3:42 pm - Monday, November 24th, 2014

Big Crime, Small Fine – Fraud & Misdealing: Corporate America’s Newest Positive NPV Investment

Eric Holder Source APBig Crime, Small Fine… Is it just me, or has fraud, misdealing and despicable business practice become a positive NPV investment that huge companies just go about executing knowingly and willingly? 

Forget the Enron days where every now and again one company cooked the books to paint a pretty picture for investors. The newest trend is blatant fraud and misdealing. It seems like these companies go into their boardrooms and say lets see how we can make the most money while paying the least amount of fines, if and when we get caught. If and when we do get caught, which some/most of us will not, we will not admit fault or let anyone get anywhere near bringing a case to discovery stages or dragging us through the mud. We will put all the blame on a subsidiary (wholly owned, I’m sure), pay a small fine (relative to the huge amount of money we just made), which looks like a huge sum to the masses, and just keep at it. Look for the next positive NPV illegal investment. Everyone else is doing it. 

Today, J&J agreed to pay $2.2 billion to settle illegal marketing allegations. No discovery, no dragging through the mud, no one to hold liable… Just a quiet brush under the rug. 

Johnson & Johnson has agreed to pay more than $2.2 billion to resolve criminal and civil allegations that the company promoted powerful psychiatric drugs for unapproved uses in children, seniors and disabled patients, the Department of Justice announced on Monday.

Justice Department officials alleged that J&J used illegal marketing tactics and kickbacks to persuade physicians and pharmacists to prescribe Risperdal and Invega, both antipsychotic drugs, and Natrecor, which is used to treat heart failure.

The settlement amount includes $1.72 billion in civil payments to federal and state governments as well as $485 million in criminal fines and forfeited profits.

The $2.2 billion settlement actually looks like a meaningful fine/penalty for a company to pay for these kinds of practices… Until you see that they made $3.5 billion selling just ONE of those three drugs. 

The FDA first approved Risperdal tablets for schizophrenia in 1993, but prosecutors say J&J began promoting the drug for unrelated uses by the end of the decade. Risperdal then grew to become J&J’s top product by 2005, with sales over $3.5 billion.

Surely stakeholders, and investors are in an uproar… There must be a fire-sale on the stock… 

Johnson & Johnson shares fell 34 cents (down 0.36%) to close at $93.03. – AP

…Oh

Perhaps we are approaching this all wrong. Perhaps this is a good thing. Perhaps there is a better way to put this into perspective… 

July 15, 2010 – Goldman Sachs to pay record $550 Million to settle SEC Charges related to Subprime Mortgage CDO. On the face of this, it is a “RECORD” settlement. Allegedly, Goldman knowingly sold bad mortgage CDOs to investors… You know the ones that contributed to the subprime mortgage crisis… The world must hate Goldman for that…

The good news is that Goldman recently settled with the SEC, paying a lower-than-expected $550 million. Analysts were mostly positive on the settlement; upgrading the shares left and right. – Street Insider

Goldman finished the 2010 with $8.35 billion in income, on $45 billion in revenue. That $550 million dollar settlement really hurt the bottom line! But its unfair to just judge Goldman.

Wells Fargo & Co. (WFC) agreed to pay less than $1 billion to settle Federal Housing Finance Agency claims it sold faulty mortgage bonds to Fannie Mae and Freddie Mac, according to a person briefed on the deal.

The bank’s accord with the FHFA, which regulates the government-backed mortgage-finance firms, was subject to a confidentiality agreement, the person said, asking not to be named because of those terms. San Francisco-based Wells Fargo said in a May filing that it had settled Fannie Mae’s claims over mortgage bonds, and that the payment, which it didn’t specify, was covered by reserves.

I wonder how much they made on these faulty mortgage bonds? Does anyone believe that it was less than the $1 billion that they paid to settle?

Bank of America Corp. may have to pay $5 billion to $8 billion to settle the FHFA’s suit against it after JPMorgan’s deal set “a relatively high bar,” Fitch Ratings said this week. An FHFA lawsuit against Bank of America had cited about $57 billion of mortgage-backed securities, compared with about $33 billion in its case against JPMorgan, Fitch said.

The Financial Times reported earlier today on Wells Fargo’s confidential settlement. Citigroup Inc. and General Electric Co. (GE) also previously paid undisclosed amounts to resolve the regulator’s complaints.
UBS AG (UBSN), Switzerland’s largest bank, agreed in July to pay $885 million to settle claims it misrepresented the quality of the loans backing $4.5 billion in residential mortgage bonds it sponsored and $1.8 billion of third-party mortgage bonds sold to Fannie Mae and Freddie Mac. (FMCC) – Bloomberg

Seriously now. Too big to fail? OK… How about too big to pay back every penny that they made in profit on these loans? Its not like they made these loans, collateralized them, sold them, and forgot about them. Goldman allegedly traded ahead of the loans on the upside, and knowing that they were selling trash, insured them like crazy on the downside.

Taxpayers Bail Out AIG and Goldman

Remember when the government bailed out AIG? Taxpayers wrote a check for $182 billion directly to AIG. Then AIG immediately turned around and wrote a check for $13 billion to Goldman, for insurance that Goldman bought on all those terrible loans they collateralized. 

Beleaguered Wall Street powerhouse Goldman Sachs Group switched to offense Friday, contending that the $13 billion the firm received from bailed-out American International Group Inc. was fully justified and in fact was good for taxpayers.

But that did little to quell the criticism that Goldman and other financial institutions should have taken less than they were owed on insurance for their risky bets on the subprime housing market.

Goldman Chief Financial Officer David Viniar said his company simply was trying to protect its shareholders — which now include taxpayers after the firm received $10 billion in financial rescue money last fall.

“If we had taken a discount, then we would have taken a loss to Goldman Sachs,” Viniar said in a conference call with reporters convened by the company to address its involvement with AIG. “We also have taxpayer money at Goldman Sachs and it’s part of our responsibility to protect that money and not lose it.” – LA Times

$13 billion dollar insurance payout. Countless profits trading ahead of their investors (allegedly), and a “record” $550 million settlement. How’s that for positive NPV? I think someone deserves a bonus!!

These are public companies with tons of shareholders and millions of stakeholders, yet the public is unable to enact any sort of change. These are your investments, you can sell them if you don’t like the way these companies do business, but why would you?

They pay less in fines than they make in profits on the illegal/fraudulent/morally wrong acts. At the heart of the issue is that this is all just one positive NPV investment after another for investors. Who cares that they are wrong… We can’t punish management! That’s crazy! They have limited liability. Plus, we need them incentivized to take risks!! Otherwise, who is going to think of the next fraudulent positive NPV investment?

Why would anyone get any sort of negative feedback from this loop? Just earn, pay a fine, rinse, repeat… Paying a half a billion dollar fine here, a two billion dollar fine there, is just a cost of doing business. Just a cost of pulling money out of the pockets of Americans. Plus, just think of all the companies that don’t get caught… 

This rant can go on for ages. It needs a logical stopping point. I don’t even want to know when we plan on holding corporations responsible, management responsible, and finally see the investors in these companies pay the cost of doing business rather than the taxpayer. I don’t think we will see that day anytime soon. I just want to see one or two of these companies go through the process of discovery and get their entire operation and process out in the open. That’s all I ask for. 

Big Crime, Small Fine – Fraud & Misdealing: Corporate America’s Newest Positive NPV Investmenthttp://www.retiremend.com/wp-content/uploads/2013/11/Eric-Holder-AP.jpghttp://www.retiremend.com/wp-content/uploads/2013/11/Eric-Holder-AP-150x150.jpg RiskAverse CrimeEconomicsFinancePolitics,,,,,,,,,,,,,,
Big Crime, Small Fine... Is it just me, or has fraud, misdealing and despicable business practice become a positive NPV investment that huge companies just go about executing knowingly and willingly?  Forget the Enron days where every now and again one company cooked the books to paint a pretty picture for investors. The...
<strong><a href="http://www.retiremend.com/wp-content/uploads/2013/11/Eric-Holder-AP.jpg"><img class="alignleft wp-image-211" alt="Eric Holder Source AP" src="http://www.retiremend.com/wp-content/uploads/2013/11/Eric-Holder-AP.jpg" width="340" height="238" /></a>Big Crime, Small Fine... Is it just me, or has fraud, misdealing and despicable business practice become a positive NPV investment that huge companies just go about executing knowingly and willingly? </strong> <strong>Forget the Enron days where every now and again one company cooked the books to paint a pretty picture for investors. The newest trend is blatant fraud and misdealing. It seems like these companies go into their boardrooms and say lets see how we can make the most money while paying the least amount of fines, if and when we get caught. If and when we do get caught, which some/most of us will not, we will not admit fault or let anyone get anywhere near bringing a case to discovery stages or dragging us through the mud. We will put all the blame on a subsidiary (wholly owned, I'm sure), pay a small fine (relative to the huge amount of money we just made), which looks like a huge sum to the masses, and just keep at it. Look for the next positive NPV illegal investment. Everyone else is doing it. </strong> <strong>Today, J&J agreed to pay $2.2 billion to settle illegal marketing allegations. No discovery, no dragging through the mud, no one to hold liable... Just a quiet brush under the rug. </strong> <blockquote>Johnson & Johnson has agreed to pay more than $2.2 billion to resolve criminal and civil allegations that the company promoted powerful psychiatric drugs for unapproved uses in children, seniors and disabled patients, the Department of Justice announced on Monday. Justice Department officials alleged that J&J used illegal marketing tactics and kickbacks to persuade physicians and pharmacists to prescribe Risperdal and Invega, both antipsychotic drugs, and Natrecor, which is used to treat heart failure. The settlement amount includes $1.72 billion in civil payments to federal and state governments as well as $485 million in criminal fines and forfeited profits.</blockquote> <strong>The $2.2 billion settlement actually looks like a meaningful fine/penalty for a company to pay for these kinds of practices... Until you see that they made $3.5 billion selling just ONE of those three drugs. </strong> <blockquote>The FDA first approved Risperdal tablets for schizophrenia in 1993, but prosecutors say J&J began promoting the drug for unrelated uses by the end of the decade. Risperdal then grew to become J&J's top product by 2005, with sales over $3.5 billion.</blockquote> <strong>Surely stakeholders, and investors are in an uproar... There must be a fire-sale on the stock... </strong> <blockquote>Johnson & Johnson shares fell 34 cents (down 0.36%) to close at $93.03. - <a title="Johnson & Johnson settles for $2.2 Billion" href="http://bigstory.ap.org/article/ap-source-johnson-johnson-agrees-pay-22b" target="_blank">AP</a></blockquote> <strong>...Oh</strong> <strong>Perhaps we are approaching this all wrong. Perhaps this is a good thing. Perhaps there is a better way to put this into perspective... </strong> <strong>July 15, 2010 - <a title="GS Settles Subprime Mortgage Allegations" href="http://www.sec.gov/news/press/2010/2010-123.htm" target="_blank">Goldman Sachs to pay record $550 Million to settle SEC Charges related to Subprime Mortgage CDO</a>. On the face of this, it is a "RECORD" settlement. Allegedly, Goldman knowingly sold bad mortgage CDOs to investors... You know the ones that contributed to the subprime mortgage crisis... The world must hate Goldman for that...</strong> <blockquote>The good news is that Goldman recently settled with the SEC, paying a lower-than-expected $550 million. Analysts were mostly positive on the settlement; upgrading the shares left and right. - <a title="GS 2010 Earnings Outlook" href="http://www.streetinsider.com/Insiders+Blog/Goldman+Sachs+(GS)+Q2+Earnings+Preview%3A+SEC+Settlment+Positive,+But+Wont+Add+to+Q2/5816288.html" target="_blank">Street Insider</a></blockquote> <strong>Goldman finished the 2010 with $8.35 billion in income, on $45 billion in revenue. That $550 million dollar settlement really hurt the bottom line! But its unfair to just judge Goldman. </strong> <blockquote>Wells Fargo & Co. (WFC) agreed to pay less than $1 billion to settle Federal Housing Finance Agency claims it sold faulty mortgage bonds to Fannie Mae and Freddie Mac, according to a person briefed on the deal. The bank’s accord with the FHFA, which regulates the government-backed mortgage-finance firms, was subject to a confidentiality agreement, the person said, asking not to be named because of those terms. San Francisco-based Wells Fargo said in a May filing that it had settled Fannie Mae’s claims over mortgage bonds, and that the payment, which it didn't specify, was covered by reserves.</blockquote> <strong>I wonder how much they made on these faulty mortgage bonds? Does anyone believe that it was less than the $1 billion that they paid to settle? </strong> <blockquote>Bank of America Corp. may have to pay $5 billion to $8 billion to settle the FHFA’s suit against it after JPMorgan’s deal set “a relatively high bar,” Fitch Ratings said this week. An FHFA lawsuit against Bank of America had cited about $57 billion of mortgage-backed securities, compared with about $33 billion in its case against JPMorgan, Fitch said. The Financial Times reported earlier today on Wells Fargo’s confidential settlement. Citigroup Inc. and General Electric Co. (GE) also previously paid undisclosed amounts to resolve the regulator’s complaints. UBS AG (UBSN), Switzerland’s largest bank, agreed in July to pay $885 million to settle claims it misrepresented the quality of the loans backing $4.5 billion in residential mortgage bonds it sponsored and $1.8 billion of third-party mortgage bonds sold to Fannie Mae and Freddie Mac. (FMCC) - <a title="Wells Fargo Settlement" href="http://www.bloomberg.com/news/2013-10-31/wells-fargo-said-to-settle-fhfa-claims-for-less-than-1-billion.html" target="_blank">Bloomberg</a></blockquote> <strong>Seriously now. Too big to fail? OK... How about too big to pay back every penny that they made in profit on these loans? Its not like they made these loans, collateralized them, sold them, and forgot about them. Goldman allegedly traded ahead of the loans on the upside, and knowing that they were selling trash, insured them like crazy on the downside. </strong> <p style="text-align: center;"><strong><a href="http://www.retiremend.com/wp-content/uploads/2013/11/financial-crisis1.jpg"><img class="aligncenter wp-image-212" alt="Taxpayers Bail Out AIG and Goldman" src="http://www.retiremend.com/wp-content/uploads/2013/11/financial-crisis1.jpg" width="592" height="407" /></a></strong></p> <p style="text-align: left;"><strong>Remember when the government bailed out AIG? <a title="AIG Bailout $182 billion" href="http://www.thenation.com/article/153929/aig-bailout-scandal#" target="_blank">Taxpayers wrote a check for $182 billion directly to AIG</a>. Then <a title="AIG Writes $13 Billion check to Goldman" href="http://articles.latimes.com/2009/mar/21/business/fi-aig-goldman21" target="_blank">AIG immediately turned around and wrote a check for $13 billion to Goldman</a>, for insurance that Goldman bought on all those terrible loans they collateralized. </strong></p> <div id="mod-a-body-first-para"> <blockquote>Beleaguered Wall Street powerhouse Goldman Sachs Group switched to offense Friday, contending that the $13 billion the firm received from bailed-out American International Group Inc. was fully justified and in fact was good for taxpayers. But that did little to quell the criticism that Goldman and other financial institutions should have taken less than they were owed on insurance for their risky bets on the subprime housing market. Goldman Chief Financial Officer David Viniar said his company simply was trying to protect its shareholders -- which now include taxpayers after the firm received $10 billion in financial rescue money last fall. "If we had taken a discount, then we would have taken a loss to Goldman Sachs," Viniar said in a conference call with reporters convened by the company to address its involvement with AIG. "We also have taxpayer money at Goldman Sachs and it's part of our responsibility to protect that money and not lose it." - <a title="Goldman Reacts to AIG Bailout" href="http://articles.latimes.com/2009/mar/21/business/fi-aig-goldman21" target="_blank">LA Times</a></blockquote> </div> <div id="mod-a-body-after-first-para"></div> <strong>$13 billion dollar insurance payout. Countless profits trading ahead of their investors (allegedly), and a "record" $550 million settlement. How's that for positive NPV? I think someone deserves a bonus!!</strong> <strong>These are public companies with tons of shareholders and millions of stakeholders, yet the public is unable to enact any sort of change. These are your investments, you can sell them if you don't like the way these companies do business, but why would you? </strong> <strong>They pay less in fines than they make in profits on the illegal/fraudulent/morally wrong acts. At the heart of the issue is that this is all just one positive NPV investment after another for investors. Who cares that they are wrong... We can't punish management! That's crazy! They have limited liability. Plus, we need them incentivized to take risks!! Otherwise, who is going to think of the next fraudulent positive NPV investment? </strong> <strong>Why would anyone get any sort of negative feedback from this loop? Just earn, pay a fine, rinse, repeat... Paying a half a billion dollar fine here, a two billion dollar fine there, is just a cost of doing business. Just a cost of pulling money out of the pockets of Americans. Plus, just think of all the companies that don't get caught... </strong> <strong>This rant can go on for ages. It needs a logical stopping point. I don't even want to know when we plan on holding corporations responsible, management responsible, and finally see the investors in these companies pay the cost of doing business rather than the taxpayer. I don't think we will see that day anytime soon. I just want to see one or two of these companies go through the process of discovery and get their entire operation and process out in the open. That's all I ask for. </strong>

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