Wednesday, November 6, 2013

Stewart's Blog

One of my blog posts from back in September attracted the attention of James Stewart and he reported my comments in his own blog.  These comments ran in yesterday's NY Times.

The occasion was the announcement of a government settlement with the SAC hedge fund involving a $ 1.8 billion fine.

I was amused to read the the comments that followed the publication.  Many were vituperative rants about how terrible rich people are.  Most of the comments seem to miss the point of my blog and the point of Stewart's blog as well.

My point was simply that the government and the plaintiff lawyer industry, more often than not, end up tagging folks who aren't the guilty parties.

This is especially true when public companies are sued or fined or indicted.  Who pays when this happens?  Almost never do the so-called perpetrators pay anything.  Instead the shareholders of these companies are punished -- shareholders who are completely innocent and generally unaware of any criminal activity.

The actual wrong-doers usually go unscathed from these lawsuits, fines and indictments.  In many cases, the wrong-doers actually gain in income and wealth from their role defending the public companies against their attackers.  Additional stock grants and compensation are paid to senior officials to make up for lost stock value from the punishments extracted by the courts and the government regulators.

But, no one makes up the loss to the janitor sweeping the floor at night.  He gets hosed in this arrangement, even though he has no idea about any wrongdoing.

The real losers are almost always innocent, middle-class Americans.  The real winners are members of the plaintiff bar -- wealthy lawyers who live for class action lawsuits.  Sometimes the winners are just ambitious and hungry politicians, usually with their own special ethical problems that later come to light.

So, my real point is that if you see wrongdoing, go after the wrongdoer, not the innocent bystander.  Too often, these settlements end up punishing innocent folks, while the guilty emerge relatively unscathed.

I doubt that Stevie Cohen will worry much about the $ 1.8 billion settlement extracted from his hedge fund this week.  We will probably never know about Cohen's guilt or innocence.  That doesn't seem to matter to the regulators anymore as long as they can extract a headline-grabbing dollar settlement.

It seems to me that if someone commits a crime, then you should go after the criminal, not the innocent bystanders.  That's the main point of my blog.

1 comment:

londonlionheart said...

Hi Professor Burton,

I came across your blog posts on the SAC case while researching for my philosophy class on collective and corporate responsibility. Before I would have rejected that a corporation would ever not be guilty, but now I see that metaphysical guilt that gets misplaced by blaming the corporation rather than the individual.
By sparing the individual, there is no real deterrent to those with the actual authority and influence to allow for illegal actions in a company. I hope I'm interpreting you right in saying that your post instantiates exactly why we should make more effort to hold individuals responsible.
Would it be alright to you if I referenced your post in my research essay? You would be cited properly, of course.