What separates `investing' in the stock market from shooting craps?
information a commodity that's been unusually difficult to come by in the post Enron years.
By GRETCHEN MORGENSON Published: May 28, 2006
ON May 18, Caremark Rx Inc., a pharmaceuticals services concern, surprised many investors when it disclosed that a day earlier federal prosecutors and the Securities and Exchange Commission had notified the company that they were scrutinizing how it awarded stock options to company insiders. Caremark's shares tumbled 6.8 percent on the news.
As evidenced above, once it's known that the SEC is sniffing around your garbage pail this fact alone is enough to hurt your company's stock price.
This great NY Times piece focuses on a lawsuit brought about by the SEC's resemblance to the White House when it comes to stonewalling and secrecy as it applies to the freedom of information act.
Left to our collective imaginations is who is being `protected' and why?
Even as the S.E.C. plays hardball with Mr. Gavin, costing his three-person firm more than $100,000 in legal fees, Christopher Cox, the S.E.C. chairman, recently noted his agency's crucial role in providing investors with that most basic of needs: information. Testifying on May 3 before the financial services committee of the House of Representatives, Mr. Cox said: "When it comes to giving investors the protection they need, information is the single most powerful tool we have. It's what separates investing from roulette."
YET since August 2004, the commission has failed to provide documents relating to 1,700 of SEC Insight's requests under the Freedom of Information Act. Under the law, such requests are supposed to be answered in 20 days, but in most cases the S.E.C. says it is still looking for documents more than a year after SEC Insight requested them.
As many here have diaried, requesting documents under the FOI act is a bit like crap shoot too. You may be aware something is going on but the lack of specifics on your part can be used constitute a denial of the requested information on their part.
Still, 1,700 requests could be interpreted as Mr. Gavin having come upon a lot of questionable activity, activity the SEC is not being forthright in either investigating or disclosing.
Why is this question important?
The firm's success was anything but immediate. By July 2001, a year after it opened shop, SEC Insight had only one customer. Then Mr. Gavin made a few good calls, including one about a company named Enron and its chief executive, Kenneth L. Lay. A report from SEC Insight dated Oct 23, 2001, a month before Enron collapsed, began: "We believe Enron's S.E.C. troubles are far less welcome and potentially far more serious than Ken Lay and the company lets on."
Mr. Gavin's clients consist of mutual funds and hedge funds. He charges upward of $50,000 a year for his service and keeps a "focus list" of companies that reflects the information he receives from his requests.
Two types of companies are on the list. The first, which the firm calls "troubled," are those where it has found signs of "compelling S.E.C. or other investigative activity" that may not have been disclosed to investors. Less problematic are those companies that SEC Insight advises investors to "monitor," because of possible regulatory risk.
Let's pause for a moment and back-up a mental step. What drives a SEC investigation, what is it that compels the stock market watchdog to take action?
Flip that rock over for a second let's consider `monkey see, monkey do.' If the prison system is the equivalent of a university education for criminals, the details of high profile SEC prosecutions might be considered the white collar equivalent for the corporate world.
The SEC requires a high degree of `transparency' in how companies operate but the bottom line of the Enron story is one of `cooked' books.
Nowhere in this article is the role of whistleblowers examined but it stands to reason that a bulk of what drives the SEC to look into a company's practices originates with insider revelations of how a company's top executives are `skirting' the law.
"In this post-Enron era, as the S.E.C. demands record levels of disclosure from public companies, it's a shame that the agency itself has become disclosure-challenged," Mr. Gavin said.
It is a troubling paradox, Mr. Gavin says. The S.E.C., which requires public companies to make full disclosure of all meaningful facts, has stopped granting most of Mr. Gavin's requests for regulatory correspondence. For his part, Mr. Gavin has sued the agency in federal district court in Minnesota, seeking to compel compliance with federal disclosure laws.
The suit aims to force the S.E.C. to turn over records to Mr. Gavin on 12 companies, which the S.E.C. has so far flatly refused to do. The judge overseeing the case has given the S.E.C. a deadline of Thursday to prove that it has reviewed the documents that Mr. Gavin requested on six of those companies. The agency has appealed that ruling, arguing that the task is too onerous.
"We are defending the action to protect our ability to complete these law enforcement investigations, and to protect investors by enabling us to get relief where appropriate, including disgorgement of ill-gotten gains," said Richard M. Humes, associate general counsel at the S.E.C. He declined to comment further.
This brings us to the disturbing question `Is Enron everywhere, is there any truth behind our high flying economy or have the books been cooked beyond recognition?'
Does the government's `Iron Curtain' extend not only around the White House but to Wall Street as well?
One needn't be a Wall Street guru to see with your own two eyes that the economy, for all of the appearance of prosperity, is being supported by sky hooks...the so-called `strong fundamentals' (read our rising domestic production figures and growing export numbers) aren't there.
The trade deficit, mounting credit card debt, negative wage growth and the sinking dollar all point to a coming economic `correction' that will kick the legs out from under our entire society.
It is a serious mistake to think this will resemble what occurred in 1929, they didn't have plastic in 1929. Try to understand that the social clock will not turn back a hundred years but a thousand.
Try to picture you and your neighbors banding together to get your hands on what you need to feed your kids once the supply chain breaks down.
Could the supply chain break down? There's a running `joke' in the business world that posits there is only a hundred thousand dollars circulating through the economy and it has to keep changing hands faster and faster to keep commerce going...
At the lower end of the supply chain there is as much as a four month lag between shipping product out the door and getting a check for it.
Could our nearly ten trillion dollars in debt federal government `pick up the slack' if a wave of bankruptcies crippled the expedient movement of supplies to where they're needed?
Can you say Katrina?
We take civilization for granted when in reality it is a thin veneer that is in constant danger of breaking down.
Just because it hasn't happened (here) doesn't mean it won't. What makes our current situation unique is the fact that many of those supply lines are now global.
How secure are these vital links? Perhaps we can ask the SEC?
Thanks for letting me inside your head,
Gegner