Stating the Obvious

The Wall Street Journal today repeated a point that I made in Wall Street Versus America, in a Salon article two years ago, and in this blog countless times: that the lessons of Enron have been lost, and that regulators have learned absolutely nothing from the corporate scandals of the early part of this decade.

Today's financial crisis has shown what a real debacle looks like. And it has made clear that executives' duties to public companies have, if anything, been loosened, not reinforced. What is worse, the post-Enron crackdown appears not only to have failed to stop flagrant corporate risk-taking, but to have lulled Washington to sleep.

"Enron was a gnat compared to what's going on," said Sidney Powell, a Texas attorney for former Merrill Lynch & Co. employees. Those employees still are awaiting retrial for participating in a Nigerian power deal with Enron in 1999. "There is blame far and wide here, beginning 20 years before. [Securities & Exchange Commission] failure. Congressional failure. The whole system needs to be retooled."

This is a problem that one sees with the law-defying gnats of Corporate America, such as my favorite corporate fraud poster child Overstock.com, and the burned-out carcasses of Wall Street. It is as if Enron never happened.

The two presidential candidates, while vaguely running against Wall Street, have been slim indeed in the specifics of what they will do to rescue the regulatory apparatus from years of neglect.

© 2008 Gary Weiss. All rights reserved.

Farewell to a Corporate Blame-Shifter

One of the great blame-shifters of the corporate world is gliding off into the sunset. His name is Eugene Melnyk, and he runs a dodgy little Canadian drug company called Biovail. Melnyk will be packing up his things and retiring as CEO as of June 30, the AP reports.

Isn't that terrible? I was so getting used to reading about this company's most famous products: the junk lawsuits that it files to suppress negative information in the marketplace.

The first, which it filed against a short-seller back in the 1990s, went nowhere and was dropped.

The latest was filed in February 2006 (here's a company handout announcing the glorious thing) and was filed against villainous hedge funds and independent analysts. You know -- the guys who have the audacity to think that Biovail is a piece of cow dung? The famous train wreck Overstock.com filed a similar suit several months earlier.

The second lawsuit got him a certain amount of sympathetic attention from the media, including a spectacularly naive 60 Minutes segment. That report was so awful that it didn't even mention his 1990s lawsuit, which was filed against a shorts-seller and was similar to the second suit he filed.


Either Biovail is a victim, as Melnyk has asserted, or a piece of cow dung, as the analysts and short-sellers allege. Which is right? Well, "dung" seems to be winning, hands down.

The SEC the other day filed a Wells Notice, which means that it is about to file charges against the company and Melnyk personally. The U.S. Attorney's office in Brooklyn is also investigating. Joe Nocera had an update in his Saturday New York Times column (the one that sent Overstock.com Patrick Byrne bouncing off the walls last weekend).

Hence the entirely coincidental retirement.

As you can see from Joe's column, junk litigation works. It got Banc of America Securities to drop its analyst coverage of Biovail. Thus the company was able to achieve its aims by simply filing the lawsuit and not proving a thing.

Isn't that terrific? After Enron, tough analyst coverage was supposed to be the aim of all red-blooded Americans. But now we know how that was all just a lot of bull. Analysts are supposed to write glorified press releases, showering praise on inept CEOs like Melnyk and Byrne.

So bon voyage, Eugene Melnyk! You'll be missed. But there are plenty of incompetent CEOs following in your footsteps. Blame-shifting has been all the rage for some time, and the SEC is only just catching up.

P.S. I wonder if 60 Minutes is going to do a follow-up if and when the SEC files charges?

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

'Sharing Concern' About Business Journalism

Winokur (second from left) and other Enron board members in 2002

I was intrigued to see the following in the memo announcing a new editor for CJR Daily's "Audit" business journalism watchdog site, which appeared on the Romenesko media blog:

The Audit is made possible by Herbert Winokur, Jr., a business executive turned investment manager, and by other individuals who share a concern about the quality of business reporting.

Can't understand why CJR is being so modest, and didn't provide more details about the backers of this project. Winokur is a pretty well-known guy, at least to those of us who followed Enron. He was a longtime member of Enron's board of directors during all the stuff that made Enron a household word, and was chairman of its finance committee.

I can understand Winokur's concern about the "quality" (i.e., favorableness or lack thereof) of business reporting, considering how much of a shellacking he and the other Enron board members received.

Many articles covering the scandal, such as this one from early 2002 in the New York Times, pointed to the role of Winokur's finance committee in reviewing transactions by Enron's off balance sheet partnerships.

He and other members of the Enron board were hauled before the House Commerce Committee, and Winokur did not exactly cover itself in glory, according to Frank Rich of the Times. Pointing to an internal report on the Enron disaster, Rich said:

One author is Herbert Winokur Jr., an Enron outside director who was in the fortunate position of having a big say in a report passing judgment on his own questionable corporate citizenship. Appearing before the House Commerce Committee with condescension in his voice and a flag pin in his lapel, he contradicted himself so much under questioning that one member, Bart Stupak of Michigan, told me he had ''impeached his own testimony.''

Gee, I'd be concerned about the "quality" of business reporting after reading stuff like this.

Or reading about how the board itself was slammed for its role in Enron's collapse. Or reading another Times article after Winokur resigned from the Harvard board in April 2002:

"Many shareholder advocates and others have been calling for Enron directors to be removed from the boards of other insitutions." The Times pointed out that "a special committee of the board concluded that [the Enron board] failed to provide adequate oversight."

Wouldn't that make you up in arms about the "quality" of business reporting? Makes me wonder about the identity of the other "individuals" who share Winokur's "concern" about business reporting.

Oh, that new "Audit" editor is Dean Starkman, formerly of the Wall Street Journal. I wish him well. He does not have big shoes to fill, as I and other critics of "Audit" have pointed out.

The former editor raised eyebrows for, among other things, his peculiar affection for websites that push wacko conspiracy theories and personally attack journalists to advance the interests of latter-day Enrons.

I always thought that was a bit odd -- until I read that memo on the Romenesko site.

UPDATE: Loren Steffy comments: "Actually, I think Winokur may be on to something. I can think of a few other blogs he might want to finance. How about one called 'Minding the Store'?"

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com

Some Thoughts on Enron

Salon.com has some thoughts on Enron -- and how we have forgotten its lessons -- by an author familiar to us all.

(Re one of the comments: after the ad appears for a few seconds, click on the "Enter Salon" link at the bottom.)

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

The Real Mess at Enron -- Naked Shorting, Of Course!

I promised myself that I could let at least one day go by without saying anything about the wild and (literally) crazy naked-shorting cult, but .... well, I can't resist. They are fascinating in a grotesque way, and attract interest the way people crowd around a traffic accident.

Anyway, a reader brings to my attention what is actually a very typical message on a Yahoo stock message board from Mary Helburn, who is executive director of something called the National Coalition Against Naked Shorting.

After first noting a report of supposed naked shorting in UAL stock in 2002 (shortly before it went bankrupt), she went on to point out that everything you have read is wrong. Enron and other major corporate disasters of recent years were all victims of naked short-selling:

It isn't just UAL. It is any company that has bad news.. CPN, DAL, Enron...

This is the tip of the iceberg.... and it is all coming out..

They prey on small caps that they can manipulate and large caps under stress. They sell,sell, sell and make it look like it was all the company when it was really naked short selling. Wall Street, hedge funds, brokerages, do not want this out for the public to know. [Emphasis added]

Enron shareholders should be collecting from the brokerages for their losses.

M.

CPN was the stock symbol of Calpine Corp. and DAL was Delta Airlines -- both of which wound up in bankruptcy after years of well-publicized corporate woes. Or at least, that is what "they" wanted you to think. That it was the company. It wasn't! It was them! Them! Themmmmmm!

Another message board poster tried unsuccessfully to reason with Helburn. . .

Do you really think UAL could have sold some shares in a secondary at $5 to pull it out of its debt death spiral, but was prevented from doing so by abusive shorting causing its stock to go to 30 cents?

That isn't what happened. There was abusive shorting, but the stock went worthless because the business went bankrupt due to debt overcome by massive operational losses.

You are mixing 2 separate issues together, Mary, and I cannot understand why you continue to do so.

. . . but she held her ground.

Remember, this is typical -- a mainstream example of the rubbish disseminated by the Baloney Brigade.

To answer the gentleman's question, there's a simple explanation why the Baloney Brigade "continues to do so," generating this pap day after day: It is all they have.

There is no naked shorting scandal, only paranoid fantasies. Deprived of facts, all they are left with is fiction -- and it would be funny if these bozos weren't so influential with our regulators and lawmakers.

UPDATE: A reader points me toward another manifestation of this effort to slap "naked shorting" on every financial scandal of recent years, this one appearing on the "blog" of a Baloney Brigadier named Dave Patch. On Feb. 13 (a Friday, perhaps?) he posted a rambling essay devoted to explore that Enron-as-shorting victim theory.

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Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.