Fooling Some of the People All of the Time, a Long Short (And Now Complete) Story, Updated With New by David Einhorn (tohfa e dulha read online TXT) 📕

whether the government questioned Robert Tannenhauser or any of the Allied officers who served on BLX’s board. The government refused to answer.

Sachs’s boss, Amy Berne, told us, “Keep in mind we don’t have to run this investigation the way you want us to.”

Brickman replied, “You had a smoking cannon and no one was even willing to look.”

Berne, who could barely contain her dislike of us, threatened, “In a minute, I am going to say that only attorneys can speak.”

We thought this original qui tam case stood a better chance of surviving than the shrimp boat case. A year earlier, to our disappointment, the appellate court had rejected our appeal of the shrimp boat case dismissal in a one-page ruling that found that our case relied “entirely” on publicly available information. In this original case more of the information came from the nonpublic BLX delinquency report, the Kroll investigation, and the information the government obtained from BLX that it showed us. However, in January 2010, the appellate court dismissed a relator in another case and ruled that relators that relied on publicly disclosed information “in any part” could be dismissed from cases. Effectively, the court simply inserted this new language into the statute. Under this standard, we stood practically no chance of surviving an effort to exclude us from the case.

Sachs cited the recent ruling and told us that if we didn’t settle, the defendants would seek to have us dismissed from the case.

Berne advised us, “You guys should settle.” When our lawyer asked one last time whether they had interviewed the top three people—Tannenhauser, Walton, or Sweeney—Berne replied, “It will be this or nothing for you.”

Rene Booker, a senior DOJ lawyer from Washington, D.C., finished by telling us that this was one of thousands of qui tam cases they see. The investigation of this one was complete and they had “used an excessive amount of resources already.” She pointed out, “If you think it has been difficult to deal with you, it has been harder to deal with the defendants,” and the DOJ would push the settlement “with or without you.”

The DOJ had tried to justify the low settlement by performing a so-called risk analysis, where it handicapped its chances of winning and chances of collecting if it won. The risk analysis made little sense to me, as it seemed that every assumption was lowballed in order to justify a low settlement. It even included a substantial “collectability” discount for the money the DOJ had already collected from BLX. I decided to take one last shot at arguing the analysis:

I pointed out that of the $26.4 million in the settlement, BLX had already paid or escrowed all but $8.2 million so there was little downside risk if the government litigated the case. If one compared that to the potential trebled damages if it won, the government was settling the case for only 2 to 3 percent of the possible recovery. I said, “I just don’t understand the risk analysis here. You are only risking $8.2 million if you lose, but could get hundreds of millions if you win.”

They were unimpressed.

Sachs pointed out that Allied’s lawyers and the mediator gauged the possibility of prevailing against Allied at zero. Booker added that the government has “settled much better cases than this one.” Harris concluded, “You are looking at this as an investor, gambling $8 million versus hundreds of millions. We can’t look at it this way.”

Sachs asked whether anyone had any other questions.

A couple of weeks later, we decided that we had done the best we could, and as distasteful as it was, we took the deal on the table. The documents were signed just in time for Allied to complete its sale to Ares.

CHAPTER 39

Some Final Words to and from the SEC

Upon its publication in May 2008, I sent copies of Fooling Some of the People to many influential Washingtonians, including elected officials and the SEC commissioners and lawyers. A few weeks later, I received a FedEx package with this note:

She didn’t even get the title of the book correct.

I received two other returned copies with similar personal notes about “gifts” worth in excess of $20 from SEC Enforcement lawyers. In retrospect, I should have marked the packages “EVIDENCE.”

In March 2009, the Government Accountability Office (GAO) issued a report to Congress regarding the overall performance of the SEC Enforcement division. The report validated many of the conclusions of this book and indicated that problems at the agency were both widespread and deep. The report summarized that in 2006 and 2007, the SEC revised its policy on penalties to focus on the direct benefit a corporation gained through its misconduct, and whether a penalty stands to cause additional harm to shareholders. As a result, penalties fell 39 percent in 2006, another 48 percent in 2007, and another 49 percent in 2008. This left penalties in 2008 down a cumulative 84 percent from 2005. According to the GAO, “We found that Enforcement management, investigative attorneys, and others concurred that the 2006 and 2007 penalty policies, as applied, have had the effect of delaying cases and producing fewer and smaller corporate penalties.” The report concluded, “A number of investigative attorneys told us that because the policies, as applied, created a perception that the SEC had retreated on penalties, defendants or potential violators have become more confident or emboldened.”

The philosophical and, perhaps, political bias against penalties was so great that in one case where a company actually proposed a settlement with a higher penalty than the Commission would approve, the SEC required its attorney to return to the company and explain that the Commission wanted a lower amount.

The bias also discouraged Enforcement attorneys so that recommending no penalty at all was the path of least resistance. This covered the period when Allied claimed vindication precisely because the SEC inflicted no monetary penalty for its misconduct.

Instead, the GAO report outlined that the SEC’s priority was to spend its time and attention on small-fry