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) 📕

many of his subordinates asked to be transferred away from his supervision. As for taking my testimony, Kilroy, the other SEC lawyer during my testimony, believed that Braswell was over the top and tried to “put on a show” for my lawyer.

A few months after I testified, Braswell was asked to leave Enforcement, and he left the SEC that fall. He obtained clearance from the SEC ethics office to register as a lobbyist for Allied by claiming he never worked on any Allied-related matters while at the SEC.

However, there was no dispute that Braswell worked on the Greenlight investigation, and in the course of investigating, learned a substantial amount of sensitive, nonpublic information regarding Greenlight and Allied. He also met with Allied several times during the investigation. Braswell said the only thing he learned about Greenlight that he passed on to Allied after he left the SEC was the name of my lawyer.

In 2007, Allied’s lawyers told the SEC that Braswell was responsible for the pretexting of my telephone records. Allied’s lawyers said Braswell had hired a public relations firm, which hired a private investigator to obtain the phone records. The SEC took no action on the matter. As part of its investigation, the SEC-OIG inquired with the U.S. Attorney about its pursuit of the pretexting case, only to learn that the files had been placed in storage and could not be located. Maybe the DOJ does not even have a J drive.

According to the report, the SEC took no action because it could not find a violation of securities laws in the pretexting. While I don’t know how hard it tried, I do believe the SEC needs to have a role in protecting market participants from retaliation by issuers. If the SEC thinks there can be possible securities laws violations from investors discussing companies, certainly there must be corresponding protection for investors against companies behaving as Allied has in this story. In a 2005 response to a letter from a senator, Chairman Cox wrote that issuer retaliation is a concern and “we will tackle it.” It is high time to follow through.

Certainly, there are plenty of open issues the SEC or law enforcement could pursue, if it had any interest. There should be significant consequences for Allied’s officers, directors, and auditors, who were the enablers, as well as Braswell and Gohlke, who remains employed at the SEC. The SEC also needs to reevaluate the conflict within its soft-on-corporate-crime enforcement policy that avoids short-term ripples to share prices, but harms long-term investors and the integrity of the market.

Arguably, the biggest difference between Allied and Bernie Madoff’s Ponzi scheme is that Allied went through the motions of actually investing the customer money while Madoff didn’t even bother. During the boom years, so many financial institutions were doing so many bad things and behaving so dishonestly, with the regulators looking the other way in just about every instance, that it would be a big job to prosecute all but the most blatant crooks. So Bernie Madoff goes to jail, and Allied management walks free. I wonder whether Andy Fastow, the jailed Enron CFO, ponders why he doesn’t have many more cellmates, particularly since his crime provoked Sarbanes-Oxley—a law passed to make criminal prosecutions easier.

When my father read the OIG report, he sent a simple e-mail: It has almost always been true that “the truth will out.”

CHAPTER 40

The Last Word

When I wrote the hardcover edition of Fooling Some of the People, I knew that I was telling an alarming story about the failures of our watchdogs and gatekeepers—government, media, underwriters, analysts, credit rating agencies, auditors, public company executives, and directors—to protect the integrity of our capital markets.

We charge government regulators with keeping the playing field level, honest, and open, and trust it to protect investors.

We expect the media to gather and report facts objectively and fairly and, in the role of the fourth estate, help expose wrongdoing.

We count on Wall Street underwriters to perform due diligence and sponsor only quality, suitable offerings to investors.

We rely on Wall Street analysts to disclose conflicts and provide complete and accurate research to assist customers in making sensible investment decisions.

We delegate credit analysis to credit rating agencies—to the extent we foolishly continue to use them in an official role—and they are supposed to, at the very least, attempt to analyze all available information in order to issue unbiased opinions.

We depend on auditors to ensure that financial statements conform to accounting rules and reflect reality.

We expect public company managers to provide truthful disclosure in regulatory filings and in public statements.

We hire corporate directors to oversee managers and rein them in when they stray.

Unfortunately, over the past eight years I have seen a systemic breakdown, as each of these groups failed in its responsibility.

I saw all of these failings collide in this case. As I watched these events, I worried about the corruption in our business culture and what I saw as rising lawlessness in our markets and government. In the two years since I completed the hardcover manuscript, our country has endured an enormous financial crisis. The magnitude of the recent financial crisis makes some of the Allied story seem like small potatoes. Today, with literally trillions of taxpayer dollars propping up our failed financial sector, the hundreds of millions of lost taxpayer and investor money described in this story seem almost trivial—except perhaps to the few who benefited from taking the illicit funds at everyone else’s expense.

The sad truth is that, if anything, I underestimated how typical the Allied story was of our system as a whole. Allied certainly didn’t cause the credit crisis, and, as such a small player, it is not very significant in the context of the global markets. However, the failures of our system to deal properly with Allied are the same failings perpetrated throughout the financial sector, if not the entire economy, and the result has greatly contributed to the recent financial crisis.

In a way, it is almost unfair that Allied