Selling America Short: The SEC and Market Contrarians in the Age of Absurdity

339 Pages·2010·1.89 MB·English

by  Richard Sauer

[ CONTINUED FROM FRONT FLAP ]
Praise for SAUER
$27.95 USA / $33.95 CAN
(cid:129) Highlights the inner workings of the agencies that attempt to SELLING AMERICA SHORT
control our fi nancial markets
A
S s an SEC attorney, author Richard Sauer
(cid:129) Perceptively describes the illusory asset valuations, myopic “ Richard Sauer’s riveting Selling America Short lifts the veil on two powerful and
E initiated and supervised landmark
business strategies, and feckless public policies that led to the secretive worlds that dominate our fi nancial markets: those of hedge funds and the
S E L L I N G
recent crack-up of our fi nancial system L fi nancial cases that took him to numerous
Securities and Exchange Commission regulators. Accounts of the inner workings of both
countries and returned hundreds of millions of
(cid:129) And much more don’t come more informative—or more entertaining.” L
A M E R I C A dollars to American investors. While a partner
—Jesse Eisinger, Senior Reporter, ProPublica I
N at an international law fi rm and, later, a hedge
fund manager, he saw fi rsthand the follies and
“E very stock market cop should be as determined—and witty and frank—as Rick G S H O R T
failures of our system. Now, in Selling America
Sauer. Assigned reading for anyone investigating stock swindles, or just stocks. Finally,
RICHARD C. SAUER has been, among Short, Sauer shares his remarkable experiences
an inside narrative of the SEC and the scams that wrecked Wall Street.” A
other things, an Assistant Director with the U.S. with you.
—Bill Alpert, Senior Editor, Barron’s M
Securities and Exchange Commission, a partner
Selling America Short is a chronicle of crooked
in an international law fi rm, and an analyst with
E
“R ick Sauer’s journey through the underbelly of fi nance is black humor at its best. Truly companies, colorful but clear-eyed skeptics whose
a Northern California hedge fund. In his dozen
hilarious and deeply frightening.” R
warnings went unheeded, and overmatched
years as an SEC attorney and administrator, he was
responsible for some of the agency’s most memorable —Bethany McLean, Contributing Editor, Vanity Fair I enforcers, all seen through the eyes of personal
C
experience. It sheds a bright light on some of the
fi nancial fraud cases. Sauer’s articles on legal
A
darkest corners of the fi nancial world and details
and fi nancial topics have appeared in numerous
publications including the New York Times, the Wall Selling America Short: The SEC and Market Contrarians in the Age of Absurdity is the grip- the damage wrought by the deep biases and lack of
S
ping chronicle of twenty years of crooked companies and fi nancial philanderers as seen worldly experience common among those who hold
Street Journal, and Barron’s. He is also a published
H
through the eyes of Richard Sauer, a veteran of the U.S. Securities and Exchange Commis- the reins of our capital markets.
novelist and holds a doctorate in law (SJD) from
sion, private legal practice, and the hedge fund subculture. O
Harvard Law School. Sauer lives in Berkeley,
Pro viding a unique look at how our capital markets
California, with his wife, Eileen Killory. R
Sauer began chasing fi nancial fraud at the SEC before it exploded into an issue of national
work and, quite often, don’t, Selling America Short
concern. Before, that is, Enron and WorldCom and other turn-of-the-century fi nancial scan- T
skillfully reveals the tragic missteps of the American
dals made people wonder whether our business leaders should be seen as presumptive felons, The SEC and
fi nancial behemoth as it marches boldly from one
including those paragons of capitalism who loom like stuffed predators from the covers of T
ACh Market Contrarians crisis to another. Along the way, this insightful and
e
Fortune and BusinessWeek. go
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system and those who attempt to control it. d a technocrats
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ty theke (cid:129) Offers a fi rsthand account of the many ways contrarian views of
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public companies are suppressed and punished, depriving
RICHARD C. SAUER
the market of critical information
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SELLING
AMERICA
SHORT
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SELLING
AMERICA
SHORT
The SEC and Market
Contrarians in the Age
of Absurdity
Richard C. Sauer
John Wiley & Sons, Inc.
iii
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Copyright(cid:1)C 2010byRichardC.Sauer.Allrightsreserved.
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LibraryofCongressCataloging-in-PublicationData:
Sauer,Richard.
SellingAmericashort:theSECandmarketcontrariansintheageofabsurdity/
RichardC.Sauer.
p. cm.
Includesindex.
ISBN978-0-470-58211-4(cloth)
1.Sauer,Richard. 2.UnitedStates.SecuritiesandExchangeCommission.
3.Stockexchanges—UnitedStates. 4.Finance—Corruptpractices—UnitedStates.
5.Fraudinvestigation—UnitedStates. I.Title.
HG4910.S282010
332.6092—dc22 2009049435
[B]
PrintedintheUnitedStatesofAmerica.
10 9 8 7 6 5 4 3 2 1
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For Eileen and Neal, two good eggs
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The pure products of America
Go crazy
—William Carlos Williams
vi
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Contents
Prologue ix
Chapter 1 Rude Awakenings 1
Chapter 2 The SEC Steps Out 9
Chapter 3 Short People 17
Chapter 4 Belgian Waffles 29
Chapter 5 AremisSoft and the Deemster from Hell 53
Chapter 6 Taking Out the Eurotrash 85
Chapter 7 In the Shadow of Enron 121
Chapter 8 The Easter Bunny Cometh 153
Chapter 9 Mired in Muck 177
Chapter 10 Our Tax Dollars at Work 199
Chapter 11 Warming the Bench 213
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viii CONTENTS
Chapter 12 The Overstock Flame Wars 229
Chapter 13 The Bird in the Bush 249
Chapter 14 The Collapse of the American Financial
Sector in One Easy Lesson 273
Chapter 15 Ashes, Ashes, All Fall Down 285
Epilogue Picking up the Pieces 307
About the Author 315
Index 317