HP Denies Allegations of Direct Product Sales to Syria

The once-proud HP hit a new public relations low this week, even after the Autonomy fiasco. An SEC inquiry has begun to explore whether Hewlett Packard provided Syria with equipment. HP acknowledged the SEC's formal letter, and suggested an unscrupulous Italian intermediary firm supplied the outlaw Assad regime with the goods. While that possibility is a likely one, HP would prefer to dance around questions about how it tracks the ultimate destination of its equipment. It's not as if the Assad forces were buying close-outs of HP's ill-fated, though well made, tablet.

The story was covered by Reuters and appears in today's siliconvalley.com.

Malone's Liberty Media About to Control Sirius XM Radio

Liberty Media and its jefe John Malone have lusted after Sirius XM Radio for some time. Their valentines have been rebuffed, so Malone decided to acquire a sufficient amount of Sirius stock to gain majority control of the firm. According to a story in the LA Times, Liberty Media recently filed documents with the SEC that said it held 48% of the stock and had every intention of acquiring the necessary 2% to assume control.

Liberty Media is a major league player, and Malone is a very sharp customer. Whether his ownership of Sirius will be beneficial for the radio brand is hard to say. It's difficult to imagine anything exciting or innovative coming from Malone's minions. We'll see.

Yahoo CEO Blames Exec Search Firm for His False Credientials

Yahoo CEO Scott Thompson
(photo from CNN)

The Yahoo CEO story is a gift that keeps on giving. I noted in a blog post earlier this week how a Yahoo board member has significant ties to Las Vegas gaming interests. The latest Yahoo installment involves Scott Thompson, the embattled Yahoo boss, and his false academic credentials. Thompson's background information, filed with the SEC and signed by Thompson, stated he had earned a computer science degree. In fact, Thompson does not, and never had had, a computer science degree.

This story has overtones of Tom Cruise's character in the movie Magnolia (Frank T.J. Mackey) portraying his dodgy academic background. However, Scott Thompson's tale gets even better than anything movie director P.T. Anderson dreamed up. The San Jose Mercury News' Pete Carey reported that Thompson is now claiming an executive search firm "wrongly included a computer science degree in his background data years ago." (The executive search firm's stance on Thompson's assertion was not noted in Carey's article.)

One can infer that either Thompson did not read material the search firm prepared or he is prevaricating. Also, noboby, including former employers such as Pay Pal, took time to fully vett Thompson's credentials. At least Pay Pal apparently asked for a resume. According to Carey's story, Yahoo didn't even bother to do that. Given these facts, do you wonder what other skeletons are in the closets of America's supposedly best and brightest?

Yahoo Board Member Patti Hart's Las Vegas Connections

Patti Hart
(photo from IGT)

Yahoo board members and parade of senior management have seemingly worked overtime to ruin a once proud firm's reputation. Their troubles began when founder Jerry Yang, with the strong backing of Google, thumbed his nose to Microsoft's friendly buyout proposal. That misjudgment cost Yahoo shareholders a bonanza. However, Yang maintained Yahoo's purity for a time. Meanwhile, Yahoo's performance continued to melt as Google cynically turned up its competitive heat. A new CEO, Carol Bartz, was brought in to change Yahoo's decline. The foul-mouthed (by all accounts) Bartz lasted awhile, until Yahoo's downward spin began to dangerously accelerate. A new CEO, Scott Thompson, was found and duly sworn in, partly to begin the mass layoffs everyone knew Yahoo needed to start. His major Yahoo board backer was Patti Hart, CEO of International Game Technology (IGT).

This week, the tech world tuned into the latest edition of the Yahoo soap opera. It appears Thompson misstated his academic credentials. He appeared to claim, and Yahoo asserted in documentation to the SEC, that he had obtained a computer science degree from an obscure Massachusetts college. A hostile Yahoo board member bothered to perform due diligence and discovered Thompson did not earn a computer science degree anyplace. As Thompson's de facto sponsor, Hall took the very public fall.

Si Redd (photo from Las Vegas Sun)

What's much more curious to me than Thompson's possible duplicity is Hall's background. IGT is a major player in the slot machine business. Its founder, Si Redd, is associated with the invention of video poker. Neither business is one for the faint of heart.

Inquiring minds wonder what Ms. Hart and her Nevada cohorts found so appealing about Yahoo. Clearly, Yahoo's international reach would have been a tempting target for a street-smart enterprise keen on international, Internet-based growth. Having a "family member," so to speak, on the board gave these sharp wits a tremendous, insider advantage. If any group understands the value of "early information," it's Las Vegas investors.

For a wickedly fascinating profile of Ms. Hart, read Sarah Klaphake Cords' piece in the December 2010 issue of Gaming Enterprise Management. For a mostly critical perspective on Hart's stacking IGT senior management with "her people," click to Las Vegas Review-Journal staffer Howard Stutz' column on Hart's hiring of IGT's chief financial officer.

Former SEC Official Fined For Taking Job With Alleged Ponzi Fraudster Robert Allen Stanford

Robert Allen Stanford (right) celebrating a victory
his cricket team -- the Stanford Superstars -- won
(photo from The New York Times)

The new millenium has largely been a fiscal disaster of epic proportions for the United States. One example of how corruption seized the country's major financial and governmental institutions is the Robert Allen Stanford saga.

A little fresher about "Sir Robert" is in order. Stanford, a dual citizen or Antigua/Barbuda and the United States, was raised and made his initial big stake in Texas, starting with the Houston real estate market. He later moved to the Caribbean, where he opened financial firms under the cozy terms existing in Montserrat and, later, Antigua. He parlayed the firm's products into a bonanza. The Antiguan government was grateful enough to Stanford to award him a knighthood. Shortly after the end of fellow Texan George W. Bush's tenure in the White House, the SEC and FBI discovered gambling was occurring in Sir Robert's casino. In essence, the SEC accused Stanford of operating a Ponzi scheme. The FBI arrested the knighted financier. Stanford has pleaded not guilty to the SEC's accusations. Meanwhile, his defense team, including court-appointed attorneys, are in tumult, according to a post in the Texas Lawyer publication's Tex Parte Blog.

Sir Robert's trial is scheduled to begin January 23rd. In the meantime, the SEC has fined one of its own for taking a job with Stanford. The former SEC official, Spencer C. Barasch, was the head of enforcement in the SEC's Fort Worth, Texas regional office. During his tenure, Barasch squashed three separate probes into Stanford's enterprises. In 2005, Barasch left government employ and eventually wanted to get his share of the Stanford gravy train. To that end, Bararsch offered his services to represent Stanford Financial Group in yet another SEC probe of Sir Robert's activities.

Barasch's reasoning was remarkable, according to a Washington Post report of the former SEC regional enforcement chief's actions. "Every lawyer in Texas and beyond," Barasch told the SEC's investigators, "is going to get rich over this case. Okay?  And I hated being on the sidelines." Alas, the Post article noted that the Justice Department maintained Barasch neglected to pay attention to "a federal ethics law which prohibits former federal officials to represent clients before their former agencies on matters in which (the officials) participated 'personally and substantially' while working for the government."

For this ethical lapse, Barasch agreed to settle for a fifty grand fine, while his attorney continued to claim with a straight face that Barasch was entirely innocent.

Such misunderstandings of ethics remain with us as we struggle through the profound, systemic corruption in America, and financial "wizards" such as Stanford, Bernie Madoff, and a gaggle of former Fannie Mae and Freddie Mac senior executives increasingly resemble Caribbean pirates rather than knights in shining armor.

Three Christmas Eve Stealth Stories: GE Bid-Rigging, ATT Spectrum Bonanza, NFL TV Deals' Financial Impact on Fans

Saturdays have historically been a day for backdoor news. These stories typically involve unflattering stories about institutions, such as legal settlements, forced executive retirements, unpopular government actions, or poor corporate performance. Consequently, I make it a point to carefully read Saturday news stories.

This year, Saturday doubles down with Christmas Eve to create a nearly ideal "hidden news" environment. There are plenty of gifts under the holiday news tree today. Here are some examples:

*  GE settles SEC probe into municipal bond bid rigging. The Bloomberg News story provides the unsavory details. (The official SEC press release provides more details on the matter.) Remember when GE was considered the gold standard for corporate performance and behavior? The former "AAA" firm is now just another TBTF enterprise lusting for Federal corporate welfare. GE's saving grace is that it actually manufactures useful products, such as jet engines.

*  ATT gets final FCC approval for $1.93 billion purchase of Qualcomm spectrum. This is a great deal for ATT, and one hell of a consolation prize for ATT, in light of its highly public, abandoned bid for T-Mobile. The big losers in this deal are rural telephone providers, as Bloomberg News noted in its story on the ATT coup. The FCC originally recommended approving the deal on November 22nd, which just happened to be the beginning of the Thanksgiving holiday period.

* According to a Los Angeles Times blog post, the NFL's new and highly lucrative television deals could impact consumers with higher cable TV bills. The deals also threaten smaller cable distributors that don't offer a steady diet of pro sports. I find the fees for sports packages outrageously expensive. I stopped subscribing to them long ago, and as a result annually keep five hundred dollars for other purposes. And no, I don't spend the saved money on tickets to ball games. Do you really feel good spending hundreds of dollars for a nothing special seat at any pro sports event?

Public Pensions, Muni Bond Ratings, and Who Gets the Financial "Haircut"

Earlier today, I talked with a postal clerk at the PO where I get my business mail. He told me, when asked, about the USPS' brave new world of job cuts and pension plan "reform." Yes, he has a job, and he's grateful for it. However, the clerk is now on what the USPS calls a "weekly schedule," and does not know which post office branch he'll be assigned in any particular week. In addition to the ambiguity of his schedule, he was concerned about his pension and health benefits. The clerk's concern was legitimate, as he's worked for the Post Office for around two decades.

I suggested he read an article in today's New York Times about a municipal employee pension case in Central Falls, Rhode Island. It's not exactly fresh news: the story's particulars are months old. What is new, and unsurprisingly provided on a slow-news August Saturday, is the story's punch line for the town's pension plan participants. The Times article interviewed a legal academic, who suggested publicly what others have privately whispered: some of the pension guarantees "are unclear or untested....Just how those promises would stack up against promises made to others, like bondholders, is unclear. It is unclear how (state laws) would hold up in federal bankruptcy court, which has its own ranking of creditors."

The key concept here is that pension beneficiaries are defined as "creditors." That means they have no particularly special standing when an entity declares bankruptcy. "The federal bankruptcy code," the story notes, "says pensioners and general-obligation bondholders are both unsecured creditors, stuck at the back of the line and treated as equals."

Well, maybe some are more equal than others. The Times article cited the state of Illinois' approach to state pension funding requirements and bondholder payments. The Land of Lincoln "has some of the strongest bondholder protections anywhere, which explains how a state that began its fiscal year with $3.8 billion in unpaid bills from last year -- and whose pension system has less than half of the money it needs -- is able to keep selling bonds. Meanwhile, the muni bond market is ripe for corrupt practices, as I pointed out in a blog post earlier this year regarding the JP Morgan/SEC settlement regarding bid rigging allegations.

The prevailing wisdom about pension plans is that their benefits are legally sacrosanct. This smug belief emerges in conversation I've had with just about anyone unfamiliar with the finer points of pension regulations. I'm certainly not an expert in pension law, but a reading of history suggests these seemingly solid legal guarantees could be in play, especially during inconvenient times for society.

It seems likely that government entities may compel its employees for greater pension plan and health care contributions, similar to what occurred in Wisconsin earlier this year. A story in today's San Jose Mercury News reported that a "pension reform" group funded by a former Enron trader and current hedge fund manager proposed that California state and local governments move their pension plans to a "hybrid retirement plan" similar to that used by the federal government. The idea is that the move would "save billions." (Click here for California Watch's background report on the group, ironically named the California Foundation for Fiscal Responsibility.)

The employee givebacks and increased payments into their benefit packages are de facto "haircuts". This concept, while relatively new to individuals, is not news in the bond markets. The current Euro sovereign debt crisis profoundly involved the degree to which institutional bondholders, including Europe's largest banks, would endure losing money -- the "haircut" -- on Greek, Irish, and other Euro nation bonds. That approach is strikingly different from the United States, where the pension beneficiaries get the trim. Bondholders get paid in full.

Underlying the American scenario is the use of credit ratings as a financial hammer. In Rhode Island, Central Falls officials were informed that postponing or stiffing bondholders' payments would not only affect the municipality's credit rating, but would negatively impact those of all Rhode Island towns and cities. Meanwhile, the same credit agencies that routinely provided AAA ratings to fraudulently packaged mortgage backed securities -- and got away with it -- are now demanding fiscal probity from municipal and state governments. At the same time, major US financial players have avoided "haircuts" on dog shit financial instruments they held; many were simply used as collateral by the Federal Reserve for TARP money and other backdoor subsidies.

A couple of years ago, I discussed the brewing pension/benefit crisis with a hard-working, capable municipal library director. I told her that I wouldn't be surprised if she received a notice stating that, due to unfortunate, unforeseen fiscal conditions, municipal employees and retirees would be "asked" to take a "haircut" on their benefits. I suggested the trim would be forty cents on the dollar, all in the name of financial solvency. It would be an offer they "could not refuse."

The librarian, whose parents had survived the Great Depression and told her vivid stories about similar situations, looked at me and paled.

SEC Docs Reveal Zynga Deals with Facebook, Investments by Google and Peter Thiel

Zynga, an 800-pound gorilla in the online gaming room, recently submitted a revised SEC filing for its planned IPO. While Zynga's relationship with Facebook has been common knowledge, the SEC documents reveal the depth of the corporate coziness with Mark Zuckerberg's firm, as well as with other major Silicon Valley players. The San Jose Mercury News covered the story, and the article is a good one.

Why would one care? Well, Zynga, according to Peter Delevett's Mercury News piece, is "the largest maker of games played on Facebook," among them the popular "FarmVille" and "Mafia Wars."

What adds spice to the Delevett's article are the other VIPs at the Zynga ownership party. The SEC documents confirm rumors (such as those reported on Tech Crunch earlier this month) that Google has a piece of Zynga's action. So does former Pay Pal and current venture capital zillionaire Peter Thiel, whose depiction in The Social Network took some tarnish off his well-burnished, calculated public image.

The Zynga IPO story is a little complicated, and one should take the time to read Delevett's piece.

J.P. Morgan, SEC Settle Muni Bond Big Rigging Charges

J.P. Morgan Securities settled SEC charges that the bank fixed municipal bond bids over a period of years. The SEC announced the settlement's terms on Thursday. An article on the subject appears in today's Washington Post.

JPM is the third bank to stand accused of essentially soaking taxpayers, who, after all, are muni bonds' financial and moral backbone. The other two institutions are Bank of America and UBS. One didn't detect corporate remorse over this episode: JPM's stance, according to the Post's story, was that the problem was cleaned up, and life goes on.

Where were the ratings agencies in all of this? Of course, the three firms which form the bond rating oligarchy performed their finest "hear no evil, speak no evil, see no evil" routine for these fixed bids as well as unsullied muni offerings. No doubt the trio will claim they had no idea price rigging occurred. It will have as much credence as Claude Rains' declaration in Casablanca that he was shocked to discover gambling in Rick's Cafe Americain.

The larger issue is that the muni bond market has historically been a cash cow for underwriters. They have been more or less at liberty to set the rules, change the game when it suited the banks, and convince retail investors of the bonds' allegedly minimal financial risk. The motivation for institutions to change their corrupt ways seems counterintuitive to the potent aphrodisiacs of power and monetary gain. Meanwhile, the corruption, as we are continuing to discover, runs deep and often silently.

The image from Casablanca shows Captain Renault accepting his gambling winnings from Bogey's croupier.

Flash Crash

In what is evolving into a series of episodes, the NYSE experienced yet another flash crash yesterday. This incident involved SPY, an ETF that tracks the S&P 500 Index. About a half-billion dollars in trades were voided as a result of yesterday's flash crash.

That represents a big "oops," even in devalued U.S. dollars. All a non-professional in the world of equity trading can say is something is very wrong with a market structure that collapses as often as one sneezes.

The recent SEC investigation of a recent flash crash cited Waddell & Reed, a relatively obscure Midwestern firm, for causing an entire sophisticated market to seize up. The SEC's assertion was met with considerable skepticism. It is unlikely that the same firm caused yesterday's flash crash; a "system upgrade" at NYSE Arca has been cited as the culprit for this episode. Buyers for this story are not exactly lining up. The SEC, NYSE, and other market players have a lot of explaining to do.

AIG Beats the Rap

With all the fuss on BP and the Fed sting on small-fry mortgage loan sharks, the SEC quietly dropped its probe on AIG's Joseph Cassano.

Not so long ago, although it seems like a decade ago, AIG was bailed out by the US government. The cost? $128 billion. The principal reason for AIG's dramatic fall from financial grace was its profound involvement in highly leveraged, mortgage-backed financial instruments that weren't worth a damn. The architect of this fiscal catastrophe was Joseph Cassano.

At the time of AIG's collapse, Cassano was based in London and, consequently, difficult to bring to effective prosecution. I understand Cassano and his team were among those paid handsome "retention bonuses".

The looting of American household wealth has largely gone unprosecuted and unpunished. I think that's a crime.

Your Diebold ATM Receipt Said "Withdrawal" Instead of "Deposit"?

A bank ATM I occasionally use recently switched from Diebold to a competitor. After thinking for a few minutes, I recalled that Diebold manufactured ATMs and voting machines. The Ohio-based firm played a controversial role in the 2004 Bush-Kerry vote in the Buckeye State.

While many have forgotten Diebold's moment in history, the Obama administration has not. Today, a number of Diebold executives settled with the SEC in a case involving accounting fraud. (Some other of Diebold's "smartest people in the room" continue to contest the SEC charges.)

The Diebold execs' scheme provides plenty of unintended irony. Read the linked Washington Post story for more details.