Oh My Fraud

Warning: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Blake: If you'd like to earn CPE credit for listening to this episode, visit earmark Cpcomm. Download the app, take a short quiz, and get your CPE certificate. Continuing education has never been so easy. And now on to the episode.

Caleb: Hello and welcome to Oh My Fraud, a true crime podcast where our cases involve capital acquisitions instead of capital punishment. I'm Caleb Newquist and I'm Greg Kyte. Before [00:00:30] we get into today's episode, Greg, I would like to read a listener email, if I may. Sounds great. Great. This message comes from Jim Park. And Jim says, I'm a law professor at UCLA law school where I teach securities regulation. I was delighted to come across your podcast and am especially looking forward to catching up on the episodes on Miniscribe, The Salad Oil Scandal, and the Four Seasons fraud. About a year ago, I published a book on the history of securities fraud and its regulation that may be [00:01:00] of interest to you and the listeners of your podcast. It was definitely of interest to us, Greg, so much so that he is our guest on today's show.

Greg: Yeah. And now just to set our listeners expectations correctly, hey, listener, don't start thinking that you can just butter us up with a sweet email and you'll automatically get to be on the show. But also, we still do love to get buttered up with sweet emails. So please do consider to continue to send those [00:01:30] to the show at oh my fraud@earmark.com. Keep them coming. We love to. We love to read them. Our low self esteem kind of needs that.

Caleb: Yeah, yeah flattery will get you everywhere. Now that being said, we would love for anyone who has been convicted of a fraud and been sent to jail for that said fraud. If that's you, then send us a shitty email. And if your case is interesting and and we don't [00:02:00] feel that our lives are in danger, then then we'll consider, you know, putting you on the show. Yeah.

Greg: That's a that's a disguised invitation to Jeff Skilling to, to reach out to us.

Caleb: Yeah. No, we would I would totally talk to Jeff Skilling.

Greg: I'll reach out to him. Yeah, please. Hey. Another thing. Caleb, before we get into today's interview, we do need to lay just a little bit of groundwork because we want to make sure that the show is accessible to everybody. So first off, we do during the interview, we [00:02:30] do throw around the acronym Gap as if everyone knows what gap is.

Caleb: And that's just for the uninitiated. That's GAAP. Exactly. Not not the not the, you know, uh, the mid-range mid-range clothing.

Greg: Store, where you mean the place where I buy my jeans? Always. Yeah. Not that all.

Caleb: My all my t shirts.

Greg: Yeah. So. So, yeah, we throw it around like everyone should know what it is. And that's probably because we [00:03:00] feel like everyone should know what it is. Gap stands for generally accepted accounting principles. And basically if you're a publicly traded company in the United States, you have to prepare your financial statements in conformity with the generally accepted accounting principles, GAAP of the United States of America. So there's that.

Caleb: Well, well well said, Greg.

Greg: Thank you.

Caleb: Also, if you are new to the show, we do mention a couple of cases that we've covered in previous episodes. Those are Four Seasons, [00:03:30] Nursing Homes of America and Miniscribe. Four seasons was episode ten inches Miniscribe was episode 21.

Greg: And with all that being said, we are so happy to have the following conversation with Jim Park, who's a law professor at UCLA, and he's the author of the book The Valuation Treadmill How Securities Fraud Threatens the Integrity of Public Companies.

Caleb: So, [00:04:00] Jim, thanks for thanks for coming on the show. I was so like I said before we got on the mics, I was so pleasantly surprised to get your email. And so it's great that you're here. We like to start off these interviews with just getting people's stories. So, you know, start start way back like did were your parents securities attorneys like give us give us the give us the Jim Pak story. Yeah [00:04:30] I mean it's they had nothing to do with securities.

Blake: I don't know if they even invested in in the market. And I myself never really got into investing until maybe after college or even after law school. And I grew up in Ohio. I'm a midwesterner and, you know, sort of a science guy initially. And it was on the debate team, debate team growing up, and that got me interested in law. And I studied economics [00:05:00] in college, had this great, great professor, James Brock, who taught antitrust, and he had this great class where we would just read these books on big business and companies like IBM, and just sort of the stories of businesses that had grown too big, and they ended up not doing so well. And, and just the [00:05:30] the approach of that class, I think, really got me interested in in, in just sort of the, the narratives, just sort of the background, the history of, of business and economics. And, you know, he recommended some great books to me that I still look at today on corporations. One is The Modern Corporation by Birley and Means, which is this classic story about how there's a separation between ownership and control in the modern corporation. [00:06:00] That is kind of the basis for a lot of corporate law debates today. He gave me a book called by Joseph Schumpeter on sort of this idea of creative destruction in, in corporations.

Blake: And so he got me interested in studying big businesses and corporations. So I went off to to law school and took a great business associations class, learned about corporations there, had an internship at the Securities and Exchange Commission. [00:06:30] And that got me interested in corporate law, you know, then I started working in New York City in 2000. And so I did a couple of federal clerkships. I was out of the city on 9/11 between clerkships. I worked in the federal courthouses, which were five, ten minute walk from there. I was at the World Trade Center, you know, just a week or so before the attacks. But I was out of town that day. And, you know, that second year I was [00:07:00] in very close by the ruins and just a sort of a formative experience. Yeah. And then go on. I work at a law firm for a couple of years. You know, that's around the time of Enron files for bankruptcy, I think in the fall of 2001, and then worldcom's about six months later, Sarbanes-Oxley in 2002. Then I'm entering practice around that time. There are a lot of these securities frauds that are out there. We're defending a lot of SEC [00:07:30] investigations.

Blake: Private lawsuits did that for a couple of years, and I switched sides and I went to the New York Attorney General's office. The AG was Eliot Spitzer at the time, who was known as the sheriff of Wall Street. And I worked in the Investor Protection Bureau there. I was fairly junior at the time, and a lot of the biggest cases had been brought. But there's a steady stream of really interesting work going on that I, that I was a part of. And I got to work [00:08:00] on some accounting fraud investigations against big companies. And so I got a sense of how that worked. So, you know, after that, I was there for a couple of years and thought, you know, why not go into teaching? That's something I'd always thought about. I taught at Brooklyn Law School for about six years, and then got the opportunity to come out west to UCLA, where I've been for about the last ten years. And so given my background, it was natural for me to study securities fraud. And so, yeah, over [00:08:30] the years, I've written a lot of articles on, on on private litigation, on SEC enforcement. And that's all culminated in this book, which is a history of securities fraud and securities fraud regulation.

Greg: Right. And before we get to the book, just a couple of questions. Well, first off, just to point out its debate team that seems like that's that's a clear path towards towards a profession in the legal area is that have you found a lot [00:09:00] of your colleagues are like, yeah. Debate team. Kind of. That's what got me started too.

Blake: There there are a lot of them and it's just a great activity. It really opened a lot of doors for me because it's, you know, my my parents were not lawyers. They didn't really have any knowledge of this. And so this is kind of the way I got to understand how to construct an argument and speak in public. And, you know, you see a lot of I see a lot of ex debaters out in the legal world and [00:09:30] in legal academia as well.

Greg: Yeah. The good ones I, I was I did debate when I was in middle school not not a fan and so hence not a legal profession was not in my future. So so Jim, tell us more. I had no idea that an internship was in your past. Can you tell us more like what was that like doing an internship at the SEC? Were you like, please tell me you were kicking in doors and hauling off banker's boxes full of [00:10:00] receipts.

Blake: It was a little less exciting than that, I think. Actually, I misspoke a little bit. I think the internship was before law school. Now that I think about is between between college and law school. And it was really interesting because I worked in this office called the office of the Inspector General. And I don't know if you've heard of the inspector general. I think every agency in Washington has an inspector general who is supposed to kind of audit the agency, make sure it's doing a good job. And so the project the inspector general [00:10:30] was working on is he was doing an audit of the ethics of SEC lawyers. And so I got to go with him. I was kind of the note taker. I traveled all around visiting the different regional offices and listening to SEC lawyers talk about their jobs and why they why they did what they did and ethics more generally. And, and that got me interested in public service, because I learned that there are all these folks here who could be making a lot of money at a law firm, and they're making a government [00:11:00] salary in order to do this sort of work. And that sort of blew my mind, you know, just sort of that, that sort of that idea and, and also, you know, that they're doing more, you know, more interesting work in some ways, and maybe at a, at a law firm in some cases. And, and they also have the option to kind of go back and go back and work at a law firm later on after they've sort of built up a name for themselves. And that got me interested in, in working in government.

Greg: Right. So [00:11:30] and then another question. So you said you spent a couple of years at a law firm before you got into into teaching at various law schools. What and I assume just based on what you said, just to make sure I'm clear on this. So did that law firm did that specialize in because you said you defended a couple SEC investigations. So was that the specialty was exactly that defending like companies would come to you say, hey, the SEC is coming after us, help us. Is that what you did? [00:12:00]

Blake: Exactly. That's part of what I did. And it's a very big practice in law firms now where, you know, doing white collar investigations and defenses of SEC investigations, cases by federal prosecutors. And there's a lot of this stuff also that it never becomes public. You never know, sometimes that an investigation is happening, but lawyers may be working on it. And so it just, you know, sometimes the, you know, you know, oftentimes the corporation, [00:12:30] you know, calls the attorneys to kind of work out sort of what happened within the company. Like they they sometimes want to identify who did the bad things. And, and so it is a huge, huge practice area for, for attorneys. And so I worked I did that kind of work, also did some litigation in courts where you're actually being sued, and they also did some corporate litigation. So I did some work in Delaware, which is sort of the the leading place [00:13:00] for corporate lawsuits and leading place where public companies incorporate.

Greg: So okay, so that's interesting when you said a lot. So so let me see if I'm getting this picture right. You're saying that a lot of times the SEC will come to a company and say you're in trouble and the company will be like, what the hell did we do? And they'll come to their attorney and go, we don't even know what the hell we did. So it's almost like you have to do like, almost like because we know about forensic accounting. I assume you had to do that to go backwards and [00:13:30] go, oh, here's what they're talking about. Is that is that it?

Blake: Absolutely. I mean, I mean, you know, a lot of a lot of the folks who are, you know, working in this area, they may have been former SEC employees, they may have been federal prosecutors. So they they know how to investigate a company. And they they sort of use those skills to help the corporation know what happened within the company. And so they will talk to people, interview people, read a lot of documents sometimes [00:14:00] before a case is even filed. And so then the corporation can decide what it wants to do. You know, it may decide, hey, let's let's just settle this or, you know, let's fire these individuals and cooperate with the SEC, or sometimes the corporation and its attorneys will try to persuade the SEC or the prosecutors not to even bring a case. And some of the most successful results are ones where, you know, there there was an investigation and [00:14:30] or by the SEC and you persuade them not to go forward. And no one, no one ever hears about the case.

Greg: Right. And that's that's probably the most valuable thing that could, like the most the most positive outcome that could happen for the company that's being involved is if you're good enough to just tell the SEC, you need to just there's other there's other things you need to be focusing your time on. Is that right?

Blake: That is that is that is the best, best result. And it it happens.

Greg: Cool. Yeah. Wild. [00:15:00] So then so so now getting back to your book. Your book is called The Valuation Treadmill. It's all about securities fraud. And I know throughout the book you'll you'll go back to the concept of the valuation treadmill. Would you just explain to us and to our listeners what it is that you mean by the valuation treadmill?

Blake: Yeah, I got the phrase in part from this book on valuation by McKinsey that I would highly recommend to anyone [00:15:30] interested in learning about valuation and finance. And, you know, their their description is that if you're a public corporation these days, that in order to maintain your valuation, to keep your stock price adjust at the same level, it's sort of like running on a treadmill where you have to continually be moving forward just to stay in the same place, because as a corporation, what you're trying to do is you're trying to convince investors that [00:16:00] your future performance is continuing, that, as you know, the value of a of a stock is going to depend upon the market's assessment of the present value of the company's future earnings. And so it's important to persuade investors that that trajectory that they have based their valuation on is continuing. And so that requires doing things like consistently meeting your projections of of quarterly earnings and [00:16:30] revenue, also maintaining fairly ambitious projections of revenue and and growth. And the thing that distinguishes a public company from a private company, in my view, is you're subject to this short term pressure as as many of you know, where you have to deliver market results consistently.

Blake: Or there could be a very rapid and brutal reassessment of your valuation and your stock price can plummet. And I thought [00:17:00] the idea of the treadmill was kind of a nice sort of analogy that, you know, you you just have to keep moving forward just to stay in the same place. And, you know, there's a there's a quote from the book about, you know, one of the frauds involved, equity funding, which which is about ten minutes from where I am in the 1970s. They they basically make up insurance policies to boost their revenue. And at one point, the staff, the managers, they they tell the CEO, you have to stop. We're going to go to [00:17:30] jail if they discover this. And his answer is, I can't report flat earnings, I can't report flat earnings, or there's going to be an assessment or a reassessment. And and part of the point of the book is those pressures. You start seeing them kind of in the late 60s and 70s, and they kind of build, build, build upon each. It sort of builds over time to the point where you need a law like Sarbanes-Oxley to kind of counteract that pressure. That's the idea of the valuation treadmill.

Greg: Cool. I love it, and I've seen enough. [00:18:00] I've seen enough videos on TikTok of people who stop running on a treadmill and just get tossed against the back wall, that I think that that I'm on board with the with the analogy. So yeah. Awesome. So so Jim then then the next question and this, this relates very closely to what you just explained is, is has to be with like the the motivation you as accountants we are we're beat over the head with the fraud triangle. I'm [00:18:30] sure you know the fraud triangle. There's got to be opportunity, pressure and some kind of way to justify your fraud to yourself. And so with the pressure, what I'm what I'm wondering is just if you would tell me if I got it right, how the pressure comes for securities fraud because and I see it coming from two ways from where I stand. First off, the it's the people in the C-suite that are at least, you know, the people that we look at as committing these frauds. [00:19:00] And they for sure have to have lots of stock in the company or stock options in the company for themselves. So if they do commit securities fraud to make, to maintain or to increase the stock price, they're going to directly benefit from that because of their stocks or their stock options. The second pressure is that if, if and I guess even like what you said, if the stock price either drops or if it or even if it just stays the same, that's going to start pissing off your shareholders. And shareholders can [00:19:30] vote out people who are management for a company. And so that's what I see as being the motivation for this. Is there anything I'm I guess two questions. Is that right. And is there anything I'm missing.

Blake: That's absolutely right. And the book tries to emphasize I think the second explanation, because the first explanation is one that's been sort of written about a lot, just the personal incentive of executives to sell their stock. And, and I think that's true in many cases, but not all cases [00:20:00] that. I think the thing that makes it complicated is that sometimes you have these securities frauds and the managers, they're not bailing out of the stock, and they are trying to kind of make things work for what they believe is the good of the company, the good of the shareholders. And I think that's what is a trickier type of securities fraud than just sort of this idea that it's just bad people who are trying to enrich themselves. And, [00:20:30] you know, it links in very nicely with sort of this idea of shareholder wealth maximization, which is being increasingly questioned in modern times and, and part of the rise of the problem of securities fraud, I argue, is this idea of shareholder wealth maximization, which kind of gains more traction in the late 60s, 1970s or so before that? There's a sense, like corporate managers, your you're like kind [00:21:00] of a pillar of the community, a captain of industry that is taking care of this large organization that has a huge impact on society. And part of that is enabled by the prosperity after World War two, where US companies are just thriving because they have no competitors. The rest of the world is recovering from World War Two, and they are just they don't need to commit securities fraud because they are, you know, they're raking in money, basically, and they have no competition.

Blake: It's [00:21:30] when you kind of get the more foreign competition and technology is disruptive that, you know, you begin thinking about, well, what about the shareholders? These these managers are lazy and and that kind of leads to this, this shift in, in various respects. And part of that shift involves changes in the way we value companies, where we're looking much more at the projections. And that really becomes more prominent, like in the late 60s and 1970s or so, where we're we're saying [00:22:00] we we we don't entirely trust you managers. We want to see, are you meeting these benchmarks? And, you know, by the 80s and 90s, it's really kind of the driving force of of stock markets where it's quarterly projections. And you read the Wall Street Journal today every three months, every story is about did this company meet its its projections. And that's a type of shareholder wealth maximization. And you know, the interesting thing now is you may be aware is that we're we're seeing more questioning [00:22:30] of of the focus on shareholders and concern about stakeholders. So it'll be interesting to see how that affects the way we regulate public companies. So but it is exactly right that I think it is sort of this broad idea of shareholder wealth maximization and showing that you're maximizing shareholder wealth by by meeting projections. Right.

Greg: So, so almost just to make sure I'm understanding what you're saying, it sounds like. Sure, the whole I've got stocks and if the stock price increases [00:23:00] then I become more wealthy. That's that's his thing. But what you're saying is there's this this weirder, more nebulous, harder to just say you're a bad guy kind of thing, where really what the motivation for some of these guys is, is they're they want to do it. They just basically want to do a good job, which means we need to see that stock price go up, which means we need to hit our projections. And the projections are those internal projections. Are those the ones that like like analysts, external analysts say, hey, we think you need to meet this to hit this. [00:23:30] Where do those projections come from, inside or outside the companies?

Blake: It's mainly the external projections. But that's the interesting thing. Interesting part of the the the story is how how did we begin relying on external projections. And part of the reason is that internal projections start getting better at some point in the 50s and 60s. And part of this is that we're beginning to see management more as a science. And people are going to business school. They're being trained [00:24:00] to kind of manage their large organizations, and that's internal projections like setting good internal projections. Part of it's also technology. You have computers, they can keep track of things. And so so what happens some some time in the 1950s and 1960s markets start getting more interested in those internal projections. And that's why we begin thinking. They begin thinking external projections are more reliable, [00:24:30] because these analysts are often getting information from the managers about their internal projections. Right. Sometimes it's kind of through side conversations. Sometimes the companies will release their own projections. And the reason we begin to I mean, think about it's kind of crazy to think you can project some a company's future performance out. You know, it just seems like kind of an odd thing, but that's that's sort of what managers are paid to do is to to manage the business and to have reliable projections. So what [00:25:00] happens? Gradually over the 60s and 70s is that this becomes sort of the way we judge managers. Right? And if you're missing your projections that that that tells me not only the company is the company sort of faltering, but but the managers are not doing a good job because they didn't. The projections were unrealistic. And so the irony of this is that projections become better because managers are better. But then this becomes kind of the way we grade them. We grade them in the [00:25:30] 60s and 70s and even today, based on their ability to sort of accurately predict and meet these, these, these projections.

Greg: Gotcha.

Caleb: So the I pulled a quote from the book that I think kind of summarizes this pretty well. And it's and you said you wrote public company securities fraud is not solely caused by corrupt managers acting to enrich themselves, but is often committed by generally ethical corporate managers who issue a misleading portrayal of the corporation as they pursue [00:26:00] corporate goals. So guess where my brain immediately goes to is is what? What jumps out at me is the misleading portrayal of a corporation. So if you if you take that as just maybe someone's opinion, right, as a manager's opinion, and is it possible for that to be, to be fraudulent? Like how do we distinguish between an overconfident CEO or a CFO who's [00:26:30] given a rosy outlook between someone who's committing fraud? Is that is that possible? I think that's what makes it really tricky, right?

Blake: It makes it very tricky. And that's why the law in this area is very difficult to explain to. And just sort of somebody who's not a lawyer. And even internally among lawyers themselves, there's a lot of disagreement about whether somebody committed securities fraud because it depends upon, to some extent, fraudulent intent. [00:27:00] There's a rule called rule ten B five, which you may be familiar with. This is kind of our Swiss Army knife of securities fraud enforcement that is brought with respect to a lot of different types of fraud. And it just it doesn't define fraud very precisely. And it's done on a very case by case basis. Now, opinions generally, to the extent that they are pure opinions, the law tries to say that a pure opinion is not going to be enough [00:27:30] to trigger liability under rule ten, B five or other similar statutes. What gets you in trouble is if you are misstating facts, factual information. Now the line though between fact and opinion can be very blurry. And that's the what what what we look for as lawyers is can we say this is a misstatement about a fact that you knew was incorrect, as opposed to your general [00:28:00] opinion about what's going on now? Projections more broadly are a form of opinion, right? If I say that I think we're going to earn this much in a year or two, we generally think of that as kind of being someone's opinion. It's not a fact because it's a prediction about the future. But and there are these what are called safe harbors that have been passed. In 1995, there's a law called the Private Securities Litigation Reform Act that was passed after [00:28:30] Silicon Valley gets really upset about being sued all the time whenever their predictions of great success are not met.

Blake: And so they lobby Congress to pass this law to provide some protection for forward looking statements and projections. And it's very difficult to establish liability for opinions or projections. And so what the attorneys, the plaintiff's attorneys in SCC often do is they'll try to find facts, though, that are incorrect [00:29:00] relating to the projection, as opposed to saying the projection itself is false. But every once in a while, though, you know, the safe harbor says that if I know the projection is incorrect, that that can actually lead to liability, which which sometimes happens from time to time. And I was thinking about your episode on Four Seasons nursing homes. Right. Part of I think the allegation there was that they just knew these projections were completely unreliable. You know, they were just made up of nothing. They were just had no basis for them. And and so sometimes you can [00:29:30] get liability for projections, but you usually need to link it into some factual information in order to have a good claim. And the classic example in the accounting statement is that you claim to follow GAAP and you're not following GAAP. Right. And that's that that's something that is is kind of you think of that as, as as not an opinion, but it's it's sort of a sort of a statement that, you know, you're either objectively following GAAP or not, although I know there's a lot of gray [00:30:00] areas. But if I'm, you know, egregiously violating GAAP, then that is something that's a misrepresentation.

Caleb: I'm glad you mentioned the the Private Securities Litigation Reform Act because that that caught my eye, too. And that was in response to a Supreme Court decision that kind of like I think what did you say here? You said it kind of it increased the duty that companies had to to issue truthful disclosures. And then, you know, in a relatively [00:30:30] short order, this new law came out during the mid 90s. And I thought to myself, oh, that's corporate lobbyists earning their keep right there like that seems to be, um, you know, how the sausage gets made, how the litigation or excuse me, how the legislative sausage gets made in that case.

Blake: Yeah, yeah, yeah. The Supreme Court decision is called basic versus Levinson. And it basically it made it easier for investors to bring a class action. And if I can bring a class action [00:31:00] against a company, then my I have a lot of clout because I can allege, you know, hundreds of millions of dollars of damages instead of, you know, 5 or $10,000 individually. Right. And so then you have this rise in these, these cases. And there's a story of the Apple case where they get hit with a $100 million verdict in a trial arising out of their their failed Lisa computer and the Twiggy disk drive there. And so, you know, they're part of it. Just Silicon Valley [00:31:30] lobbying. And it's a very powerful constituency. And you know, more recently, about a decade ago, there's a law called the Jobs Act that was passed that tries to make it easier to do an IPO. And you can link that pretty directly to various Silicon Valley groups. And that that is how the sausage is, is made. And, and, you know, as a as a country entrepreneur, we like entrepreneurship. And, you know, politicians like getting donations from the [00:32:00] technology industry so that that that sort of can get legislation passed.

Greg: So another question that I have is who in from your experience, who's actually committing who's committing the fraud? Is it is it the guys in the C-suite? Because I know that they're the ones who are held responsible for it. But I also doubt that a lot of CEOs have the financial, like the accounting [00:32:30] and financial expertise, to actually do whatever happened to make the. Yeah. And especially I mean, the biggest thing that comes to mind is, is Enron, because I've, I've watched all the documentaries I read. I read the what, 400 page book The Smartest Guys in the room. I if somebody said, what happened at Enron, I'm like, I, I don't I think I understood it once and now I don't again. Um, so is it, is it the guy, is it the CEO, the CFO [00:33:00] who are committing the fraud? Or is it more that they just get everybody in a room and they're like, hey, hey, everybody sit down and shut up. We need to we need to hit these numbers. I don't care how you do it, just do it. And then that's. And then the fraud still comes back on them because they're the ones who are pushing it, even though the other people did the actual, you know, Rube Goldberg machine to make the fraud happen.

Blake: So really, it's a really great question. And, you know, to really [00:33:30] trigger sort of major SEC interest or even federal criminal charges, high level decision makers have to be involved to some extent, right? If it's just lower level people doing bad things and nobody knows about it, then it's much harder to say it's securities fraud. It may just be a fraud or kind of maybe it's, you know, something else. But you know, with and it differs. I think you get both situations and, and sort of the [00:34:00] example you give of, you know, somebody not knowing the details might be Bernie Ebbers at Worldcom, where he's not an accountant and he is basically refusing to make adjustments to very ambitious, you know, projections to the market. And he kind of just implies to the CFO, you know, just do something to, you know, to to get this done. Right. And that's what he testifies at at trial. He doesn't know really the details of GAAP. And that's true for most high [00:34:30] level, especially the CEO is they're not experts in in in accounting. And and so the challenge in these cases for the regulators, you have to link it to a broader motivation as to why upper level management wanted this to get done and the things they knew about it. And so in the Enron criminal case against Jeff Skilling, one of the things they pointed out is they pointed at very particular small transactions in the criminal trial, even though this is, you know, a multi-billion [00:35:00] dollar problem in terms of accounting and, and so forth. But they're pointing out transactions that are, you know, ten, 15, $20 million in one of them that that that comes to mind is this transaction with Nigerian barges.

Blake: You may recall that they're selling these to an SP and it's maybe $1,520 million. And and so why are they doing this. Well what what the prosecutors say in the appellate court agrees with is that they're doing it to meet a target, a [00:35:30] projection, even though it's a small transaction. And there's also testimony that skilling is personally involved in this particular transaction. And the testimony that Andy Fastow gives is that the CFO is that skilling basically said that the SP, SP would not lose money on the transaction. And so you could argue that it's not a true it's not a sale because Enron has kept the risk of loss on this. And so it's that [00:36:00] type of information that you need to sort of bring a criminal case. And, you know, you can debate as to whether or not that's sufficient for criminal intent. I think there's probably room for disagreement on it. But this these are the kind of transactions that persuaded the Fifth Circuit Court of Appeals to affirm, to affirm these various convictions. And so sometimes you do have the executives there kind of directly involved in some of this. But that's probably the rare case, [00:36:30] I think. And, and, you know, and so but, but most of the time it's just like they need it to get done. They need to tell this story to the market. And they basically kind of, you know, make sure it's done. They're kind of reckless. And that that's often usually that's mostly just kind of civil liability that gets you in trouble with the SEC as opposed to criminal liability. But sometimes it can be criminal.

Greg: Right. So so tell me. So tell me if this is right or wrong because I, because like the whole thing of, hey, like you were saying [00:37:00] Bernie Ebbers at Worldcom, he says, hey, here's these projections. I don't care what you do. You just got to hit the numbers in in the legal process. Is that similar to when like when someone like when a lady hires a hitman to murder her husband? She didn't pull the trigger, but she went to the guy and said, hey, murder my husband. So she's guilty of murder. Is it is it similar to that kind of thing?

Blake: It's similar. It's sort of a type of criminal recklessness or willful [00:37:30] blindness about kind of the implications of your actions. And it's, you know, it is it is a similar concept. I think that that we've seen in some of these cases.

Caleb: Okay, cool. Hey, Greg. Yeah? Should we get into a case or two? I mean.

Greg: Absolutely. Okay.

Caleb: So the one so for people who haven't checked out the book yet, check out the book. But there is it is a history of securities fraud is I think we said up front [00:38:00] and there are cases you start with Xerox because correct me if I'm wrong, but you said Xerox is kind of like the blueprint for all future securities frauds to come. And that's why you kind of open with that. And I was somewhat familiar with the Xerox story, and it's relatively straightforward. The one that I wasn't familiar with was Penn Central. And I don't know if Greg, if you knew that particular story and I don't know how many of our listeners. But it's an older it's it's an older fraud. It goes back to the 60s. And Penn Central [00:38:30] was kind of it was it was a conglomerate. It was a massive conglomerate of its day. And but it started with the merger of two, two big railroads, the Pennsylvania Railroad, I believe, in the in the New York Railroad. Again, keep me honest here. But that that was an interesting case to me because the way you kind of lay it out is like you had these historically very successful businesses, railroad businesses, and they started expanding. They get bigger and bigger and bigger, and they start and then [00:39:00] they start growing instead of growing organically. They start growing through acquisition.

Caleb: And then all of a sudden they just have this behemoth conglomerate that isn't really a railroad company anymore. It's it's a it's a railroad company, but it's also a real estate company. And it's also they've got Six Flags, which I didn't even know. Six flags was around in the 60s, but apparently it was. But the thing is, is like it kind of reminded me of one of your later examples in the book, which is General Electric, which we may or may not talk about, but you just have this massive business that [00:39:30] and again, this is coming out of the age of Managerialism, right where you've got these smart guys. And they were at that time, probably literally all guys. You had the smart guys at the top that were seen as smart and knew how to run a business, a big business. And you just you just knew that they were going to make it grow somehow. And Penn Central essentially disproved all that because the business got to such a such a size and scale that it became [00:40:00] it became unmanageable. Is that is that more or less right? And I'm just curious, what are some key things out of that story that you think people should know about? Because I think it's kind of an under it's a lesser known story, I would guess. Yeah.

Blake: Among I think among our generation, definitely lesser. No. Known if I you know, when you talk to older attorneys though, they they know Penn Central because it was a sort of an iconic event that kind of really shattered faith [00:40:30] in manager Managerialism. And so how could such a large corporation run by, you know, strong managers go under? It led to questions about where was the board of directors, you know, how did corporate governance work? It was a shock. It was a shock to the system. And it was accompanied by some of these other four seasons nursing homes was actually around this time, a smaller company, but one that had committed accounting fraud, equity funding, which I talked about earlier, [00:41:00] was around this time. And that leads to kind of a crisis in the accounting world about where were the where were the auditors? That's the other question that that comes up there.

Greg: Where that's a question we ask all the time. We're still asking.

Blake: It is getting better, but I think it is. It is sort of an everlasting question, but it really kind of, I think, begins at least being systematically asked in the 70s after these [00:41:30] crises. And, you know, the, you know, the merger in some ways was very interesting because it was criticized when it was being considered because they said, this is going to create this big monopoly to, you know, it's going to dominate the marketplace, but it's really kind of more of a sign of weakness because you think about by the 1960s, you have the interstate highways been built, air travel is cheaper. This is kind of a declining operating business. And so [00:42:00] this is kind of, in a sense, a way of trying to stave that off by combining these two businesses and getting operating efficiencies. And so they're trying to prove to the market that they can do this. They can kind of turn around this, this, this business. And, and so part of one of the things that's notable about Penn Central, not only the size, is that, you know, the strategy of management is let's let's try to maximize shareholder wealth. Let's try to really do everything we can to create the impression we're generating [00:42:30] revenue. And, you know, this is also kind of evidence of this new ethos in the 1970s of shareholder wealth maximization as a strategy.

Blake: And, you know, their strategy is they sell a bunch of assets, as you said, this conglomerate now, and they're selling these assets they bought in in better times. And and some of that is completely fine as a way of managing earnings. Right. You know, GE as you may know during the 1990s it would sell these you know to to meet [00:43:00] their projections. They would you know they sell an asset to someone. And and this kind of make it right over the line. And everyone kind of knew this and said that, you know, that that's actually good management because you're delivering smooth earnings and Penn Central so that that part was not fraudulent. There were those some transactions that were problematic and that they were not quite really sales because, you know, the Six Flags. Example, for example, where they're selling the Six Flags amusement park to a [00:43:30] partnership and they keep the risk of loss, they have this side agreement to keep the risk of loss. And that very similar to what we just said about Enron. And this is kind of the tactic that gets used over time. And there's this fascinating exchange where the auditors, they don't defend the substance of the transaction.

Blake: They say it's not material. And that's another big concept that is worth emphasizing. I'm sure auditors talk about materiality a lot. Lawyers talk about it, but maybe thinking about different things. And so this this they say it's not material [00:44:00] because it's like it's raising $30 million. It's $1 billion company. And this accounting professor, Abe Briloff, who wrote a number of great books in the 70s about public company accounting, he taught at Baruch. He says, well, the point is that the reason it's material is that, you know, without this, you would have reported a loss in a period where you predicted a favorable showing. And so you were kind of meeting this projection. And so that was something that the SEC cited [00:44:30] and emphasized in its report. So you're beginning to see some of these little accounting tactics that are emerging around the time of Penn Central. And and you're right, it's very similar to the sad story of GE where you have this, this sort of pattern. One of the patterns of securities fraud is that this this company that was once great, it's declining. It's trying to hide that from investors. And that's one of the stories we often see in securities fraud.

Greg: Right. I'm, I'm, I'm in my 50s now. So I'm declining [00:45:00] and I'm trying to hide that from, from everyone. So I personally understand where that comes from.

Caleb: You're doing it gracefully.

Greg: Though, Greg. Thanks. Sometimes it doesn't feel like that, but I appreciate the the pat on the back. So but Jim, this is something that you mentioned with regard to Penn Central is something that I actually wanted to ask you about. Chapter seven. You began that chapter with a quote that said 78% of the [00:45:30] surveyed executives would give up economic value in exchange for smooth earnings. And the reason that came up is you said Penn Central, what they like, you kind of commended their management that they were actually doing at one point. They were doing things to actually have some smooth earnings. But can you unpack that quote for me, even like, what the hell does that that mean? Like what? What do we mean economic value for? Like, are we saying I'd rather have a lower share [00:46:00] price? As long as I had smooth earnings over a consistent period of time. What what did that quote mean. Because I it kind of it kind of yeah, I couldn't I couldn't completely grasp it. Yeah.

Blake: No it's it's a famous study that's cited widely in the finance literature and among law professors. And it's a bit controversial. Right. There's there's some questions about sort of the, the methodology and how many people they asked, but the general idea is that they [00:46:30] are doing things that are inefficient in order to create smooth earnings. They are, you know, one of the sort of classic example of this is that I'm, you know, I'm cutting R&D in order to reduce my costs to deliver stronger earnings. And that would reduce economic value, because I'm less likely to discover that next groundbreaking drug and or product. But I'm willing to [00:47:00] do this in order to meet the projection, in order to meet market expectations. And the thing that's troubling about that is corporations, in a sense, are playing this game where they are just creating the appearance of doing well while making decisions that actually are reducing their value over the long run. And I think that's, you know, that that's that's the the implication of that, that study. And it's a, you know, some, some academics [00:47:30] believe that that is a, a big problem in the US. Others think it's overblown. So there is some controversy about that point. But that's, that's that's also a motivation for, for what might be questionable manipulative activities.

Greg: What's your what's your opinion. Do you feel like that's a that there actually are managers of companies who are who are very much over, you know, they're they're flushing great ideas and, and things that could end up becoming a [00:48:00] big deal for the company just so that every quarter they can show just this little tick that, that the market expects.

Blake: I think it depends on the context. I don't think that the problem is a big problem for all companies. And I think the biggest sort of sort of place where it may be an issue is you have a company that is sort of trying to establish itself and it's trying to show and. Prove itself. It's not proven to investors. And so it feels like it [00:48:30] has to kind of do all these things to create a certain trajectory that kind of makes investors excited. I think it's probably a less of a problem for the Googles and Microsofts of the world, because they are so dominant that I think that they have a bit more leeway in order to, you know, they they, they have such strong businesses that, hey, you know, we might miss kind of we might make a mistake here and there. But investors trust us and we're we're not going to really kind of make [00:49:00] really bad decisions because of that sort of pressure. And so I think it kind of depends on the context. I think the story of the, the company that just trying to establish itself prove itself. That's where I think you may see these sorts of problems of short termism that that could be be an issue. And also the declining company. Right. If you have these companies that they look great on the surface, but they're declining. That's where I think you can get this [00:49:30] sort of value reducing activity. And I hope it's a small percentage of public companies. But it could be it could be fairly large.

Caleb: Yeah. You mentioned I think it's in the introduction to the book that you mentioned, Under Armor, which I think is the perfect example of the kind of the the company on the rise. Right. Because you had at that time, you know, you know, Nike is like the biggest, flashiest name in town, right? And Under Armor is kind of this emerging brand. And they have and they have great products. People love their products and they're buying it and they're just they're kind of on fire. But I don't remember [00:50:00] the exact details. But they had quarter after quarter after quarter where they're hitting earnings. But it eventually the streak ended and quite spectacularly. And the company is fine. I think what's also interesting is a lot of times these companies that are under this pressure, they are trying to meet these expectations because again, they're on the rise. And if they just like sat back and said, hey guys, if we miss one quarter, we can take the hit for a week or two. The stock price can probably take the hit for a week or two. Ultimately we have strong [00:50:30] we have we have strong unit economics or whatever it is about our business. We feel confident in our business.

Caleb: We can take the hit 2 or 3 quarters. Nobody's going to care and everything's going to be fine. And as far as I know, Under Armor is still a very fine business, very successful business. And yeah, they they, they decided to, you know, play the system game, game their earnings and, and they paid the price. But ultimately they came out the other side. And so I wonder so that just brings something up for me. [00:51:00] If you do have a strong business like especially if a business that's kind of on the rise, it's emerging if, if they're in kind of this growth mode, if they can afford like $100 million fine from the SEC, or maybe they can even weather some, you know, private litigation, civil litigation. I mean, do you think there's like a cost benefit going on behind the scenes where somebody is like, well, we can be super aggressive [00:51:30] and we might have some litigation, we might have some fines and stuff to handle with. But, you know, it's worth us hitting our numbers to keep hitting our numbers quarter after quarter. I mean, is that kind of the calculus that has to go on behind the scenes?

Blake: It's it's fascinating. I wish, I wish I knew, I wish I was a fly on the wall at Under Armor to figure out, because you're right, they did. They really need to do this. And, you know, I think different companies handle it differently. Others, you know, others in that situation may have just taken the hit and [00:52:00] said, we don't have to continue this impression that we're we're growing by 20% every year. We'll still survive and still do well. Others, they'll make bad decisions or are deceptive in some way. And, you know, it's it's it's it's it's really it varies. It varies a lot how people respond to this pressure. And you know, sometimes, you know, you would have been fine. And and the other the sad thing sometimes is that you have [00:52:30] these these situations where, you know, the fraud, it adds up over time where you just kind of get into this trap where you know, it sort of it gets larger and larger because you're continuing it and then, you know, things don't work out and you're you're left reporting like a really big loss. And, you know, to some extent you could say GE is a little bit like that. And and if they had, if they had like turned things around, no one would have ever known. And that's why it's, it's so tricky is [00:53:00] that I think sometimes the company will, will say, you know, well, you know, we can kind of hide this and we think things will just turn around and no one's ever going to know this, right? No one's ever going to know the questionable things that we did. And you're not going to find that you're not it's not going to be punished. And so that's why when it is found, when it does result in bad consequences, I think that's why you need to bring the cases, levy the penalties, sometimes bring criminal cases to kind of [00:53:30] establish that this is it's not not okay. I think that's, that's and so it's you know, it's it's tricky because it requires a lot of managerial judgment. And I think they are sometimes doing sort of a cost benefit analysis.

Caleb: I just want to quickly point out, I just out of curiosity, I looked up under armor stock price. It's actually down about 65% over the last five years, so I don't recall the exact timing of when the the enforcement action came. So like there are there are long term repercussions, [00:54:00] even in a case like again under armor, you see their products everywhere, right? But at the same time, from a from a corporate value standpoint, you know, like the valuation standpoint there there is maybe they're clearly off their peak. So there definitely are consequences. So anyway sorry Greg. And part of it is.

Blake: Do you trust the managers anymore. Right. If you right there you go. If you no longer trust the managers you may. That could be a problem.

Greg: So what a lot of what you were just talking [00:54:30] about with I was a question I had about Xerox because in the Xerox case, you know, and this is not they were accelerating the the recognition of revenue. That's I want to say that in, in probably my first financial accounting class ever, they were like or audit classes like this is the biggest thing that anybody does is revenue recognition. Are you are you timing it properly. But you pointed out something [00:55:00] that that's that's very I think very basic to that whole strategy for hitting your numbers is if you say, well, we don't have enough revenue this quarter, but how about we take some from next quarter and we sort of push it into this corner this quarter and then it's like, oh, well then crap, next quarter comes. It's like, well crap. Now we even have a higher number. We have to this quarter. And not only do you have to hit that, we also have to hit like exceed it by so much to make up for whatever we pulled out of this quarter for [00:55:30] last quarter. And then so then you have to pull out more from the following quarter. And and like you said, it's like it snowballs and it gets out of control. And but but one of the things that you said that I thought was so this is the heart of my question. You said if they had turned things around, nobody would have ever known. Do you think anybody's actually done that? I, I because if you're struggling to hit this quarter's numbers, but you go, man, next quarter I swear next quarter we are going [00:56:00] to not just we're going to so destroy the numbers next year. It doesn't matter if we pull them into this quarter. We're totally good. Does that ever do you think that we'll never really know. But in your opinion, do you think that has ever actually worked?

Blake: It's a it's a great question. I mean, you are cannibalizing the future. And that's what Xerox did sadly. And and it is it is something that you kind of wonder what their thinking is. And if you're, you know, if you're charitable to the managers, what you would say [00:56:30] is that they genuinely believe there's going to be a turnaround, that there's going to be an uptick and that they are right to kind of manage expectations. I bet, though, I think I bet it happens, though, from time to time because, you know, it has to because it just, you know, it's it's the way that entrepreneurship works is you never think it's going to this thing is going to work and be successful. And just suddenly it takes off. Right. And I think that's the mentality [00:57:00] of not only entrepreneurs, but sometimes corporate managers that we're just going to get it done. And, and sometimes miraculously, it, it somehow works. And that's, that's kind of the tricky thing about securities fraud is that if you if you impose too much liability, you might deter folks from taking these risks. And really, you know, as they say in Silicon Valley, fake it until we make it. [00:57:30] And that may be okay for private companies, I think, though, for for public companies, it's it's something that I think we've sort of said we probably don't want that so much. I think that's what Sarbanes-Oxley is about, is that if you're a public company with widely held shares, that it's probably not okay. It's not okay to fake it until you make it. You have to be pretty forthright with investors, but I would be surprised, I'm sure that there are situations where, you know, there are lots of questionable [00:58:00] activities and a lot of them we just never learn about because the company ends up doing okay.

Greg: So here I'm going to tell you just my theory and this and this is nothing more than a hypothesis, but my guess is that you're right, that there's been people like, okay, we're going to cannibalize next quarter's earnings. We're going to put them in here because I'll tell you what, this thing that we've been in R&D, sure, we cut the R&D budget because we had to meet expectations, but we got this thing in R&D. It's going to kill next quarter. And then and then like you said, [00:58:30] all their hopes and prayers come true in the next quarter. It's like this is the best quarter we've ever had. And this is my theory is they go they go, oh thank God we pulled that off. We're never going to do that again. And then eventually they get in the same predicament and they go, oh, we did what we did at the one time. And it worked. So let's maybe it'll you know, they're like up against the wall, let's do it again. And then so I think so that's my guess is that there's times where it has happened effectively. [00:59:00] But if there hasn't been turnover in terms of the management, the next time they hit a same problem, they'll go, this worked before, let's do it again and again. It's just a sustainability problem where you can't. God's not going to answer prayers twice. Listen, I'm that's how jaded I am is that you get one answered prayer and then it's over. That's it. Yeah.

Blake: Now that sounds right. Is that it? Can it can be dangerous. It can be dangerous, right. Sometimes it. Works, and then you try to pull it [00:59:30] out again and, you know, you get used to sort of cheating death. And, you know, at some point it catches up, it might catch up with you, it might catch up with you. That's that's certainly, certainly something I think that is a nice way of describing what, what must happen in these in many companies.

Caleb: So, Jim, is there a case that didn't make the book that you think is really good that that either people don't know about or it's just a classic and it got cut because [01:00:00] it's like, oh, everybody's tired of hearing about this.

Greg: Or maybe even a case that did make the book, but it didn't get its own chapter. But you're like, this case really needs its own spotlight.

Blake: And I guess the, you know, the equity funding one is the crazy one that that comes to mind about. Yeah, they're literally making up, you know, they have this separate office in Beverly Hills where, you know, the job of these people was to literally fill out insurance forms that the policies they claim to have sold [01:00:30] to people who didn't exist. And, you know, at one point, I think the auditors asked for 20 files and they're not able to produce them. And but somehow they didn't follow up on it. And, and and it just it's a sort of a, a case that's near and dear to me because it happened in Century City, which is like ten minutes from where I'm, I'm sitting and that that gets discovered by a whistleblower. And that's kind of an interesting new dynamic. As you know, with the SEC, they are giving awards to [01:01:00] whistleblowers who can discover this stuff and report it. And, you know, the the the irony of this is that it led to this insider trading case, which is that the he he he told the stockbroker, the stockbroker told all of his clients and also the Wall Street Journal and actually equity funding was not pursued by the SEC. But the SEC brings an insider trading case against this, this research analyst, which was kind of odd, right. But it led to this [01:01:30] case called Dirks, which is a very famous insider trading case where the Supreme Court said that because the analyst didn't personally profit from the information, that they couldn't be guilty of insider trading and that debate, that that decision has been debated for like the last 30 or 40 years. So that's a big iconic case. The other one I would have included was Miniscribe, which you guys have talked about, like shipping the bricks.

Caleb: And yeah.

Blake: You know, that was that was one that didn't [01:02:00] quite, quite make the cut. Um, you know, there the there's a slew, there are dozens of these things in the late 90s, early 2000s that one could have, could have talked about. So there were a lot of a lot of examples that, that, that could have maybe, maybe in another book or article I'll talk about.

Caleb: Yeah. The so the equity funding thing, the thing that you mentioned that made me chuckle was, oh, the audits the auditors [01:02:30] requested, like all these files from the clients and the clients just never gave it to them. Every auditor listening to this, right, I'm telling you, has that experience where they handed a list of stuff that they need from the client, and the client just never shows up with it. So all that to to the unfamiliar, that may sound suspicious, but I guarantee every auditor has that experience with like, yeah, they just never gave it to us. Like they never we never followed up anyway. So yeah, equity funding I'm [01:03:00] I'm very interested in that story. So maybe we'll do a show on that someday. Greg. Okay. My my last question, you mentioned at one point I don't think you you name you said specifically who, but you talked about a law professor who wrote an article called What is Securities Fraud? And anyone who reads about finance today reads Matt Levine at Bloomberg. And Matt has this recurring thing in his newsletter called Everything Is Securities Fraud. So [01:03:30] I'm just curious, do you think we know what securities fraud is? So is the person that you're talking about do we not know or is Matt right. And everything is.

Blake: So it's really a great a great question. And it's something that I think lawyers need to do a better job of kind of explaining sort of what they're doing. And the SEC may be as, as well, you know, the what is securities fraud article was written by Sam Buell, who was a federal federal prosecutor, a very prominent [01:04:00] criminal law scholar who writes about various issues. And he's talking about sort of the the vagueness of these various fraud statutes. And Levine's argument brings me to another subject, which is which is very, very hot right now, which is that, you know, you're getting more of these cases that are coming out of corporate disasters. Something bad happens to the company, reduces the stock price. And investors Sue and Matt Levine has sort of this running joke [01:04:30] about about this. And that ties in actually quite a bit with the ESG movement, which you I'm sure you're familiar with environmental, social and governance concerns and encouraging companies to act responsibly. The SEC is basically there now. Whenever there's a big corporate scandal, they are there. They they filed and settled cases. You know, the Boeing 737 Max crash, right, $200 million [01:05:00] settlement. Mcdonald's has this, you know, scandal with its CEO. The SEC is there. Facebook had that Cambridge Analytica issue. And so and so they're really kind of questions about are we expanding the definition of securities fraud too much? You know, my perspective is it just shows you how the idea of fraud evolves as the issues that are facing companies are changing. And I think the reason why you're seeing more ESG [01:05:30] fraud cases is that companies are being pressured by investors to say more about their compliance and social responsibility. The more you say, then the more they're more chances there are to argue that you said something misleading, right? Because if if it's true investors care about these considerations in valuing companies, then if I'm misleading you about, you know, these ESG issues in a way, and I'm intending to deceive you, [01:06:00] then that that could be a securities fraud. So we're seeing the concept of securities fraud evolve. It's not static and it changes over time.

Caleb: Right. So even if from a legal standpoint, we don't know if everything is securities fraud from a litigation strategy standpoint, everything is definitely securities fraud.

Blake: A lot of things, you know, and the courts have tried to, you know, develop barriers to some of the kind of more frivolous suits. And I think [01:06:30] they're going to have to keep doing that. Because, you know, the main question to me in these these cases wrote an article on this called the ESG Securities Fraud. The main question is, is this the type of risk that we would reasonably expect managers to have some reasonable sense of what the risk is, or is it just something bad that just happened out of the blue? You have some scandal in your company. Nobody really could have anticipated it, you know, is it that versus something where they have [01:07:00] studied the issue and they know there's a high risk, but they tell everyone that it's a low risk, right. If they if they kind of know through their risk analysis, then that to me is a greater case for there should be liability versus it's just something that happens out of the blue that nobody could have anticipated. And that's it's going to be up to the courts and the SEC to figure out how to distinguish between those types of cases.

Jim: Yeah. Great.

Greg: I like I like what you're saying that with ESG, the companies are just saying [01:07:30] too much where it's like, how's your environmental, social and government there? It's good. No further questions. And then they'd be then they'd be fine, I think. I mean that's my takeaway. So yeah. Okay. My my last question. Yeah.

Caleb: Final question Greg.

Greg: My last question goes, we spoke about Underarmour earlier and under armor not not my favorite company. I was wondering, Jim, if you if you're interested at all in this [01:08:00] potential case against Under Armor because I've found personally that under Armor is not actually armor at all. I had I wore I was wearing some and and my my my family and I, we have bow and arrows and and I had my son shoot an arrow at me and it, it lodged into my thigh where I had under armor compression shorts on and it went through and it caused me significant personal injury to my thigh and the infection [01:08:30] that resulted from this dirty arrow that got shot in there. And nowhere on the packaging did it have any kind of disclaimer that Under Armor, despite the name, is not actually armor. So I'm not interested in the retainer kind of situation with you, Jim. But will you take this case on more of a commission basis that if we win, you'll take parts, which we will, that you'll take part of the the settlement for that case?

Blake: That sounds like an ESG issue, Greg. [01:09:00] That's a that's a consumer safety issue. I have a case misrepresented. So we'll have to look at their their disclosures and their, you know, do they you know, do they have a risk factor in their 10-K that that covers this? I'd like to see that. I'd really like to see that. And we would get some discovery and see if there's some internal emails that indicate they know about this, about this risk. So we, you know, you know, a contingency basis might might work, work fine, fine [01:09:30] for something like that.

Greg: I'll take it. We'll we'll talk more off the mics. But thank you I'm excited about that. I think that's I'm excited to pursue this with you.

Caleb: Okay. That that was great. That was really great.

Greg: Such a great conversation with Jim.

Caleb: Yeah. Super fun. I had more fun than I expected it to be good, but then I even had a better time. It exceeded my expectations. That's [01:10:00] what I'm trying to say.

Greg: Yep, he was a fantastic guest.

Caleb: He was. If you want to check out Jim's book or get in touch with him, there's links in the show notes that you can follow, where to get the book, or where to contact him through his profile on UCLA's website.

Greg: And that's it for this episode. So remember, Debate Team is a great launchpad for people who want to become lawyers, and the football team is a great launchpad for people who want to peak in high [01:10:30] school.

Caleb: Uh, I enjoyed that that night. Nicely done.

Greg: Did you not read that ahead of time? Nope.

Caleb: Nope, I hate that. And also remember, an internship isn't as sexy as it sounds. It's way sexier than it sounds.

Greg: If you want to drop us a line, like we said at the top of the show, send us an email at Omi. Fraud at earmark. Cpcomm and Caleb, where can people get a hold of you if they want to find you? [01:11:00]

Caleb: I'm on Twitter or X is it? It's x, it's.

Greg: X and Twitter. I feel like X still refers to itself as Twitter.

Caleb: So does it.

Greg: Oh yeah. Yeah. When it speaks.

Caleb: When it speaks in third person. Yeah. It's like yeah Twitter. Twitter is very upset with Elon Musk right now.

Greg: Yeah, exactly.

Caleb: Uh, AC newquist for the Xers. Xers.

Jim: Yeah.

Caleb: And backslash. Caleb Newquist on LinkedIn. Greg, [01:11:30] you've given up, right? No more internet for you. Except for except for recording a.

Jim: Podcast.

Greg: Recording a podcast and LinkedIn. Really, if through the social medias, LinkedIn is probably the best way to get a hold of me, but don't like hold your breath for me to get back to you, I will eventually. I still look at it. I still look through all the stuff, but it takes me a little while. But yeah. Linkedin Greg Kite, CPA that's me on LinkedIn, so check me out there.

Caleb: Oh My Fraud is written by Greg Kite and myself. Our producer is Zach Franc. If you like the show, rate it. Write [01:12:00] a review, share it with a friend. It's the right thing to do. It's a nice thing to do. And subscribe on Apple, Spotify or wherever you listen. Iheart Radio Podcast Addict is another one apparently earmarked.

Greg: Cpe is another one.

Caleb: Earmark is another one, and you can get.

Jim: Cpe if.

Caleb: You listen on earmark. Yep. And I don't know when this show is going to be released, but chances are right now, if you're [01:12:30] listening, you might need some CPE.

Jim: You do need some CPE. All right, join.

Caleb: Us next time for more avarice, swindlers and scams from stories that will make you say.

Jim: Oh my, oh my.

Greg: Fraud.