Friday, July 26, 2013

Guilty Until Proven Innocent

I carry no brief for people that break laws, but, in the securities industry, indictments destroy businesses and innocent shareholders are usually left picking up the tab.  That was the result when Drexel Burnham was indicted in 1988.  Many of Drexel employees who trudged silently in the back office found their retirement hopes and dreams destroyed when Rudolph Guliani's over-zealous indictment caused Drexel to go bankrupt overnight -- long before anyone produced any evidence to a judge or jury to peruse.  Most of the folks who lost their life savings by the indictment of Drexel were innocent and had no knowledge of any wrongdoing.  That's what happens when you indict corporations, as opposed to individuals.

This same theme plays out in the litigation and settlement arena.  Pension funds who trumpet their lawsuits against corporations are really only suing themselves and enriching the legal profession.  The wrongdoers go unscathed, while innocent shareholders get hammered.  This is what happened in the tobacco settlements, in the BP settlement, and on and on.  Shareholders, who often have no idea that they are really shareholders, find their own retirement hopes and dreams crushed by breast-beating righteous souls who run these pension funds involved in all of this litigation.  The lawyers love this as they salt away fortunes.  It's simply a transfer from working class people to wealthy lawyers, while pension executives proclaim that they are fulfilling their fiduciary duty.

In the SAC case, why doesn't the government indict individuals?  How can a corporation get inside information without an individual being involved?  Could it be, they can't prove their case.  By simply indicting SAC, they destroy the business and, presumably, a lot of Stevie Cohen's net worth.  But, what if Cohen is innocent (and I am not saying that he is).   We may never know.  What we do know is that SAC is done for, whether innocent or guilty.  The indictment will destroy SAC's future and much of Stevie Cohen's net worth, regardless of guilt or innocence..  At least in this case there are no public shareholders being looted -- just Mr. Cohen as far as I can tell.  But, still.

What happened to the rule of law?

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