James Happ will not share his former work colleagues’ fate.
Happ, an accountant and former vice president of servicer operations for Dublin-based National Century Financial Enterprises Inc., has been found not guilty of a count each of conspiracy and money laundering conspiracy and three counts of wire fraud.
A 12-member jury at the U.S. District Court in Columbus returned the verdict Wednesday afternoon after a day-and-a-half of deliberations.
Happ was the seventh former executive from National Century to go to trial and the only one to be acquitted. Six former executives were convicted of fraud and four pleaded guilty. Happ was the eleventh and final National Century employee to face criminal charges.
Happ’s trial began Dec. 1 and ended just two weeks later after his defense attorneys declined to put any witnesses on the stand.
In opening arguments, attorney Craig Gillen told jurors that Happ never had a hand in any wrongdoing at the company.
“Jim Happ never told a lie to any investors. Period,” Gillen said.
Happ stood trial on accusations he was part of an executive-level cabal at the medical financing company that defrauded investors for years. A financier for health-care providers like doctors’ offices and hospitals, National Century’s bread and butter was buying accounts receivable from care providers at a discount, then securitizing the receivables into AAA-rated bonds for sale to investors. At its peak, the company employed more than 350 at its office campus in Dublin while recording annual revenue of more than $250 million.
The government has alleged National Century collapsed after running a sophisticated pyramid scheme that fell apart. In addition to purchasing legitimate accounts receivable, the government alleged National Century funded companies owned by its founders without getting receivables in return, effectively making risky unsecured loans with investor cash. The company charged its clients for those advances, the government has said, which inflated National Century’s revenue and generated bonuses for senior executives.
Government attorneys argued that Happ, as the firm’s chief accountant and head of servicer operations, was responsible for making sure that purchased accounts receivable were eligible. In a July 2007 indictment, the government alleged that Happ improperly advanced as much as $5.4 million to a company owned by NCFE founder Lance Poulsen.
The government also accused Happ of ordering a National Century subordinate to remove safeguards on the company’s computer system relative to a health-care provider he planned to join after leaving National Century.
******************************************************************************
Before ENRON, before the Mortgage Fraud, what about the Healthcare Finance Fraud?
JULY 10, 2007
FOR IMMEDIATE RELEASE
http://www.usdoj.gov/usao/ohsn
SUPERSEDING INDICTMENT CHARGES FORMER EXECUTIVES OF HEALTH CARE FINANCING COMPANY WITH CONSPIRACY, FRAUD, MONEY LAUNDERING
"...superseding indictment charging eight former executives of National Century Financial Enterprises (NCFE) with conspiring to defraud investors by diverting millions of dollars in investors' funds, fabricating data in investor reports, and moving money back and forth between accounts in order to conceal investor fund shortfalls. NCFE, based in Dublin, Ohio, was one of the largest healthcare finance companies in the United States ..." before FBI raided the office in Dublin, Oh.
“This case is one of the largest corporate fraud investigations involving a privately held company headquartered in small town America,” said Assistant Director Kenneth W. Kaiser of the FBI Criminal Investigative Division.
JPMORGAN CHASE and CITI PAID GOVERNMENT SETTLED AGREEMENTS FOR FRAUD in National Century Financial Enterprises, Inc. (NCFE), the “LARGEST ‘PRIVATE’ FINANACIAL FRAUD CASE “in our nation's history
February 3, 2008- THE COLUMBUS DISPATCH
By the numbers
All defendants, except for James K Happ, were initially indicted in May, 2006. United States District Judge Algenon L. Marbley will preside over the case which is scheduled for trial on November 5, 2007. National Century Financial Enterprises (NCFE)
Friday, February 8, 2008- Business First of Columbus - Business First
Poulsen isn't the only National Century executive scheduled for a trial apart from the five now in court. James Happ is scheduled for trial in October because "he wasn't charged in connection with the company's failure until last May."
"All defendants, except for Happ...?"
At trial, the government presented evidence that the defendants engaged in a scheme to deceive investors and rating agencies about the financial health of NCFE and how investor monies would be used between May 1998 and May 2001.
Note: May 1998 James K Happ was the chief financial officer of the Dallas-based Columbia Homecare Group, Inc. and used NCFE to finance his divestiture of Columbia Homecare Group’s losing assets, homecare. . , "All defendants, except for Happ...?"
Mr. Happ, as chief financial officer of the Dallas-based Columbia Homecare Group, Inc., a home care company with more than 500 locations nationwide and more than $1 billion in revenue in 1997 directed the company through the challenging reimbursement climate, … and participated in the divestiture of all of Columbia/HCA's home care operations.
1998-1999 Who financed this divestiture? NCFE- National Century Financial Enterprises.
Where did James K Happ divest the losing assets of Columbia Homecare Group, Inc? One man owned company, Medshares, Inc. in Memphis, TN. A ‘private’ company financed by a ‘private’ financial institution, NCFE.
In July 1999, Medshares, Inc. filed the LARGEST Bankruptcy case in the history of Western Tennessee's bankruptcy court held all of the Dallas-based Columbia Homecare Group, Inc.’s home care units . All entities filed with the court were financed by NCFE. In this courtroom, documents reveal the uproar from scores of lawyers crying fraud in the bankruptcy court and the BANKRUPTCY JUDGE scolded the attorneys and forbade the ‘F’ word in her court. (NO FRAUD)
February 21, 2008 - Associated Press
COLUMBUS, Ohio (AP) - A guilty executive told jurors she told investors "absolutely nothing" about National Century's practices of advancing cash to Memphis, Tenn.-based Medshares, a home-health care provider.
Thursday, December 18, 2008 - National Century fraud case produces 1st acquittal
Prosecutors' case fell short, juror says
By Jodi Andes THE COLUMBUS DISPATCH
The "not guilty" verdicts that came in federal court yesterday were not so much a vindication of the last National Century Financial Enterprises executive to stand trial, a juror said.
Instead, they were more a belief that federal prosecutors had not done their job, the juror said after he
and his fellow jurors acquitted James K. Happ of five counts after 12 hours of deliberation. "He very well may have been guilty. A lot of us thought he was," said the juror who wouldn't give his name. "But if he was, you gotta have the evidence."
James K Happ was the chief financial officer of the Dallas-based Columbia Homecare Group, Inc. prior to arriving at NCFE and the ONLY executive of NCFE ACQUITTED.
Showing posts with label Darla Moore. Show all posts
Showing posts with label Darla Moore. Show all posts
Thursday, February 26, 2009
The Pickens Profile You Haven't Read
An exerpt posted in this week's Newsweek : http://www.newsweek.com/id/151727/page/2
Pickens likes to portray his years as a corporate buccaneer during the 1980s as "shareholder activism." When Mesa fell into a cash crisis in the mid '90s after the price of natural gas collapsed, there was no mercy for him on Wall Street. Pickens called in Texas financier Richard Rainwater, and his wife and business partner, Darla Moore, to help raise capital. (Rainwater helped another oilman, George W. Bush, escape his money problems by making him co-owner of the Texas Rangers, a deal that eventually made Bush a multimillionaire.)
Moore, a leveraged-buyout specialist dubbed "the Toughest Babe in the Business" by Fortune, tried to raise $1 billion on Wall Street for Mesa. "I found out there wasn't a bank in the country that would touch the deal if Boone was CEO," Moore told NEWSWEEK. "I tried to soften the message [but] he was really surprised. 'But I get along with all those guys,' is what he said." The Rainwaters worked out a deal for Pickens to retire as CEO, and bought him out, a deal that still rankles the billionaire. Moore whooped with surprise when told by a NEWSWEEK reporter that Pickens had compared her in his book to a "wolverine that pisses on everything it doesn't eat." Moore responds, "I think what people don't know about Boone is that deep down he is actually—I hate to say this—a nice man. And he knows more about energy than anybody in the world."
Just a little insight to Darla Moore;
Darla Moore In 1981, at Chemical Bank in New York, Moore and Conway were focused on a new idea: loaning money to corporations teetering on the brink of bankruptcy,
Soon after, she met and married Rainwater, who made her president of his investment company. They now had $500 million to put wherever they wanted.That's when she pushed T. Boone Pickens out . . . and then to a hard look at Rick Scott.
Scott was Rainwater's good friend. They had bought two hospitals in Texas and shared a vision: a nationwide chain of hospitals using cost controls.
By 1997, Scott's company, Columbia/HCA, was the nation's largest managed care provider.
But Moore said Scott was unwise to ignore subordinates who questioned his practices and foolish to dismiss a federal investigation of how Columbia billed Medicare.
According to the SEC Form :
Med Diversified Inc.
Annual Meeting Of Stockholders
September 9, 2003
JAMES K. HAPP has served as chief executive officer of our subsidiary, Tender Loving Care Health Care Services, Inc., since October 2002.
Previously, Mr. Happ served for three years as executive vice president of NCFE, during which time he restructured the servicer department to improve operational performance and accelerated the utilization of technology to increase operational efficiency. (1999-2002 by deduction of SEC statement)
Mr. Happ also served as chief financial officer of the Dallas-based Columbia Homecare Group, Inc., a home care company with more than 500 locations nationwide and more than $1 billion in revenue in 1997. In this role, he directed the company through the challenging reimbursement climate, known as the interim payment system, and participated in the divestiture of all of Columbia/HCA's home care operations (At least1997 until 1999)
Participated in the "DIVESTITURE"...Where did this divestiture 'divest' to?
Look at SEC form 10-K for HCA Inc./TN Filing Date: 4-1-1996.
Pickens likes to portray his years as a corporate buccaneer during the 1980s as "shareholder activism." When Mesa fell into a cash crisis in the mid '90s after the price of natural gas collapsed, there was no mercy for him on Wall Street. Pickens called in Texas financier Richard Rainwater, and his wife and business partner, Darla Moore, to help raise capital. (Rainwater helped another oilman, George W. Bush, escape his money problems by making him co-owner of the Texas Rangers, a deal that eventually made Bush a multimillionaire.)
Moore, a leveraged-buyout specialist dubbed "the Toughest Babe in the Business" by Fortune, tried to raise $1 billion on Wall Street for Mesa. "I found out there wasn't a bank in the country that would touch the deal if Boone was CEO," Moore told NEWSWEEK. "I tried to soften the message [but] he was really surprised. 'But I get along with all those guys,' is what he said." The Rainwaters worked out a deal for Pickens to retire as CEO, and bought him out, a deal that still rankles the billionaire. Moore whooped with surprise when told by a NEWSWEEK reporter that Pickens had compared her in his book to a "wolverine that pisses on everything it doesn't eat." Moore responds, "I think what people don't know about Boone is that deep down he is actually—I hate to say this—a nice man. And he knows more about energy than anybody in the world."
Just a little insight to Darla Moore;
Darla Moore In 1981, at Chemical Bank in New York, Moore and Conway were focused on a new idea: loaning money to corporations teetering on the brink of bankruptcy,
Soon after, she met and married Rainwater, who made her president of his investment company. They now had $500 million to put wherever they wanted.That's when she pushed T. Boone Pickens out . . . and then to a hard look at Rick Scott.
Scott was Rainwater's good friend. They had bought two hospitals in Texas and shared a vision: a nationwide chain of hospitals using cost controls.
By 1997, Scott's company, Columbia/HCA, was the nation's largest managed care provider.
But Moore said Scott was unwise to ignore subordinates who questioned his practices and foolish to dismiss a federal investigation of how Columbia billed Medicare.
According to the SEC Form :
Med Diversified Inc.
Annual Meeting Of Stockholders
September 9, 2003
JAMES K. HAPP has served as chief executive officer of our subsidiary, Tender Loving Care Health Care Services, Inc., since October 2002.
Previously, Mr. Happ served for three years as executive vice president of NCFE, during which time he restructured the servicer department to improve operational performance and accelerated the utilization of technology to increase operational efficiency. (1999-2002 by deduction of SEC statement)
Mr. Happ also served as chief financial officer of the Dallas-based Columbia Homecare Group, Inc., a home care company with more than 500 locations nationwide and more than $1 billion in revenue in 1997. In this role, he directed the company through the challenging reimbursement climate, known as the interim payment system, and participated in the divestiture of all of Columbia/HCA's home care operations (At least1997 until 1999)
Participated in the "DIVESTITURE"...Where did this divestiture 'divest' to?
Look at SEC form 10-K for HCA Inc./TN Filing Date: 4-1-1996.
Saturday, January 3, 2009
Bush, Rainwater, Moore, Poulsen, Happ, Fraud, Healthcare Fraud, Bankruptcy Fraud, Financial Fraud
Columbia Homecare Group was also involved with the largest Bankruptcy in Western Tennessee . Medshares, Inc. which was also connected to the largest ‘private’ fraud case in Columbus Ohio, National Cantury Finanacial Enterprises, Inc. (NCFE).
Funny, the only executive to be acquitted was the ex-CFO of Columbia Homecare Group out of Dallas Ft Worth, Mr. Richard Rainwater’s losing assets of HCA/TN.
James K Happ, the ex-CFO, dumped all the homecares into Medshares, financed by, you guessed it, NCFE!!
Guess it pays to be the ex-partner of the worst President in our modern history.
Rainwater & Bush----go TEXAS RANGERS!!!!
I woncder if BUSH & RAINWATER will have dinner at the White House or maybe at the "WESTERN" White HOUSE. Oh and don't forget, Rainwater's wife, the Queen of Bankruptcy,Darla Moore. Remember, she was the inventor of 'DIP FINANCE' while at CHASE BANK for CORPORATE BANKRUPTCY.
Funny, the only executive to be acquitted was the ex-CFO of Columbia Homecare Group out of Dallas Ft Worth, Mr. Richard Rainwater’s losing assets of HCA/TN.
James K Happ, the ex-CFO, dumped all the homecares into Medshares, financed by, you guessed it, NCFE!!
Guess it pays to be the ex-partner of the worst President in our modern history.
Rainwater & Bush----go TEXAS RANGERS!!!!
I woncder if BUSH & RAINWATER will have dinner at the White House or maybe at the "WESTERN" White HOUSE. Oh and don't forget, Rainwater's wife, the Queen of Bankruptcy,Darla Moore. Remember, she was the inventor of 'DIP FINANCE' while at CHASE BANK for CORPORATE BANKRUPTCY.
Columbia Hospital Corporation & National Century Finanacial Enterprises & James K Happ
The one and only executive from NCFE who by the way came from Columbia to NCFE before the FBI raided their offices, was acquitted.
Funny, he was the last person to go on trial.
How convenient!
Undercover: How I Went from Company Man to FBI Spy -- and Exposed the Worst Healthcare Fraud in US History (Hardcover)
Review
“…[an] exciting story of an ordinary man who finds himself in extraordinary circumstances. You could say it’s a rags-to-riches morality tale, with good emerging victorious (up to a point) over bad.” Milwaukee Journal Sentinel
When John Schilling, an unassuming mid-level accountant, went to work for the Columbia Hospital Corporation, he never expected to become the catalyst for the series of “whistleblower” cases that ripped through the healthcare industry in the late 1990s. But when he unwittingly discovered that the company was siphoning billions of dollars away from Medicare and stealing from American taxpayers, he was faced with a choice: Speak up for what he believed to be right, or remain silent. Undercover tells the story of Schilling’s harrowing journey from ordinary citizen to federal informant. The book recounts how Schilling allied himself with the FBI and the Justice Department and–unable to confide in friends or family–journeyed into an undercover world in which he carried a wire and mapped out offices for secret government raids. Suspenseful and provocative, Undercover chronicles Schilling’s nine-year ordeal that eventually led to the resignation of high-level executives and forced Columbia to return $1.7 billion dollars to the federal government. A compelling account of one man’s decision to risk everything for the greater good, this book reveals the personal side of a thankless role that resulted, ultimately, in justice.
See all Editorial Reviews
order Undercover: How I Went from Company Man to FBI Spy — and Exposed the Worst Healthcare Fraud in US History: John W. Schilling form Amazon.
Funny, he was the last person to go on trial.
How convenient!
Undercover: How I Went from Company Man to FBI Spy -- and Exposed the Worst Healthcare Fraud in US History (Hardcover)
Review
“…[an] exciting story of an ordinary man who finds himself in extraordinary circumstances. You could say it’s a rags-to-riches morality tale, with good emerging victorious (up to a point) over bad.” Milwaukee Journal Sentinel
When John Schilling, an unassuming mid-level accountant, went to work for the Columbia Hospital Corporation, he never expected to become the catalyst for the series of “whistleblower” cases that ripped through the healthcare industry in the late 1990s. But when he unwittingly discovered that the company was siphoning billions of dollars away from Medicare and stealing from American taxpayers, he was faced with a choice: Speak up for what he believed to be right, or remain silent. Undercover tells the story of Schilling’s harrowing journey from ordinary citizen to federal informant. The book recounts how Schilling allied himself with the FBI and the Justice Department and–unable to confide in friends or family–journeyed into an undercover world in which he carried a wire and mapped out offices for secret government raids. Suspenseful and provocative, Undercover chronicles Schilling’s nine-year ordeal that eventually led to the resignation of high-level executives and forced Columbia to return $1.7 billion dollars to the federal government. A compelling account of one man’s decision to risk everything for the greater good, this book reveals the personal side of a thankless role that resulted, ultimately, in justice.
See all Editorial Reviews
order Undercover: How I Went from Company Man to FBI Spy — and Exposed the Worst Healthcare Fraud in US History: John W. Schilling form Amazon.
By Dennis Jay
Jan 2, 2009, 4:18 PM EST
Let’s make 2009 the year we finally turn the corner on insurance fraud and truly make a difference in curbing this crime — and in the process, helping to keep insurance affordable and making the insurance system fairer for everyone.
To that end, here are a few New Year’s resolutions for the fraud-fighting community:
Insurers: Resolve to adopt a zero-tolerance attitude towards fraud. Provide adequate resources to your SIUs and recognize that a down economy is exactly the wrong time to cut back on anti-fraud activities;
Fraud bureaus: Resolve to become more efficient and adopt more strategies to deter fraud, including publicizing arrests and convictions;
Regulators: Resolve to seek greater uniformity in anti-fraud regulations from state to state, and ensure all insurers comply with anti-fraud requirements;
Prosecutors: Resolve to find creative ways to accept more fraud cases, especially the difficult ones.
State legislators: Resolve to give fraud-fighters more tools by enacting needed fraud legislation, and that goes double for lawmakers in Oregon, Virginia and Alabama, the last states that lack even a basic insurance fraud statutue;
President-elect Obama and Congress: Resolve to include strong anti-fraud provisions in any new healthcare initiatives;
Consumers: Resolve to resist the temptation to inflate insurance claims; encourage your friends, family and co-workers to stay honest.
And lastly, the coalition: Resolve to strengthen partnerships with all constituents groups, including other anti-fraud organizations, and to have a measurable impact on reducing insurance fraud.
May you stick to all of your resolutions and have a successful 2009!
Jan 2, 2009, 4:18 PM EST
Let’s make 2009 the year we finally turn the corner on insurance fraud and truly make a difference in curbing this crime — and in the process, helping to keep insurance affordable and making the insurance system fairer for everyone.
To that end, here are a few New Year’s resolutions for the fraud-fighting community:
Insurers: Resolve to adopt a zero-tolerance attitude towards fraud. Provide adequate resources to your SIUs and recognize that a down economy is exactly the wrong time to cut back on anti-fraud activities;
Fraud bureaus: Resolve to become more efficient and adopt more strategies to deter fraud, including publicizing arrests and convictions;
Regulators: Resolve to seek greater uniformity in anti-fraud regulations from state to state, and ensure all insurers comply with anti-fraud requirements;
Prosecutors: Resolve to find creative ways to accept more fraud cases, especially the difficult ones.
State legislators: Resolve to give fraud-fighters more tools by enacting needed fraud legislation, and that goes double for lawmakers in Oregon, Virginia and Alabama, the last states that lack even a basic insurance fraud statutue;
President-elect Obama and Congress: Resolve to include strong anti-fraud provisions in any new healthcare initiatives;
Consumers: Resolve to resist the temptation to inflate insurance claims; encourage your friends, family and co-workers to stay honest.
And lastly, the coalition: Resolve to strengthen partnerships with all constituents groups, including other anti-fraud organizations, and to have a measurable impact on reducing insurance fraud.
May you stick to all of your resolutions and have a successful 2009!
Monday, December 29, 2008
MISSED THE BIGGER PICTURE FOLKS!!!!
"Happ’s trial is expected to last most of December..."
The ONLY EXECUTIVE TO WALK AWAY....hmmm.....
Really? Funny how that LAST trial went to fast? Did not matter that Happ came from HCA ---RICHARD RAINWATER'S 'pet' Columbia Homecare Group...he dumped those into the Bankruptcy Court 6 mos prior in Western Tennessee's Medshares PONZI SCHEME!!!
What a bunch of CRAP!!!
Monday, December 1, 2008
NCFE’s Happ starts his day in courtBusiness First of Columbus - by Kevin Kemper
The fourth and final criminal trial involving a former executive of National Century Financial Enterprises Inc. began Monday at U.S. District Court in Columbus as lawyers picked jurors to decide the fate of James Happ.
The government has accused Happ of a count each of conspiracy and money laundering conspiracy plus three counts of wire fraud.
He has pleaded not guilty to all of the charges.
The former executive vice president of Dublin-based National Century is standing trial on accusations he was part of an executive-level cabal at the medical financing company that defrauded investors out of $2.84 billion.
Happ’s trial began at 9 a.m. with jury selection, which was expected to last the day. It will be followed by opening arguments from government attorneys and then defense lawyers, likely to begin Tuesday.
Happ becomes the seventh National Century executive to stand trial on fraud charges and the 11th to be charged with crimes. Six other former executives, including company founders Lance Poulsen, Rebecca Parrett and her ex-husband Donald Ayers, were found guilty by juries earlier in the year.
A financier for health-care providers like doctors’ offices and hospitals, National Century’s bread and butter was buying accounts receivable from care providers at a discount, then securitizing the receivables into AAA-rated bonds for sale to investors. At its peak, the company employed more than 350 workers at its office campus in Dublin while recording annual revenue of more than $250 million.
The government has alleged the company collapsed into bankruptcy in 2002 after running a sophisticated pyramid scheme that fell apart.
In addition to purchasing legitimate accounts receivable, the government alleged National Century funded companies owned by its founders without getting receivables in return, effectively making risky unsecured loans with investor cash. The company charged its clients for those advances, the government has said, which inflated National Century’s revenue and generated bonuses for senior executives.
Happ’s trial is expected to last most of December.
The ONLY EXECUTIVE TO WALK AWAY....hmmm.....
Really? Funny how that LAST trial went to fast? Did not matter that Happ came from HCA ---RICHARD RAINWATER'S 'pet' Columbia Homecare Group...he dumped those into the Bankruptcy Court 6 mos prior in Western Tennessee's Medshares PONZI SCHEME!!!
What a bunch of CRAP!!!
Monday, December 1, 2008
NCFE’s Happ starts his day in courtBusiness First of Columbus - by Kevin Kemper
The fourth and final criminal trial involving a former executive of National Century Financial Enterprises Inc. began Monday at U.S. District Court in Columbus as lawyers picked jurors to decide the fate of James Happ.
The government has accused Happ of a count each of conspiracy and money laundering conspiracy plus three counts of wire fraud.
He has pleaded not guilty to all of the charges.
The former executive vice president of Dublin-based National Century is standing trial on accusations he was part of an executive-level cabal at the medical financing company that defrauded investors out of $2.84 billion.
Happ’s trial began at 9 a.m. with jury selection, which was expected to last the day. It will be followed by opening arguments from government attorneys and then defense lawyers, likely to begin Tuesday.
Happ becomes the seventh National Century executive to stand trial on fraud charges and the 11th to be charged with crimes. Six other former executives, including company founders Lance Poulsen, Rebecca Parrett and her ex-husband Donald Ayers, were found guilty by juries earlier in the year.
A financier for health-care providers like doctors’ offices and hospitals, National Century’s bread and butter was buying accounts receivable from care providers at a discount, then securitizing the receivables into AAA-rated bonds for sale to investors. At its peak, the company employed more than 350 workers at its office campus in Dublin while recording annual revenue of more than $250 million.
The government has alleged the company collapsed into bankruptcy in 2002 after running a sophisticated pyramid scheme that fell apart.
In addition to purchasing legitimate accounts receivable, the government alleged National Century funded companies owned by its founders without getting receivables in return, effectively making risky unsecured loans with investor cash. The company charged its clients for those advances, the government has said, which inflated National Century’s revenue and generated bonuses for senior executives.
Happ’s trial is expected to last most of December.
Sunday, December 21, 2008
USA : Financial meltdown! CHASE-DIP FINANCE-CORPORATE BANKRUPTCY
"...bank’s downfall was years in the making and involved many in its hierarchy, particularly Mr. Prince and Robert E. Rubin, an influential director and senior adviser."
Citigroup Saw No Red Flags Even as It Made Bolder Bets
A Financial Supermarket Exposure to obscure mortgage instruments from Citigroup’s trading operations has taken a severe toll on the company, which provides financial services ranging from retail banking to advising companies on mergers.
“Our job is to set a tone at the top to incent people to do the right thing and to set up safety nets to catch people who make mistakes or do the wrong thing and correct those as quickly as possible. And it is working. It is working.”
A Blind Eye Articles in this series are exploring the causes of the financial crisis.
Charles O. Prince III, Citigroup’s chief executive, in 2006
In September 2007, with Wall Street confronting a crisis caused by too many souring mortgages, Citigroup executives gathered in a wood-paneled library to assess their own well-being.
There, Citigroup’s chief executive, Charles O. Prince III, learned for the first time that the bank owned about $43 billion in mortgage-related assets. He asked Thomas G. Maheras, who oversaw trading at the bank, whether everything was O.K.
Mr. Maheras told his boss that no big losses were looming, according to people briefed on the meeting who would speak only on the condition that they not be named.
For months, Mr. Maheras’s reassurances to others at Citigroup had quieted internal concerns about the bank’s vulnerabilities. But this time, a risk-management team was dispatched to more rigorously examine Citigroup’s huge mortgage-related holdings. They were too late, however: within several weeks, Citigroup would announce billions of dollars in losses.
Normally, a big bank would never allow the word of just one executive to carry so much weight. Instead, it would have its risk managers aggressively look over any shoulder and guard against trading or lending excesses.
But many Citigroup insiders say the bank’s risk managers never investigated deeply enough. Because of longstanding ties that clouded their judgment, the very people charged with overseeing deal makers eager to increase short-term earnings — and executives’ multimillion-dollar bonuses — failed to rein them in, these insiders say.
Today, Citigroup, once the nation’s largest and mightiest financial institution, has been brought to its knees by more than $65 billion in losses, write-downs for troubled assets and charges to account for future losses. More than half of that amount stems from mortgage-related securities created by Mr. Maheras’s team — the same products Mr. Prince was briefed on during that 2007 meeting.
Citigroup’s stock has plummeted to its lowest price in more than a decade, closing Friday at $3.77. At that price the company is worth just $20.5 billion, down from $244 billion two years ago. Waves of layoffs have accompanied that slide, with about 75,000 jobs already gone or set to disappear from a work force that numbered about 375,000 a year ago.
Burdened by the losses and a crisis of confidence, Citigroup’s future is so uncertain that regulators in New York and Washington held a series of emergency meetings late last week to discuss ways to help the bank right itself.
And as the credit crisis appears to be entering another treacherous phase despite a $700 billion federal bailout, Citigroup’s woes are emblematic of the haphazard management and rush to riches that enveloped all of Wall Street. All across the banking business, easy profits and a booming housing market led many prominent financiers to overlook the dangers they courted.
While much of the damage inflicted on Citigroup and the broader economy was caused by errant, high-octane trading and lax oversight, critics say, blame also reaches into the highest levels at the bank. Earlier this year, the Federal Reserve took the bank to task for poor oversight and risk controls in a report it sent to Citigroup.
The bank’s downfall was years in the making and involved many in its hierarchy, particularly Mr. Prince and Robert E. Rubin, an influential director and senior adviser.
Citigroup insiders and analysts say that Mr. Prince and Mr. Rubin played pivotal roles in the bank’s current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Mr. Prince and Mr. Rubin both declined to comment for this article.
When he was Treasury secretary during the Clinton administration, Mr. Rubin helped loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities. During the same period he helped beat back tighter oversight of exotic financial products, a development he had previously said he was helpless to prevent.
And since joining Citigroup in 1999 as a trusted adviser to the bank’s senior executives, Mr. Rubin, who is an economic adviser on the transition team of President-elect Barack Obama, has sat atop a bank that has been roiled by one financial miscue after another.
(Page 2 of 5)
Citigroup was ensnared in murky financial dealings with the defunct energy company Enron, which drew the attention of federal investigators; it was criticized by law enforcement officials for the role one of its prominent research analysts played during the telecom bubble several years ago; and it found itself in the middle of regulatory violations in Britain and Japan.
For a time, Citigroup’s megabank model paid off handsomely, as it rang up billions in earnings each quarter from credit cards, mortgages, merger advice and trading.
But when Citigroup’s trading machine began churning out billions of dollars in mortgage-related securities, it courted disaster. As it built up that business, it used accounting maneuvers to move billions of dollars of the troubled assets off its books, freeing capital so the bank could grow even larger. Because of pending accounting changes, Citigroup and other banks have been bringing those assets back in-house, raising concerns about a new round of potential losses.
To some, the misery at Citigroup is no surprise. Lynn Turner, a former chief accountant with the Securities and Exchange Commission, said the bank’s balkanized culture and pell-mell management made problems inevitable.
“If you’re an entity of this size,” he said, “if you don’t have controls, if you don’t have the right culture and you don’t have people accountable for the risks that they are taking, you’re Citigroup.”
Questions on Oversight
Though they carry less prestige and are paid less than Wall Street traders and bankers, risk managers can wield significant clout. Their job is to monitor trading floors and inquire about how a bank’s money is being invested, so they can head off potential problems before blow-ups occur. Though risk managers and traders work side by side, they can have an uncomfortable coexistence because the monitors can put a brake on trading.
That is the way it works in theory. But at Citigroup, many say, it was a bit different.
David C. Bushnell was the senior risk officer who, with help from his staff, was supposed to keep an eye on the bank’s bond trading business and its multibillion-dollar portfolio of mortgage-backed securities. Those activities were part of what the bank called its fixed-income business, which Mr. Maheras supervised.
One of Mr. Maheras’s trusted deputies, Randolph H. Barker, helped oversee the huge build-up in mortgage-related securities at Citigroup. But Mr. Bushnell, Mr. Maheras and Mr. Barker were all old friends, having climbed the bank’s corporate ladder together.
It was common in the bank to see Mr. Bushnell waiting patiently — sometimes as long as 45 minutes — outside Mr. Barker’s office so he could drive him home to Short Hills, N.J., where both of their families lived. The two men took occasional fly-fishing trips together; one expedition left them stuck on a lake after their boat ran out of gas.
Because Mr. Bushnell had to monitor traders working for Mr. Barker’s bond desk, their friendship raised eyebrows inside the company among those concerned about its controls.
After all, traders’ livelihoods depended on finding new ways to make money, sometimes using methods that might not be in the bank’s long-term interests. But insufficient boundaries were established in the bank’s fixed-income unit to limit potential conflicts of interest involving Mr. Bushnell and Mr. Barker, people inside the bank say.
Indeed, some at Citigroup say that if traders or bankers wanted to complete a potentially profitable deal, they could sometimes rely on Mr. Barker to convince Mr. Bushnell that it was a risk worth taking.
Risk management “has to be independent, and it wasn’t independent at Citigroup, at least when it came to fixed income,” said one former executive in Mr. Barker’s group who, like many other people interviewed for this article, insisted on anonymity because of pending litigation against the bank or to retain close ties to their colleagues. “We used to say that if we wanted to get a deal done, we needed to convince Randy first because he could get it through.”
Others say that Mr. Bushnell’s friendship with Mr. Maheras may have presented a similar blind spot.
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“Because he has such trust and faith in these guys he has worked with for years, he didn’t ask the right questions,” a former senior Citigroup executive said, referring to Mr. Bushnell.
Mr. Bushnell and Mr. Barker did not return repeated phone calls seeking comment. Mr. Maheras declined to comment.
For some time after Sanford I. Weill, an architect of the merger that created Citigroup a decade ago, took control of Citigroup, he toned down the bank’s bond trading. But in late 2002, Mr. Prince, who had been Mr. Weill’s longtime legal counsel, was put in charge of Citigroup’s corporate and investment bank.
According to a former Citigroup executive, Mr. Prince started putting pressure on Mr. Maheras and others to increase earnings in the bank’s trading operations, particularly in the creation of collateralized debt obligations, or C.D.O.’s — securities that packaged mortgages and other forms of debt into bundles for resale to investors.
Because C.D.O.’s included so many forms of bundled debt, gauging their risk was particularly tricky; some parts of the bundle could be sound, while others were vulnerable to default.
“Chuck Prince going down to the corporate investment bank in late 2002 was the start of that process,” a former Citigroup executive said of the bank’s big C.D.O. push. “Chuck was totally new to the job. He didn’t know a C.D.O. from a grocery list, so he looked for someone for advice and support. That person was Rubin. And Rubin had always been an advocate of being more aggressive in the capital markets arena. He would say, ‘You have to take more risk if you want to earn more.’ ”
It appeared to be a good time for building up Citigroup’s C.D.O. business. As the housing market around the country took flight, the C.D.O. market also grew apace as more and more mortgages were pooled together into newfangled securities.
From 2003 to 2005, Citigroup more than tripled its issuing of C.D.O.’s, to more than $20 billion from $6.28 billion, and Mr. Maheras, Mr. Barker and others on the C.D.O. team helped transform Citigroup into one of the industry’s biggest players. Firms issuing the C.D.O.’s generated fees of 0.4 percent to 2.5 percent of the amount sold — meaning Citigroup made up to $500 million in fees from the business in 2005 alone.
Even as Citigroup’s C.D.O. stake was expanding, its top executives wanted more profits from that business. Yet they were not running a bank that was up to all the challenges it faced, including properly overseeing billions of dollars’ worth of exotic products, according to Citigroup insiders and regulators who later criticized the bank.
When Mr. Prince was put in charge in 2003, he presided over a mess of warring business units and operational holes, particularly in critical areas like risk-management and controls.
“He inherited a gobbledygook of companies that were never integrated, and it was never a priority of the company to invest,” said Meredith A. Whitney, a banking analyst who was one of the company’s early critics. “The businesses didn’t communicate with each other. There were dozens of technology systems and dozens of financial ledgers.”
Problems with trading and banking oversight at Citigroup became so dire that the Federal Reserve took the unusual step of telling the bank it could make no more acquisitions until it put its house in order.
In 2005, stung by regulatory rebukes and unable to follow Mr. Weill’s penchant for expanding Citigroup’s holdings through rapid-fire takeovers, Mr. Prince and his board of directors decided to push even more aggressively into trading and other business that would allow Citigroup to continue expanding the bank internally.
One person who helped push Citigroup along this new path was Mr. Rubin.
Pushing Growth
Robert Rubin has moved seamlessly between Wall Street and Washington. After making his millions as a trader and an executive at Goldman Sachs, he joined the Clinton administration.
Mr. Weill, as Citigroup’s chief, wooed Mr. Rubin to join the bank after Mr. Rubin left Washington. Mr. Weill had been involved in the financial services industry’s lobbying to persuade Washington to loosen its regulatory hold on Wall Street.
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As chairman of Citigroup’s executive committee, Mr. Rubin was the bank’s resident sage, advising top executives and serving on the board while, he insisted repeatedly, steering clear of daily management issues.
“By the time I finished at Treasury, I decided I never wanted operating responsibility again,” he said in an interview in April. Asked then whether he had made any mistakes during his tenure at Citigroup, he offered a tentative response.
“I’ve thought a lot about that,” he said. “I honestly don’t know. In hindsight, there are a lot of things we’d do differently. But in the context of the facts as I knew them and my role, I’m inclined to think probably not.”
Besides, he said, it was impossible to get a complete handle on Citigroup’s vulnerabilities unless you dealt with the trades daily.
“There is no way you would know what was going on with a risk book unless you’re directly involved with the trading arena,” he said. “We had highly experienced, highly qualified people running the operation.”
But while Mr. Rubin certainly did not have direct responsibility for a Citigroup unit, he was an architect of the bank’s strategy.
In 2005, as Citigroup began its effort to expand from within, Mr. Rubin peppered his colleagues with questions as they formulated the plan. According to current and former colleagues, he believed that Citigroup was falling behind rivals like Morgan Stanley and Goldman, and he pushed to bulk up the bank’s high-growth fixed-income trading, including the C.D.O. business.
Former colleagues said Mr. Rubin also encouraged Mr. Prince to broaden the bank’s appetite for risk, provided that it also upgraded oversight — though the Federal Reserve later would conclude that the bank’s oversight remained inadequate.
Once the strategy was outlined, Mr. Rubin helped Mr. Prince gain the board’s confidence that it would work.
After that, the bank moved even more aggressively into C.D.O.’s. It added to its trading operations and snagged crucial people from competitors. Bonuses doubled and tripled for C.D.O. traders. Mr. Barker drew pay totaling $15 million to $20 million a year, according to former colleagues, and Mr. Maheras became one of Citigroup’s most highly compensated employees, earning as much as $30 million at the peak — far more than top executives like Mr. Bushnell in the risk-management department.
In December 2005, with Citigroup diving into the C.D.O. business, Mr. Prince assured analysts that all was well at his bank.
“Anything based on human endeavor and certainly any business that involves risk-taking, you’re going to have problems from time to time,” he said. “We will run our business in a way where our credibility and our reputation as an institution with the public and with our regulators will be an asset of the company and not a liability.”
Yet as the bank’s C.D.O. machine accelerated, its risk controls fell further behind, according to former Citigroup traders, and risk managers lacked clear lines of reporting. At one point, for instance, risk managers in the fixed-income division reported to both Mr. Maheras and Mr. Bushnell — setting up a potential conflict because that gave Mr. Maheras influence over employees who were supposed to keep an eye on his traders.
C.D.O.’s were complex, and even experienced managers like Mr. Maheras and Mr. Barker underestimated the risks they posed, according to people with direct knowledge of Citigroup’s business. Because of that, they put blind faith in the passing grades that major credit-rating agencies bestowed on the debt.
While the sheer size of Citigroup’s C.D.O. position caused concern among some around the trading desk, most say they kept their concerns to themselves.
“I just think senior managers got addicted to the revenues and arrogant about the risks they were running,” said one person who worked in the C.D.O. group. “As long as you could grow revenues, you could keep your bonus growing.”
To make matters worse, Citigroup’s risk models never accounted for the possibility of a national housing downturn, this person said, and the prospect that millions of homeowners could default on their mortgages. Such a downturn did come, of course, with disastrous consequences for Citigroup and its rivals on Wall Street.
Even as the first shock waves of the subprime mortgage crisis hit Bear Stearns in June 2007, Citigroup’s top executives expressed few concerns about their bank’s exposure to mortgage-linked securities.
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In fact, when examiners from the Securities and Exchange Commission began scrutinizing Citigroup’s subprime mortgage holdings after Bear Stearns’s problems surfaced, the bank told them that the probability of those mortgages defaulting was so tiny that they excluded them from their risk analysis, according to a person briefed on the discussion who would speak only without being named
Later that summer, when the credit markets began seizing up and values of various C.D.O.’s began to plummet, Mr. Maheras, Mr. Barker and Mr. Bushnell participated in a meeting to review Citigroup’s exposure.
The slice of mortgage-related securities held by Citigroup was “viewed by the rating agencies to have an extremely low probability of default (less than .01%),” according to Citigroup slides used at the meeting and reviewed by The New York Times.
Around the same time, Mr. Maheras continued to assure his colleagues that the bank “would never lose a penny,” according to an executive who spoke to him.
In mid-September 2007, Mr. Prince convened the meeting in the small library outside his office to gauge Citigroup’s exposure.
Mr. Maheras assured the group, which included Mr. Rubin and Mr. Bushnell, that Citigroup’s C.D.O. position was safe. Mr. Prince had never questioned the ballooning portfolio before this because no one, including Mr. Maheras and Mr. Bushnell, had warned him.
But as the subprime market plunged further, Citigroup’s position became more dire — even though the firm held onto the belief that its C.D.O.’s were safe.
On Oct. 1, it warned investors that it would write off $1.3 billion in subprime mortgage-related assets. But of the $43 billion in C.D.O.’s it had on its books, it wrote off only about $95 million, according to a person briefed on the situation.
Soon, however, C.D.O. prices began to collapse. Credit-rating agencies downgraded C.D.O.’s, threatening Citigroup’s stockpile. A week later, Merrill Lynch aggressively marked down similar securities, forcing other banks to face reality.
By early November, Citigroup’s anticipated write-downs ballooned to $8 billion to $11 billion. Mr. Barker and Mr. Maheras lost their jobs, as Mr. Bushnell did later on. And on Nov. 4, Mr. Prince told the board that he, too, would resign.
Although Mr. Prince received no severance, he walked away with Citigroup stock valued then at $68 million — along with a cash bonus of about $12.5 million for 2007.
Putting Out Fires
Mr. Prince was replaced last December by Vikram S. Pandit, a former money manager and investment banker whom Mr. Rubin had earlier recruited in a senior role. Since becoming chief executive, Mr. Pandit has been scrambling to put out fires and repair Citigroup’s deficient risk-management systems.
Earlier this year, Federal Reserve examiners quietly presented the bank with a scathing review of its risk-management practices, according to people briefed on the situation.
Citigroup executives responded with a 25-page single-spaced memo outlining a sweeping overhaul of the bank’s risk management.
In May, Brian Leach, Citigroup’s new chief risk officer, told analysts that his bank had greatly improved oversight and installed several new risk managers. He said he wanted to ensure “that Citi takes the lessons learned from recent events and makes critical enhancements to its risk management frameworks. A change in culture is required at Citi.”
Meanwhile, regulators have criticized the banking industry as a whole for relying on outsiders — in particular the ratings agencies — to help them gauge the risk of their investments.
“There is really no excuse for institutions that specialize in credit risk assessment, like large commercial banks, to rely solely on credit ratings in assessing credit risk,” John C. Dugan, the head of the Office of the Comptroller of the Currency, the chief federal bank regulator, said in a speech earlier this year.
But he noted that what caused the largest problem for some banks was that they retained dangerously big positions in certain securities — like C.D.O.’s — rather than selling them off to other investors.
“What most differentiated the companies sustaining the biggest losses from the rest was their willingness to hold exceptionally large positions on their balance sheets which, in turn, led to exceptionally large losses,” he said.
Mr. Dugan did not mention any specific bank by name, but Citigroup is the largest player in the C.D.O. business of any bank the comptroller regulates.
For his part, Mr. Pandit faces the twin challenge of rebuilding investor confidence while trying to fix the company’s myriad problems.
Citigroup has suffered four consecutive quarters of multibillion-dollar losses as it has written down billions of dollars of the mortgage-related assets it held on its books.
But investors worry there is still more to come, and some board members have raised doubts about Mr. Pandit’s leadership, according to people briefed on the situation.
Citigroup still holds $20 billion of mortgage-linked securities on its books, the bulk of which have been marked down to between 21 cents and 41 cents on the dollar. It has billions of dollars of giant buyout and corporate loans. And it also faces a potential flood of losses on auto, mortgage and credit card loans as the global economy plunges into a recession.
Also, hundreds of billions of dollars in dubious assets that Citigroup held off its balance sheet is now starting to be moved back onto its books, setting off yet another potential problem.
The bank has already put more than $55 billion in assets back on its balance sheet. It now says an added $122 billion of assets related to credit cards and possibly billions of dollars of other assets will probably come back on the books.
Even though Citigroup executives insist that the bank can ride out its current difficulties, and that the repatriated assets pose no threat, investors have their doubts. Because analysts do not have a complete grip on the quality of those assets, they are warning that Citigroup may have to set aside billions of dollars to guard against losses.
In fact, some analysts say they believe that the $25 billion that the federal government invested in Citigroup this fall might not be enough to stabilize it.
Others say the fact that such huge amounts have yet to steady the bank is a reflection of the severe damage caused by Citigroup’s appetites.
“They pushed to get earnings, but in doing so, they took on more risk than they probably should have if they are going to be, in the end, a bank subject to regulatory controls,” said Roy Smith, a professor at the Stern School of Business at New York University. “Safe and soundness has to be no less important than growth and profits but that was subordinated by these guys.”
By ERIC DASH and JULIE CRESWELL
Published: November 22, 2008
A version of this article appeared in print on November 23, 2008, on page A1 of the New York edition.
Citigroup Saw No Red Flags Even as It Made Bolder Bets
A Financial Supermarket Exposure to obscure mortgage instruments from Citigroup’s trading operations has taken a severe toll on the company, which provides financial services ranging from retail banking to advising companies on mergers.
“Our job is to set a tone at the top to incent people to do the right thing and to set up safety nets to catch people who make mistakes or do the wrong thing and correct those as quickly as possible. And it is working. It is working.”
A Blind Eye Articles in this series are exploring the causes of the financial crisis.
Charles O. Prince III, Citigroup’s chief executive, in 2006
In September 2007, with Wall Street confronting a crisis caused by too many souring mortgages, Citigroup executives gathered in a wood-paneled library to assess their own well-being.
There, Citigroup’s chief executive, Charles O. Prince III, learned for the first time that the bank owned about $43 billion in mortgage-related assets. He asked Thomas G. Maheras, who oversaw trading at the bank, whether everything was O.K.
Mr. Maheras told his boss that no big losses were looming, according to people briefed on the meeting who would speak only on the condition that they not be named.
For months, Mr. Maheras’s reassurances to others at Citigroup had quieted internal concerns about the bank’s vulnerabilities. But this time, a risk-management team was dispatched to more rigorously examine Citigroup’s huge mortgage-related holdings. They were too late, however: within several weeks, Citigroup would announce billions of dollars in losses.
Normally, a big bank would never allow the word of just one executive to carry so much weight. Instead, it would have its risk managers aggressively look over any shoulder and guard against trading or lending excesses.
But many Citigroup insiders say the bank’s risk managers never investigated deeply enough. Because of longstanding ties that clouded their judgment, the very people charged with overseeing deal makers eager to increase short-term earnings — and executives’ multimillion-dollar bonuses — failed to rein them in, these insiders say.
Today, Citigroup, once the nation’s largest and mightiest financial institution, has been brought to its knees by more than $65 billion in losses, write-downs for troubled assets and charges to account for future losses. More than half of that amount stems from mortgage-related securities created by Mr. Maheras’s team — the same products Mr. Prince was briefed on during that 2007 meeting.
Citigroup’s stock has plummeted to its lowest price in more than a decade, closing Friday at $3.77. At that price the company is worth just $20.5 billion, down from $244 billion two years ago. Waves of layoffs have accompanied that slide, with about 75,000 jobs already gone or set to disappear from a work force that numbered about 375,000 a year ago.
Burdened by the losses and a crisis of confidence, Citigroup’s future is so uncertain that regulators in New York and Washington held a series of emergency meetings late last week to discuss ways to help the bank right itself.
And as the credit crisis appears to be entering another treacherous phase despite a $700 billion federal bailout, Citigroup’s woes are emblematic of the haphazard management and rush to riches that enveloped all of Wall Street. All across the banking business, easy profits and a booming housing market led many prominent financiers to overlook the dangers they courted.
While much of the damage inflicted on Citigroup and the broader economy was caused by errant, high-octane trading and lax oversight, critics say, blame also reaches into the highest levels at the bank. Earlier this year, the Federal Reserve took the bank to task for poor oversight and risk controls in a report it sent to Citigroup.
The bank’s downfall was years in the making and involved many in its hierarchy, particularly Mr. Prince and Robert E. Rubin, an influential director and senior adviser.
Citigroup insiders and analysts say that Mr. Prince and Mr. Rubin played pivotal roles in the bank’s current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Mr. Prince and Mr. Rubin both declined to comment for this article.
When he was Treasury secretary during the Clinton administration, Mr. Rubin helped loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities. During the same period he helped beat back tighter oversight of exotic financial products, a development he had previously said he was helpless to prevent.
And since joining Citigroup in 1999 as a trusted adviser to the bank’s senior executives, Mr. Rubin, who is an economic adviser on the transition team of President-elect Barack Obama, has sat atop a bank that has been roiled by one financial miscue after another.
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Citigroup was ensnared in murky financial dealings with the defunct energy company Enron, which drew the attention of federal investigators; it was criticized by law enforcement officials for the role one of its prominent research analysts played during the telecom bubble several years ago; and it found itself in the middle of regulatory violations in Britain and Japan.
For a time, Citigroup’s megabank model paid off handsomely, as it rang up billions in earnings each quarter from credit cards, mortgages, merger advice and trading.
But when Citigroup’s trading machine began churning out billions of dollars in mortgage-related securities, it courted disaster. As it built up that business, it used accounting maneuvers to move billions of dollars of the troubled assets off its books, freeing capital so the bank could grow even larger. Because of pending accounting changes, Citigroup and other banks have been bringing those assets back in-house, raising concerns about a new round of potential losses.
To some, the misery at Citigroup is no surprise. Lynn Turner, a former chief accountant with the Securities and Exchange Commission, said the bank’s balkanized culture and pell-mell management made problems inevitable.
“If you’re an entity of this size,” he said, “if you don’t have controls, if you don’t have the right culture and you don’t have people accountable for the risks that they are taking, you’re Citigroup.”
Questions on Oversight
Though they carry less prestige and are paid less than Wall Street traders and bankers, risk managers can wield significant clout. Their job is to monitor trading floors and inquire about how a bank’s money is being invested, so they can head off potential problems before blow-ups occur. Though risk managers and traders work side by side, they can have an uncomfortable coexistence because the monitors can put a brake on trading.
That is the way it works in theory. But at Citigroup, many say, it was a bit different.
David C. Bushnell was the senior risk officer who, with help from his staff, was supposed to keep an eye on the bank’s bond trading business and its multibillion-dollar portfolio of mortgage-backed securities. Those activities were part of what the bank called its fixed-income business, which Mr. Maheras supervised.
One of Mr. Maheras’s trusted deputies, Randolph H. Barker, helped oversee the huge build-up in mortgage-related securities at Citigroup. But Mr. Bushnell, Mr. Maheras and Mr. Barker were all old friends, having climbed the bank’s corporate ladder together.
It was common in the bank to see Mr. Bushnell waiting patiently — sometimes as long as 45 minutes — outside Mr. Barker’s office so he could drive him home to Short Hills, N.J., where both of their families lived. The two men took occasional fly-fishing trips together; one expedition left them stuck on a lake after their boat ran out of gas.
Because Mr. Bushnell had to monitor traders working for Mr. Barker’s bond desk, their friendship raised eyebrows inside the company among those concerned about its controls.
After all, traders’ livelihoods depended on finding new ways to make money, sometimes using methods that might not be in the bank’s long-term interests. But insufficient boundaries were established in the bank’s fixed-income unit to limit potential conflicts of interest involving Mr. Bushnell and Mr. Barker, people inside the bank say.
Indeed, some at Citigroup say that if traders or bankers wanted to complete a potentially profitable deal, they could sometimes rely on Mr. Barker to convince Mr. Bushnell that it was a risk worth taking.
Risk management “has to be independent, and it wasn’t independent at Citigroup, at least when it came to fixed income,” said one former executive in Mr. Barker’s group who, like many other people interviewed for this article, insisted on anonymity because of pending litigation against the bank or to retain close ties to their colleagues. “We used to say that if we wanted to get a deal done, we needed to convince Randy first because he could get it through.”
Others say that Mr. Bushnell’s friendship with Mr. Maheras may have presented a similar blind spot.
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“Because he has such trust and faith in these guys he has worked with for years, he didn’t ask the right questions,” a former senior Citigroup executive said, referring to Mr. Bushnell.
Mr. Bushnell and Mr. Barker did not return repeated phone calls seeking comment. Mr. Maheras declined to comment.
For some time after Sanford I. Weill, an architect of the merger that created Citigroup a decade ago, took control of Citigroup, he toned down the bank’s bond trading. But in late 2002, Mr. Prince, who had been Mr. Weill’s longtime legal counsel, was put in charge of Citigroup’s corporate and investment bank.
According to a former Citigroup executive, Mr. Prince started putting pressure on Mr. Maheras and others to increase earnings in the bank’s trading operations, particularly in the creation of collateralized debt obligations, or C.D.O.’s — securities that packaged mortgages and other forms of debt into bundles for resale to investors.
Because C.D.O.’s included so many forms of bundled debt, gauging their risk was particularly tricky; some parts of the bundle could be sound, while others were vulnerable to default.
“Chuck Prince going down to the corporate investment bank in late 2002 was the start of that process,” a former Citigroup executive said of the bank’s big C.D.O. push. “Chuck was totally new to the job. He didn’t know a C.D.O. from a grocery list, so he looked for someone for advice and support. That person was Rubin. And Rubin had always been an advocate of being more aggressive in the capital markets arena. He would say, ‘You have to take more risk if you want to earn more.’ ”
It appeared to be a good time for building up Citigroup’s C.D.O. business. As the housing market around the country took flight, the C.D.O. market also grew apace as more and more mortgages were pooled together into newfangled securities.
From 2003 to 2005, Citigroup more than tripled its issuing of C.D.O.’s, to more than $20 billion from $6.28 billion, and Mr. Maheras, Mr. Barker and others on the C.D.O. team helped transform Citigroup into one of the industry’s biggest players. Firms issuing the C.D.O.’s generated fees of 0.4 percent to 2.5 percent of the amount sold — meaning Citigroup made up to $500 million in fees from the business in 2005 alone.
Even as Citigroup’s C.D.O. stake was expanding, its top executives wanted more profits from that business. Yet they were not running a bank that was up to all the challenges it faced, including properly overseeing billions of dollars’ worth of exotic products, according to Citigroup insiders and regulators who later criticized the bank.
When Mr. Prince was put in charge in 2003, he presided over a mess of warring business units and operational holes, particularly in critical areas like risk-management and controls.
“He inherited a gobbledygook of companies that were never integrated, and it was never a priority of the company to invest,” said Meredith A. Whitney, a banking analyst who was one of the company’s early critics. “The businesses didn’t communicate with each other. There were dozens of technology systems and dozens of financial ledgers.”
Problems with trading and banking oversight at Citigroup became so dire that the Federal Reserve took the unusual step of telling the bank it could make no more acquisitions until it put its house in order.
In 2005, stung by regulatory rebukes and unable to follow Mr. Weill’s penchant for expanding Citigroup’s holdings through rapid-fire takeovers, Mr. Prince and his board of directors decided to push even more aggressively into trading and other business that would allow Citigroup to continue expanding the bank internally.
One person who helped push Citigroup along this new path was Mr. Rubin.
Pushing Growth
Robert Rubin has moved seamlessly between Wall Street and Washington. After making his millions as a trader and an executive at Goldman Sachs, he joined the Clinton administration.
Mr. Weill, as Citigroup’s chief, wooed Mr. Rubin to join the bank after Mr. Rubin left Washington. Mr. Weill had been involved in the financial services industry’s lobbying to persuade Washington to loosen its regulatory hold on Wall Street.
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As chairman of Citigroup’s executive committee, Mr. Rubin was the bank’s resident sage, advising top executives and serving on the board while, he insisted repeatedly, steering clear of daily management issues.
“By the time I finished at Treasury, I decided I never wanted operating responsibility again,” he said in an interview in April. Asked then whether he had made any mistakes during his tenure at Citigroup, he offered a tentative response.
“I’ve thought a lot about that,” he said. “I honestly don’t know. In hindsight, there are a lot of things we’d do differently. But in the context of the facts as I knew them and my role, I’m inclined to think probably not.”
Besides, he said, it was impossible to get a complete handle on Citigroup’s vulnerabilities unless you dealt with the trades daily.
“There is no way you would know what was going on with a risk book unless you’re directly involved with the trading arena,” he said. “We had highly experienced, highly qualified people running the operation.”
But while Mr. Rubin certainly did not have direct responsibility for a Citigroup unit, he was an architect of the bank’s strategy.
In 2005, as Citigroup began its effort to expand from within, Mr. Rubin peppered his colleagues with questions as they formulated the plan. According to current and former colleagues, he believed that Citigroup was falling behind rivals like Morgan Stanley and Goldman, and he pushed to bulk up the bank’s high-growth fixed-income trading, including the C.D.O. business.
Former colleagues said Mr. Rubin also encouraged Mr. Prince to broaden the bank’s appetite for risk, provided that it also upgraded oversight — though the Federal Reserve later would conclude that the bank’s oversight remained inadequate.
Once the strategy was outlined, Mr. Rubin helped Mr. Prince gain the board’s confidence that it would work.
After that, the bank moved even more aggressively into C.D.O.’s. It added to its trading operations and snagged crucial people from competitors. Bonuses doubled and tripled for C.D.O. traders. Mr. Barker drew pay totaling $15 million to $20 million a year, according to former colleagues, and Mr. Maheras became one of Citigroup’s most highly compensated employees, earning as much as $30 million at the peak — far more than top executives like Mr. Bushnell in the risk-management department.
In December 2005, with Citigroup diving into the C.D.O. business, Mr. Prince assured analysts that all was well at his bank.
“Anything based on human endeavor and certainly any business that involves risk-taking, you’re going to have problems from time to time,” he said. “We will run our business in a way where our credibility and our reputation as an institution with the public and with our regulators will be an asset of the company and not a liability.”
Yet as the bank’s C.D.O. machine accelerated, its risk controls fell further behind, according to former Citigroup traders, and risk managers lacked clear lines of reporting. At one point, for instance, risk managers in the fixed-income division reported to both Mr. Maheras and Mr. Bushnell — setting up a potential conflict because that gave Mr. Maheras influence over employees who were supposed to keep an eye on his traders.
C.D.O.’s were complex, and even experienced managers like Mr. Maheras and Mr. Barker underestimated the risks they posed, according to people with direct knowledge of Citigroup’s business. Because of that, they put blind faith in the passing grades that major credit-rating agencies bestowed on the debt.
While the sheer size of Citigroup’s C.D.O. position caused concern among some around the trading desk, most say they kept their concerns to themselves.
“I just think senior managers got addicted to the revenues and arrogant about the risks they were running,” said one person who worked in the C.D.O. group. “As long as you could grow revenues, you could keep your bonus growing.”
To make matters worse, Citigroup’s risk models never accounted for the possibility of a national housing downturn, this person said, and the prospect that millions of homeowners could default on their mortgages. Such a downturn did come, of course, with disastrous consequences for Citigroup and its rivals on Wall Street.
Even as the first shock waves of the subprime mortgage crisis hit Bear Stearns in June 2007, Citigroup’s top executives expressed few concerns about their bank’s exposure to mortgage-linked securities.
(Page 5 of 5)
In fact, when examiners from the Securities and Exchange Commission began scrutinizing Citigroup’s subprime mortgage holdings after Bear Stearns’s problems surfaced, the bank told them that the probability of those mortgages defaulting was so tiny that they excluded them from their risk analysis, according to a person briefed on the discussion who would speak only without being named
Later that summer, when the credit markets began seizing up and values of various C.D.O.’s began to plummet, Mr. Maheras, Mr. Barker and Mr. Bushnell participated in a meeting to review Citigroup’s exposure.
The slice of mortgage-related securities held by Citigroup was “viewed by the rating agencies to have an extremely low probability of default (less than .01%),” according to Citigroup slides used at the meeting and reviewed by The New York Times.
Around the same time, Mr. Maheras continued to assure his colleagues that the bank “would never lose a penny,” according to an executive who spoke to him.
In mid-September 2007, Mr. Prince convened the meeting in the small library outside his office to gauge Citigroup’s exposure.
Mr. Maheras assured the group, which included Mr. Rubin and Mr. Bushnell, that Citigroup’s C.D.O. position was safe. Mr. Prince had never questioned the ballooning portfolio before this because no one, including Mr. Maheras and Mr. Bushnell, had warned him.
But as the subprime market plunged further, Citigroup’s position became more dire — even though the firm held onto the belief that its C.D.O.’s were safe.
On Oct. 1, it warned investors that it would write off $1.3 billion in subprime mortgage-related assets. But of the $43 billion in C.D.O.’s it had on its books, it wrote off only about $95 million, according to a person briefed on the situation.
Soon, however, C.D.O. prices began to collapse. Credit-rating agencies downgraded C.D.O.’s, threatening Citigroup’s stockpile. A week later, Merrill Lynch aggressively marked down similar securities, forcing other banks to face reality.
By early November, Citigroup’s anticipated write-downs ballooned to $8 billion to $11 billion. Mr. Barker and Mr. Maheras lost their jobs, as Mr. Bushnell did later on. And on Nov. 4, Mr. Prince told the board that he, too, would resign.
Although Mr. Prince received no severance, he walked away with Citigroup stock valued then at $68 million — along with a cash bonus of about $12.5 million for 2007.
Putting Out Fires
Mr. Prince was replaced last December by Vikram S. Pandit, a former money manager and investment banker whom Mr. Rubin had earlier recruited in a senior role. Since becoming chief executive, Mr. Pandit has been scrambling to put out fires and repair Citigroup’s deficient risk-management systems.
Earlier this year, Federal Reserve examiners quietly presented the bank with a scathing review of its risk-management practices, according to people briefed on the situation.
Citigroup executives responded with a 25-page single-spaced memo outlining a sweeping overhaul of the bank’s risk management.
In May, Brian Leach, Citigroup’s new chief risk officer, told analysts that his bank had greatly improved oversight and installed several new risk managers. He said he wanted to ensure “that Citi takes the lessons learned from recent events and makes critical enhancements to its risk management frameworks. A change in culture is required at Citi.”
Meanwhile, regulators have criticized the banking industry as a whole for relying on outsiders — in particular the ratings agencies — to help them gauge the risk of their investments.
“There is really no excuse for institutions that specialize in credit risk assessment, like large commercial banks, to rely solely on credit ratings in assessing credit risk,” John C. Dugan, the head of the Office of the Comptroller of the Currency, the chief federal bank regulator, said in a speech earlier this year.
But he noted that what caused the largest problem for some banks was that they retained dangerously big positions in certain securities — like C.D.O.’s — rather than selling them off to other investors.
“What most differentiated the companies sustaining the biggest losses from the rest was their willingness to hold exceptionally large positions on their balance sheets which, in turn, led to exceptionally large losses,” he said.
Mr. Dugan did not mention any specific bank by name, but Citigroup is the largest player in the C.D.O. business of any bank the comptroller regulates.
For his part, Mr. Pandit faces the twin challenge of rebuilding investor confidence while trying to fix the company’s myriad problems.
Citigroup has suffered four consecutive quarters of multibillion-dollar losses as it has written down billions of dollars of the mortgage-related assets it held on its books.
But investors worry there is still more to come, and some board members have raised doubts about Mr. Pandit’s leadership, according to people briefed on the situation.
Citigroup still holds $20 billion of mortgage-linked securities on its books, the bulk of which have been marked down to between 21 cents and 41 cents on the dollar. It has billions of dollars of giant buyout and corporate loans. And it also faces a potential flood of losses on auto, mortgage and credit card loans as the global economy plunges into a recession.
Also, hundreds of billions of dollars in dubious assets that Citigroup held off its balance sheet is now starting to be moved back onto its books, setting off yet another potential problem.
The bank has already put more than $55 billion in assets back on its balance sheet. It now says an added $122 billion of assets related to credit cards and possibly billions of dollars of other assets will probably come back on the books.
Even though Citigroup executives insist that the bank can ride out its current difficulties, and that the repatriated assets pose no threat, investors have their doubts. Because analysts do not have a complete grip on the quality of those assets, they are warning that Citigroup may have to set aside billions of dollars to guard against losses.
In fact, some analysts say they believe that the $25 billion that the federal government invested in Citigroup this fall might not be enough to stabilize it.
Others say the fact that such huge amounts have yet to steady the bank is a reflection of the severe damage caused by Citigroup’s appetites.
“They pushed to get earnings, but in doing so, they took on more risk than they probably should have if they are going to be, in the end, a bank subject to regulatory controls,” said Roy Smith, a professor at the Stern School of Business at New York University. “Safe and soundness has to be no less important than growth and profits but that was subordinated by these guys.”
By ERIC DASH and JULIE CRESWELL
Published: November 22, 2008
A version of this article appeared in print on November 23, 2008, on page A1 of the New York edition.
Tuesday, December 16, 2008
Financial fraud...follow the money 1995 FOLKS!!!!
RICHARD RAINWATER AND DARLA MOORE TO MAKE SIGNIFICANT INVESTMENT IN CHARTER MEDICAL CORPORATION
From: PR Newswire | Date: December 22, 1995 | COPYRIGHT 1995 PR Newswire Association, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information) Copyright information
Investors to Acquire 12.3 Stake in Company for $69.7 Million ATLANTA, Dec. 22 /PRNewswire/ -- Charter Medical Corporation (AMEX: CMD), the nation's largest provider of behavioral healthcare, announced today that Richard Rainwater and Darla Moore have signed a definitive agreement to acquire a 12.3 percent stake in the company. The company also announced that, as expected, it has changed its name to Magellan Health Services, Inc., effective today.
Under the terms of the transaction, Mr. Rainwater and Ms. Moore will acquire four million newly issued shares of Magellan common stock ...
From: PR Newswire | Date: December 22, 1995 | COPYRIGHT 1995 PR Newswire Association, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information) Copyright information
Investors to Acquire 12.3 Stake in Company for $69.7 Million ATLANTA, Dec. 22 /PRNewswire/ -- Charter Medical Corporation (AMEX: CMD), the nation's largest provider of behavioral healthcare, announced today that Richard Rainwater and Darla Moore have signed a definitive agreement to acquire a 12.3 percent stake in the company. The company also announced that, as expected, it has changed its name to Magellan Health Services, Inc., effective today.
Under the terms of the transaction, Mr. Rainwater and Ms. Moore will acquire four million newly issued shares of Magellan common stock ...
James K. Happ...Before joining National Century, Happ had worked at a health-care company that received millions of dollars in unmerited advances...
...Happ's motive couldn't be about money, Gillen said: He earned more at his employment before and after working at National Century...
Before joining National Century, Happ had worked at a health-care company that received millions of dollars in unmerited advances from National Century.
GUESS WHO OWNED THAT COMPANY? Columbia Homecare Group,Inc. Fort Worth Texas. But one needs to go look at the Largest Bankruptcy Filed July 1999 in Tennessee, just months prior to the FBI raid in Ohio !
Ten executives of the defunct health-care lender have been convicted for their roles in a multibillion-dollar fraud that bankrupted health-care companies and hurt investors, including pension funds, across the country.
Jury begins deliberating fate of last of 11 National Century execs
Monday, December 15, 2008 7:54 PM
By Jodi Andes
THE COLUMBUS DISPATCH
Closing arguments today in federal court were the beginning of the end for trials involving executives in the nation's largest case of fraud by a privately held company.
The criminal cases against officials of National Century Financial Enterprises started when the company collapsed into bankruptcy more than six years ago.
James K. Happ, 48, who oversaw the purchase of accounts receivable at the Dublin-based company, is charged with fraud tied to the company's 2002 collapse. He is the last of 11 executives charged with fraud to have his case go through the court.
The jury is expected to begin deliberations first thing Tuesday.
Before joining National Century, Happ had worked at a health-care company that received millions of dollars in unmerited advances from National Century."He knew about the problems at NCFE before he joined and did it anyway. This is a man who joined with eyes wide open," federal prosecutor N. Nathan Dimock said in closing arguments.
National Century bought accounts receivable from health-care providers and collected them for a fee. Cash to buy the accounts receivable was generated by the sale of bonds to investors. But investors were never told about money being given to health-care providers without getting the accounts receivable in return, prosecutors have alleged.
Investors should have known about the advances because it was disclosed in the company's financial documents, said Happ's defense attorney, Craig A. Gillen.
Gillen stood beside a large numeral "0" placed on an easel. He said the zero represented the amount of false statements Happ gave to investors, the number of financial reports he falsified and the number of times he lied to federal investigators.
"Jim Happ didn't commit any crime. Didn't join any conspiracy. He didn't have any motive to," Gillen said.
Federal prosecutors Dimock and Doug Squires have said Happ had the motive to further the conspiracy because his and others' quarterly bonuses grew with each advance to health-care providers.
But Happ's motive couldn't be about money, Gillen said: He earned more at his employment before and after working at National Century.
Happ's attorneys did not put any witnesses on the stand, nor did he testify in the 11-day trial.
Happ, 48, faces charges of conspiracy, money-laundering conspiracy and three counts of wire fraud in U.S. District Court in Columbus.
Ten executives of the defunct health-care lender have been convicted for their roles in a multibillion-dollar fraud that bankrupted health-care companies and hurt investors, including pension funds, across the country.
Six of those convicted have been sentenced to terms ranging from four to 15 years in prison. One, Rebecca S. Parrett, remains at large, having taken off while awaiting sentencing. Former CEO Lance K. Poulsen and two others await sentencing.
jandes@dispatch.com
Before joining National Century, Happ had worked at a health-care company that received millions of dollars in unmerited advances from National Century.
GUESS WHO OWNED THAT COMPANY? Columbia Homecare Group,Inc. Fort Worth Texas. But one needs to go look at the Largest Bankruptcy Filed July 1999 in Tennessee, just months prior to the FBI raid in Ohio !
Ten executives of the defunct health-care lender have been convicted for their roles in a multibillion-dollar fraud that bankrupted health-care companies and hurt investors, including pension funds, across the country.
Jury begins deliberating fate of last of 11 National Century execs
Monday, December 15, 2008 7:54 PM
By Jodi Andes
THE COLUMBUS DISPATCH
Closing arguments today in federal court were the beginning of the end for trials involving executives in the nation's largest case of fraud by a privately held company.
The criminal cases against officials of National Century Financial Enterprises started when the company collapsed into bankruptcy more than six years ago.
James K. Happ, 48, who oversaw the purchase of accounts receivable at the Dublin-based company, is charged with fraud tied to the company's 2002 collapse. He is the last of 11 executives charged with fraud to have his case go through the court.
The jury is expected to begin deliberations first thing Tuesday.
Before joining National Century, Happ had worked at a health-care company that received millions of dollars in unmerited advances from National Century."He knew about the problems at NCFE before he joined and did it anyway. This is a man who joined with eyes wide open," federal prosecutor N. Nathan Dimock said in closing arguments.
National Century bought accounts receivable from health-care providers and collected them for a fee. Cash to buy the accounts receivable was generated by the sale of bonds to investors. But investors were never told about money being given to health-care providers without getting the accounts receivable in return, prosecutors have alleged.
Investors should have known about the advances because it was disclosed in the company's financial documents, said Happ's defense attorney, Craig A. Gillen.
Gillen stood beside a large numeral "0" placed on an easel. He said the zero represented the amount of false statements Happ gave to investors, the number of financial reports he falsified and the number of times he lied to federal investigators.
"Jim Happ didn't commit any crime. Didn't join any conspiracy. He didn't have any motive to," Gillen said.
Federal prosecutors Dimock and Doug Squires have said Happ had the motive to further the conspiracy because his and others' quarterly bonuses grew with each advance to health-care providers.
But Happ's motive couldn't be about money, Gillen said: He earned more at his employment before and after working at National Century.
Happ's attorneys did not put any witnesses on the stand, nor did he testify in the 11-day trial.
Happ, 48, faces charges of conspiracy, money-laundering conspiracy and three counts of wire fraud in U.S. District Court in Columbus.
Ten executives of the defunct health-care lender have been convicted for their roles in a multibillion-dollar fraud that bankrupted health-care companies and hurt investors, including pension funds, across the country.
Six of those convicted have been sentenced to terms ranging from four to 15 years in prison. One, Rebecca S. Parrett, remains at large, having taken off while awaiting sentencing. Former CEO Lance K. Poulsen and two others await sentencing.
jandes@dispatch.com
Thursday, December 11, 2008
Happ, 48, is charged with conspiracy, money-laundering conspiracy and three counts of wire fraud.
James K. Happ, the 11th National Century executive to be tried or admit guilt
Shaky loans no secret, official says
Ex-executive: Auditors knew of loan woes at National Century
Tuesday, December 9, 2008 10:34 PM
By Jodi Andes
THE COLUMBUS DISPATCH
Outside auditors knew about unsecured loans that National Century Financial Enterprises approved for some health-care providers, a former company official testified today.
Lori McGuire said that reports about the advances typically were given to auditors at an end-of-the-year audit during her nearly 10 years with the company.
McGuire's testimony bolstered claims by former National Century executives that outsiders - including auditors and bank officials - knew the Dublin-based company was making loans that likely never would be repaid.
Her testimony came during the trial of James K. Happ, the 11th National Century executive to be tried or admit guilt in the collapse of the company that cost investors billions of dollars.
Happ, 48, is charged with conspiracy, money-laundering conspiracy and three counts of wire fraud.
Also today, a former friend of Happ's testified that, while working at National Century, Happ boasted that he never could be charged with any fraud because he didn't sign anything.
Much of the day's testimony came from McGuire, who was an associate vice president when the company collapsed in November 2002. On further questioning by Assistant U.S. Attorney Doug Squires, McGuire said she never actually had talked to auditors about the fraud.
Craig A. Gillen, Happ's attorney, used McGuire's statements to point out that the advances were not hidden from investors but disclosed in company documents - if outsiders only had looked.
McGuire said she became suspicious about Happ's business practices in October 2002 when he ordered eight changes be made in National Century's computer system that would benefit Med-Diversified, a health-care provider that Happ was leaving to work for.
Med-Diversified and its subsidiaries, Chartwell and Tender Loving Care, all were advanced millions of dollars in unsecured loans by National Century, prosecutors proved in previous trials of National Century executives.
However, under cross-examination, McGuire conceded that the changes Happ ordered had been talked about for up to two years.
"It's what they were supposed to get and deserved," Gillen said.
National Century bought accounts-receivable from health-care providers and collected the bills for a fee. Bonds were sold to investors so National Century could give providers cash to pay their bills upfront.
McGuire, however, said National Century was advancing millions of dollars without buying the accounts receivable, an amount she referred to as "the black hole."
Happ was in charge of overseeing which accounts receivable were bought by National Century in its final years of business.
His former friend, Frank Magliochetti, former president of Med-Diversified, testified about Happ's boasting.
Magliochetti is expected to continue on the stand Wednesday morning.
jandes@dispatch.com
Shaky loans no secret, official says
Ex-executive: Auditors knew of loan woes at National Century
Tuesday, December 9, 2008 10:34 PM
By Jodi Andes
THE COLUMBUS DISPATCH
Outside auditors knew about unsecured loans that National Century Financial Enterprises approved for some health-care providers, a former company official testified today.
Lori McGuire said that reports about the advances typically were given to auditors at an end-of-the-year audit during her nearly 10 years with the company.
McGuire's testimony bolstered claims by former National Century executives that outsiders - including auditors and bank officials - knew the Dublin-based company was making loans that likely never would be repaid.
Her testimony came during the trial of James K. Happ, the 11th National Century executive to be tried or admit guilt in the collapse of the company that cost investors billions of dollars.
Happ, 48, is charged with conspiracy, money-laundering conspiracy and three counts of wire fraud.
Also today, a former friend of Happ's testified that, while working at National Century, Happ boasted that he never could be charged with any fraud because he didn't sign anything.
Much of the day's testimony came from McGuire, who was an associate vice president when the company collapsed in November 2002. On further questioning by Assistant U.S. Attorney Doug Squires, McGuire said she never actually had talked to auditors about the fraud.
Craig A. Gillen, Happ's attorney, used McGuire's statements to point out that the advances were not hidden from investors but disclosed in company documents - if outsiders only had looked.
McGuire said she became suspicious about Happ's business practices in October 2002 when he ordered eight changes be made in National Century's computer system that would benefit Med-Diversified, a health-care provider that Happ was leaving to work for.
Med-Diversified and its subsidiaries, Chartwell and Tender Loving Care, all were advanced millions of dollars in unsecured loans by National Century, prosecutors proved in previous trials of National Century executives.
However, under cross-examination, McGuire conceded that the changes Happ ordered had been talked about for up to two years.
"It's what they were supposed to get and deserved," Gillen said.
National Century bought accounts-receivable from health-care providers and collected the bills for a fee. Bonds were sold to investors so National Century could give providers cash to pay their bills upfront.
McGuire, however, said National Century was advancing millions of dollars without buying the accounts receivable, an amount she referred to as "the black hole."
Happ was in charge of overseeing which accounts receivable were bought by National Century in its final years of business.
His former friend, Frank Magliochetti, former president of Med-Diversified, testified about Happ's boasting.
Magliochetti is expected to continue on the stand Wednesday morning.
jandes@dispatch.com
Wednesday, December 3, 2008
Sprinkled among the doctors, lawyers and society people...
"lots of pushing and shoving." The couple had to leverage big deals with little equity value. "It was an enormous amount of work."
The gift was made after a lunch meeting that included Moore and her husband and top Bank of America executives William "Hootie" Johnson and Hugh McCall, Moore said.
She attended the lunch at the Florence Country Club because she was excited to meet Johnson, she said. She did not foresee the request that would come after a long, friendly conversation.
Editor's note: This is the first of two stories on one of the most influential women in South Carolina.
The pragmatic Grande Dame of South Carolina receives her guests by the Steinway & Sons grand piano, nestled in a front parlor niche of her luxurious South of Broad home.
She introduces her husband, Richard Rainwater, as "Dr. Doom." He is holding a can of soda, chatting and a little self-deprecating, full of praise for the lady of the house, worried that the economic downturn could mean utter disaster. A platter of hors d'oeuvres slides through.
Sprinkled among the doctors, lawyers and society people are those affiliated with the agriculture business who are in Charleston to attend the third-annual AgSummit, hosted by the Palmetto Institute.
The institute is the all-business, no-nonsense expression of Darla Moore's central passion: to raise the per-capita income of the state. And agriculture, South Carolina's No. 1 economic driver, offers one way to achieve her goal.
The guests enjoy drinks on the porch. The November night is crisp and clear, like Moore. She talks about the big plans for her hometown of Lake City. She shows off her extraordinary rare book collection in the warm, art-furnished library.
The house is decorated with objects and furniture Moore selected herself, and it intentionally resembles the décor one would have found in a 19th century Charleston residence. The reception is reminiscent of that era's society parties, except that modern farmers have replaced plantation owners. The conversation is probably similar, talking about new crops, cooperatives, marketing initiatives and a desire for more government support.
The next morning at the Francis Marion Hotel, summit attendees get serious.
Moore welcomes attendees and summarizes her goals: "We've got to think innovatively," she says. We've got to reinvigorate rural areas, boost research then commercialize its discoveries.
State Agriculture Commissioner Hugh Weathers says Moore's enthusiasm "gets other people off the bench."
"She's saying the status quo is not satisfactory in a whole host of things. I agree it can be better," Weathers says.
Fenton Overdyke, vice president of MarketSearch, which was hired by the Palmetto Institute to study the agriculture sector in the state, notes that agriculture is a $30 billion industry that employs 188,000 people. More than 90 percent of farmland is owned by individuals or families, not large-production companies, Overdyke says. More than half of all farms are fewer than 100 acres.
In advocating for improved agribusiness, Moore is thinking of Lake City, her beloved hometown, site of the family farm and repository of childhood memories.
"This is special to me," she tells the audience. "I consider myself one of you."
Funding big ideas
It can be difficult to pin down Moore. She constantly is working, traveling and speaking at Rotary Clubs, conferences and universities. She is a loyal capitalist and tireless advocate of economic improvement. She is pushing for tax reform, for farming clusters, for competitive international trade, for more and better research, for recruitment of top-drawer thinkers to the state. She is determined to succeed. She is not one to throw her hands in the air and move on before the current issue is addressed satisfactorily and assigned a management team. And even then, she keeps a hand in it.
Jim Fields, director of the Columbia-based Palmetto Institute, is Moore's go-to man, the one who manages the schedule, helps set the agenda, explains the mission, protects her interests and shields her from unwanted exposure. She has a habit of calling him only by his last name.
"Fields, what's next on the schedule?" "Fields! Tell them I'm not interested."
Fields is a reliable and trusted ally. Once affiliated with the McNair Law Firm, he specialized in state and local government affairs. He was counsel to the state Senate Judiciary Committee, then served as Clerk of the South Carolina Senate before being elected to head the Government Issues Committee of the National Conference of State Legislatures.
These days, he devotes himself to Moore and the mission of the Palmetto Institute.
In 1998, Moore gave $25 million to the University of South Carolina's College of Business Administration, which was renamed in her honor. The school, reputed to have one of the world's best programs in international business, is for Moore the launching pad to grow and propel innovative business enterprise throughout the state.
The gift was made after a lunch meeting that included Moore and her husband and top Bank of America executives William "Hootie" Johnson and Hugh McCall, Moore said.
She attended the lunch at the Florence Country Club because she was excited to meet Johnson, she said. She did not foresee the request that would come after a long, friendly conversation.
"We're here," Johnson finally said, "because we'd like to propose naming a business school at the university for Darla." It would be a first. Business schools had never been named for a woman before.
"Richard and I were dumbstruck. We just stared at him," Moore said. "Then he said it would cost $25 million."
Moore turned to Rainwater and said, "What do you think?"
Sitting there sipping coffee, Rainwater took a brief moment to think.
"Well, I think you should do it," he said.
It was a done deal. But the flattery only went so far. Soon Moore discovered that her no-strings-attached approach needed revising: All was not as rosy as it seemed.
"Fields, have I just flushed $25 million down the toilet?" she asked.
She hired a consulting firm to evaluate the school's performance. She wanted it to be a factory producing bright business minds that glowed with creativity and financial know-how. She would settle for nothing less.
"I was going to invest in South Carolina, that was a given," she said. And one of the most important assets in the state was its premier institution of learning, meant to be an engine that keeps the economy growing, she thought. This was more than a gift and a name on the side of a building, more than a good deed.
This was critical.
So Moore did what she always does when faced with a challenge. She got involved. She pushed for a revised curriculum. She consulted with school officials. She allocated some endowment money to a fellowship program that covered expenses for up to 30 students each year. She instigated a search for a new dean, then found one in Hildy Teegan. And she advocated for the recruitment of new faculty.
In 2003, Moore and Rainwater gave $10 million to the School of Education at Clemson University in honor of her father, Eugene Moore Jr., a Clemson alumnus and former public school teacher, coach and principal who died in October 2008.
Then in 2004, she pledged an additional $45 million to renovate the Hipp-Close building at USC and bolster the endowment, challenging the administration to match the gift.
Finding a dean
By 2007, the dream house Teegan and her husband were building on the edge of the Shenandoah National Park was ready to be occupied. Teegan was happily teaching international business at Moore's alma mater, George Washington University, and had no thoughts of becoming a dean, she said.
The force of Moore's charisma and vision, combined with a perceived opportunity, convinced Teegan to abandon her Washington life and take a new course.
"Her reputation is very strong," Teegan said of Moore. "She is associated with the mavericks of Wall Street. … She is the uber role model for many women in business. … She was known for a series of great choices made in somewhat adverse circumstances."
And there was her tenacity, her history of leveraging events to her advantage, her grand vision. "She is a bright light in the state," Teegan said.
Now, Teegan is making adjustments, some large some subtle, so that academia and enterprise work together, so that agribusiness in the state can be exported more and intellectual properties developed, so that ideas fueled in the classroom can be transformed into market solutions.
By nuturing great minds in business enterprise, Teegan hopes some of them will stay in South Carolina and help realize Moore's vision. It's about leverage, about transforming something small and powerful into something big. Or as Teegan put it, "to take limited investment and get a multiplier."
There is a vehicle for achieving these mostly abstract goals. It's called Innovista, a public-private research and development project sponsored by USC, local and state government and business leaders. Innovista is a $250 million idea factory that officials, including Moore and Teegan, hope will serve as an economic catalyst for the state, adding knowledge-based businesses and high-paying jobs.
"Great ideas spring forth," Teegan said of the academic environment, "but the missing link is the transition to commercial applications. … Some of the most difficult problems can't be solved by government alone, or civil society alone. You've got to have the private sector engaged."
Harris Pastides, who became president of USC this year and who is one of the forces behind the Innovista project, said he works closely with Moore, who sits on the university's board, and appreciates her influence.
"What else do you have if you don't have job creation coming out of research institutions?" he asked. Tourism appears to be in decline, at least for now. Agriculture is important, but its growth potential is questionable. The manufacturing sector is a disaster. "Knowledge. That one is a level playing field."
But getting the state and its institutions to fully endorse and fund the public-private research initiative and the ideas it is meant to explore has been slow going, Pastides said. Moore's participation has been invaluable.
"When Darla speaks, people listen," Pastides said. "When a university president speaks, some people listen, some people run away."
Rolling tobacco
Born at the height of summer in 1954, Moore grew up on a tobacco plantation in Lake City when the town was still a hub of rural South Carolina, a crossroads through which trains passed carrying bean and tobacco crops to markets far and wide. The property, which had been in the family for generations, remains the site of Moore's primary residence.
Besides tobacco, the farm grew cotton and soy beans. Moore remembers the sharecroppers who worked the crops and cured and classified the huge tobacco leaves in the pack house. Sometimes she would pitch in a little, earning 10 cents a day.
Productivity. Getting things done. Markets. Trade. It shaped the worldview of a young, pretty, determined girl.
In the 1970s, an affluent Lake City began its slow, painful decline. Tobacco was vilified. Farmers struggled. Moore knew she could not go far by staying home. She wanted to make a mark somehow, to make a name for herself. In 1979, Moore left for Washington to work for the Republican National Committee on behalf of Ronald Reagan in his run for president.
She discovered, however, that power born through politics was transient and fickle. In 1981, she graduated with an MBA from George Washington University, and the next year she moved to New York and joined a training program at Chemical Bank. She set her sights on the leveraged buyout business, which was all the rage on Wall Street then. Mergers and acquisitions. Big money. Influence. Wealth.
"There wasn't a snowball's chance in hell that a female from the rural Deep South would be invited or embraced by that LBO environment," she told an audience at the Wharton School of the University of Pennsylvania in 2000. "Historically no major players in the LBO business were women."
So someone suggested the bankruptcy business. If the leveraged buyout market was the top of the skyscraper, bankruptcy was the basement. Or, to use Moore's metaphor: "I ended up on the dark side of the moon."
She was buried in failed companies, working in relative isolation to manage reorganizations and liquidations. She learned a lot and became an expert at dealing with companies in crisis mode. She earned a guaranteed fee, which was paid first, before any creditors received a dime, before the company could spend money on its restructuring. The dark side of the moon proved lucrative.
Then, suddenly, came economic crisis.
The peak of the merger period had been reached and markets were contracting. The savings and loan fiasco made headlines. Businesses were tumbling from the top of the skyscraper into the basement, and Moore, efficient and ruthless, processed them one by one.
"It was manna from heaven," she said. "I was unassailable at the time, they couldn't touch me."
And she played up her Southern belle charm, which transformed from a liability into an asset. She was polite and sweet, even as she demanded of humbled executives that they do as she told them. The business provided "an incredibly high return on incredibly low risk," she said. And the chaos didn't faze her. "I could see the end game through the smoke."
This was her professional life for 13 years. She became the highest paid woman in banking. In 1991, she married Texas investment tycoon Richard Rainwater. In 1993, she left her job at the bank in New York to become president of Rainwater Inc. She was 39 and on the verge of a new career, still in the "get-rich" phase of her life.
Rainwater was a successful funds manager-turned-private investor from Fort Worth, Texas, who had gained a reputation for taking big risks that paid off handsomely. He bought 15 million square feet of real estate in Houston and Dallas after an episode of panic selling in the mid-1990s. Then he caught wind of the "peak oil" theory, which says that there is a possible peak in worldwide oil production, and decided to invest heavily while prices were low.
With Moore at the helm of the company, Rainwater focused on raising money. She steered the ship. It was a period of "high-wire acts," Moore said, with "lots of pushing and shoving." The couple had to leverage big deals with little equity value. "It was an enormous amount of work."
But the wealth amassed, and after some years Moore was entering the "stay-rich" phase when priorities shifted.
She would settle back into the family home in Lake City. It would become her base, even as she maintained other homes in New York, California and Charleston. Lake City, this washed-out farming town in Florence County, was the community in which she would pay her taxes.
And restoring it to its former grandeur would become her passion.
Next: Moore's vision for Lake City, her efforts as chairwoman of the Palmetto Institute and her rare book collection.
Reach Adam Parker at 937-5902 or aparker@postandcourier.com.
The gift was made after a lunch meeting that included Moore and her husband and top Bank of America executives William "Hootie" Johnson and Hugh McCall, Moore said.
She attended the lunch at the Florence Country Club because she was excited to meet Johnson, she said. She did not foresee the request that would come after a long, friendly conversation.
Editor's note: This is the first of two stories on one of the most influential women in South Carolina.
The pragmatic Grande Dame of South Carolina receives her guests by the Steinway & Sons grand piano, nestled in a front parlor niche of her luxurious South of Broad home.
She introduces her husband, Richard Rainwater, as "Dr. Doom." He is holding a can of soda, chatting and a little self-deprecating, full of praise for the lady of the house, worried that the economic downturn could mean utter disaster. A platter of hors d'oeuvres slides through.
Sprinkled among the doctors, lawyers and society people are those affiliated with the agriculture business who are in Charleston to attend the third-annual AgSummit, hosted by the Palmetto Institute.
The institute is the all-business, no-nonsense expression of Darla Moore's central passion: to raise the per-capita income of the state. And agriculture, South Carolina's No. 1 economic driver, offers one way to achieve her goal.
The guests enjoy drinks on the porch. The November night is crisp and clear, like Moore. She talks about the big plans for her hometown of Lake City. She shows off her extraordinary rare book collection in the warm, art-furnished library.
The house is decorated with objects and furniture Moore selected herself, and it intentionally resembles the décor one would have found in a 19th century Charleston residence. The reception is reminiscent of that era's society parties, except that modern farmers have replaced plantation owners. The conversation is probably similar, talking about new crops, cooperatives, marketing initiatives and a desire for more government support.
The next morning at the Francis Marion Hotel, summit attendees get serious.
Moore welcomes attendees and summarizes her goals: "We've got to think innovatively," she says. We've got to reinvigorate rural areas, boost research then commercialize its discoveries.
State Agriculture Commissioner Hugh Weathers says Moore's enthusiasm "gets other people off the bench."
"She's saying the status quo is not satisfactory in a whole host of things. I agree it can be better," Weathers says.
Fenton Overdyke, vice president of MarketSearch, which was hired by the Palmetto Institute to study the agriculture sector in the state, notes that agriculture is a $30 billion industry that employs 188,000 people. More than 90 percent of farmland is owned by individuals or families, not large-production companies, Overdyke says. More than half of all farms are fewer than 100 acres.
In advocating for improved agribusiness, Moore is thinking of Lake City, her beloved hometown, site of the family farm and repository of childhood memories.
"This is special to me," she tells the audience. "I consider myself one of you."
Funding big ideas
It can be difficult to pin down Moore. She constantly is working, traveling and speaking at Rotary Clubs, conferences and universities. She is a loyal capitalist and tireless advocate of economic improvement. She is pushing for tax reform, for farming clusters, for competitive international trade, for more and better research, for recruitment of top-drawer thinkers to the state. She is determined to succeed. She is not one to throw her hands in the air and move on before the current issue is addressed satisfactorily and assigned a management team. And even then, she keeps a hand in it.
Jim Fields, director of the Columbia-based Palmetto Institute, is Moore's go-to man, the one who manages the schedule, helps set the agenda, explains the mission, protects her interests and shields her from unwanted exposure. She has a habit of calling him only by his last name.
"Fields, what's next on the schedule?" "Fields! Tell them I'm not interested."
Fields is a reliable and trusted ally. Once affiliated with the McNair Law Firm, he specialized in state and local government affairs. He was counsel to the state Senate Judiciary Committee, then served as Clerk of the South Carolina Senate before being elected to head the Government Issues Committee of the National Conference of State Legislatures.
These days, he devotes himself to Moore and the mission of the Palmetto Institute.
In 1998, Moore gave $25 million to the University of South Carolina's College of Business Administration, which was renamed in her honor. The school, reputed to have one of the world's best programs in international business, is for Moore the launching pad to grow and propel innovative business enterprise throughout the state.
The gift was made after a lunch meeting that included Moore and her husband and top Bank of America executives William "Hootie" Johnson and Hugh McCall, Moore said.
She attended the lunch at the Florence Country Club because she was excited to meet Johnson, she said. She did not foresee the request that would come after a long, friendly conversation.
"We're here," Johnson finally said, "because we'd like to propose naming a business school at the university for Darla." It would be a first. Business schools had never been named for a woman before.
"Richard and I were dumbstruck. We just stared at him," Moore said. "Then he said it would cost $25 million."
Moore turned to Rainwater and said, "What do you think?"
Sitting there sipping coffee, Rainwater took a brief moment to think.
"Well, I think you should do it," he said.
It was a done deal. But the flattery only went so far. Soon Moore discovered that her no-strings-attached approach needed revising: All was not as rosy as it seemed.
"Fields, have I just flushed $25 million down the toilet?" she asked.
She hired a consulting firm to evaluate the school's performance. She wanted it to be a factory producing bright business minds that glowed with creativity and financial know-how. She would settle for nothing less.
"I was going to invest in South Carolina, that was a given," she said. And one of the most important assets in the state was its premier institution of learning, meant to be an engine that keeps the economy growing, she thought. This was more than a gift and a name on the side of a building, more than a good deed.
This was critical.
So Moore did what she always does when faced with a challenge. She got involved. She pushed for a revised curriculum. She consulted with school officials. She allocated some endowment money to a fellowship program that covered expenses for up to 30 students each year. She instigated a search for a new dean, then found one in Hildy Teegan. And she advocated for the recruitment of new faculty.
In 2003, Moore and Rainwater gave $10 million to the School of Education at Clemson University in honor of her father, Eugene Moore Jr., a Clemson alumnus and former public school teacher, coach and principal who died in October 2008.
Then in 2004, she pledged an additional $45 million to renovate the Hipp-Close building at USC and bolster the endowment, challenging the administration to match the gift.
Finding a dean
By 2007, the dream house Teegan and her husband were building on the edge of the Shenandoah National Park was ready to be occupied. Teegan was happily teaching international business at Moore's alma mater, George Washington University, and had no thoughts of becoming a dean, she said.
The force of Moore's charisma and vision, combined with a perceived opportunity, convinced Teegan to abandon her Washington life and take a new course.
"Her reputation is very strong," Teegan said of Moore. "She is associated with the mavericks of Wall Street. … She is the uber role model for many women in business. … She was known for a series of great choices made in somewhat adverse circumstances."
And there was her tenacity, her history of leveraging events to her advantage, her grand vision. "She is a bright light in the state," Teegan said.
Now, Teegan is making adjustments, some large some subtle, so that academia and enterprise work together, so that agribusiness in the state can be exported more and intellectual properties developed, so that ideas fueled in the classroom can be transformed into market solutions.
By nuturing great minds in business enterprise, Teegan hopes some of them will stay in South Carolina and help realize Moore's vision. It's about leverage, about transforming something small and powerful into something big. Or as Teegan put it, "to take limited investment and get a multiplier."
There is a vehicle for achieving these mostly abstract goals. It's called Innovista, a public-private research and development project sponsored by USC, local and state government and business leaders. Innovista is a $250 million idea factory that officials, including Moore and Teegan, hope will serve as an economic catalyst for the state, adding knowledge-based businesses and high-paying jobs.
"Great ideas spring forth," Teegan said of the academic environment, "but the missing link is the transition to commercial applications. … Some of the most difficult problems can't be solved by government alone, or civil society alone. You've got to have the private sector engaged."
Harris Pastides, who became president of USC this year and who is one of the forces behind the Innovista project, said he works closely with Moore, who sits on the university's board, and appreciates her influence.
"What else do you have if you don't have job creation coming out of research institutions?" he asked. Tourism appears to be in decline, at least for now. Agriculture is important, but its growth potential is questionable. The manufacturing sector is a disaster. "Knowledge. That one is a level playing field."
But getting the state and its institutions to fully endorse and fund the public-private research initiative and the ideas it is meant to explore has been slow going, Pastides said. Moore's participation has been invaluable.
"When Darla speaks, people listen," Pastides said. "When a university president speaks, some people listen, some people run away."
Rolling tobacco
Born at the height of summer in 1954, Moore grew up on a tobacco plantation in Lake City when the town was still a hub of rural South Carolina, a crossroads through which trains passed carrying bean and tobacco crops to markets far and wide. The property, which had been in the family for generations, remains the site of Moore's primary residence.
Besides tobacco, the farm grew cotton and soy beans. Moore remembers the sharecroppers who worked the crops and cured and classified the huge tobacco leaves in the pack house. Sometimes she would pitch in a little, earning 10 cents a day.
Productivity. Getting things done. Markets. Trade. It shaped the worldview of a young, pretty, determined girl.
In the 1970s, an affluent Lake City began its slow, painful decline. Tobacco was vilified. Farmers struggled. Moore knew she could not go far by staying home. She wanted to make a mark somehow, to make a name for herself. In 1979, Moore left for Washington to work for the Republican National Committee on behalf of Ronald Reagan in his run for president.
She discovered, however, that power born through politics was transient and fickle. In 1981, she graduated with an MBA from George Washington University, and the next year she moved to New York and joined a training program at Chemical Bank. She set her sights on the leveraged buyout business, which was all the rage on Wall Street then. Mergers and acquisitions. Big money. Influence. Wealth.
"There wasn't a snowball's chance in hell that a female from the rural Deep South would be invited or embraced by that LBO environment," she told an audience at the Wharton School of the University of Pennsylvania in 2000. "Historically no major players in the LBO business were women."
So someone suggested the bankruptcy business. If the leveraged buyout market was the top of the skyscraper, bankruptcy was the basement. Or, to use Moore's metaphor: "I ended up on the dark side of the moon."
She was buried in failed companies, working in relative isolation to manage reorganizations and liquidations. She learned a lot and became an expert at dealing with companies in crisis mode. She earned a guaranteed fee, which was paid first, before any creditors received a dime, before the company could spend money on its restructuring. The dark side of the moon proved lucrative.
Then, suddenly, came economic crisis.
The peak of the merger period had been reached and markets were contracting. The savings and loan fiasco made headlines. Businesses were tumbling from the top of the skyscraper into the basement, and Moore, efficient and ruthless, processed them one by one.
"It was manna from heaven," she said. "I was unassailable at the time, they couldn't touch me."
And she played up her Southern belle charm, which transformed from a liability into an asset. She was polite and sweet, even as she demanded of humbled executives that they do as she told them. The business provided "an incredibly high return on incredibly low risk," she said. And the chaos didn't faze her. "I could see the end game through the smoke."
This was her professional life for 13 years. She became the highest paid woman in banking. In 1991, she married Texas investment tycoon Richard Rainwater. In 1993, she left her job at the bank in New York to become president of Rainwater Inc. She was 39 and on the verge of a new career, still in the "get-rich" phase of her life.
Rainwater was a successful funds manager-turned-private investor from Fort Worth, Texas, who had gained a reputation for taking big risks that paid off handsomely. He bought 15 million square feet of real estate in Houston and Dallas after an episode of panic selling in the mid-1990s. Then he caught wind of the "peak oil" theory, which says that there is a possible peak in worldwide oil production, and decided to invest heavily while prices were low.
With Moore at the helm of the company, Rainwater focused on raising money. She steered the ship. It was a period of "high-wire acts," Moore said, with "lots of pushing and shoving." The couple had to leverage big deals with little equity value. "It was an enormous amount of work."
But the wealth amassed, and after some years Moore was entering the "stay-rich" phase when priorities shifted.
She would settle back into the family home in Lake City. It would become her base, even as she maintained other homes in New York, California and Charleston. Lake City, this washed-out farming town in Florence County, was the community in which she would pay her taxes.
And restoring it to its former grandeur would become her passion.
Next: Moore's vision for Lake City, her efforts as chairwoman of the Palmetto Institute and her rare book collection.
Reach Adam Parker at 937-5902 or aparker@postandcourier.com.
Friday, September 19, 2008
McCain wasn't found guilty of anything but bad judgment,,,
McCain wasn't found guilty of anything but bad judgment
He must think we are a nation of village idiots
Commodity Futures Modernization Act into the budget bill
Richard Rainwater...Bill Frist...Richard Scott...HEALTHCARE is involved in this Financial Crisis also, big time..Look at the ongoing NCFE trial in Colubus Ohio Federal Prosectors claimtobe bigger than Enron!
Look at the DUMPING that transpired wiht the LOSING assets of HCA/TN Inc.located in TEXAS! Oh, and let us not forget Rainwater's Wife, Darla Moore, the QUEEN of Bankruptcy dubbed by FORTUNE magazine.
Remember, Rainwater was GWBush's ex-partner with the Texas Rangers.
From the Huff Post:
Conservative Republicans always want the government to stay out of business and avoid regulation as long as they are making lots of money. When their greed, however, gets them into a fix, they are the first to cry out for rules and laws and taxpayer money to bail out their businesses. Obviously, Republicans are socialists. The Bush administration has decided to socialize the debt of the big Wall Street Firms. Taxpayers didn't get to enjoy any of the big money profits on the phony financial instruments like derivatives or bundled sub-prime
...
That's pretty easy to answer, too. His name is Phil Gramm. A few days after the Supreme Court made George W. Bush president in 2000, Gramm stuck something called the Commodity Futures Modernization Act into the budget bill. Nobody knew that the Texas senator was slipping America a 262 page poison pill. The Gramm Guts America Act was designed to keep regulators from controlling new financial tools described as credit "swaps." These are instruments like sub-prime mortgages bundled up and sold as securities. Under the Gramm law, neither the SEC nor the Commodities Futures Trading Commission (CFTC) were able to examine financial institutions like hedge funds or investment banks to guarantee they had the assets necessary to cover losses they were guaranteeing.
This isn't small beer we are talking about here. The market for these fancy financial instruments they don't expect us little people to understand is estimated at $60 trillion annually, which amounts to almost four times the entire US stock market.
And Senator Phil Gramm wanted it completely unregulated. So did Alan Greenspan, who supported the legislation and is now running around to the talk shows jabbering about the horror of it all. Before the highly paid lobbyists were done slinging their gold card guts about the halls of congress, every one from hedge funds to banks were playing with fire for fun and profit.
Gramm didn't just make a fairy tale world for Wall Street, though. He included in his bill a provision that prevented the regulation of energy trading markets, which led us to the Enron collapse. There was no collapse of the house of Gramm, however, because his wife Wendy, who once headed up the Commodities Futures Trading Commission, took a job on the Enron board that provided almost $2 million to their household kitty. And why not? Wendy got a CFTC rule passed that kept the federal government from regulating energy futures contracts at Enron.
If John McCain gets elected and chooses Phil Gramm as his Treasury Secretary, which many politico types see as likely, they will be able to talk about the good old days when Gramm was in congress and McCain was in the senate and they were in the midst of the Savings and Loan crisis.
The S and L scandal, which may look precious when compared to our present cascade of problems, isn't hard to understand, either. But it is impossible to take John McCain seriously on our current financial Armageddon since he was dabbling in the historic collapse of 747 S&Ls that occurred during Ronald Reagan's era. In the early 80s under the Republican president, congress deregulated the savings and loan industry in much the same way that Gramm made sure there were no laws hindering our current financial malefactors on Wall Street. S&Ls simply lobbied until they had less regulation and then began making rampant, unsound investments.
The guy who was going the wildest with financial freedom was Charles Keating, who headed up Lincoln Savings and Loan of California. Because the S&L industry had managed to get congress to increase FDIC insurance from $40,000 to $100,000 on deposits, the irresponsible investing of people like Keating began to put taxpayer insurance funds at great risk of loss. Keating placed money in junk bonds and questionable real estate projects and because so many other S&Ls started acting the same way the Federal Home Loan Bank Board (FHLBB) began to push for a regulation that limited these dangerous speculative "direct" investments to 10% of an S&L's assets.
And Keating didn't like it; he called on a private economist named Alan Greenspan, who promptly produced a study saying that there was no danger in "direct" investments.
But that didn't convince the FHLBB and as further scrutiny showed Lincoln Savings and Loan was making even more historically bad investment decisions, a federal investigation was launched.
So Keating called his home state senator John McCain.
McCain and four other US senators (known to history as the Keating Five) met with Edwin Gray, then chairman of the FHLBB. McCain had been hesitant to attend but had reportedly been called a "wimp" behind his back by Keating. The message to the FHLBB and Gray from the Keating Five was to lay off Lincoln and cool the investigation. Gray and the FHLBB did not relent but Lincoln stayed in business until 1989 when it collapsed with the rest of the S&L industry. The life savings of more than 20,000 elderly investors disappeared with the failure of Lincoln. Keating went to prison for five years.
Charles Keating was John McCain's pal. They met in 1981 and Keating dumped $112,000 in the McCain campaign bank accounts between '82 and '87. A year before McCain met with the FHLBB regulators, his wife Cindy and her father, according to newspaper reports at the time, invested about $360,000 in one of Keating's shopping centers. The Arizona Republic reported McCain and his wife and their babysitter took nine trips on Keating's private jet to the Bahamas to stay at the S&L liar's decadent Cat Cay resort. The senator didn't pay Keating back for the plane rides until years later when he was under investigation.
McCain wasn't found guilty of anything but bad judgment, which is an historic understatement. Republicans, who led deregulation of the S&L industry, delayed the bailout until after the 1988 election to make sure George H. W. won the White House. The cost to taxpayers for helping these 747 bad actors in the S&L industry was finally estimated at $1.4 trillion. If the bailout had begun in 1986 instead of after the presidential election, the cost would have been contained at $20 billion.
These, then, are the people -- the Republicans -- who want to run our government for four more years. John McCain isn't just one of them. He rides their jets. He takes their campaign donations. He makes them his campaign advisors. And he tells us to trust him.
He must think we are a nation of village idiots.
Hell, maybe we are.
Don't let them tell you this economic meltdown is a complicated mess. It's not. Our national financial crisis is readily understood by anyone who has seen greed and hypocrisy. But we are now witnes...
He must think we are a nation of village idiots
Commodity Futures Modernization Act into the budget bill
Richard Rainwater...Bill Frist...Richard Scott...HEALTHCARE is involved in this Financial Crisis also, big time..Look at the ongoing NCFE trial in Colubus Ohio Federal Prosectors claimtobe bigger than Enron!
Look at the DUMPING that transpired wiht the LOSING assets of HCA/TN Inc.located in TEXAS! Oh, and let us not forget Rainwater's Wife, Darla Moore, the QUEEN of Bankruptcy dubbed by FORTUNE magazine.
Remember, Rainwater was GWBush's ex-partner with the Texas Rangers.
From the Huff Post:
Conservative Republicans always want the government to stay out of business and avoid regulation as long as they are making lots of money. When their greed, however, gets them into a fix, they are the first to cry out for rules and laws and taxpayer money to bail out their businesses. Obviously, Republicans are socialists. The Bush administration has decided to socialize the debt of the big Wall Street Firms. Taxpayers didn't get to enjoy any of the big money profits on the phony financial instruments like derivatives or bundled sub-prime
...
That's pretty easy to answer, too. His name is Phil Gramm. A few days after the Supreme Court made George W. Bush president in 2000, Gramm stuck something called the Commodity Futures Modernization Act into the budget bill. Nobody knew that the Texas senator was slipping America a 262 page poison pill. The Gramm Guts America Act was designed to keep regulators from controlling new financial tools described as credit "swaps." These are instruments like sub-prime mortgages bundled up and sold as securities. Under the Gramm law, neither the SEC nor the Commodities Futures Trading Commission (CFTC) were able to examine financial institutions like hedge funds or investment banks to guarantee they had the assets necessary to cover losses they were guaranteeing.
This isn't small beer we are talking about here. The market for these fancy financial instruments they don't expect us little people to understand is estimated at $60 trillion annually, which amounts to almost four times the entire US stock market.
And Senator Phil Gramm wanted it completely unregulated. So did Alan Greenspan, who supported the legislation and is now running around to the talk shows jabbering about the horror of it all. Before the highly paid lobbyists were done slinging their gold card guts about the halls of congress, every one from hedge funds to banks were playing with fire for fun and profit.
Gramm didn't just make a fairy tale world for Wall Street, though. He included in his bill a provision that prevented the regulation of energy trading markets, which led us to the Enron collapse. There was no collapse of the house of Gramm, however, because his wife Wendy, who once headed up the Commodities Futures Trading Commission, took a job on the Enron board that provided almost $2 million to their household kitty. And why not? Wendy got a CFTC rule passed that kept the federal government from regulating energy futures contracts at Enron.
If John McCain gets elected and chooses Phil Gramm as his Treasury Secretary, which many politico types see as likely, they will be able to talk about the good old days when Gramm was in congress and McCain was in the senate and they were in the midst of the Savings and Loan crisis.
The S and L scandal, which may look precious when compared to our present cascade of problems, isn't hard to understand, either. But it is impossible to take John McCain seriously on our current financial Armageddon since he was dabbling in the historic collapse of 747 S&Ls that occurred during Ronald Reagan's era. In the early 80s under the Republican president, congress deregulated the savings and loan industry in much the same way that Gramm made sure there were no laws hindering our current financial malefactors on Wall Street. S&Ls simply lobbied until they had less regulation and then began making rampant, unsound investments.
The guy who was going the wildest with financial freedom was Charles Keating, who headed up Lincoln Savings and Loan of California. Because the S&L industry had managed to get congress to increase FDIC insurance from $40,000 to $100,000 on deposits, the irresponsible investing of people like Keating began to put taxpayer insurance funds at great risk of loss. Keating placed money in junk bonds and questionable real estate projects and because so many other S&Ls started acting the same way the Federal Home Loan Bank Board (FHLBB) began to push for a regulation that limited these dangerous speculative "direct" investments to 10% of an S&L's assets.
And Keating didn't like it; he called on a private economist named Alan Greenspan, who promptly produced a study saying that there was no danger in "direct" investments.
But that didn't convince the FHLBB and as further scrutiny showed Lincoln Savings and Loan was making even more historically bad investment decisions, a federal investigation was launched.
So Keating called his home state senator John McCain.
McCain and four other US senators (known to history as the Keating Five) met with Edwin Gray, then chairman of the FHLBB. McCain had been hesitant to attend but had reportedly been called a "wimp" behind his back by Keating. The message to the FHLBB and Gray from the Keating Five was to lay off Lincoln and cool the investigation. Gray and the FHLBB did not relent but Lincoln stayed in business until 1989 when it collapsed with the rest of the S&L industry. The life savings of more than 20,000 elderly investors disappeared with the failure of Lincoln. Keating went to prison for five years.
Charles Keating was John McCain's pal. They met in 1981 and Keating dumped $112,000 in the McCain campaign bank accounts between '82 and '87. A year before McCain met with the FHLBB regulators, his wife Cindy and her father, according to newspaper reports at the time, invested about $360,000 in one of Keating's shopping centers. The Arizona Republic reported McCain and his wife and their babysitter took nine trips on Keating's private jet to the Bahamas to stay at the S&L liar's decadent Cat Cay resort. The senator didn't pay Keating back for the plane rides until years later when he was under investigation.
McCain wasn't found guilty of anything but bad judgment, which is an historic understatement. Republicans, who led deregulation of the S&L industry, delayed the bailout until after the 1988 election to make sure George H. W. won the White House. The cost to taxpayers for helping these 747 bad actors in the S&L industry was finally estimated at $1.4 trillion. If the bailout had begun in 1986 instead of after the presidential election, the cost would have been contained at $20 billion.
These, then, are the people -- the Republicans -- who want to run our government for four more years. John McCain isn't just one of them. He rides their jets. He takes their campaign donations. He makes them his campaign advisors. And he tells us to trust him.
He must think we are a nation of village idiots.
Hell, maybe we are.
Don't let them tell you this economic meltdown is a complicated mess. It's not. Our national financial crisis is readily understood by anyone who has seen greed and hypocrisy. But we are now witnes...
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