| Weekend
Edition
September 9/10 , 2006
X-Raying Greed
Ben Stein and Wall
Street
By RALPH
NADER
It
is fortunate for Wall Street’s institutionalized criminals
and looters of investor assets that Ben Stein likes acting. Because
that leaves this skilled x-rayer of corporate fraud and greed with
less time to produce more of his incisive articles in major media
outlets like the New York Times or Barron’s. And even less
time to follow up his revelations with petitions to the Securities
and Exchange Commission to stop these sophisticated robberies.
Ben
Stein is a lawyer, economist and writer, when he is not doing parts
in television and Hollywood movies or hosting game shows on cable,
where guests match wits with him. Because we are both committed
to protecting the millions of unorganized investors in America (he
supports our campaigns),
I
tried to persuade him to do more writing and less acting.
Who
in this country can better sniff out, discern and convey, in clear
English, all those artful shenanigans that these financial lizards
strive to slide beneath the public’s and regulatory agencies’
radar? Ben is too honest to suggest any other names.
On
September 3, in the Sunday New York Times, Mr. Stein wrote an article
on management buyouts of their company’s shareholders which
he declared should be “illegal on their face.” These
deals are occurring with greater frequency because the market corrections
have left companies’ stock prices below their real asset value.
Working
with private equity firms, investment banks, or other pools of capital,
these company bosses sniff the big difference and see gold for themselves.
Why manage the assets for the share-holders for good compensation
when they can do these buyout schemes and receive many times their
current generous pay – maybe even getting super-rich if later
the private company is taken public again?
Ben
Stein proceeds to give three reasons why such buy cheap, sell dear,
moves by management should be prohibited.
First, there is the breach of fiduciary duty. “Managers,”
he says, citing settled law of trusts, “are bound to put the
interests of stockholders ahead of their own, in each and every
situation.”
Second,
Managers are “supposed to avoid any conflicts of interest
with their trustors, the public shareholders, or even the appearance
of it.” In these cases, managers want to pay the least for
their shareholders’ assets while the latter expect to get
the most. Unfortunately, the investors are not informed about this
lucrative gap. But the buyout investors are told about this windfall
by management.
Third,
what follows is something called “insider trading.”
Mr. Stein writes: “What is a management buyout other than
trading not just some but all of the shares of the corporation based
on inside knowledge of just what the company is worth? How can this
be allowed? How long until a wary court notices? Or Congress? Or
the S.E.C.?”
Right
on Ben! You’ve asked the question, punctured the myth of the
“fairness letter,” extruded by some investment bank
for a nice fee, so now when are officialdom’s answers coming?
A
few days later in the September 8th Wall St. Journal a headline
blares “In Some Deals, Executives Get a Double Payday.”
After noting that private equity firms have “notched seven
of the 10 largest leveraged buyouts of all time this year,”
the reporters go on to show how these maneuvers produce their double-header
of gold mines. Then as if to show their naivete, they add: “Shareholders
have the ultimate say: They can always vote a deal down.”
Are
these fellows auditioning for Saturday Night Live? (I recommend
Ben Stein to be one of this fall’s hosts) The shareholders
are not given the facts. Indeed they are deceived by false salesmanship.
They are not organized.
What’s
more, the system is so rigged by corporate rulers that the owners
of the business can’t ordinarily even get each other’s
names to mount an offensive. And the whole uphill struggle is very
expensive. The owners have to pay their own bills. While management
is lunching off the company’s overhead in many ways.
Along
with the overly passive institutional investors, there are tens
of millions of small investors in America. Over the years some publicized
attempts have been made to reorganize them. They have failed. The
outrages through ever more devious arrangements keep growing and
the stakes skyrocket into the billions of dollars.
Another
try at forming a powerful organization of investors – starting
with a few hundred thousand of them with a professional staff to
champion their causes in the courts, at the Congress and before
the Securities and Exchange Commission is very much needed.
Three
men could make this happen quickly. They are John Bogle, founder
of the Vanguard Funds, Arthur Levitt and William H. Donaldson, former
Chairs of the S.E.C. All of them are very well connected with other
like-minded professionals.
All
of them are well-off. And all of them are at that age in their life
when concerns about – ambition, status or lucre – are
behind them and they can focus on the fundamental principles of
investor fairness. They can warn that someday, if reforms are not
installed, the forces of unbridled greed could bring down the whole
porous architecture of the securities market.
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