American lynching party
WHeN it comes to delivering justice for financial wrongdoing, US authorities are generally unforgiving. Jeff Skilling, the executive at the centre of the enron scandal, received a 24-year jail term.
In an offshoot of that case, the Natwest three – Giles Darby, David Bermingham and Gary Mulgrew – were extradited to the US and each received 37-month sentences.
It is seven years since Mike Lynch and investors in technology star Autonomy sold the company to Meg Whitman of Hewlett Packard for £8.5bn.
Prosecutors have charged the British scientist/entrepreneur/angel investor with 14 counts of conspiracy and fraud, which could land him in jail for 20 years. His lawyers say the allegations are a ‘travesty of justice’.
American prosecutors cite 28 instances in which Lynch and fellow executives allegedly made false statements.
What is perplexing about this and US financial justice is that whereas Lynch has had to endure years of uncertainty and legal wrangling over accounting disputes, the American authorities have done virtually nothing to bring Wall Street bankers who brought us the financial crisis and the Great recession to court.
At the core of the Lynch case is the charge that Autonomy backdated transactions, to report sales early. One might have thought that some of this might have come up during ‘due diligence’ conducted by auditors, lawyers and investment bankers in the course of any major transaction.
But, as we learnt from the sale of BHS to retail Acquisitions, the vehicle of serial bankrupt Dominic Chappell, and the Co-op Bank acquisition of the Britannia Building Society, the quality of the work cannot always be relied upon.
the determination to get deals over the line trumps all. If booking sales in advance were a criminal offence, as is alleged in the Autonomy case, then UK jails would be filled with white-collar criminals, and the audit police at the Financial reporting Council even more snowed under.
that is not to say that the backdating of future sales and ‘round tripping’ – where income was reported and then returned to customers in some form – can be regarded with any equanimity.
But the hounding of Lynch, first by Hewlett Packard and now by US prosecutors, seems out of proportion when one considers the inaction over sub-prime mortgage securities.
As a result of the collapse and bailout of the American Savings And Loan mortgage banks, from 1983 to 1992 there were 1,100 prosecutions, of which 839 led to convictions. the far more damaging financial crisis barely touched the main perpetrators.
Fines have been enormous, with banks in the US and around the world shelling out £246bn in penalties. As satisfying as that may seem, it is largely shareholders, rather than the executives, who paid the price.
An effort to bring prosecutions against executives of Bear Stearns, one of the first firms to disappear a decade ago, failed. After a probe, the US Justice Department dropped a case against executives at US lender Countrywide (no connection to British estate agent of same name) and Joe Cassano, of mortgage insurer AIG.
Lower-level prosecutions of mortgage salesmen have taken place, but the big beasts of Wall Street were inoculated against prosecution and many are living it up on their yachts, at their Florida estates and on their high-end golf courses.
Natural justice is meant to be evenhanded. that cannot be how it looks to Mike Lynch.
Home truths
NO, HOUSe prices aren’t going to fall 30pc in spite of the Bank of england’s worst-case projections for a disorderly Brexit.
Inconveniently, amid all the Brexit tumult, Nationwide says prices rose 1.9pc in November, following a 1.6pc rise in October, even though London and the South east look a little dodgy. the jump is not surprising as interest rates are low and the supply of homes insufficient even though 219,000 were built last year – a three-decade record.
Indeed, the Bank’s own figures show mortgage approvals – an early indicator of a buoyant housing market – are up.
If that is the case, imagine what would happen if the Prime Minister’s Brexit deal were to be approved by MPs.
Housing would be back at the races.