Commentary by Ann Woolner
Sept. 19 (Bloomberg) -- As it stands, the rest of us will
be paying much money over a long time for the greed and bad
judgment of those who melted down the economy.
Hundreds of billions of taxpayer dollars are propping up
firms that a relative few money lenders and Wall Street
If that weren't enough, the crisis is shrinking the money
that Americans diligently socked away for retirement, down
payments on first homes, college for the kids or this winter's
heating bill. We might as well have opened our windows and
tossed out cash.
Beyond crimping living standards around the globe, the
crumbling of the U.S. financial system has prompted action
radical for a nation devoted to free enterprise. However
necessary, it's nothing short of astounding that the U.S.
government essentially nationalized the largest insurance
company in the country.
The real kick in the teeth is that the executives who
inflicted all this financial pain, who forced unprecedented
government takeovers, walk away with hundreds of millions of
dollars. It's up to us -- innocent little us -- to dig into
our pockets, into our futures and into our children's futures
to fix their spectacular errors.
Stanley O'Neal took a $161 million package last year when
he left Merrill Lynch & Co. (remember Merrill Lynch?), even
without a severance package in the mix. Angelo Mozilo, founder
and top executive at Countrywide Financial Corp., reaped
almost $122 million during 2007 in stock options alone.
For a mere three months at the helm of
American International Group Inc., Chief Executive Officer
Robert Willumstad gets a $7 million package.
Selling Stock Options
And while the value of
Richard Fuld's shares in Lehman Brothers Holdings Inc.
plunged roughly $1 billion, he still pulled in almost $490
million by selling options and share grants in the 14 years
that the company's been public, according to Fortune magazine.
We now know those shares were grossly overpriced, resting
as they did on subprime mortgages. Shouldn't he give back most
of it? All of it?
At least the government is blocking the $24 million given
to the fired top guns at Fannie Mae and Freddie Mac, both
taken over earlier this month.
As a rule, it isn't easy to take back money or benefits
awarded as part of an employment contract, unless you can
figure out some way the executive violated the contract's
But it's worth a try. Consider these options.
Toss the rascals in jail. Criminal prosecution allows the
government to seize ill-gotten gains. Snip the straps off
those golden parachutes and grab them. Take over bank
accounts, investment accounts, mansions, private planes and
The feds did bring charges against a couple of Bear Stearns
Cos. hedge fund managers in June, and Federal Bureau of
Robert Mueller told Congress this week his agency is
pursuing possible suspects ``as far up the corporate chain as
The hitch is that proving executives lied in criminal ways
is easier said than done, Enron and WorldCom convictions
``Criminal prosecutions need to be specific,
detail-oriented fact patterns where clear-cut criminality can
be established,'' says
Robert Mintz, a white-collar criminal defense lawyer and
``These are broad, sweeping market failures that have swept
up so many individuals and so many institutions that
prosecutors will have a hard time singling out any entity,
much less any institution, and hold them responsible,'' says
Mintz, a partner in McCarter and English in Newark, New
OK, so file civil suits.
Sue the Directors
WorldCom shareholders sued and wrangled $18 million from
the pockets of directors, who agreed to pay more than 20
percent of their combined net worth. Another $36 million came
from the directors' insurance carriers.
These days, collecting from an insurer might not be the
best idea. If AIG is doing the insuring, it would be the
taxpayers paying out.
William McGuire, former CEO of
UnitedHealth Group Inc., agreed this month to personally
cough up $30 million to resolve a lawsuit over stock-option
backdating. That's on top of the $600 million in benefits --
mostly in stock options -- he said he will turn in to resolve
another shareholder suit.
The problem is that it normally takes something akin to
criminal conduct, such as options backdating or accounting
fraud, for civil suits to take money out of the hands of the
accused. And, as previously noted, it isn't clear we will have
Well, what about government regulators? The U.S. Securities
and Exchange Commission didn't do anything to prevent this
meltdown. But at least, with New York Attorney General Andrew
Cuomo leading the charge, federal and state regulators have
forced investment banks to buy back billions of dollars worth
of auction-rate securities said to have been sold under
dubious claims of reliability.
The bankruptcy law may give Lehman Brothers creditors a
chance to grab some of the bonuses the firm paid out last
If they can show bonuses were based on bogus claims of
solvency, they can go after them, according to compensation
Paul Hodgson of the
Corporate Library, which analyzes corporate governance
Some plaintiffs' lawyers apply the same principle when
pushing for tougher corporate governance rules as part of
settling a case.
The idea is that CEOs and CFOs who drew bonuses based on
earnings that had to later be restated, for whatever reason,
must automatically return the excess amount, according to
Darren Robbins, a partner in Coughlin Stoia Geller Rudman
Frankly, it's only fair.
Woolner is a Bloomberg news columnist. The opinions
expressed are her own.)
To contact the writer of this column: Ann Woolner in
Last Updated: September 19, 2008 00:04 EDT