There’s lots more, including Barofsky’s account of capitulations the Obama team has made in the implementation of the Dodd-Frank financial reform bill that has rendered some of its key provisions relatively toothless. Again, that’s not something the Romney folks would criticize. Nor would they be terribly exercised over Barofsky’s explanation of how the rules governing the way TARP money was to be used and accounted for were so watered down that they never required or even encouraged the bailed-out banks actually to lend it out and thereby help revive the economy.
Reporters on the beat ought to get out there and tell us if Barofsky’s stories hold up. And they should use his description of these crucial, but often arcane, in-the-weeds issues, as a road map for future coverage no matter who wins in November.
2. Do CEOs ever pay the price?
Last week’s announcement that Bank of America was going to pay $2.4 billion in a shareholders’ class-action suit brought as a result of the bank’s disastrous 2008 purchase of Merrill Lynch reminds me that I wish I could read something explaining who actually benefits (other than the plaintiffs’ lawyers) when massive shareholder suits like these are settled or get decided for the plaintiffs. More important, who actually pays?
Dispatches like this one did a good job of explaining what the claims were - that BofA and Merrill Lynch executives hid the nature of Merrill Lynch’s near-total meltdown as BofA shareholders were being asked to approve the merger. And some, such as this New York Times story, provided a snapshot of who will get the settlement money: “those who owned Bank of America shares or call options from September 2008 to January 2009,” which was the period that began when the deal was announced and ended when it was voted on by the shareholders.
But that leaves lots of questions. A shareholders’ suit is supposedly brought on behalf of shareholders who own a company. Yet the prime defendant is the company. So it is the company that pays the settlement, which would mean that the shareholders’ assets are being used to pay the shareholders.
Of course, if I owned shares between September 2008 and January 2009 and sold them later in January 2009, I’d only be on the receiving end. But if I still own the shares, wouldn’t I be paying myself with my own assets (and with the plaintiffs’ lawyers taking their cut on the way through this round trip)?
More important, it is the company’s lead executives, such as then-BofA CEO Kenneth Lewis, who allegedly misled the shareholders. They are also defendants in these cases. But I haven’t read anything about them paying anything. Did they? Or did the company indemnify them from such suits and/or provide company-paid insurance to cover any personal liability? Did the company or company-paid insurance cover their legal fees? If so, then what’s the point of suing them?
And, as long as we’re talking about harm done to shareholders, why wouldn’t we now see a new, post-settlement shareholders’ suit not against the company but targeted only at Lewis and some of his former colleagues who got Bank of America into this jam in the first place and just caused it to pay out $2.4 billion? (The plaintiffs here could be any current shareholders, because they are the ones who are writing the $2.4 billion check.) Again, did the company indemnify Lewis and other executives against shareholder suits, meaning that if a shareholder now sues Lewis over this $2.4 billion settlement, the shareholder is once again only suing himself?
Can someone please sort this out?
Related reading:
A Washington reporter’s review of Barofsky’s book is unintentionally revealing
Audit Notes: the national debt, Bailout, ProPublica on campaign finance
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Although I'm going to mention a couple criticisms, it's only to say that your fine article didn't go far enough, and may is also be a little behind the times. Although, to be fair, these may be things you have preached about for a long time.
Again, thank you for your excellent article. Two points, however:
1. You failed to rearticulate that Mr. Barofsky (or was it another Inspector General?) reported that the first 300 billion of the TARP was spent by Bush in such a way that lacked practically any oversite or any practical way to recover the money. I feel this needs to be reitirated in a climate where Obama is falsely accused of wasting ALL of the TARP money. My point is that the deference to Wall Street is on both sides of the isle.
2. In the age of Golden Parachutes, an age that's long been with us, and an age where CEO's are mainly selected by boards consisting of other CEO's (honor, or at least collegiality, among theives?) , you're seriously asking if CEO's ever pay the price? Perhaps, again, you've preached this many times, but that ship is looooooooong time sailed.
#1 Posted by mediaman13, CJR on Fri 5 Oct 2012 at 09:28 AM
First, forgot to mention: an age where shareholders are ignored, frozen out, or thrown out of supposed "shareholder" meetings.
Second, how rude of me! I'll answer your question. Shareholders suits are meant for shareholders to wrest control of part of the company's assets before the company squanders them all. Also, they're meant to send a chilling message to management about such squandering. Yes, shareholders realize the bitter irony that they are redirecting their own money back to themselves. It's part of the message they're trying to send that the money is not flowing in the right direction. That it should be going towards them and not into the trash.
So you're wondering when CEOs will actually pay some part of this type of penalty, or ANY type of penalty? Join the club, pal! Many of us have been wondering that for decades. For example, maybe we could start with defense contractors who repeatedly cheat the government - General Dynamics comes to mind - pay a relatively small fine, then go about their merry, fraudulent ways. Now if we put their Ceo in jail.... But in a real jail, not "Club Fed".
#2 Posted by mediaman13, CJR on Fri 5 Oct 2012 at 09:48 AM