Notes From Around the Web
The hearing, at which Alexander was represented by two attorneys at least one of who was from Cape Town, reportedly lasted an entire day. Alexander informed the court that he was investing millions of Namibian dollars (one Namibian dollar = .14 U.S. dollar, refer here) in housing development projects in Walvis Bay (pictured above), and he needed to travel to the project for site inspections. The prosecutorial authorities opposed the application for fear that the risk of Alexander absconding would be increased were he to travel to the seacoast. The obvious response is – where else would he go? He would almost certainly find himself in a place where the U.S. would stand a better chance of extraditing him. In any event, the Court granted his request to alter the travel restrictions in his bond conditions, allowing him to travel from Windhoek within Namibia as long as he gave authorities 24 hours notice.
I expect by now Alexander is well informed about the Reyes conviction. I am also guessing he is not leaving Namibia except under extreme duress. I mean, what could be bad about a place where a bail condition alteration hearing can consume an entire day?
Hat tip to the White Collar Crime Prof blog (here) for the link to The Namibian. (I confess that I do not read that particular newspaper on a regular basis myself.)
The Real Spamalot: In March 2007, the SEC suspended trading in 35 companies that have been the subject of repeated spam email campaigns, as part of an SEC effort dubbed “Operation Spamalot.” In announcing the suspension (here), the SEC noted that up to 100 million stock pumping spam email messages were sent each week. But all of that is nothing compared to the spam onslaught described in an August 8, 2007 article in the Toronto Globe and Mail entitled "Inbox Hell: Half-a-Billion Stock Spam E-Mails"(here). According to the article “obscure little”Prime Time Group, Inc., a convenience store company based in Branson, Missouri that trades on the Pink Sheets, was the subject of what one expert cited in the article described as “the most widespread Internet email stock pumping scam in history.”
According to the article, during the preceding two days, more than a half a billion emails were sent touting the company’s stock. According to the same expert, the spam message “created a 30 percent surge in global traffic over a 24-hour period.” The scheme seems to be having its intended effect. The company’s share price, which was as low as five cents as recently as last Friday, closed at 10 cents today. Not many stocks double in four trading days.
Of course, there is no apparent reason to suspect that anyone at the company had anything to do with the email scam. But how would you feel about writing their D & O?
Outside Directors Outside the Target Area?: On July 17, 2007, the Department of Justice Corporate Fraud Task Force issued a press release (here) reporting on the various convictions the Task Force has recorded during its five-year existence. Lisa Fairfax, a professor at Maryland Law School, has an interesting observation on the Conglomerate blog (here) about the Task Force’s conviction statistics. She notes that while the Task Force has obtained numerous convictions of CEOs, CFOs, and other corporate officials, “the one group of actors who did not appear on the list was outside directors.” She notes that
while there appear to have been plenty of inside directors, including board chairs, who have been convicted of various white collar offenses within the last five years, there do not appear to be many, if any, instances in which directors who were not employed by a corporation were convicted of corporate fraudShe does comment that at one level “the exclusion of outside directors makes sense” because “it seems unlikely that outside directors, who have more of an oversight role in the corporation, would have the kind of knowledge or intent necessary to be subjected to criminal liability.”
Professor Fairfax did observe in a later post (here) that while outside directors seem to have escaped criminal prosecution, outside directors of companies that are sued do appear to experience “reputational damage” and are invited to serve on fewer boards, according to research she cites.
The professor’s observations about the apparent unlikelihood of outside directors facing criminal prosecution is, as she noted in her initial post, consistent with the research of Stanford Law Professor Michael Klausner and others (here) documenting the relative unlikelihood of outside directors facing direct personal civil liability. Of course, there is the recent example of the Just for Feet outside directors (discussed in a prior post here), who entered into a $41.5 million civil settlement in response to a bankruptcy trustee’s breach of fiduciary duty claims. Call the Just for Feet settlement a Black Swan if you like, but for my money, if a company wants me as an outside director, the company better have D&O insurance. Come to think of it, make mine a double, thank you very much.
Another Subprime Lending Lawsuit: With the addition of the securities class action lawsuit recently filed against Luminent Mortgage Capital (press release here), the current tally of subprime mortgage related securities lawsuits now stands at seven (in addition to the two home construction companies that have also been sued), as detailed on the counting webpage I am maintaining here.
Luminent was only one of several residential mortgage REITs mentioned in the Wall Street Journal’s August 8, 2007 article entitled “Mortagage REITs Feel Squeeze” (here).