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) 📕

to the hotline, asking the office to audit six of the more suspicious USDA loans. After several weeks, Brickman had not heard back about his hotline complaint, so he sent an e-mail asking the USDA why it had not gotten back to him. David Lewis, a USDA official, called Brickman, but didn’t say much.

After not hearing anything for several months, through the FOIA we learned why the agency did not respond to the hotline complaint. “We are declining this as an audit matter due to lack of available staff,” the USDA wrote. “We are planning to conduct an audit of this lender’s activities in fiscal year 2007.” In other words, the agency didn’t have enough money in its current budget to determine if it was losing money.

One would think that when confronted with the Bill Russell audit, BLX would rush to pay-up and settle. Hardly. The Arkansas office sent an “Adverse Decision Letter” to BLX demanding repayment. BLX filed an appeal. A hearing was scheduled on July 25, 2006, on Long Island, New York. BLX had made an FOIA request for information and appeared to be trying to delay things.

I sent Greenlight’s general counsel to the hearing. Each side flew four people up from Arkansas and Washington. A USDA hearing officer came in from Connecticut the night before with twelve boxes of documents. The gathering lasted five minutes. The parties pre-agreed to a sixty-day delay. The government agreed to withdraw its adverse finding for sixty days to negotiate a settlement.

Then we learned that the auditor who wanted to do the audit left the USDA for a position in another government agency. He signed off with the “hope” that his proposed audit of BLX will go forward in October/November.

In November 2006, the Arkansas USDA office sent a fresh draft demand letter for the Russell Oil loan to be repaid to the national office. Brickman heard from the Arkansas office that the national office wanted to “do a little housekeeping and close the file.” Brickman responded, “You mean they want to sweep this under the rug?”

“Exactly right,” the USDA rep said.

In a follow-up conversation a couple of days later, Brickman expressed concern about the closing of the file. The USDA rep said, “This is not the only case that obviously they have problems with us.”

“They is BLX or USDA?” Brickman asked.

“BLX has other loans we have guaranteed that—” the USDA rep replied.

“Look odd?” Brickman said.

“Yeah. And there are some issues that I wish I were free to discuss that would make your skin crawl.”

A few minutes later Brickman asked, “Why do you think Washington, D.C., is putting pressure on you to hide or not do anything? The SBA is doing the same thing.”

“I don’t know,” the USDA rep responded. “We are just employees. This is off the record.” (When the rep was subsequently approached for permission to use the material for this book, the rep not only granted permission, but sounded pleased a book was being written about this.) The USDA rep continued:

Somebody is in bed with them. Okay. Who did they get in bed with? And we don’t know that. We don’t have a clue as to if there is or not. The questions that came back to me when we sent the letter out back to the national office had nothing to do with the facts of the letter. They asked about a couple of internal things. And it’s just, I guess, so hard to prove and has a chance of receiving so much publicity you know if they could just get it to go away, it just goes away. I just don’t know all the answers to that.

Later, the USDA rep clarified that the internal things meant, “We are getting criticized. And I was told from the get go that is what would happen. The first person to get criticized would be me.”

CHAPTER 26

The Smell of Politics

The SBA failed to act on BLX, and, worse, kept renewing the company’s status as a Preferred Lending Provider. The SBA pushed back hard on our whistle-blower complaint. Though the investigations have been open a long time and the fraud is obvious, the U.S. attorney in Washington, D.C., had not yet acted. Further, the SEC allowed Allied to become a bigger problem by routinely approving registration statements for new stock sales. It doesn’t make sense—until one reviews Allied’s political connections.

Allied is based in Washington. The headquarters is on Pennsylvania Avenue. It was founded by George Williams Jr., who began his career in the FBI. As mentioned earlier, Sweeney worked at the SEC. Lawrence Hebert, who sits on Allied’s Board, was the CEO of the politically connected Riggs National Bank until its money laundering for, and illicit assistance to, the Chilean dictator Augusto Pinochet caused scandals, which induced Riggs’ sale to PNC Bank in 2005.

Walton was a director of Riggs from 1999 until its sale. J. Carter Beese Jr., an SEC commissioner from 1992 to 1994, was another director of Riggs and ran its venture funds. Forbes.com reported he was a senior adviser to Allied Capital. He appeared as a representative of Allied at an SEC roundtable in 2004. Ironically, Beese Jr. was known to be particularly active on corporate governance issues at the SEC. He was named by a federal judge and the SEC to be trustee of a $250 million stock fund to be distributed to victims of accounting fraud.

In July 2004, The Hill, a newspaper that covers Congress, reported that some bankers were encouraging their colleagues to contribute to Senator John Kerry’s presidential campaign because of a proposal by President George W. Bush to cut all subsidies to the SBA’s 7(a) program. As a senator, Kerry was the ranking minority member of the Senate Committee on Small Business & Entrepreneurship, which oversees the SBA. In 2007, he became chairman of the Committee, when the Democrats took control of the Senate. The Hill article reported that Deryl Schuster of BLX “sent an e-mail to industry members encouraging them to contribute to