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) 📕

defendants that, unlike Allied, could not spend tens of millions of dollars of shareholder money on politically connected lawyers and lobbyists to defend itself. The GAO cited one expert’s opinion that the agency’s Enforcement attorneys “focus on modest cases like small Ponzi schemes, insider trading and day trading, because such cases were thought to stand a better chance of winning Commission approval, compared to more difficult and time-consuming cases like financial fraud.” Tell that to the Allied shareholders whom the SEC was charged to protect.

In December 2007, the SEC replaced its Inspector General. Upon publication of the hardcover edition of this book, SEC Chairman Christopher Cox’s Chief of Staff asked the SEC’s Office of Inspector General (OIG) to review our complaint against Mark Braswell, the former SEC Enforcement lawyer who took my testimony in 2003 and then, after leaving the SEC shortly thereafter, registered as a lobbyist for Allied.

On July 10, 2008, the SEC-OIG opened an investigation captioned “Allegations of Conflict of Interest, Improper Use of Non-Public Information and Failure to Take Sufficient Action against a Fraudulent Company.” The OIG broadened its investigation to include additional allegations made in this book.

On March 9, 2009, I testified in the investigation at Greenlight’s office. The investigation was completed on January 8, 2010. The Washington Post obtained a redacted copy of the 69-page report and ran a story about it on March 23, 2010, which contained a Web link to the redacted report. Most of the redactions concealed the identities of government officials, Allied employees, and Allied’s lawyers. My lawyer’s identities and my identity were not protected.

I question whether it is good policy to hide the identities of these individuals. As there is no penalty for the wrongdoing described in the report, the least the government should do is identify who did what so that we can hold them publicly accountable. To the extent I have determined the redacted identities, I have included them in the discussion that follows. (This redacted report—and, if we ever receive one, an unredacted report—is posted at www.foolingsomepeople.com. We are trying to obtain an unredacted copy of the report and exhibits through the Freedom of Information Act. In September 2010, six months after our initial request, the SEC granted access to 14 of the 92 exhibits. These 14 were all documents that were already public, including our analysis of Allied that we had posted on our web site in 2002—on which the SEC redacted Doug Scheidt’s name.)

Finally, after all these years, the report essentially substantiated the narrative in this book. The OIG found:

Serious and credible allegations against Allied were not initially investigated, and instead Allied was able to successfully lobby the SEC to look into allegations against its rival (me) without any specific evidence of wrongdoing.

Very soon after Enforcement began looking at the allegations made against me, they concluded there was no credible evidence to demonstrate that the activities of Greenlight violated any federal securities laws. Although the investigation was completed by mid-2003, it was not formally closed until 2006 and I was never informed that I was no longer a subject of investigation.

My claims against Allied were validated to a great extent by the Office of Compliance Inspections and Examinations (OCIE).

The OCIE examiner was concerned that the manner in which Allied was financing its dividends was akin to a Ponzi scheme.

The OCIE referred its findings to Enforcement, which never investigated how Allied financed its dividends.

Enforcement determined by mid-2006 that more than a dozen of Allied’s investments had significant problems with the calculation of their values and that Allied had materially overstated its net book income on SEC Forms 10-K for several years.

Enforcement considered fraud charges against Allied and a redacted Allied officer, whom Enforcement found to have overvalued some of Allied’s investments.

Allied’s high-powered lawyers, including Bill McLucas, a former director of Enforcement at the SEC, successfully lobbied for a settlement of a “books and records” charge.

Mark Braswell, who had such significant performance problems that he was asked to leave Enforcement, was able to obtain a significant amount of sensitive information that he might have disclosed to Allied when he became a registered lobbyist for the company only a year after leaving the SEC.

The OIG wrote, “We found concerns with both the OCIE examination of Allied and the resulting Enforcement investigation and believe there are questions about the extent to which Allied’s SEC connections and aggressive tactics may have influenced Enforcement’s and OCIE’s decisions in these matters.”

That summary confirmed what I had long suspected, but the details in the report were far worse than I imagined.

In June 2002, Joan Sweeney and Bill McLucas, representing Allied, met with Doug Scheidt and a current member of Enforcement. Scheidt told Allied that he did not agree with Allied’s white paper about its accounting that said that it was difficult or impossible to apply the SEC’s accounting guidance to a BDC portfolio. Shortly after that meeting, Allied removed its white paper from its web site. (If this is in fact the meeting referenced at the end of Chapter 9, it confirms that Allied misrepresented the gist of the meeting in its subsequent press release.)

Scheidt believed that Allied should be investigated. A group from Enforcement took a look and decided not to act. That group was tasked to bring “real time” enforcement cases, and the accounting issues with Allied appeared to be too complicated to bring a rapid action.

Scheidt also referred Allied to the Office of Compliance Inspections and Examinations (OCIE), which opened an investigation. In a normal examination, three or four examiners spend about a week at the examined firm, interviewing management and reviewing documents. Then they return to the SEC and write a report and, if needed, send a deficiency letter outlining what steps must be taken to come into compliance.

In the Allied examination, only one relatively junior staff accountant was assigned. The SEC never visited Allied even though it was located only 10 blocks away from the SEC’s headquarters. The entire 18-month examination was conducted through letter correspondence. It