William K. Black - Holding Abusive and Fraudulent Elites and Enablers Accountable

Part of recovery is deterrence of future mistakes.

 

Main points of what went wrong:

 

  • Same warning as before - There is no giant pot of gold at the end of the rainbow in the recovery process.  This does not mean that hard work in that regards should be done.  5%, a large number.  More importantly, deterrence.  "He is rich, marries well, shall we allow that"?
  • An administrative action - expert in handling a much bigger volume.
  • Criminal justice authorities have chance of making agreements in which assets are retrieved against more lenient measures.  Tax authorities, tax evasion is the norm.  

“They are good at buying toys” – football team.  Free actions – “you must tell us all your assets, you cannot move them but are on a budget”.

Set temporary restriction order.  Such restrictions remain in place until trials are over.  That process may goon for many years.  “Has the government of Iceland asked suspected criminals to state their assets”?  These things need to work in co-ordination. 

Get a preliminary junction – interest in bringing case to close all of a sudden increases.  Civil suits – no perfect answers.  “They will settle for 10 cents on the dollar”.

Make an important judgment. Question.  Ex. Say you are offered a settlement of 10% recovery?  May sound awful but if they are not getting away wealthy, is it worth pursuing the action further?  If not, you may lose the action as a plaintiff. 

Black warns that a deal could be cut that may seem tough for society but none the less being the best deal.

To recover, you gotta win.  Fraud requires additional elements of proof.  Proving fraud, greater rate of recovery.   

 

Make complex issues understandable.  Why did this happen?  If case goes to court, one must make sure to WIN.  Needed are very solid people and fearless, good at detail and going around it, what is the story about.

Go first to the people who burn money the fastest.  A common trick is to complicate matters, making insurance evaporating, but that often leads to hard decisions being made, leading to maybe a 30% recovery.

Auditors in Iceland can, however, pay substantial money.  Here Black is obviously suggesting aiming at audit companies.

Cronies – holding them liable as enablers and aiders in fraud.  They most likely have serious amounts of assets but are good at destroying wealth.  Question is, do you want companies back that have negative net worth, who are in essence bankrupt entities.  Do NOT trust their financial statements.

Lawyers with business skills are needed to take on such cases.

Main targets – how badly do you want to prove that fraud has been committed?  The easiest route is to do nothing, the process is, however, never easy. Lawyers – auditors could be the best witnesses.  Auditors sometimes plead because they need to escape wrath due to their “mistakes”, leading to more lenient judgments. 

Administrative – is the most single successful way to retrieve money.  3 key administrative powers are:

<!--[if !supportLists]-->1.     <!--[endif]-->Removal and prohibition – take officer and employee in regulatory industry, you are fired, cannot come back in 10 years.

<!--[if !supportLists]-->2.     <!--[endif]-->2. Cease and desist order – you are doing something that you must stop doing, this kicks in before any hearing. An example making loans without underwriting them, re-financing loans, etc.

<!--[if !supportLists]-->3.     <!--[endif]-->Civil money penalties – a fine, in the US $1 million.  Part of it is to order one to pay back due to fraud, for example bonuses. 

All 3 powers existed during the recent crisis, but were not used. 

Top regulators must show restraint – system must be above the struggles within the political arena.  An effective specialized crime unit is needed.  A cadre of people in economic crimes need to work together, such people need to be specially trained and do not exist in Iceland.  A unit exists but must be trained properly.

Q&A

Black considers the 80s junk bond extravaganza similar to what happened recently in Iceland.  He pointed out that Michael Milken is very rich and “respectable” within many circles but yet was hell bent on keeping the illusion that everything was OK for as long as he could.

Q. Does it take a thief to catch a thief?  Joseph Kennedy was appointed after the crash, “he knows where the bodies are buried”.   One could infer that Black considers it “OK” to bend the rules for the greater good.*

Is there any provision in the UK law that will permit the British Gov. to open books to tax havens?  UK can make such requests and release them. 

Q. What shall be done to former ‘frauds’ that today are doing business in Iceland?  Before formally charged, “he is just misunderstood”, a similar story in the US, 5 CEOs pleaded guilty of cooking the books.  The main CEO still got of the hook, he donated a great deal and swayed public opinion.

Black thinks it is remarkable that the Report has been written, despite being critical about some of its assets.  With the aid of Joly, a dynamic has been created between her team and special unit crime team that Black has hopes may provide results.  He, however, questions where Icelanders get qualified people for the special crime unit.

See notes regarding lecture previous day "The Best Way to Rob an Icelandic Bank Was to Own One - http://mixa.blog.is/blog/mixa/entry/1050973/

*Addition - This is incorrect - please see comment section where Professor Black states his views in a clear manner


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Athugasemdir

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First, thank you for providing these detailed blogs.  Second, while your interpretation of what I said was perfectly logical based on the joke FDR told about why he appointed Joseph Kennedy to chair the SEC ("he knows where the bodies are burried") and while Joseph Kennedy is generally considered to have been a reasonably effective SEC chairman, I would not have appointed him.  I also recommend hiring people with a track record of success, competence, integrity and courage as regulators.  I'm sorry my repetition of FDR's joke without any further explanation misled you about my views.

 Again, thank you for your blog.

 Best,

Bill Black

Bill Black (IP-tala skráđ) 5.5.2010 kl. 19:59

2 Smámynd: Már Wolfgang Mixa

This was partly a misinterpretation on my behalf and partly simply because this was badly written; notes may be in some cases be imprecise.  Professor Black has pointed out his views in the comment section, where he underlines that integrity is essential in finding people capable of “regulating the regulators”.  My understanding was that one could for a greater good hire people in some cases that had lesser records of integrity and thus trust.

 

Bill - thank you for clarifying this matter.

 

It may be of interest to some that the period Professor Black refers to, i.e. the aftermath of the Roaring 20s and thus the Great Crash, many instances occurred where market operators where sent to jail for illegal practices, in some cases many years later.  Probably the most infamous case was Richard Whitney, once president of the New York Stock Exchange, who became broke little by little following the crash.  It was not revealed until 5-6 years later and he was sent to jail for 3 years.  That story and other ones of interest can be read in the enlightening 100 Minds That Made the Market (http://www.amazon.com/Minds-Market-Fisher-Investments-Press/dp/047013951X/ref=sr_1_2?ie=UTF8&s=books&qid=1273092354&sr=8-2) by Ken Fisher.    

Már Wolfgang Mixa, 5.5.2010 kl. 20:53

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