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) 📕

It turns out that about a month before the conference call, Brickman discovered in a Florida regulatory filing, that BLX Commercial Capital LLC included Walton and Sweeney as managing members (the equivalent of directors) in 2005, but “deleted” them as members in its 2006 filing. By early 2006, the various investigations, including the Michigan investigation, were well known to Allied. Was this a sign that Walton and Sweeney saw trouble ahead and wanted to distance themselves from BLX? Maybe, but the executives weren’t talking.

On March 6, 2007, Allied announced that BLX had reached an agreement with the SBA to remain a preferred lender and would retain an ability to sell SBA loans into the secondary market, provided an independent third party reviewed them. BLX agreed to pay the SBA $10 million to cover some of the fraudulent Detroit loans and put an additional $10 million into escrow to cover potential additional payments to the SBA in the future.

The point of being a preferred lender is to make SBA loans without prior agency review. If an SBA-approved third party now needed to approve BLX loans, what was the point of being a preferred lender? It sounded like a face-saving compromise, where BLX could publicly claim to be a preferred lender without actually being one in practice.

On March 2, 2007, a senior staffer on the House Committee on Energy and Commerce invited me to speak at its upcoming hearing to consider legislation against telephone pretexting. A week later, I appeared before Congress on a panel of speakers (government officials and telephone industry lobbyists) and gave my views. I was the only victim of pretexting on the panel. The chair welcomed me by commenting that pretexting “is not a crime that has no consequences. Mr. Einhorn, the committee thanks you for coming before us and I am sorry, indeed, for what has happened to you and your family.”

I began: “My testimony is about a corporation and management team that in attempting to ensure their survival placed no limits on the exercise of their power. Pretexting is a brazen invasion of privacy. When a large corporation has its agents spy on private citizens in order to intimidate them and silence criticism, it threatens more than just the sanctity of the individual’s privacy; it threatens the freedom of the securities markets which we take for granted.”

I told Congress the Allied story: my speech; my concerns about its accounting and operational deficiencies; investment valuation; and how its small business lending unit defrauded the SBA and USDA government lending programs costing taxpayers hundreds of millions of dollars. I discussed how Allied, rather than own up to its problems, attacked me and stole my phone records.

I noted that while Allied and Walton initially denied stealing my records, the company’s recent admission of the theft raised more questions: Who obtained the records? Who else’s records did they steal? Who authorized the theft, and for what purpose? What did they do with this information? And what else might these agents have done to gather information about their critics?

Allied’s disclosure lacked both an apology and an explanation. My testimony continued: “After the Hewlett-Packard pretexting scandal, HP immediately apologized to the victims and promised to give the victims a full account. But, to date, I have heard nothing from Allied. No one has contacted me to apologize or explain who invaded my privacy and my family’s privacy. Allied has not yet admitted to taking anyone else’s records. Of course, they don’t deny it, either. It is simply not credible that Allied management did not know about this.”

The members of Congress seemed appalled by my story and they followed up with several questions. Congressman Michael Burgess from Texas prefaced his question to me by saying, “It won’t do any good for me to apologize to you, but I’ll do it anyway.” The chair asked the representative from the Federal Trade Commission whether it was investigating these business practices by Allied Capital. The response was that such investigations are not public, but the agency would be willing to have a private briefing with the Congressional staff. Chairman John Dingell indicated that the record would be held open for Allied Capital to offer any response. It never gave one.

Just as a former BLX employee called me after my speech in 2002, the Michigan indictments spurred two more former employees to get in touch. Steve Auerbach, a former loan “workout specialist” in BLX’s New York office, called me on April 12, 2007. He wanted to meet, but not in my office, suggesting a public place—a restaurant. I’m not sure why he wanted the cloak-and-dagger, but I agreed to meet with him at a Manhattan restaurant the following day.

Daniel Roitman and James Lin from Greenlight came with me, and Auerbach brought along Tim Williams. Williams and Auerbach both started at BLX in 2001, a few months after Allied Capital bought BLC Financial. Williams was the team leader of BLX’s workout group. Auerbach worked for Williams as one of the workout officers. Both left BLX in 2003. BLX fired Williams. Auerbach left after Len Rudolph, a senior BLX executive, told him Tannenhauser was about to fire him. Rudolph said he couldn’t prevent “the final nail” in Auerbach’s coffin, but referred him to a friend at Sterling Bank. Rudolph’s friend promptly hired Auerbach after a “two-minute interview” for an $80,000 a year job, then abruptly fired him for no apparent reason three weeks later. Because Auerbach had quit BLX rather than wait to be fired, he was not entitled to any of the benefits he would have received had BLX terminated him.

Williams and Auerbach had debated contacting me for the past two years. They claimed that after reading about me in the recent press in connection with the Harrington indictments and having difficulty getting new jobs, they decided to talk to me, hoping to share information. They