Spitzer and BU's Hurley Discuss SEC Reform

With President Obama and SEC Chairman Mary Schapiro called for increased penalties for violators of securities laws; it seemed prudent to check if this would actually protect the investing public. Professor Cornelius Hurley, director of Boston University’s Center for Finance, Law & Policy, supports the escalation in fines. “Companies will think twice about committing fraud if they can’t settle for chump change,” he said.

Hurley’s preferred reform would be to combine the SEC and CFTC. Combining the two agencies would save money by eliminating the duplication of oversight and allow for a more efficient deployment of a staff and other resources. “The collapse of MF Global suggests that we are paying a price for not combining the CFTC and SEC, which was suggested in a white paper about financial reform developed by the Treasury Department soon after Obama arrived in town,” he said. “Anyone can see that an organizational chart where two regulators are regulating the same space is absurd.”

Unfortunately, the greed of members of Congress killed the unification efforts. “The House and Senate Financial Services Committees oversee the SEC while the Agriculture Committee administers the CFTC.  Members of the agricultural committee did not want to lose the tremendous contributions to their campaigns from the commodities firms,” explained Hurley. He marvels at the hypocrisy of the Republican Party for championing the free market discipline, yet be against any efforts to increase transparency.

Former NY Governor Eliot Spitzer emphasized a different solution.  “The days of the neither admits nor denies must be over.” Neither admits nor denies is the controversial, decade’s long SEC practice of not extracting a confession from guilty parties in a settlement so that they can encourage settlements and avoid lengthy and costly trials against well-funded defendants.

Spitzer, known as the “Sheriff of Wall Street” during his tenure as NY State Attorney General, lauded Federal Judge Jed Rakoff for rejecting a proposed SEC settlement of Citigroup’s securities fraud charges partially over the lack of an admission of guilt on the part of repeat offender Citigroup. “We need more judges like Jed Rakoff that do not rubberstamp the SEC’s deals,” he said.

Hurley hopes the New Jersey federal judge overseeing the settlement of securities fraud by Wachovia, now Wells Fargo, considers the Rakoff decision when making her own decision. Although the Department of Justice insisted on an admission of guilt for the Wachovia settlement, the SEC inexplicably still used their boiler plate language of “neither admits nor denies.” Hurley said, “It defies logic that the two agencies can produce such different settlements."

The one problem with the elimination of “neither admits nor denies” is that it is difficult to sanction corporations that provide jobs for thousands of people. Spitzer conceded, “One of the Occupy Wall Street signs made the point – “Until the State of Texas executes a corporation, corporations are not people”.  You cannot just kill Citibank.”

Under the current system, it is the shareholders, not the corporate executives that committed the wrongdoing, that bear much of the financial pain of a corporation’s malfeasance. Spitzer wants to change that. “There must be individual responsibility. “Right now, the SEC now uses restitution as a proxy,” said Spitzer. “Executives of corporations must be held accountable for the corporation’s bad behavior.”

Besides no allocution of guilty behavior, the SEC settlement required Citigroup to only pay $285 million -$160 million for disgorgement of profits and $125 million in fines. Goldman Sachs for a similar offense paid $535 million in penalties. Spitzer and many others were shocked at this light punishment for repeat offender Citigroup.

“The issue of corporations’ recidivism must be addressed,” he said. “When I was an assistant district attorney, I worked in the career criminals unit. Those that had committed more than two felonies were punished more severely. They were sent away for a long time.  For corporations that repeatedly offend, we need to increase exponentially the financial penalties and insist on structural changes such as compensation.” He urges the SEC to drop standard practice and use creativity to tackle recidivism.

None of the experts contacted thinks that there needs to be additional laws or new agencies to regulate the financial industry. Barbara Roper, director of investor protection at the Consumer Federation of America, just wishes that Congress would increase the budget of the SEC.

Spitzer urges the SEC to be more aggressive. “If Congress does not like it, take your case to the public,” suggests Spitzer. “The SEC has enough power. They just need the will to use it.”

Hurley pointed out that the collapse of MF Global violated long existing securities laws about customer account segregation not newer regulations like Dodd Frank. “Regulation is about individuals, culture.  Former Federal Reserve Chairman Alan Greenspan could have protected the mortgage borrower with powers given to him in the Home Owners Equity Protection Act had he been a different person – not a free market champion and devotee of Ayn Rand,” he said.

He was reserved in his praise for the current group of regulators. He was happy to see that Shapiro is changing the SEC culture by hiring more financial professionals to investigate fraud. Yet there was no reason for her to do Wall Street's bidding by lobbying successfully to exclude brokerage firms from the oversight of the Consumer Financial Protection Bureau. Hurley wonders how CFTC Chairman Gary Gensler, a former Goldman Sachs colleague of former MF Global chairman Jon Corzine, “could have seen no conflict of interest while regulating MF Global but now that the CFTC is investigating wrongdoing he suddenly has a conflict of interest.”

Spitzer may have summed up the problem with the SEC best. “Whenever I was down there, I could not wait to get out of there.”

Bob Seger Played First-Rate "Old Time Rock and Roll"

Bob Seger and the Silver Bullet Band played first-rate “Old Time Rock and Roll” at the Wachovia Center in Philadelphia on December 3. The “ramblin’ gamblin’ man’s rollicky “Roll Me Away,” and “Trying to Live My Life without You” brought the audience to their feet in delight.  While it is a radio staple, Seger played for the first time live his version of “Little Drummer Boy”. Showing his versatility, he tickled the ivories with great élan for “We Got Tonight”. He saved the anthem of my youth, “Against the Wind” for the first of two encores.

Seger paid homage to his roots with Little Richard’s “Hey, Hey, Hey, Hey Going Back to Birmingham” and Tina Turner’s “Nutbush City Limits”. The artfulness of Alto Reed, who has been with the Silver Bullet Band since 1971, on the saxophone during the intro to “Turn the Page,” rivaled that of Kenny G and the late Clarence Clemons. The mastery of legendary drummer Don Brewer, originally of the Grand Funk, was on display throughout the night.

Although Seger is now 66 years old, his trademark raspy voice sounded great. During a high energy performance, he boogied on both sides of the stage and repeatedly exhorted his fans to sing along. He graciously prefaced each song with its history. “I wrote “Turn the Page” in a hotel room in Eau Claire, Wisconsin, Alto did his thing, and then we recorded it in Leon Russell’s studio in Oklahoma.”

While one reviewer lamented the plain sets and dearth of sparkly costumes, I think that Katy Perry could learn a thing or two from Seger.  The virtuosity and richness of his music does not require pink hair, lollipops, and swings.

The opening act, Whitey Morgan and the 78’s, delivered a strong honky tonky/ country performance.

I left the concert wondering why Seger is not a well- known as Springsteen and Eric Clapton.  As my guest at the concert said, “This is the music I grew up with.” To paraphrase the last song of the night, Rock and Rollers never forget. I will be first in line when Seger’s highly anticipated new album comes out.

Gingrich is Smarter than Krugman Thinks

On "This Week," this morning, New York Times Columnist Paul Krugman smarmily commented about Republican Presidential candidate Newt Gingrich, "He's a stupid person's idea of what a smart person sounds like." While I do not agree with Gingrich's platform, I have to defend his intellectual capacity.

When I interviewed about electronic health records for Rx Communications newsletter., he displayed an encyclopedic knowledge of electronic records. Unlike many of his Republican counterparts, he has staked out a very progressive position on healthcare. I have reprinted the interview below.

In an interview with HOC , former US House Speaker Newt Gingrich said he founded his Center for Health Transformation because “I wanted to have an effect; I wanted to save lives and money. America ’s healthcare system is becoming obsolete. The changes that are needed are complex and cannot be done bit by bit. We need an overhaul of the entire system.”

Gingrich cites transparency as a major issue in healthcare. For example, a US Congressional Bill requiring hospitals to report the number of infections was challenged by hospitals because, Gingrich contends, “they don’t want anyone to know the number of infections.”

One of Gingrich’s main goals is to secure a “21st century science and technology budget” that will allow significant research in the fields of Alzheimer’s, and cancer. He wants to secure funding for scientific research and technology “not for one year but for a generation. It is the only way we will achieve significant scientific breakthroughs.”

When asked about the challenge of doing all this during the current economic crisis, Gingrich said: “I don’t not feel sorry for a Congress that could find $1.2 trillion on short notice to bail out Wall Street.”

Another priority for the former Speaker: “We need to study what works and adopt it all across the country. We have learned that the practice that leads to the best outcome turns out to be the least expensive in the long run,” he believes.

But Gingrich’s favourite cause is electronic health records, and particularly e-prescribing. To highlight the issue, the Center for Health Transformation published Paper Kills: Transforming Health and Healthcare with Information Technology , a book by David Merritt, a project director at the Center for Health Transformation and the Gingrich Group. Moreover, he considers that the needed infrastructure investment in electronic health records is just as vital to the country as the railroads were in the 19th century. The total devastation of the paper-based health records of the citizens of Louisiana after hurricane Katrina proves his point.

But he thinks that adopting electronic health records is meeting resistance because “Doctors have deeply ingrained habits. They are very conscious of time. For them, time literally means money. Doctors have also been against this because they are instinctively against big government and the insurance companies,” who may force it on them.

Newt Gingrich dismisses privacy concerns. “When I speak in front of a group, I ask how many use an ATM in a foreign country. The hands of almost everyone in the room are raised. I tell them that the information in their accounts has travelled across borders. They were not concerned about that.” But he believes that “fraud is the more insidious reason that doctors oppose electronic health records. With electronic health records, fraud will be easier to detect.” Over-prescribing and over-billing will be more closely monitored. The Wall Street Journal estimates that 10% of all Medicare billing is fraudulent. Asked how he would propose paying for this, he says that eliminating fraud “will allow electronic records to pay for themselves. The federal government should subsidize the conversion to electronic health records.”

While Gingrich acknowledges that adopting electronic health records for 100% of the population will take time but he is pressing for immediate adoption of e-prescribing. He praises the Medicare Electronic Medication and Safety Protection Act, which established bonuses for the adoption of e-prescribing technology.

Finally, Mr Gingrich had this to say about the cost of adoption: “Would we tolerate it if the airline industry said, ‘we would like to be safer but we can’t afford it’?”

Former Blue Cross CEO: Company Struggled to Provide Employee Insurance

There has to be wrong with the current national paradigm for health insurance when Blue Cross, which provides health insurance for 1 out of every 3 Americans, struggles to provide for health insurance for their own employees.

Joseph Frick, former President and CEO of Independence Blue Cross, spoke at the America Israel Chamber of Commerce healthcare IT conference. Frick, who currently is Vice Chairman and Managing Partner at Diversified Search, considered the mission of Blue Cross was not to sell insurance but to provide health care security.

From his speech:

"As the former CEO of a company that employed over 6000 employees, I cared deeply about the health and vitality of my workforce and their families, but grappled with the annual, unpredictable costs of over $50 million to provide healthcare coverage. Some asked isn't it free for your company. The answer is no."

He argued that the current system is not maintainable.

 "Despite over $2.6 trillion dollars in healthcare spending (over 16% of GDP), the number of non- insured elderly patients reached 49.1 million in 2010. In short, the current operating model is not sustainable. 

He proposed solutions.

 "We need to accelerate the transformation of our industry from one that is architected around activity and volume to one that is structured, aligned, and incented around outcomes and value.

Female Venture Capitalist: Women Tech Entrepreneurs Can't Cut It

It is 2011, there are still few women in venture capital or  heading tech start- ups. Attending the Israel American Chamber of Commerce on healthcare IT,  I decided to explore this issue with with two women at the Israel America Chamber of Commerce Conference on Healthcare IT.

Donna Usiskin, Vice President of Business Development at Edison Ventures is the only woman employee on the investment side at Edison Ventures, which has 23 employees. Usiskin said, "I do everything that I can do to mentor women tech entrepreneurs." She then listed several female mentoring organizations that she is a member of.

Usiskin continued, "Women are not cut out to be tech entrepreneurs. It is 24 hour a day, 7 day a week job.  Women chose family, a husband over that lifestyle." It was a little disappointing to hear this ancient stereotype about women was being parroted by a woman.

Usiskin was "thrilled" that she had to wait in line for the ladies room at this conference. "This conference is a little different. There are more women. The Israeli army teaches women how to handle a gun and be leaders," noted Usiskin.

Elizabeth Rounsavall, director of Research and Analytics at Chrysalis Ventures voiced the same sentiments. She said, "There are no women on the investment side at Chrysalis. I am sort of a bridge to administration. There is another woman employee in marketing. Part of the problem is lifestyle. A lot of travel is involved with the job."

Rounsavall continued, "The situation is also bad in private equity. A female speaker  at a private equity conference thanked the industry for being more progressive than the Taliban."

Later, she mentioned two women entrepreneurs that Chrysalis works with -  Liz Griggs, CEO of Nextimage Medical and Jan Bruce, who was an entrepreneur-in-residence at Chrysalis before they invested in her startup, Quilibrium. 

See The Artistry Behind a Billion Dollar Fortune

When I saw Cirque du Soleil Quidam last night, I was reminded that 100 million people on six continents have  seen a Cirque show. The founder Guy Laliberte, whose net worth is over $2.5 billion, proves that the secrets of success may be following your dreams and doing what you love. His irresistible charm and nerves of steel  are credited with his success in this compelling Barbara Walter's interview.

Quidam is a captivating mix of clowns, which make you laugh, and death defying aerobic feats that elicit an involuntary gasp. I often found myself literally on the edge of my seat, alternatively holding my breath and saying wow.

Pictures courtesy of Matt Beard

Sex Is Not Why Cain's Sexual Harassment Settlements are Important

As a victim of sexual harassment and sexual assault, many might feel that it is a knee jerk response, on my part, to attach importance to the sexual harassment settlements made on behalf of Republican Presidential candidate Herman Cain. They would be wrong.

I am paying attention to these allegations and settlements because it gives you a window into Herman Cain's character. Since he has only recently arrived on the national scene, we do not know much about him. The national media has not properly vetted him.

The subsequent history of the men that harassed me might be illustrative. One  was my regional sales manager of the brokerage firm that I employed me. Since I filed my charges in the 90's during the Wild West period of Wall Street, nothing happened to the perpetrator after the firm settled with me. 18 months later, he was fired after black brokers named him in a class action discrimination suit. The suit alleged that he poked fun of blacks by performing "in white face during a minstrel type show at the firm's Christmas party". The settlement in that case was in seven figures. The lesson drawn from this case could be that sexual harassers are usually equal opportunity bigots.The firm should have drawn the right conclusion from my lawsuit - they had a problem employee. If they had, they might have insisted that he undergo sensitivity training and avoided the second lawsuit and its multi-million payout.

The second man was a tycoon of finance held in the highest esteem when I leveled my charges. By the way he behaved during the attack and handled my accusations, it was clear that he took too many risks, played fast and loose with the facts, wanted to win at all costs, and did not know how to deal with people.The public discovered this afterwards. His firm shortly thereafter took a company public that went bankrupt six weeks later. Accusations were leveled that his firm knew the company was failing and rushed taking it public so that they could cash in before the bankruptcy. Later, his partners pushed him out the door of the firm that he singlehandly founded in a bitter dispute.

Since Herman Cain has not handled the fallout from the revelation of the sexual harassment charges particularly well, many in the media, who do not like to talk about sex, have decided the pr debacle is the issue. They are wrong. The issue is his character. His lack of knowledge about the settlements indicates arrogance. He did not ask about the settlements because that would have been admitting that he made a mistake. Then, he might been forced to alter his behavior.  Even if he thought that his actions were funny or non -offensive, he needed to change them because it was costing the organizations that he worked for money.

This also says something about our corporate culture.Except in the case of serial harassers, businesses do not tolerate employees, even star ones, that keep costing the company money.