Monday, January 10, 2005
General Re Corp., a wholly-owned subsidiary of Warren Buffett's investment vehicle Berkshire Hathaway Inc., issued a press release on Jan. 6 (available in the company's Form 8-K here) disclosing that it has received subpoenas from the SEC, New York Attorney General Eliot Spitzer, and perhaps most ominously, from a grand jury in the Eastern District of Virginia. According to the company:
After receiving the Securities and Exchange Commission’s request for documents and information relating to non-traditional or loss mitigation insurance products on December 29, 2004, General Re Corporation, a wholly owned subsidiary of Berkshire Hathaway Inc., today received a subpoena for virtually identical documents and information from the New York State Attorney General. Consistent with the SEC’s request, the subpoena applies to General Re as well as its affiliates, including Berkshire Hathaway’s other insurance subsidiaries. Berkshire Hathaway and General Re will cooperate fully with the New York State Attorney General.
Berkshire Hathaway and General Re are also cooperating fully with an ongoing investigation by the U.S. Attorney for the Eastern District of Virginia, Richmond Division, relating to one of General Re’s former clients. General Re and four of its current and former employees originally received subpoenas for documents from the U.S. Attorney in October 2003 relating to General Re’s transactions with this client. Recently, General Re received requests for additional information related to this client and for information related to its finite reinsurance business from the U.S. Attorney for the Eastern District of Virginia and the Department of Justice in Washington. Berkshire Hathaway and General Re will cooperate fully with these requests.
A hat trick of investigations (for the hockey-starved) cannot be a good thing, and look for General Re (and Buffett) to seek a global settlement as quickly as possible. Nothing is more prized at Berkshire Hathaway than its triple-A credit rating, and a broad government civil and criminal investigation poses a threat to the entire operation.(ph)
An ironic story in the Wall Street Journal (Jan. 10) discusses the demise of Florencio López-de-Silanes as the head of the Yale School of Management's International Institute for Corporate Governance for $150,000 of double-billed business expenses. According to the article:
Neither Yale nor Mr. López-de-Silanes -- known as a strong advocate of prompt disclosure of corporate misdeeds -- has announced his planned exit. Responding to an inquiry from The Wall Street Journal, Yale spokesman Tom Conroy said, "He has resigned from Yale as a result of financial misconduct and irregularities in his role as director of the International Institute for Corporate Governance." He added: "Appropriate corrective actions have been taken."
The $150,000, while not trivial, is certainly not enough in itself to put one's career at risk, and raises a question found in many white collar crime cases about why a person would engage in misconduct for an amount that is insignificant compared to the loss that will be suffered from the revelation of the wrongdoing. For Mr. López-de-Silanes, that includes the loss of a tenured professorship, a leadership position at a high-profile institution, and most likely his reputation for personal integrity. (ph)
The U.S. Attorney's Office in Connecticut announced the sentencing on Jan. 6 of Manpreet Singh after his guilty plea to a criminal copyright violation. According to the press release issued by the USAO:
SINGH was a participant in the “warez scene” - an underground online community that consists of individuals and organized groups who use the Internet to engage in the large-scale, illegal distribution of copyrighted software. In the warez scene, certain participants (known as “suppliers”) are able to obtain access to copyrighted software, video games, DVD movies, and MP3 music files, often before those titles are available to the general public. Other participants (known as “crackers”) then use their technical skills to circumvent or “crack” the digital copyright protections. Others (known as “couriers”) distribute the pirated software to various file servers on the Internet for others to access, reproduce, and further distribute. In pleading guilty, SINGH admitted that he was a member of at least two leading warez groups - “We Love Warez” (“WLW”) and “Phase.” SINGH also admitted that he acted as a distributor or “courier” of pirated software and that he uploaded and downloaded numerous illegal copies to and from warez sites on the Internet.
The sentence was three years probation, 300 hours of community service, and a $6,000 fine. If software piracy is theft, as claimed by both prosecutors and (self-interestedly) the music, film, and television industries, then why is the penalty so light? Or is it that downloading software, songs, and videos is so commonplace that it is difficult to consider it a "real" crime, especially when one is only a "courier" as Singh was? Singh is likely a first offender, and so the sentence may be comparable to what a first-time thief from a corner liquor store would receive, but the cost of electronic piracy is significant, at least according to those affected by it, and the sentence may be on the light side if the goal is to deter future piracy. (ph)
Sunday, January 9, 2005
A post on Jan. 5 (The "Honest-but-Ignorant CEO" Defense) discussed former Enron CEO Ken Lay's defense against federal charges, including the use of a website www.kenlayinfo.com to get his message across. An article in the Houston Chronicle (Jan. 8) indicates that Lay is paying to have his website be a sponsored link on Google, AOL, and Yahoo whenever certain search terms are used. According to the article:
Put the search words "Enron scandal" or "Ken Lay," or even this Enron reporter's name, "Mary Flood," into any of the above search engines and one of the first things you will see is www.kenlayinfo.com. If you hit on Lay's Web site from there, then Lay pays between roughly 5 cents and 12 cents.
"I want people to understand Ken Lay's position. I said that if we were going to do a Web site at all, do it so people can find it," said Lay's Houston lawyer Mike Ramsey.
Give it a try. (ph)