Master of the Nonresponse
1. Advantage, Greenspan
For a guy who's not only chairman of the
but also a pretty good tennis player, Alan Greenspan is awfully modest.
By virtue of the finger Greenspan places on the interest rate button, he has near-godlike powers to sow havoc in the financial markets.
Yet, as we learned from a Reuters report Tuesday, he insists on understating the breadth of his power.
We're referring to an exchange Greenspan had during the question-and-answer portion of his remarks, delivered via satellite, to the International Monetary Conference in London.
Asked whether rising oil prices would be more likely to push interest rates higher than lower, Greenspan announced he would duck the question, then explained why he was avoiding answering it.
When the questioner jokingly thanked Greenspan for his comprehensive nonanswer,
reports that Greenspan replied, "I just wanted to say I've practiced that thing of not responding for several decades. I hope I've got it down."
He hopes he's got it down. We at the lab wonder if Michael Jordan has that thing of dunking down, or if Jerry Seinfeld has that thing of being funny down.
The great ones make it look easy.
2. Go Directly To Jail. Do Not Collect $200. Collect $2,000,000 Instead
If you're outraged by the thought of a disgraced CEO, guilty of two felony charges, who gets to keep drawing his salary while he's serving time in prison -- well, you better stop reading right now.
You'd only get apoplectic.
See, we've got some bad news about Andrew Wiederhorn, ex-CEO of
Fog Cutter Capital
, who last week pleaded guilty to two felonies peripherally related to a Portland, Ore., financial scandal, and who was sentenced to 18 months of jail time.
Wiederhorn won't just continue to collect his $350,000 annual salary while he's in prison, as we learned from
extensive coverage of the case.
Good at the Commissary?
That's because Fog Cutter's board, in its wisdom, has decided to grant Wiederhorn a $2 million bonus.
Yes. In honor of pleading guilty to paying an illegal gratuity and filing a false tax return, the board of Fog Cutter has granted its ex-CEO nearly six years' worth of pay.
Whoa. We're pretty jaded here at the Five Dumbest Things Research Lab, but even this news left us agape. So we called up one of Fog Cutter's attorneys, the Washington, D.C.-based Lanny Davis, to find out what possible justification the board might have for this generosity.
After a long conversation with Davis (yes, in case you're wondering, it's the same Lanny Davis who used to be Bill Clinton's special counsel), we boil down the company's justification of the $2 million payout to this: The company's board wanted to stay on Wiederhorn's good side.
See, if the company chose the obvious option of firing Wiederhorn, the business would likely suffer, argues Davis. Fog Cutter -- whose assets include controlling stakes in the Fatburger chain of restaurants, a mortgage broker, and a Parisian modeling agency -- would have had to sell one major investment at below-market price, says Davis. Nobody could run the newly acquired Fatburger as well as Wiederhorn does, says Davis.
And finally, says Davis, firing Wiederhorn would have resulted in messy, distracting litigation for the company. Wiederhorn, he alleges, asserted that if the company were to fire him, he would be due a severance payment of at least $7 million. "We did not agree with that," says Davis. "Still, the threat of litigation -- that was a factor, a very minor factor."
Anyway, "Mr. Wiederhorn's long-term commitment to the company and his goodwill were deemed vital to the future of the company," Davis says.
Sounds reasonable -- as long as one ignores the fact, which Davis acknowledges, that the company's board includes some of Wiederhorn's friends and business associates. Wiederhorn and his family own a majority of Fog Cutter's stock. Um, doesn't majority ownership of a company usually ensure some sort of commitment and goodwill?
Not really, says Davis. Given Wiederhorn's business acumen, he could have gone and started up a new company, if he were driven to do that. "There is no noncompete clause," he adds.
"Presumably, if you push someone against the wall, they might pursue something like that -- starting up another company," says Davis.
Now hold on! In what part of the universe does
giving a jail-bound felon $2 million constitute pushing someone against the wall?
Well, maybe in Portland, Ore., it does. Davis points out to us that $2 million is a major comedown from $7 million -- though Davis, at other times in our conversation, tells us that he personally thought Wiederhorn's severance claims were a longshot.
Oh, well. If we squint our eyes and tilt our head, we can almost sort of see that $2 million is a bargain.
3. Time Flies at the SEC
Securities and Exchange Commission
announced a crackdown Tuesday on companies that aren't filing financial statements on a timely basis.
If only the SEC could have done this on a timely basis.
As explained by our ace Wall Street reporter Matt Goldstein,
the feds suspended trading in more than two dozen nonreporting companies quoted on the pink sheets. These penny stocks are ripe for stock manipulation, though the SEC isn't alleging that any have been used as part of standard pump-and-dump schemes.
Well, great. Except for the issue that the SEC, years ago, went after 17 of the companies in which it suspended trading Tuesday, for pretty much the same reasons. Yet the SEC seems to be putting teeth into its actions only now.
To get a sense of how slowly the regulatory wheels are grinding here, let's look at the case of LRG Restaurant Group.
In May 1998, the SEC filed a complaint against LRG alleging that the "restaurant and natural resourced properties business" failed to file timely financial statements, or even notifications of late filing.
At that time, LRG -- as far as we can tell from the SEC's Edgar archive -- had last filed a quarterly financial statement in October 1996.
So what did LRG do in response to the SEC's complaint? Nothing. That 1996 10-Q, now nearly eight years old, is the last filing LRG made with the SEC, as far as we can tell. And yet, for the six years since the SEC's original complaint, LRG has continued to be quoted -- and, presumably traded -- by people for who knows what reason.
An SEC spokesman explains that in this week's actions, the goal has gone from not simply encouraging companies to file financials, to also preventing these companies' shares from being traded if they don't -- a move that protects the broad class of potential investors in these companies.
"The agency is examining a number of things it does, and trying to anticipate problems before they occur," says the spokesman. "And this was a pre-emptive effort to deter frauds before they occur."
Better late than never, we suppose.
4. An Escaped Croat for Symbol's Sins
, the saga continues.
Five former managers of the bar code-scanner manufacturer have pleaded guilty to conspiracy charges, reports the
. The company itself has agreed to pay $139 million in fines and restitution stemming from allegations of accounting fraud from 1998 to 2003.
And on Wednesday, Symbol's former CEO, Tomo Razmilovic, was officially declared a fugitive from justice, reports the
. The Feds want him in the U.S. to face fraud charges, but prosecutors say he's in his native Croatia. His lawyer says he's not coming back, says the
Man. An ex-CEO accused of accounting fraud but evading the long arm of the judicial system. If that isn't a Symbol of something going on these days, we don't know what is.
5. Take Two on Take-Two
This week, video-game publisher
Take-Two Interactive Software
lowered guidance for its current fiscal year.
Back in April, you may recall,
the video-game publisher cut guidance for the year ending Oct. 31. The net sales forecast for fiscal 2004 came down 4%, and the diluted net income per share prediction was cut 18%. Take-Two blamed lower-than-anticipated sales of the company's older titles, as well as changes in the company's schedule of new releases.
Based on that and some other bad news -- the CEO's resignation, for starters -- Take-Two's shares dropped 9% when the numbers came out April 14, closing at $31.92.
This week, Take-Two went through the routine again. On Tuesday, the company cut its net sales forecast another 3%, and lopped 19% from its guidance for diluted net income per share. Shares dropped 5% Tuesday to close at $28.37. Again, the company cited lower-than-expected sales of the company's older titles and changes in the company's schedule of new releases.
Better watch out, Take-Two. As any video-game player would know, you only start out with three chances not to screw up. If you mess up one more time on guidance this year, it'll be Game Over.
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