Opinion

Stories I’d like to see

Lying to the SEC, A-Rod’s contract, and everybody gets hacked

Steven Brill
Feb 5, 2013 12:47 UTC

1.      Suppose a college applicant did this?

Here’s a story that seems so bizarre that it might be good material for a Tom Wolfe re-do of The Bonfire of the Vanities rather than worth the time of a serious non-fiction reporter – except that it’s apparently true. According to this New York Times report last month, Egan-Jones, an “upstart credit ratings firm,” has been:

barred for 18 months from issuing certain government-recognized ratings after the firm made misstatements on an application with the government. The S.E.C. said the firm had exaggerated its record when it applied for a government designation in July 2008. The firm said then that it had performed 150 ratings of asset-backed securities and 50 ratings of governments, when it actually had performed none at that time, according to the agency…. Under the terms of the penalty, Egan-Jones is barred [for 18 months] from rating asset-backed and government securities issuers as a so-called nationally recognized statistical rating organization….For other categories of ratings, Egan-Jones will still have the government designation.

Huh? “Exaggerated” its record? A firm applying for the SEC seal of approval as a provider of honest securities ratings seems to have completely fabricated its resume, saying it had done 200 ratings when it had done zero. And the SEC puts them in the penalty box for just 18 months for some ratings and lets them keep right on providing other ratings?

There must be more to this story. Maybe the fabrications on the application were an accident, or the work of a prankster who snuck into the Egan-Jones offices and took over a keyboard. Or maybe the SEC announcement of the “settlement” was a prank. If not, can the SEC explain what an applicant would have to do to be barred permanently from winning a designation? And why did it take five years for the SEC to deal with this?

2. Is A-Rod’s contract as hollow as his bat?

The recent round of charges that faded Yankee star Alex Rodriguez may be implicated in another scandal involving performance enhancing drugs (PEDs) has generated press speculation that the Yankees will use the charges as a way of freeing them from A-Rod and the $114 million left to pay over the next five years on his contract. But according to this ESPN story, “Rodriguez might be in little danger of having his contract voided, even if the charges turn out to be true. There is no precedent to successfully void a contract in baseball over PEDs.”

A trove of stories from the Facebook IPO

Steven Brill
Feb 6, 2012 16:19 UTC

Facebook’s landmark IPO filing suggests lots of meaty stories. Among them:

1. Facebook, third parties and data security:

Embedded in the typically long recitation of “risk factors” designed to shield IPO issuers from shareholder suits should things go wrong is a section of the prospectus that warns:

Our efforts to protect the information that our users have chosen to share using Facebook may be unsuccessful due to the actions of third parties … If these third parties or Platform developers fail to adopt or adhere to adequate data security practices or fail to comply with our terms and policies, or in the event of a breach of their networks, our users’ data may be improperly accessed or disclosed. Any incidents involving unauthorized access to or improper use of the information of our users could damage our reputation and our brand and diminish our competitive position. In addition, the affected users or government authorities could initiate legal or regulatory action against us in connection with such incidents, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices….

Not explained here is what protective mechanisms Facebook has to prevent these kinds of third-party security breaches and other abuses. Is the privacy and data protection of Facebook users only as strong as the weakest link among these third parties? Is there an Internet equivalent of the Gulf oil spill out there waiting to happen, after which Facebook points fingers at these third parties?

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