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Tuesday, January 31, 2012

What Florida Primary Means For Romney, Gingrich

Mitt Romney won a clear victory in the Florida primary, yet failed to break the 50 percent barrier signifying that more Republican voters rejected him than chose him.  With most results in, Romney had about 46 percent of the vote to Newt Gingrich's 32 percent, 13 percent for Rick Santorum and six percent for Ron Paul.

There are commentators claiming tonight that the race for the Republican nomination is over.  Nonsense.  This is like saying the first team to score a touchdown in Sunday's Super Bowl is the winner.  This is the hopeful plea from some establishment Republicans who are eager to call victory and have the referee stop the fight before the opponent bloodies their man. The race is just starting.  And it is a delegate race (which is why Ron Paul will stay in the race, in my view) in which all primaries and caucuses in February and March are proportional delegate contests, meaning that delegates can be split among the front-runners. 

Gingrich declared tonight that he will "contest every place [state]" and vowed to stay in the race until the August national convention in Tampa, FL.  One bright spot for the former Speaker of the House: Gingrich led self-described "very conservative" voters by 43-29 percent.  This suggests that in the reddest of the red states, Gingrich stands an excellent chance of winning by sizable margins, and thereby demonstrating the substantial ideological differences between the moderate and conservative wings of the Republican Party.

Establishment Republicans and Romney supporters will be prematurely calling the race over.  There are several reasons for this.

First, the 14-point victory is barely half of Romney's advantage in some polls barely two weeks ago, which had the Massachusetts governor with a 24-26 point lead.

Second, just consider for a moment what Gingrich had to endure during those last two weeks: the Newtron bomb of the Marianne Gingrich "open marriage" allegation just 12 days ago.

Objectively, these facts indicate that Gingrich showed resiliency, survived a tough issue that would have destroyed other candidates, and made a competitive showing in a state where mid-January polls indicated a landslide for Romney.

Conversely, Romney got the respectable, decisive victory he needed to quiet the naysayers who were whispering off the record (as NBC's Andrea Mitchell reported the evening of the South Carolina primary) that establishment leaders were ready to reconvene the "smoke filled room" to select a replacement for Romney if he failed to win Florida.

The race is far from over.  And far from being destructive, the prolonged primary season will keep voters intrigued and the pressing issues of the day in the news cycle.  The Republican Party and its ultimate ticket may end up benefitting from a competitive, if not thrilling, primary race.

Eric Dixon is a New York election lawyer who has worked for Republican presidential and gubernatorial candidates during his 17-year legal career.

Wednesday, January 25, 2012

Obama's Crony Justice Will Make Business A Crime


Largely unnoticed in President Obama's State of the Union speech Tuesday was his call for a new enforcement agency to prosecute financial crime.  The implication, from the tone and theme of the rest of the speech, was that financial crime is one of the main causes of the economic crisis of the last five years. What is worrisome is what logically follows: more business leaders, managers and entrepreneurs must go to jail.

Under the guise of a populist appeal to equality, expect a new wave of criminalization of private enterprise. And Obama does not need Congress (which makes the laws) to cooperate; he can create a new executive agency of which the staffing and decisions on which cases to investigate and prosecute can effectively criminalize targeted industries, activities and businesses.

In reality, financial crime is fairly constant in its frequency. What varies is its detection and, yes, the willingness of the authorities to carefully investigate and uncover the various white-collar crimes which plague us. But there are many crimes that are caught, and many agencies that handle this task.

Unlike the Department of Justice, which still retains many career prosecutors committed to upholding the agency's professionalism and commitment to justice over numbers (of convictions), a new agency would be staffed by people who would set the new templates for "how things are done," and would be an invitation for politics or purely personal vendettas to infect each and every decision-making process.

There are plenty of white-collar crimes prosecuted by the Justice Department. We have "regular" securities fraud (e.g., lying about a company's new drug), accounting fraud (making the numbers look better), mortgage fraud (lying to get one), appraisal fraud, bank fraud, identity fraud and wire fraud (e.g., telemarketing).

We have seen huge frauds go unpunished criminally. The Justice Department decided not to prosecute Countrywide Bank management, although it is investigating the recently-deposed management of Freddie Mac and Fannie Mae (and only those officers whose tenures started after the housing bubble burst). There have been no prosecutions of the managements of the "too big to fail" banks. Although business failure is not a crime, the surprising fall of these institutions suggests the possibility of a criminal nondisclosure of material information to the investing public.

Managements of much smaller companies which fail often are investigated and some are prosecuted, sometimes despite circumstantial evidence and, frankly, evidence no stronger that questionable or perjurious cooperating witness testimony. The Justice Department has had little problem finding cases to bring, particularly against smaller enterprises (for they lack the resources of behemoth enterprises and thus are thought easier to attack and get convictions -- the "numbers"). Nothing has prevented a reallocation of resources towards the "big" cases involving the "too big to fail" crowd -- nothing but unannounced agendas that one must suspect to be at work.

The final danger of any new bureaucracy is its tendency to take actions, no matter how harmful, in order to justify its existence and the jobs of its employees, and the temptation for those employees to act with an eye on enhancing the resume rather than pursuing the ends of justice.

With these considerations -- and never mind the new de facto Millionaire's Alternative Minimum Tax -- America's entrepreneurs have just been given new reasons to shut down, preserve capital and hope for the political nuclear winter to eventually pass.

Eric Dixon is a New York investigative lawyer. Follow Mr. Dixon on Twitter at @dixonstrategy.

Sunday, January 22, 2012

Do Establishment Republicans Want An Obama Victory?

Newt Gingrich's punishment for winning Saturday's South Carolina primary came courtesy of New Jersey Governor Chris Christie, who today called Gingrich "an embarrassment to the party" on NBC's Meet the Press. (See the video here.)

The vitriolic attack -- one which is certain to appear in an Obama 30-second ad if Gingrich is the nominee -- raises the question of whether establishment Beltway Republicans are willing to inflict crippling harm on a potential Republican nominee for President, even to risk a second Obama term, in a desperate attempt to force a Romney nomination and, by extension, to retain control of the national party.

Make no mistake, the movement conservatives and the Tea Party movement scare the Republican establishment, which detests and despises them yet demands their fealty and exploits their enthusiasm, votes and contributions.

The Christie comments -- which, you can be assured, come with the direct approval of Governor Romney and the highest levels of the Republican establishment -- signal that the intraparty fight for the nomination will be a no-holds-barred, bare-knuckled, Texas death-cage brawl.  Not surprising: politics "ain't beanbag," as New York congressman Charlie Rangel has said.  However, party harmony is both a virtue and a necessity for ultimate victory; see Ronald Reagan's Eleventh Commandment about never speaking ill about another Republican.

In light of these principles and the strong personal attacks on Newt Gingrich (and which, you wonder, follow the behind-the-scenes sudden attacks on Herman Cain), one may validly question whether the Republican Establishment has the attitude of: Romney will be the nominee...or else.

If Republicans share the goal of defeating Obama in November at all costs, Christie's most intentional comments today may prove a horrible strategic blunder.  Unless, that is, the Establishment's goal is not victory over Obama at all, but rather, to maintain control of the national Republican Party at all costs.

Even if that means another four years of President Obama.

Eric Dixon is a New York investigative lawyer with substantial experience in the private equity and capital finance fields.  Mr. Dixon has worked for over two dozen candidates on ballot access and other issues, and has also been a strategic analyst for several campaigns.

Saturday, January 21, 2012

New Jersey Devils' Road To Hell Paved With Debt

The New Jersey Devils are paying the price for too much debt.


The Eurozone nations, governments in this country at all levels, most businesses and most households have found out over the last five years that massive debt can be crippling in the face of declining revenues, increasing expenses and the unavailability (or revocation) of credit.


As this morning's New York Post report indicates, the Devils (a) are losing $20 million this season, (b) already missed an $80 million loan repayment deadline, and (c) are considered by their minority owner Ray Chambers to be worth less than the outstanding $200 million in debt on the franchise.  In other words, the Devils' liabilities exceed their assets, meaning the franchise has "negative equity" and can be considered functionally bankrupt.


Now, if Bain Capital stepped in to rescue the Devils, it would be awfully interesting to see what they would do.


Eric Dixon is a New York investigative lawyer who handles business due diligence and investigations, and who offers economic and policy analysis on a professional basis.  Mr. Dixon spent the bulk of his early legal career performing corporate transactions, and is a longtime observer of the economics of professional sports.

   

Thursday, January 12, 2012

Romney Took Care Of His Investors

The past few weeks have seen Republican frontrunner Mitt Romney take a lot of criticism for the structure of his deals while with Bain Capital.  The criticism is misplaced: Romney did his job, and did it well.

I used to represent private-equity firms, and sometimes their "targets" or "portfolio companies" in which they invested or managed.  I know the structure of these deals and the associated responsibilities. 

Above all else, when one is running a private equity fund and using other investors' money to either make or manage investments to work for a return on investment, there is a responsibility to the investors.  It is clear that Romney fulfilled his fiduciary duties to his private-equity investors in Bain.  He is being criticized, for meeting his responsibilities.  It was his job to work these deals and inspect and manage the companies in which other people's money was invested, and to get the best deal and best return on investment for his investors.

The structure of some deals has been criticized.  And perhaps the terms of some deals could be considered to have been "too tough" on the target companies.  But those companies entered those transactions freely and agreed to those terms.  That is the nature of the beast; you want our money, here are the rules.  These were mostly very troubled companies, but many of them had a choice among suitors.  They could choose whose money to take, which terms to accept.  No one put a gun to these companies' figurative heads and told them they absolutely had to take that Bain Capital money.

Incidentally, had the federal government simply taken this approach when it gave out billions of dollars to financial institutions in the Troubled Assets Relief Program (the TARP bailout), we would likely have had a real economic recovery by now, healthier financial institutions and much, much less debt -- and perhaps an entire return on "investment" to the taxpayer -- being incurred.  (Our national debt is $15.2 trillion, soon to grow when the debt cap is lifted at President Obama's request.)

With TARP, I would have inserted one paragraph -- maybe a few paragraphs -- more carefully limiting what the banks could do with the TARP funds. This is simple and very customary. Its absence in the original TARP agreement was glaring, obvious, and just had to be intentional -- this was no innocent oversight made in haste. It was a signal that the banks would be bailed out and have few real limits on themselves. The clue was there in October 2008. 

My principle would have been real simple: you want TARP funds, here are the rules. You spend it on new loans and creating a reserve for existing loans including some toxic loans, and here are the limits on all employee and executive compensation. The limits are conditions -- requirements -- to the deal. 

I used to do these contracts all the time.  And unlike many of the sloppy boilerplate contracts you see today that are passed off as high-quality legal work by the large law firms charging $500 per hour for second-rate work, I used to draft these contracts from scratch and often off the top of my head. Original work, real analysis, real thought into the consequences.

Now, Romney got strong and exacting terms for his Bain Capital investors.  That was his mandate. Call him a strong negotiator, or at the very least, someone able to capitalize on a target company's distressed situation. 

Is it "nice"?  Not necessarily, but to make that judgment you must ignore the risk the investors take, and must assume or already know that the investors have gotten their investment back and aren't taking a risk anymore, since it's hard to say that an investor whose investment is still at risk of total loss isn't being nice.  And think what would have happened to many of those target companies if they didn't take the Bain Capital money?  Many might have had to lay off much of their workforce, or close altogether.  How nice would that have been?

Whether its Herman Cain or Mitt Romney -- or Ross Perot two decades ago -- the allure of the businessman in politics is the comfort that he (or she) has experience in negotiating tough terms when needed.  This is crucial when negotiating with the other branches of government, with domestic counterparties like unions and regulated industries, and especially with foreign governments.  It seems the criticism of Mitt Romney (and implicitly, of any other businessman in politics) is a criticism of a core competency, an essential skill for the job of President.  The criticism couldn't be more misplaced.

Eric Dixon is a 1994 graduate of Yale Law School and has practiced law in New York for 17 years.  Mr. Dixon has extensive corporate transactional and securities experience including corporate investigations and due diligence, and now consults on various government investigative matters, legal and regulatory compliance and election law issues.  Mr. Dixon may be reached at edixon@NYBusinessCounsel.com.

Tuesday, January 10, 2012

American Bar Association Quotes Eric Dixon on Dodd-Frank Whistleblower Provisions

Eric Dixon, yours truly, is cited numerous times by the American Bar Association in recent materials handed out at an American Bar Association symposium on the Dodd-Frank financial reform legislation with regards to attorney confidentiality and whistleblower procedures.  


Eric Dixon is a New York lawyer who has handled statutory and legal analysis for various clients in the past.  Mr. Dixon is available for independent retention for projects or questions you may have.  Mr. Dixon may be reached at edixon@NYBusinessCounsel.com or at 917-696-2442.





Saturday, January 7, 2012

How To Save The New York Mets

Although this is a legal and policy blog and not a sports blog, I do cover topics of major political importance where policy or economics are involved.  The ongoing disaster of the New York Mets baseball club qualifies as being within the scope of this blog.

The Mets are owned by two men, Fred Wilpon and Saul Katz (the latter a relative of Wilpon through marriage, and I refer to them collectively as "the Wilpons" for simplicity's sake), whom I believe are presently considered unindicted co-conspirators of Bernard L. Madoff by virtue at least of their reported recruitment of other investors into Madoff's entities.  (At least one victim was a former Mets ballplayer, Tim Teufel.)  Most attention is on the Wilpons' civil liability from the clawback of illicit profits sought by Madoff trustee Irving Picard, which could seriously hamper the Wilpons at best and, at worst, force both their sale of the Mets (and perhaps all of their other business assets) and even reduce them to personal bankruptcy.  But the criminal exposure -- the prospect of going to jail -- is of far greater import.

At their advanced ages, a jail sentence for the Wilpons would be "effectively life."  Federal prison sentences for financial crimes are generally determined based on the amount of the financial loss, and here, a "conspiracy" charge could tie in the Wilpons to a large chunk -- and potentially all -- of the Madoff fraud losses. 

Some people plead guilty to crimes in the hope of getting leniency from a judge, and a favorable sentencing recommendation from the government (in legal jargon, what's called a "5K1.1" letter).  But Madoff never went to trial; he pleaded guilty and "cooperated" with the government's still-ongoing (and far from done) investigation.  His reward: a 250-year-sentence.  Message to the Wilpons: Your only chance for freedom is to fight like hell and hope to win.

In this context, should my theory (and let's be honest, it is a theory, an educated guess) be correct, this would explain the Wilpons' fanatical defiance.  They have nothing to lose by pulling out all the stops to keep the Mets, on their terms, for as long as possible, even if this hurts the franchise's value and exasperates the fans.  In fact, infuriating the fan base might be part of the strategy -- it might spur a white knight to come in and rescue the team, and pay a higher price. Or so the Wilpons' strategy might go...and it might be dead wrong.

As for the team's future, there is no hope for the club as long as the Wilpons are in charge.  The team is sinking and must reduce its payroll in order to cut its substantial losses (reported by GM Sandy Alderson to be $70 million, although for what time period he did not state).  

There is an equilibrium at which losing will actually no longer result in declining attendance.  There is a core which will see this team, no matter whether they lose 100 or 120 games, although they may be buying tickets at deep discounts from the box office if they can't get them for $5 on StubHub.  On this basis, chopping payroll by 50% -- from $140 million to $70 million, necessitating the trade of two of the three of Jason Bay, David Wright and Johan Santana -- results in a marginally less competitive team but will not cause attendance to decline that much further.  With or without these trades, a reasonable expectation for annual 2012 attendance is about 1.5 million (2011 attendance was just above 2.0 million).  Throw in the trades and assume a 50-60 win team, and perhaps overall ticket-sold attendance drops to about 1.25 million.  (Remember, ten percent of that total will come just from the Subway Series.)  

Think attendance could really drop that much?  Consider my math.  First, the three Yankees games will sell out, accounting for 125,000 tickets sold.  Then take the nine games apiece against the Marlins (with Jose Reyes) and Phillies.  In a worst case scenario, can you see those teams drawing anything less than 25,000 per game?  That Phillies fans won't drive en masse up the New Jersey Turnpike to scarf up prime tickets to see games when they can't grab tickets at perpetually sold-out Citizens One Ballpark in central Philadelphia?  These 18 games should account for 500,000 tickets sold; throw in the Yankees' games and you've got 625,000 tickets sold for 21 games.  (To reach 1.25 million tickets sold, you then need only average 10,000 tickets sold for the remainder of the 60 games on the home schedule.)   Account for special promotions and the home opener; just assume another 150,000 tickets sold for, say, six Sunday afternoon games during the warm months.  Now you've got 775,000 tickets sold for 27 games.  Can you realistically envision the Mets not selling an average of 10,000 tickets for the remaining 54 games?  Even in the all-time low attendance year of 1979 when the total season's attendance was south of 800,000, that was an average crowd of over 10,000.  This should be considered a safe "floor" for attendance assumptions, regardless of the depth of fans' anger.

Such attendance should result in a ticket revenue decline of, say, $35 million, but player payroll reductions (yet to be achieved) of a greater amount can be achieved.  From this point, however, the team can rebound.  Here's how and why.

Mets fans like underdogs.  It is in our DNA.  The replacement, younger Mets will have some prospects and should not be uncompetitive for long.  (As it stands, this team has averaged under 75 wins per season the last three years.)  In fact, it is easy to envision the team quickly becoming interesting, if not necessarily a winning team. In the meantime, payroll for unproductive veterans can and must be cut to restore the franchise to "operating profitability" meaning that its ongoing operations (before accounting for stadium and other debt) are making money.

In fact, when you view the foregoing analysis, you should see why Sandy Alderson's tear-down and rebuild philosophy makes sense, no matter who owns the team.  A perennially-losing $140 million team can just as easily be replaced by a losing $40 million team with hardly a substantial additional dropoff in attendance and revenues.

The "X factor" in this analysis, however, is the depth of Mets' fans' rage at the Wilpons.  Unlike anything ever seen before, Mets fans are now staying away from this team on purpose, in a manner designed to send a message that they will not support a losing team in any way while the Wilpons retain control of the club.  For this reason, the Wilpons need to sell the franchise.  While their crowds and losses may plateau at a low point, the fans' sentiment will mean that instead of a rebirth and gradual improvement, there will only be financial stagnation and continuing (although not worsening) losses.  Once the Wilpons realize there is no light at the end of this tunnel, they may finally concede that their best business option is to do a bankruptcy-aided sale, and to do it sooner than later.

Eric Dixon is a New York corporate lawyer and Mets fan since 1973.

Tuesday, January 3, 2012

Baby Killing Gets OK by Manhattan DA

In the latest sign of a world value system turned upside down, the Manhattan District Attorney's Office has declined to prosecute a woman whom they publicly claim self-aborted her allegedly six-month fetus, creating a dangerous precedent.


There is no physiological difference between a six-month fetus and a born-alive, very premature 27-week baby. I openly speculate this baby was actually born alive, murdered after birth and thrown in the trash where he was discovered.


In short, if my theory is right, this woman committed first-degree homicide. Murder One! (Book her, Dano.)


The District Attorney's decision not to prosecute sends a chilling message that a woman can kill her baby...after birth...and get away with it if she can claim (or prosecutors, acting hellbent on making abortion the holiest sacrament, agree to portray evidence to support the theory) that she induced her abortion.


There are many reasons to be extremely sympathetic to women traumatized by an unwanted pregnancy. However, none of these reasons justify the ultimate decision to terminate another's life. At a minimum, this woman had every reason to wait a few weeks until the baby could be safely born viable (and the numbers of ultra-premature babies surviving even 20-22 weeks after gestation are growing).


Her action sends the message to impressionable young women: You can do anything you want, and no one has the right to tell you no.  (You go, girl.) The rule of law, rules of morality and decency, none of that applies to women, goes the siren song.  And for plenty of women and girls, especially those who might have "daddy issues" or whatever dysfunction they want to blame, the promise of the ultimate power trip -- the power to kill -- has a deadly allure.

At its core, however, this case is really not about a mother and her baby.  What it is about, is power; the power of women to declare that they and they alone will shape the standards by which they are judged and held accountable. This drive for "empowerment" is really a blood lust for power, a desire to proclaim that there are no limits on women.


This is the mentality which has allowed some women to abuse power, to exercise hypocrisy and act as bullies, to engage in harassment (including sexual harassment) and to do so with virtual impunity.  Under this perspective, some "liberated" women have all but openly declared that they can demand or compel the silence of those with whom they disagree -- or dislike, to create some sectors of society and our economy in which a woman's word is considered sacrosanct.

It is such a dysfunctional world that a pampered TV meteorologist, Heidi Jones, felt she could get away with falsely accusing Hispanic men of trying to sexually assault her in Central Park.  (Interestingly, the same Manhattan DA's office prosecuted Jones in a case in which no one was physically harmed.)

Of course, a reminder is needed: For every sense of entitlement, there is a corresponding obligation.  A right for one creates a duty for another. 

There are some people -- and it's both women AND men, to be sure -- who believe that their past suffering entitles them -- yes, entitles is the accurate verb here -- to act in a way which allows them to heal.  This includes hurting others, even if  -- or especially if -- they are innocent.  It logically follows that this philosophy obligates the hapless victims of this dangerous sense of entitlement to suffer their fate, as new victims, and I guess the cycle of victimization continues.

When a woman and her unborn baby are involved, a woman's "right to choose" requires the baby (literally as innocent and helpless as one can be) to submit to death.

There can be no greater sign of narcissism, self-centeredness and toxic selfishness. Can there be any less desirable and more repulsive character traits? 

These purportedly empowered women (who in reality are being enslaved by their peers who wish only for their suffering to be shared, the better to feel about themselves) should note that men retain the right to walk away from these women -- not their babies, mind you -- who demonstrate such antisocial, undesirable tendencies.  Regardless of society's march towards "equality," men still look for mates who show personality traits of kindness, charity and compassion towards others.  The determination of whether a woman would make a good mother is a key factor in a man's decision to select a mate (just as women evaluate men for their ability to protect and provide for their offspring).

After all is said and done, men retain one right.

The right to reject.

The survival of our species requires it. 

PS: The writer was born at 28 weeks gestation.

Eric Dixon, Esq. 
Follow me on twitter @dixonstrategy