February 7, 2023

DealBook: An Argentine Parallel

If a corporation or an individual pays some creditors, but not others, bankruptcy lawyers call that a voidable preference. The preference allows the creditor to get more than it would in the collective bankruptcy process, so the extra bit can be recovered by the bankruptcy trustee.

Preferences are also at issue in the Argentine debt litigation. The Federal District Court in Manhattan has ruled that Argentina can’t pay cooperative creditors while stiffing the uncooperative ones.

Considered in this broader context, the suggestion that the United States should prefer some creditors over others seems somewhat problematic, to put it politely. But that is precisely what some, particularly House Republicans, have suggested the government should do if the $16.394 trillion debt limit is not raised and the United States runs out of cash to pay its bills.

The idea is that bondholders should be paid above all others, to avoid a default.

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I’m on record as saying a default is a really bad idea, the consequences of which are vastly understated by those who seem to approach the idea with an alarming degree of casualness.

But in any event, why is it O.K. for the United States to do something that many of the same people have suggested is wrong when done by Argentina?

And the mere suggestion that any debtor will engage in preferences itself has consequences.

In the case of the United States debt, if I know that (a) the government is going to prefer bondholders when it begins to run short of cash and (b) that the government will run short of cash in mid- to late February, then I think I’ll file my tax return and get my refund A.S.A.P.

I suspect a lot of other people will have the same idea, too. That, of course, will accelerate the date at which the government will run out of cash.

Then there are government contractors, who might think about submitting invoices a bit early.


Stephen J. Lubben is the Harvey Washington Wiley Chair in corporate governance and business ethics at Seton Hall Law School and an expert on bankruptcy.

Article source: http://dealbook.nytimes.com/2013/01/18/an-argentine-parallel/?partner=rss&emc=rss

Common Sense: Bribery, but Nobody Was Charged

The women happened to be the wives of two veterinarians stationed at the plants as part of Mexico’s effort to meet high sanitary and processing standards. The veterinarians certified products as suitable for export, a step required by countries like Japan and increasingly sought after by Mexican consumers as an assurance of quality and safety for locally produced processed meats.

A few days later, senior Tyson executives convened a meeting at headquarters. Someone pointed out the obvious. The purpose of the payments was “to keep the veterinarians from making problems,” according to a subsequent memo — in short, bribes. Participants at this meeting — who included the president of Tyson International, the vice president for operations, and the vice president for internal audit — evidently agreed the payments to the wives had to stop. A company lawyer said he was seeking advice on “possible exposure” from the payments, evidently referring to potential liability for maintaining fraudulent records and bribing foreign officials, which are felonies under the Foreign Corrupt Practices Act.

And then, having identified the serious ethical and legal lapses, and the need to stop the bogus payments, this group of executives “were tasked with investigating how to shift the payroll payments to the veterinarians’ wives directly to the veterinarians,” according to a subsequent statement of facts negotiated by Tyson’s lawyers and the Department of Justice.

Written in the passive voice typical of such documents, the statement raises the question of who “tasked” such an undertaking.

A subsequent memo written by Tyson’s audit department concluded that the “doctors will submit one invoice which will include the special payments formally [sic] being made to their spouses along with there [sic] normal consulting services fee.” The invoices would be identified as “professional honoraria.”

What were these Tyson officials thinking? It’s hard to see how simply shifting the payments did anything to mitigate the bribery scheme or the false descriptions of the payments. If anything, it seems even more brazen. There’s no indication anyone gave serious consideration to stopping the payments — only to finding a new way to make them. The president of Tyson International, the highest-ranking official at the meeting, communicated this “resolution” to Tyson’s chief administrative officer by e-mail on July 14, further pushing the issue up the chain of command.

The payments continued. When another Mexican plant manager complained to an accountant at headquarters that he was “uncomfortable” with this, the accountant spoke to the president of international — who again tried to squelch the issue. “He agreed that we are O.K. to continue to make these payments against invoices (not through payroll)” until we are able to get [the Mexican inspection program] to change, the accountant informed the plant manager.

The issue of the payments resurfaced in November 2006, and this time, Tyson did what it should have done two years earlier: it retained an outside law firm, Kirkland Ellis, conducted an internal investigation and, under a government program intended to encourage voluntary disclosure of white-collar crime, turned the results over to the Justice Department and the Securities and Exchange Commission. The government’s investigation ended this February, when Tyson was charged with conspiracy and violating the Foreign Corrupt Practices Act. Tyson agreed to resolve the charges with a deferred prosecution agreement in which it “admits, accepts and acknowledges” the government’s statement of facts, and paid a $4 million criminal penalty. The company paid an additional $1.2 million and settled related S.E.C. charges that it maintained false books and records and lacked the controls to prevent payments to phantom employees and government officials.

But what about those at Tyson responsible for the bribery scheme?

Corporations may have assets and liabilities, but they don’t commit crimes — their officers, executives and employees do. And the 23-page letter agreement between Tyson and the Department of Justice, the criminal information, and the S.E.C.’s public statement of facts all withheld names, identifying the participants only as “senior executive,” “VP International,” “VP Audit” and so on.

This is James B. Stewart’s first Common Sense column for Business Day, where it will appear on Saturdays. Trained as a lawyer, Mr. Stewart is the author of “Den of Thieves,” “Disneywar” and “Tangled Webs: How False Statements Are Undermining America.” He shared a Pulitzer Prize for explanatory reporting in 1988.

Article source: http://feeds.nytimes.com/click.phdo?i=1599d7053e8a3877d2f6821db2e90af1

BP Partner Agrees to $1.1 Billion Settlement Related to Gulf Spill

LONDON — BP said Friday that Moex Offshore, one of its partners in the oil well that leaked into the Gulf of Mexico last year, has agreed to pay $1.1 billion as part of a settlement for any claims related to the oil spill.

Moex, which had a 10 percent stake in the well, is the first company aside from BP to make a payment towards covering the costs of the disastrous oil spill, BP said in a statement. The agreed payment is about half of a total $2.1 billion BP had sought from Moex in monthly invoices for reimbursement of costs, including interest, according to Mitsui of Japan, which owns Moex.

The settlement covers all claims related to the well accident and would immediately go to the $20 billion trust that was set up to compensate fishermen and other local residents and businesses that were affected by the oil spill, BP said.

“Moex is the first company to join BP in helping to meet our shared responsibilities in the gulf,” the BP chief executive, Robert W. Dudley, said. “This settlement is an important step forward for BP and the gulf communities.”

BP set aside $40 billion to cover costs and liabilities linked to the oil spill, the worst ever in the United States. The London-based firm has already raised $25 billion by selling assets and is seeking to sell some more oil and gas fields in Britain and two refineries in the United States. So far BP has paid almost $6 billion in claims.

Mr. Dudley called “on the other parties involved in the Macondo well to follow the lead.”

The April 20, 2010, explosion of the rig killed 11 workers and resulted in a spill that poured nearly five million barrels of oil into the Gulf of Mexico. Since the accident companies involved in the well — BP; Transocean, which operated the rig; and Halliburton, which was responsible for cement work at the well — have engaged in recriminations and lawsuits, with each accusing the others of negligence. BP has filed claims worth tens of billions of dollars against Transocean and other partners in the United States.

BP said it was in talks with its other partners on the well to also “contribute appropriately,” It was also seeking payments from Anadarko, which owned a quarter of the project, BP said.

Moex agreed to the settlement to “reduce the risk and uncertainty for its shareholders,” Mitsui said in a statement. “Doing so will also make it possible for Mitsui to focus on the future growth of its business.”

The settlement is not an admission of liability by Moex or BP, BP said. BP also agreed to indemnify Moex for claims for compensation arising from the accident, excluding civil, criminal or administrative fines and penalties.

Like BP, Moex also recognized the findings by a presidential commission in its investigation into the causes of the oil spill. The commission found that the accident was the result of mistakes by a number of parties and different causes.

Moex also acknowledged a study by the U.S. Coast Guard released in April, which concluded that poor maintenance, inadequate training and a lax safety culture at Transocean contributed to the lethal explosion. Transocean rejected the report’s findings.

Moex is a subsidiary of Mitsui, a Tokyo-based commodity trading and financing company.

Article source: http://www.nytimes.com/2011/05/21/business/global/21bp.html?partner=rss&emc=rss