imposed later by the judge). Bush’s innocence of “insider trading” doesn’t negate his lack of due diligence as a director and internal audit committee member. Nor does it negate the willful deceit implicit (but not necessarily intended) in the late filing.
All in all, he’s not a guy I’d expect to lead the charge against shady business accounting. And so far, he shows no real inclination to do so. Molly Ivins’ suggestions would make a lot of sense for him, if he really wanted to show moral clarity on the issue.
A thief can only catch a thief if he wants to catch a thief, Scylla. Why would anyone give him the benefit of that much doubt, though, especially when a diligent prosecutor can do the same (and certainly with less than 7 years and $40 million, too)?
Those questions are related to what I see as the only possible scenario for Bush doing illegal insider trading.
Just because I see it that way doesn’t mean it’s the only one, though, and I’m open to other scenarios.
The basic question that I’ve been trying to nail elucidator down to is this fill in the blank:
And, we really don’t know if Bush and the audit committee failed in their due diligence. It did however pass audit, which leads me to believe that it was sufficiently hidden that standard due diligence failed to uncover it.
My guess for how the scenario went goes like this (and I’m not checking to see if any of my assumptions are correct or not.)
The executive committee set up the transaction. The executive committee has a lot of power, particularly if the Chairman and CEO are the same person (we might want to check if that was the case.)
I’ll bet Aloha was structured as a limited liability corporation (limited partnership,) or venture capital partnership or somesuch. As such, it would appear to be its own entity, and its ownership not necessarily disclosed beyond the management or managing partnerwhich might well be an institution offshore or otherwise. In short, Aloha was probably set up by the executive committee so that outsiders to Alhoa would be blind as to who owned it. This may seem shady in and of itself, but it’s not. It’s only shady if you’re doing it this way to defraud, or break the law.
Anyway, with such an arrangement, as far as the auditors and the audit committee were concerned, Aloha appeared to be an independant corporation with little or no affiliation or attachment to Harkens.
The ownership of Aloha though, would have had to have been disclosed to the SEC. They’d have full access. That would be why they were able to put two and two together and the audit committee could not.
That’s just a guess, though, but it seems the likeliest scenario to me.
Nor does it completely absolve the audit committe if that is what happened.
In similar transactios occuring with great frequency at Enron, the audit committee seemed blithely uninterested on who these angels were who kept appearing out of nowhere to give the company lots of cash for very little consideration in turn.
If the price Aloha paid was unrealistically inflated, or otherwise unreasonable, than the auditors and the committee should have actively wondered about something that seemed to good to be true, and due diligence would suggest they dig deeper.
Whether or not this last is true is a tough one to call.
Personally, I think one of the best ways to clean up Corporate business is to make sure that power and accountability is less centralized.
You shouldn’t be allowed to be both Chairman and CEO. Even seperately these people wield too much power with too little immediate accountability
It also depends on that other darling of the first day of Econ 101, the concept that all actors in a market have perfect information. Empirical scientists have yet to discover such a market.
“That’s all very well in reality, but it will never work in theory,” said the apocryphal economist.
So, Scylla, I take it that since you have sufficient time to post droll irony, you have had time to check out that cite? You remember, the one you were so anxious about? The one you said would be evidence of corrupt or inept investigation by the SEC?
Only, of course, assuming that I had quoted it correctly.
Just to step in here with someone who spent probably far too much of my time studying economics.
Of course economists model bahavior with base assumptions on information precisely so they can start testing where those assumpitons fail. The typicl ECON 101 modl presumes that actors know two things a) their own tastes (or production function if you are a producer); and b) relative prices. They also assume that actors actions cannot influence the relative price level and that the market moves in a frictionless manner (no transaction costs). This is the working hypothesis of perfect competition and it yields a nive “efficient” result (I put efficient in quotes knowing that this is still a subjective concept).
This is the starting point and it gives a nice basis to study when and if markets fail. Does it fail becuas of asymmetrical distribution of information (Akerloff)? Does it occur because of prohibitive transactional costs (including regulation, Coase)? Does it occur because in fact the actors can influence the relative prices (monopoly, duopoly theory etc. including game theory)? Does it fail because not all costs and/or benefits are internalized?
None of these failings of the basic model is a condemnation of the basic competitive model If there is a failing in the competitive model in real life, what remedies are available to get you “closer” to it? This may in fact require new regulation, less reugiulation, new taxes, fewer taxes, etc. It also allows you to evaluate what a policy may be costing you. Suppose you want a policy that clearly gets you aweay from the economically efficeint outcome. Entirely reasonable, there may be other goals, most notably equity. Economists can tell you, in a rough way, what a policy that is attemtpint to provide some “equity” (for trade restrictions) is costing in terms fo efficient. A good economists, although he or she may have an opinion, will not claim any special knowledge in terms of what is right for society, just what trade-offs are being made.
Now, if I could just remember why I needced to get that out in the open.
I’m having a bit of trouble entertaining the idea that a deliberate attempt to deceive potential and actual stockholders is not necessarily shady if you’re not overtly fraudulent about it. Maybe I’m just not imaginative enough to see the material advantage an Aloha-type fiction could possibly bring to a corporation other than the short-term illusion of sudden profit. It seems to me to have been a shell game, with the market being the only possible intended rube.
Well, you quoted correctly, but you may have leapt to a conclusion. I’m trying to study it carefully so I give the fairest answer I can.
In a kind of preliminary way, it looks like they may be saying that the materialness of the information may be an issue in terms of an actual case as they summarize the results of the investigation, and that combined with other weaknesses it makes further investigation or enforcement unwarranted.
But don’t jump on that yet. I want to read everything I’ve printed out, and scribble some notes, and I may change my mind as I read on.
It will take me some time.
However, I wanted to try to answer your question promptly, if only in preliminary fashion.
Xenophon:
Again, it’s a tool. It can be used badly or well. There are lots of valid reasons why members of a partnership or LLC may desire anonymity, privacy being the foremost.
Again, it’s the purpose that’s in question, not the tool.
It would be my opinion that in the case of Aloha, even if privacy was desired or other reasons for anonymity needed, that their should have been a disclosure that Aloha represented Harkens insiders, and Harkens capitol in its ownership.
Of course then, the whole reason for doing it in the first place would have been spoiled, since it appears to have been formed to specifically avoid disclosing such info, I can see no reasonable legitimate purpose for it here.
So I agree. Aloha’s a bunch of hooey. The question is did anybody outside of the executive committee know?
No. The stock reaction is just a single issue in trying to build a case for materiality, of which they discuss several, and I do not believe that was the hinge upon which the investigation turned.
You’re suggestion that it was, was a misrepresentation.
Please also note that
Bush’s sale has been established as part of a preexisting plan to purchase the Rangers,
In that same time frame he had been liquidating other stock holdings to make the purchase.
He had been recommended to diversify by his accountant/Financial Adviser
He received two unsolicited phone calls from a broker who had a buyer seeking to purchase a large block of Harkens stock.
It is unlikely in the extreme that Bush was aware of the makeup of Aloha or the specifics of the transaction in question.
As a board member, and a member of the audit committee, he recieved the same updates as other board members on how the company was doing, and at the time of the sale, the information distributed would suggest a 4.2 mm loss for the quarter which was in line with expectations.
Bush acted properly in consulting the CEO and counsel before the time of his sale to ascertain whether he could legally do so, and was so advised that he was in no way privy to any information that preclude such a sale.
He filed his intention to sell promplty (but failed to file the follow up in a timely fashion.)
“Fully informed” does not seem to mean what you think it does. Or else Mr. Watson is just plain wrong. Weekly updates on company standing (distributed to all board members) were on a significant lag.
Only members of the executive committee were aware of the SEC’s investigation of the Aloha transaction, and as of June 22 they would have no inkling of the scale of what was coming.
Bush’s consideration of sale of Harkens began as early as the time he agreed to purchase the Rangers which would be several months prior. He had been in contemplation of the sale based on phone records and discussions with brokers and advisors since early June (and we got the independant broker who cold-called’s testimony as well.)
In reading through these documents, I see nothing unusual or surprising.
The SEC’s conclusions seem to be:
That the information in question (knowledge of the announcement of larger than expected losses) does not appear to have actually been in existence either at the time of Bush’s original consideration of sale, and just partially formed at the time of the sale itself.
Not even the executive committee itself seemed to be aware of the scope of the earnings restatement the SEC would later force upon them for that quarter.
In short, it does not seem even possible that Bush posessed information regarding the coming earnings announcement/restatements.
In all seriousness, I see nothing innapropriate whatsoever about Bush’s actions. He was very diligent in making sure that his sale was kosher before he did it. He had bonafide reasons for doing it that had nothing to do with Harken. Since the information in question didn’t really exist at either the time of contemplation or at the time of sale, it’s hard to make a case that Bush committed illegal insider trading.
His only lapse was filing late.
So far any allegations to the contrary seem to me pure innuendo and irresponsible mudslinging.
Oh, is that all? The missing word is “information”, I suppose.
Where did he get it? Well, of course, any number of places, as we are given to understand he is highly paid consultant, and member of both the auditing and restructuring committee.
But, ok…the document titled “Chronology”. Page 3refers to a meeting of both the audit committee and the full BoD. Wherein:
“Discusses request from IMR to approve proposed sale of its 80% interest in Aloha to Advance. Authorize Faulkner to proceed…”
Note that Jr. is clearly stated to be in attendance at both meetings
Clearly an occasion where information might be passed, don’t you think?
Of course, it might not have been. The exhaustive SEC investigation, involving apparenty several phone calls, states unequivocally that Jr. did not necessarily know, as executive committee members were not always advised.
And yet this is a major transaction, is it not? It rises to the attention of the full board. In fact, there are only two issues before the board at this meeting.
Clearly, this is not something on the level of whom to buy copiers from, this is a matter which rises to the very top level of decision. One would expect persons charged with making such a decision would be duty bound to be fully informed.
And Jr. were to inquire after facts and details, as a member of all these powerhouse committees, is it plausible to suggest that his inquiry would be rebuffed, that he would be denied such information? I think not.
Where did he get the “insider info”? He’s smack dab in the middle of the inside!
Will that do?
(Noted your most recent posting as this goes up. Will respond. Oh, yes indeed. We got lots more to discuss, you betcha!)
I’ll test a thesis and explain this to you the way I would my two year old;
I don’t want to play with you anymore. You’re not nice. You’re not playing fair. You’re cheating and lying. You should be ashamed. Stop cheating. Stop lying. Say your sorry, make up for it and start playing fair right now, or I’m not playing with you anymore.
In the final analysis it strikes me that going after Bush over this in the manner done in this thread is little better than the opposite side of the spectrum frothing at the mouth about Clinton.
I think that’s all elucidator gets from your questions, Scylla.
But come on, isn’t it at least amusing to keep this going? How many more pages can he hold out? What questions will he ask next without answering yours? What bold assumptions will he make?
The “Whitewater” phase of the Hunting has been conclusively proven to be void of any malfeasance, after an investigation that was as much public as it was relentless. Clearly, no comparison can be made as to the relative thoroughness.
Indeed, just today, came the press conference. When asked by a reporter if he would permit the release of all SEC documents regarding The Harken Boy, ibn Bush fell back on his previous litany “all investigated, all done, all gone”.
Some less charitable persons might regard that as something of an evasion of a legitimate question.
Wouldn’t the most convincing answer be “Sure. I’m clean as a whistle, got nothing to worry about. You can see anything you want to see.”
Would I demand any serious change in administration, should my worst fears/fondest dreams be realized? Of course not, something that occurred long before Jr. held any public office should have not have any more legal impact than would be appropriate for any other citizen. I would accept the argument that, should it be shown by investigation that a prosecutable case exists, that such prosecution should be deferred until such time as Jr. is not the sitting President.
I would, of course, do as best I can to bring that glad day closer. But I do not anticipate that day to be any closer than Jan. 2005. Until that time, we’re stuck with him.
But this man is being presented to us as an example of probity and intelligence, and most importantly, responsibility. He urges us to policy that is at best risky, at worse catastrophic. Many of our fellow citizens accept the image that has been marketed so successfully. Hence, they are more inclined to accept his judgement
I think, as I’m certain you already know, that this trust is misplaced. If the result of any potential investigation should prove to be nothing more than a wary skepticism, I could not expect to be more satisfied.
I don’t believe, pending an investigation to prove otherwise, that Jr. is culpable, in any criminal sense, in the Harken Affair. I think it is far more plausible that he was hired for no other reason that his last name, that he was permitted no responsibility, never mind having any thrust upon him. He was in the grip of Texas Awl Bidnessmen, men for whom the terms “rapacity” and “deceit” represent positive virtues. So they gave him the mushroom treatment: kept him in the dark and smothered him with bullshit.
And it is precisely that that Jr.s current handlers are so anxious to avoid having become common knowledge.
And in that endeavor, I wish them confusion and failure.
When I read your last post, I was smitten with an attack of faux dignity. “Harumph” I said to myself, who wasn’t really listening “I shan’t answer such a slur. The very idea…”
And yet….here I am.
So be it. Mamma didn’t raise no saints, but no fools nonetheless.
Firstly, it isn’t given unto you to be both player and umpire at the same instant. You display a perfect willingness in the dishing out, and yet……
You kept harping about a refusal to answer a question. As I stated, with the bland metaphor of “smelling a trap”, your question was a rhetorical device intended to lure me into stating an indefensible position! You underestimate me, sir, and that is your privilege. But you can hardly expect me to cooperate.
Indeed, the last post before your ballistic launch into hissy-fit, was to call you on using the word “misrepresentation”. (Another example of a Scyllagism.) It’s very similar to your use of the word “stolen” to describe the document we wrangled over, oh, so many electrons ago. I called you on it, supplied the cites and……BANG!..pop goes the weaseler.
Is this the standard of rhetorical honesty that you say I don’t measure up to? Hell, Scylla, took me three pages to get you to admit that the Harken/Aloha deal was bogus! Oh, wait. “Hooey” A gentle admonition, that.
Nonetheless – as has been pointed out to me privately, when I got tired of just you and me –
(like playing head to head poker, but all my cards are face up and you get to draw twice)
there are, in fact, people listening! One might even effect more minds, more significantly, that the average rock ‘n roll bar band on a Tuesday night.
I mean, now that I look at it – 2000 readers and up. That’s more than a newbie discussion about God usually gets! That’s not to be sneered at.
Its somewhat like those TV shows except – we can’t interrupt each other! In order to give an honest response, we gotta read every stinkin’ word!
Ah, well, no biggy, I guess. Once the Cheney-Haliburton thing starts to cook, you’ll be back. And, if I am forced to toss out my insights without a stern call for evidence, I suppose I can live with that. Might take some getting used to……
But as the more enlightened party, I have certain obligations. I must at least offer you the option of the gropnick ( an Ahramaic word known only to a certain sub-section of Armenia and people who watched Taxi)
It means to assume any given unpleasant event never happened, and to act accordingly. The event in question here would be your last fulsomely obnoxious post. I will gropnik, but I will not pretend for a moment I owe you any kind of deference, apologetic or otherwise.
And, hell, we ain’t even got to the stuff about Bahrain, Mr. Jordan (newly announced ambassador to (drum rooooooll) Saudi Arabia
